<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MEADE INSTRUMENTS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3827 95-2988062
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
16542 MILLIKAN AVENUE
IRVINE, CALIFORNIA 92606
(714) 756-2291
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
------------------------
JOHN C. DIEBEL
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
MEADE INSTRUMENTS CORP.
16542 MILLIKAN AVENUE
IRVINE, CALIFORNIA 92606
(714) 756-2291
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
J. JAY HERRON, ESQ. DHIYA EL-SADEN, ESQ.
MARK D. PETERSON, ESQ. JEFFREY B. CONNER, ESQ.
O'MELVENY & MYERS LLP HILARY J. HATCH, ESQ.
610 NEWPORT CENTER DRIVE, SUITE 1700 GIBSON, DUNN & CRUTCHER LLP
NEWPORT BEACH, CALIFORNIA 92660 333 SOUTH GRAND AVENUE
TELEPHONE NO. (714) 760-9600 LOS ANGELES, CALIFORNIA 90071
FACSIMILE NO. (714) 669-6994 TELEPHONE NO. (213) 229-7000
FACSIMILE NO. (213) 229-7520
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [ ]
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE PER OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock, without par value... 3,875,500 $10.00 $38,755,000 $11,744
- ------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 505,500 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act.
------------------------
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.
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<PAGE> 2
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 REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, FEBRUARY 4, 1997
PROSPECTUS
3,370,000 SHARES
[MEADE INSTRUMENTS CORP. LOGO]
COMMON STOCK
------------------------
Of the 3,370,000 shares of Common Stock offered hereby (the "Offering"),
2,500,000 shares are being sold by Meade Instruments Corp. ("Meade" or the
"Company"), and 870,000 shares are being sold by a stockholder of the Company
(the "Selling Stockholder"). See "Principal and Selling Stockholders." The
Company will not receive any proceeds from the sale of any shares by the Selling
Stockholder. Prior to this Offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $8.00 and $10.00 per share. See "Underwriting"
for information relating to the factors considered in determining the initial
public offering price.
Application will be made for inclusion of the Company's Common Stock on the
Nasdaq National Market under the symbol "MEAD."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
------------------------
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.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
<S> <C> <C> <C> <C>
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Per Share......................... $ $ $ $
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Total(3).......................... $ $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses estimated to be $ payable by the Company,
a portion of which may be reimbursed by the Selling Stockholder. See
"Certain Transactions."
(3) The Company and the Selling Stockholder have granted to the Underwriters a
30-day option from the date of this Prospectus to purchase up to 505,500
additional shares of Common Stock (of which the first 130,000 shares will be
sold by the Selling Stockholder and the remaining 375,500 shares will be
sold by the Company) on the same terms and conditions as set forth above,
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to Company and Proceeds to Selling Stockholder will be $ ,
$ , $ and $ , respectively. See "Principal and
Selling Stockholders" and "Underwriting."
------------------------
The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by the Underwriters, subject to
their right to withdraw, cancel, modify, or reject orders in whole or in part,
and subject to other conditions. It is expected that delivery of the shares of
Common Stock offered hereby will be made on or about , 1997.
MORGAN KEEGAN & COMPANY, INC. CROWELL, WEEDON & CO.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
[PICTURES]
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 A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to and
should be read in conjunction with the more detailed information and the
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus (i) assumes an
initial public offering price of $9.00 per share of Common Stock, (ii) does not
give effect to the exercise of the over-allotment option granted to the
Underwriters as described in "Underwriting," (iii) except in the Financial
Statements and Notes thereto, reflects the conversion of all outstanding Series
A Common Stock and Series B Common Stock into Common Stock upon the closing of
this Offering and (iv) gives effect to the reincorporation of the Company as a
Delaware corporation to be named Meade Instruments Corp. See "Description of
Capital Stock -- Reincorporation." As used herein, the terms "Meade" and the
"Company" refer to such Delaware corporation and its predecessor.
THE COMPANY
Meade is the leading designer, manufacturer and distributor of telescopes
and accessories for the beginning to serious amateur astronomer. Recognized for
its expertise in telescope innovation and the superior quality of its products,
Meade has successfully introduced a wide range of new products, resulting in
what the Company believes to be the broadest and most complete line of
telescopes available. The Company offers more than 40 different telescope models
with several different optical configurations, as well as more than 250
accessory products. The Company's telescopes range in aperture from 2 to 16
inches and in retail price from less than $100 to $15,000.
Since its founding in 1972, Meade has strived to develop a reputation for
providing the amateur astronomer with technically sophisticated products at
competitive prices. Meade manufactures the complete line of its advanced
astronomical telescopes in Irvine, California, including the production of the
optical systems, which are critical components of telescopes. Combining its
manufacturing expertise with its dedication to innovation, quality and value,
Meade has developed and produced some of the industry's most technologically
advanced consumer telescopes at affordable prices. Although professional and
institutional applications of Meade's telescopes are not Meade's primary market,
the Company's 8-inch and 10-inch Schmidt-Cassegrain telescopes are used by many
universities, scientific laboratories and aerospace companies, including the
University of California, Los Alamos National Laboratory, Lawrence Livermore
Laboratory, National Radio Astronomy Observatory and NASA/Aames Research. The
Company has capitalized on its brand name recognition among serious amateur
astronomers to market successfully its less-expensive telescopes to beginning
and intermediate amateur astronomers. Meade has become a major supplier of
telescopes to such retailers as The Nature Company, Service Merchandise, Natural
Wonders, Wal-Mart, J.C. Penney and Discovery Channel Stores. To complement its
extensive line of telescopes and leverage its distribution system, the Company
has recently introduced a complete line of binoculars to be sold under the Meade
brand name.
Meade was sold by its founder and current Chief Executive Officer to a
private investor in 1986 and was then reacquired by the Company's current senior
management in 1991. After reacquisition, management reemphasized the importance
of research and development for new products and product enhancements. Recently,
one of Meade's newest products, the ETX Astro Telescope, was featured in a
product review in the January 1997 issue of Sky and Telescope and was referred
to as the "hottest scope ever." Meade also significantly broadened the Company's
less-expensive telescope line and has an exclusive arrangement with a Taiwanese
company to manufacture less-expensive telescopes in accordance with the
Company's proprietary designs. Meade also has increased the marketing of its
products by aggressively advertising in periodicals directed to amateur
astronomers and by providing greater support to the Company's dealers, specialty
retailers, foreign distributors, mass merchandisers, and end users of Meade's
products. Additionally, Meade publishes a comprehensive, full-color, high
quality product catalogue which provides significant product exposure.
In the United States and Canada, the Company distributes its products
through a network of more than 500 specialty retailers and mass merchandisers,
which offer Meade's products in more than 1,000 retail store
3
<PAGE> 5
locations. The Company also sells certain of its telescope models to selected
national mail order dealers. Meade sells its products internationally through a
network of approximately 30 foreign distributors, many of which service retail
locations in their respective countries. International sales accounted for
approximately 17% of the Company's net sales for the nine months ended November
30, 1996.
Meade's net sales have increased from $10.1 million for the fiscal year
ended February 28, 1992 to $29.8 million for the fiscal year ended February 29,
1996. During the same period, operating income increased from $437,000 to $3.7
million before certain charges of $300,000. For the nine months ended November
30, 1996, Meade generated net sales of $39.0 million and operating income of
$5.3 million before certain charges of $340,000, compared to $23.5 million and
$3.1 million, respectively, for the nine months ended November 30, 1995. These
represent increases in net sales and operating income before certain charges of
66.1% and 69.9%, respectively, for the nine month periods. See "Selected
Financial Information." The Company intends to continue to pursue an integrated
strategy of product line expansion, aggressive marketing, expansion into the
binocular market and expansion of the Company's distribution network.
The Company was incorporated in California on December 19, 1975 and, prior
to the closing of this Offering, the Company will reincorporate as a Delaware
corporation to be named Meade Instruments Corp. See "Description of Capital
Stock -- Reincorporation." The principal offices of the Company are located at
16542 Millikan Avenue, Irvine, California 92606, and its telephone number at
that location is (714) 756-2291.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,500,000 shares
Common Stock offered by the
Selling Stockholder........................ 870,000 shares
Common Stock to be outstanding after the
Offering: ................................. 7,500,000 shares
Use of proceeds.............................. Net proceeds to the Company will be used (i)
to redeem for approximately $6.9 million all
of the outstanding shares of the Company's
Redeemable Preferred Stock, (ii) to repay
approximately $8.2 million of term
indebtedness and (iii) for general working
capital purposes.
Proposed Nasdaq National Market symbol....... MEAD
</TABLE>
4
<PAGE> 6
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND WEIGHTED AVERAGE SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
NOVEMBER 30,
FISCAL YEAR ENDED FEBRUARY 28(29), ----------------------------------------
------------------------------------------------------------- PRO FORMA(1)
1992 1993 1994 1995 1996 1995 1996 1996
----------- ----------- --------- --------- --------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............. $ 10,149 $ 13,887 $ 16,628 $ 24,934 $ 29,770 $ 23,459 $ 38,966 $ 38,966
Gross profit.......... 2,764 3,047 4,958 7,894 9,716 7,632 12,699 12,699
Selling expenses...... 983 1,438 1,565 2,035 2,832 2,158 3,555 3,555
General and
administrative
expenses............ 1,059 986 1,378 2,118 2,651 1,966 2,664 2,664
Research and
development
expenses............ 320 274 425 423 518 396 444 444
ESOP
contribution(2)..... -- -- -- -- -- -- 750 750
Certain charges(3).... -- -- -- -- 300 -- 340 340
Operating income(4)... 437 412 1,643 3,318 3,415 3,112 4,946 4,946
Interest expense...... 329 395 493 470 659 496 1,253 344
Income before income
taxes............... 108 17 1,150 2,848 2,756 2,616 3,693 4,602
Net income............ 107 16 1,040 2,051 1,556 1,439 2,161 2,692
Accretion on
Redeemable Preferred
Stock and dividend
on Series B Common
Stock, net of tax
benefit(5).......... -- -- -- -- -- -- (1,137) --
Redemption of
Redeemable Preferred
Stock............... -- -- -- -- -- -- -- (3,500)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)
available to common
stockholders........ $ 107 $ 16 $ 1,040 $ 2,051 $ 1,556 $ 1,439 $ 1,024 $ (808)
========== ========== ========== ========== ========== ========== ========== ==========
Per share information:
Net income before
adjustments to net
income available
per common
share............. 0.02 0.00 0.22 0.44 0.33 0.31 0.60 0.44
Accretion on
Redeemable
Preferred Stock
and dividend on
Series B Common
Stock, net of tax
benefit........... -- -- -- -- -- -- (0.32) --
Redemption of
Redeemable
Preferred Stock... -- -- -- -- -- -- -- (0.57)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)
available per
common share...... $ 0.02 $ 0.00 $ 0.22 $ 0.44 $ 0.33 $ 0.31 $ 0.28 $ (0.13)
========== ========== ========== ========== ========== ========== ========== ==========
Weighted average
common shares
outstanding......... 4,682,472 4,682,472 4,682,472 4,682,472 4,682,472 4,682,472 3,608,335 6,108,335
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) Pro forma amounts are adjusted to reflect (i) the sale by the Company of
2,500,000 shares of Common Stock offered at an assumed Offering price of
$9.00, (ii) the application of net proceeds therefrom (see "Use of
Proceeds") as if the Offering had been consummated on March 1, 1996 and
(iii) the effect of the April 23, 1996 recapitalization transactions
retroactively applied to March 1, 1996. See "Certain Transactions." Pro
forma income before income taxes reflects reduced interest expense on debt
assumed to be repaid with proceeds of the Offering. Pro forma net income is
increased by the tax-effected reduced interest expense. By assuming the
Offering was effective at the beginning of the period, both the Accretion on
Redeemable Preferred Stock and the dividend on the Series B Common Stock are
eliminated on a pro forma basis. The pro forma Redemption of Redeemable
Preferred Stock represents the difference between the carrying value ($2.5
million) and the redemption value ($6.0 million) at the beginning of the
period. The amount of this difference reduces Net income (loss) available to
common stockholders.
(2) ESOP contributions of $750,000 for the nine months ended November 30, 1996
represent contributions accrued for the period based on an expected Company
contribution of $1.0 million for the fiscal year ending February 28, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."
(3) Certain charges for the fiscal year ended February 29, 1996 consist of
one-time contractual bonuses accrued on behalf of certain officers in
connection with the Company's formation of the ESOP and the related
recapitalization effected in April 1996. Certain charges for the nine months
ended November 30, 1996 consist of one-time contractual bonuses accrued on
behalf of certain members of senior management as set forth in the
Securities Purchase Agreement, dated April 23, 1996, between the Company and
Churchill ESOP Capital Partners, A Minnesota Limited Partnership.
(4) Operating income before certain charges for the year ended February 29, 1996
and for the nine months ended November 30, 1996 was $3.7 million and $5.3
million, respectively.
(5) Represents (i) accretion of $541,000 reflecting original issue discount and
accrued dividends on the Redeemable Preferred Stock and (ii) dividends of
$995,000 declared and paid on the Series B Common Stock, net of tax benefit
of $399,000.
5
<PAGE> 7
<TABLE>
<CAPTION>
NOVEMBER 30, 1996
------------------------------
ACTUAL AS ADJUSTED(1)
----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................... $ 7,124 $ 13,598
Total assets............................................................. 27,447 27,447
Total current liabilities................................................ 17,556 11,082
Long-term debt, less current portion..................................... 7,732 608
Redeemable Preferred Stock............................................... 3,041 --
Stockholders' equity (deficit)........................................... (950) 15,689
</TABLE>
- ---------------
(1) As adjusted to reflect the sale by the Company of the 2,500,000 shares of
Common Stock offered at an assumed Offering price of $9.00 and the
application of the net proceeds therefrom as set forth herein. See "Use of
Proceeds" and "Capitalization."
6
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the Common Stock offered hereby. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results of operations 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.
Economic Conditions; Ability to Grow. The Company's business is subject to
economic cycles and changing consumer trends. Purchases of telescopes and other
discretionary spending with respect to leisure activities tend to decline in
periods of economic uncertainty. Any significant decline in general economic
conditions or uncertainties regarding future economic prospects that affect
consumer spending could have a material adverse effect on the Company. Any
general decline in the size of the telescope market or in a segment of the
telescope market in which the Company competes, whether from general economic
conditions, a decrease in the popularity of telescopes or otherwise, could have
a material adverse effect on the Company. See "Business -- Industry Overview."
Dependence on Technological Advancements and New Product
Introductions. The telescope market, in recent years, has been characterized by
technological advances and new product introductions. The Company believes that
the development and introduction of new, innovative telescope products and
accessories with features that respond to changing consumer demands and trends
will be critical to its future success. In the past, the Company generally has
been successful in the introduction of its telescope products and accessories.
No assurance can be given, however, that the Company will be able to continue to
design and manufacture products that will achieve commercial success. In
addition, prior successful designs for various telescope models may be rendered
obsolete within a relatively short period of time as new products are introduced
into the market. See "Business -- Products."
New Binocular Line. Recently, Meade has introduced a line of binoculars,
which it believes will complement its extensive line of telescopes. The Company
plans to access its current distribution network for telescopes as a means to
market its line of binoculars. Although the Company believes it will be able to
integrate the Company's new line of binoculars smoothly with its existing
product lines, the Company's experience in selling binoculars is limited, and
there can be no assurance that the Company will be able to penetrate the
binocular market and achieve meaningful sales. If the Company is unable to
successfully market this new binocular line, such inability may have a material
adverse affect on the Company's future growth. See "Business -- Growth Strategy"
and "-- Products."
Quarterly Fluctuations and Seasonality. The Company's quarterly and annual
operating results are affected by a wide variety of factors that could
materially and adversely affect net sales, gross margins and profitability.
These factors include the volume and timing of orders received, changes in the
mix of products sold, market acceptance of the Company's products, competitive
pricing pressures, the Company's ability to meet increasing demand and delivery
schedules, the timing and extent of research and development expenses, and the
timing and extent of product development costs. Accordingly, the Company may
experience material adverse fluctuations in future operating results on a
quarterly or annual basis. Such fluctuations in operating results could cause
the price of the Common Stock to fluctuate substantially. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results of Operations." A substantial portion of the
Company's net sales and operating income typically occurs in the third quarter
of the Company's fiscal year primarily due to disproportionately higher customer
demand for less-expensive telescopes during the Christmas holiday season. Mass
merchandisers purchase a considerable amount of inventory to satisfy this
seasonal consumer demand; however, their estimates of product demand for the
Christmas holiday season may exceed actual product demand. The Company has, in
certain circumstances, allowed these mass merchandisers to return their excess
inventory to the Company. Any such accommodations in the future could have a
material adverse effect on the Company.
Dependence on Key Manufacturer. Most of Meade's less-expensive telescopes
are manufactured exclusively for Meade in Taiwan. Since 1990, Meade has worked
closely with the Weidy Optical Co., Ltd., a
7
<PAGE> 9
Taiwanese company (the "Taiwanese Factory"), developing proprietary telescope
designs and instructing the Taiwanese Factory's personnel in the production of
telescopes that meet the Company's quality standards. In January 1995, in order
to assure a more reliable flow of products to meet Meade's increasing
requirements, Meade and the Taiwanese Factory entered into a supply agreement
wherein the Taiwanese Factory agreed to manufacture telescopes exclusively for
Meade, and Meade agreed to buy essentially all of its less-expensive telescopes
from the Taiwanese Factory. Any interruption of the Company's manufacturing
arrangements with the Taiwanese Factory could cause a delay in delivery of the
Company's products to its customers and could have a material adverse effect on
the Company. While the Company believes that alternative manufacturers exist in
the event of a substantial interruption in these manufacturing arrangements,
there can be no assurance that alternative arrangements could be made on a
timely basis or on terms acceptable to the Company. See "Risk Factors -- Foreign
Sales; Suppliers" and "Business -- Operations."
Foreign Sales; Suppliers. International sales accounted for approximately
19%, 17% and 25% of the Company's net sales for fiscal 1994, 1995, and 1996,
respectively, and 17% for the nine months ended November 30, 1996. The Company
expects international sales to continue to represent a significant portion of
net sales. International sales are subject to inherent risks, including
variations in local economies, fluctuating exchange rates, increased difficulty
of inventory management, greater difficulty in accounts receivable collection,
costs and risks associated with localizing products for foreign countries,
changes in tariffs and other trade barriers, adverse foreign tax consequences,
cultural differences affecting product demand and customer service and burdens
of complying with a variety of foreign laws. There can be no assurance that one
or more of such factors, operating in one or more foreign countries, will not
have a material adverse effect on the Company's future international sales, and
consequently, the Company. In addition, the Company's business is dependent on
products manufactured by foreign suppliers located primarily in Taiwan, Korea,
Japan and the People's Republic of China. Purchases from foreign suppliers
subject the Company to additional risks, including, among other things,
imposition of quotas or trade sanctions, decline in the value of the United
States dollar against local currencies causing an effective increase in the cost
of finished products and components, and shipment delays. The Company cannot
predict the effect that such factors will have on its business arrangements with
foreign suppliers, but any such development could have a material adverse effect
on the Company.
Alternative suppliers exist for substantially all materials used in
manufacturing the Company's telescopes. However, the loss of any existing
supplier of the electronic components contained in certain of the Company's
products could have a material adverse effect on the Company. If an alternative
supplier is required, the Company believes that it could take up to six months
to re-engineer its products to accept the operating requirements of the
alternative supplier's components.
Customer Concentration. Although the Company sold its telescope products
to more than 500 customers during the nine months ended November 30, 1996, the
Company's seven largest customers accounted for approximately 47.0% of the
Company's net sales. The Company has no long-term contracts with any of its
customers. The loss of, or the failure to replace, any significant portion of
the sales made to any significant customer could have a material adverse effect
on the Company. See "Business -- Customers."
Dependence on Key Employees. The Company is dependent on certain key
members of its management, operations and engineering staff, including John C.
Diebel, its Chairman of the Board and Chief Executive Officer, and Steven G.
Murdock, its President and Chief Operating Officer, the loss of either of whose
services could have a material adverse effect on the Company. In addition,
failure to attract and retain key personnel could have a material adverse effect
on the Company.
Competition. The telescope and binocular industries are highly competitive
and sensitive to consumer needs and preferences. In the telescope market, Meade
competes in the United States and Canada with Celestron International
("Celestron"), Bushnell Optical Co. ("Bushnell"), Tasco Sales, Inc. ("Tasco")
and Simmons Outdoor, Inc. ("Simmons") and, to a lesser extent, with other
significantly smaller companies which service niche markets. In Europe and
Japan, the Company competes primarily with Celestron and Vixen Optical
Industries Ltd. and with other smaller regional telescope importers and
manufacturers. In addition, some of the Company's current and potential
competitors in the telescope market may possess
8
<PAGE> 10
greater financial or technical resources and competitive cost advantages due to
a number of factors, including, without limitation, lower taxes and
substantially lower costs of labor associated with manufacturing.
In the binocular market, which is generally more competitive than the
telescope market, with a greater number of competitors at each price point, the
Company competes primarily with Bushnell, Nikon Inc., Canon Inc., Minolta Camera
Co., Ltd., Pentax Corporation, Tasco, Simmons and various smaller manufacturers
and resellers. Many of these competitors in the binocular market have
significantly greater brand name recognition and financial and technical
resources than those of the Company, and many have long-standing positions,
customer relationships and established brand names in their respective markets.
See "Business -- Competition."
Intellectual Property Rights. The Company relies primarily on a
combination of patent, copyright, and trade secret protections in
confidentiality agreements to establish and protect its intellectual property
rights. There can be no assurance that the Company's measures to protect its
intellectual property rights will deter or prevent unauthorized use of the
Company's technology. In addition, the laws of certain foreign countries may not
protect the Company's intellectual property rights to the same extent as the
laws of the United States. The Company's inability to protect its proprietary
rights in the United States or internationally could have a material adverse
effect on the Company.
Claims by third parties that the Company's current or future products or
processes infringe upon their intellectual property rights may have a material
adverse effect on the Company. The Company does not normally perform any formal
surveys or studies relating to whether its products or processes infringe upon
the intellectual property rights of others, and it would be difficult to
establish whether a given product or process infringes upon the intellectual
property rights of others. Intellectual property litigation is complex and
expensive, and the outcome of such litigation is difficult to predict. Any
future potential litigation, regardless of outcome, could result in substantial
expense to the Company and significant diversion of the efforts of the Company's
management and technical personnel. An adverse determination in any such
litigation could subject the Company to significant liabilities to third
parties, require disputed rights to be licensed from such parties, if licenses
to such rights were obtainable, or require the Company to cease using such
technology. There can be no assurance that if such licenses were obtainable,
they would be obtainable at costs reasonable to the Company. If forced to cease
using such technology, there can be no assurance that the Company would be able
to develop or obtain alternative technology. Accordingly, an adverse
determination in a judicial or administrative proceeding, changes in patent or
copyright laws or failure of the Company to obtain necessary licenses may
prevent the Company from manufacturing, using or selling certain of its products
or processes, which could have a material adverse effect on the Company.
Environmental Matters. Increasing public attention has been focused on the
environmental impact of many businesses. Federal, state and local laws and
regulations impose various environmental controls on the storage, handling,
discharge and disposal of certain materials used in the Company's manufacturing
process. Although the Company has not experienced a material adverse effect on
its operations from environmental laws, there can be no assurance that changes
in such laws will not impose the need for additional capital equipment or other
requirements or restrict the Company's ability to expand its operations. Any
failure by the Company to comply with such environmental laws could subject the
Company to future liabilities or could cause its manufacturing operations to be
limited or suspended, thereby causing a material adverse effect on the Company.
Concentration of Ownership. Following the Offering, the Company's senior
management will beneficially own approximately 33.3% of the outstanding shares
of Common Stock. Additionally, the Company's Employee Stock Ownership Plan (the
"ESOP") will own 20.0% of the outstanding Common Stock after the Offering. The
committee that administers the ESOP (the "ESOP Committee") is comprised
primarily of members of senior management and generally directs the voting of
unallocated shares and shares for which participants do not provide voting
instructions. As a result, such persons will have the ability to influence the
election of the Company's directors and the outcome of corporate actions
requiring stockholder approval. This concentration of ownership may have the
effect of delaying or preventing a change in control of the Company. See
"Principal and Selling Stockholders."
9
<PAGE> 11
Absence of a Public Trading Market; Volatility of Stock Price. Prior to
the Offering, there has been no public market for the Company's Common Stock,
and there can be no assurance that a significant public trading market for the
Common Stock will develop or be sustained after the Offering. The initial public
offering price will be determined by negotiations among the Company, the Selling
Stockholder and the Underwriters. See "Underwriting." The negotiated initial
public offering price may not be indicative of the market price for the Common
Stock after the Offering. The market price of the Company's Common Stock may be
highly volatile due to factors such as fluctuations in the Company's or its
competitors' operating results, announcements of technological advances or new
products by the Company or its competitors, changes in the Company's
relationships with its suppliers or customers, reports or recommendations by
securities industry analysts or any of the other factors listed under "Risk
Factors." Moreover, broad market fluctuations and general economic or political
conditions may adversely affect the market price of the Company's Common Stock,
regardless of the Company's actual performance.
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after the Offering could adversely affect the
prevailing market price of the Common Stock. In addition to the 2,500,000 shares
of Common Stock offered by the Company and the 870,000 shares of Common Stock
offered by the Selling Stockholder, there will be 4,130,000 shares of Common
Stock outstanding after the Offering which will be "restricted securities" (the
"Restricted Securities") under the Securities Act of 1933, as amended (the
"Securities Act"). Beginning 270 days after the date of this Prospectus, at
least 2,500,000 Restricted Securities will become eligible for sale in the
public market pursuant to the expiration of certain lock-up agreements with the
Company, subject to the holding period, volume and other restrictions of Rule
144 promulgated under the Securities Act. In addition, the remaining 130,000
shares held by the Selling Stockholder shall become eligible for sale in the
public market 180 days after the date of this Prospectus, subject to the holding
period, volume and other restrictions of Rule 144. Contemporaneous public sales
of these shares in substantial amounts could adversely affect the trading price
of the Common Stock. See "Shares Eligible for Future Sale" and "Description of
Capital Stock."
Dilution. All of the currently outstanding shares of Common Stock were
issued at prices substantially lower than the price of the shares of Common
Stock offered hereby. Investors participating in the Offering will incur
immediate and substantial dilution of $6.91 in the net tangible book value per
share of the Common Stock from the initial public offering price. See "Dilution"
and "Principal and Selling Stockholders."
Anti-takeover Effects of Certain Certificate of Incorporation and Bylaw
Provisions and Delaware Law; Possible Issuance of Preferred Stock. The
Company's Certificate of Incorporation and Bylaws provide for (i) a classified
board of directors with staggered three year terms, (ii) advance notice
requirements for stockholder proposals and director nominations, (iii) a
prohibition on stockholder action by written consent and (iv) limitations on
calling stockholder meetings. In addition, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which prohibits the Company 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 the
business combination is approved in a prescribed manner. These provisions, along
with certain provisions of the California General Corporation Law applicable to
the Company, could have the effect of discouraging certain attempts to acquire
the Company which could deprive the Company's stockholders of the opportunity to
sell their shares of Common Stock at prices higher than prevailing market
prices. In addition, upon completion of this Offering, the Board of Directors
will have authority to issue up to 1,000,000 shares of Preferred Stock and to
fix the price, rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock could affect
adversely the voting power of holders of Common Stock and the likelihood that
such holders will receive dividend payments and payments upon liquidation.
Additionally, the issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company, may discourage bids
for the Common Stock at a premium over the market price of the Common Stock and
may affect adversely the market price of and the voting and other rights of the
holders of the Common Stock. See "Description of Capital Stock."
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,500,000 shares of Common
Stock offered by the Company hereby are estimated to be $20.1 million (assuming
an initial public offering price of $9.00 per share and after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company, a portion of which may be reimbursed by the Selling Stockholder
(see "Certain Transactions")). The Company will not receive any portion of the
proceeds from the sale of any shares by the Selling Stockholder.
The Company intends to use approximately $6.9 million of the net proceeds
to redeem all of its outstanding shares of Redeemable Preferred Stock and pay
all accrued dividends thereon. The Redeemable Preferred Stock has a cumulative
14% dividend on the $6.0 million redemption amount, a liquidation preference and
a five-year mandatory redemption provision. In addition, the Company intends to
use approximately $8.2 million of the net proceeds to repay an existing
five-year term note payable to a bank which bears interest at the bank's base
rate (equivalent to prime) plus 0.75% with annual principal of $1.6 million
payable in defined quarterly amounts for five years with any remaining principal
and interest due in full at the end of the five years. The Company intends to
use the remaining proceeds for general corporate purposes. The foregoing
reflects the Company's best estimate of the allocation of net proceeds of the
Offering based on current economic and industry conditions. The Company may find
it desirable to change the allocation of proceeds of the Offering as it deems
appropriate.
Pending use of the proceeds from the Offering, the Company will invest the
funds in investment grade interest-bearing securities, including government
obligations and other money market instruments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
DIVIDEND POLICY
Other than dividends paid to the Company's ESOP, the Company has not paid
any cash dividends on its Common Stock and does not anticipate paying any
dividends on the Common Stock in the foreseeable future. The Company intends to
pay a dividend to the ESOP for the period from March 1, 1997 through the
completion of this Offering (approximately $60,000). Although the Company
intends to make future contributions to the ESOP upon Board approval, no future
dividends (other than dividends paid to all holders of Common Stock) will be
paid to the ESOP with respect to periods after the completion of this Offering.
The Company's ability to pay dividends is restricted under a Loan and Security
Agreement between the Company and Fleet Capital Corporation. See Note 4 of Notes
to the Financial Statements.
11
<PAGE> 13
DILUTION
As of November 30, 1996, the Company had a net tangible book value of
approximately $(950,000) or $(0.19) per share of Common Stock based upon
5,000,000 shares of Common Stock outstanding. Net tangible book value per share
is determined by dividing the net tangible book value of the Company (total
tangible assets less total liabilities) by the number of shares of Common Stock.
After giving effect to the sale by the Company of the 2,500,000 shares of Common
Stock hereby at an assumed initial public offering price per share of $9.00
(after application of the net proceeds therefrom and early redemption of the
Redeemable Preferred Stock in excess of its carrying value), the Company's net
tangible book value as of November 30, 1996 would have been $15.7 million, or
$2.09 per share of Common Stock. This represents an immediate increase in net
tangible book value of $2.28 per share to existing stockholders and an immediate
dilution of $6.91 per share to new investors purchasing shares in the Offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $9.00
Net tangible book value per share before the Offering............. $(0.19)
Increase per share attributable to new investors.................. 2.28
------
Pro forma net tangible book value per share after the Offering...... 2.09
-----
Dilution per share to new investors(1).............................. $6.91
=====
</TABLE>
The following table summarizes on a pro forma basis as of November 30,
1996, the relative investments of all existing stockholders and new investors
purchasing shares of Common Stock from the Company in the Offering. The
calculations are based on an assumed initial public offering price of $9.00 per
share, before deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company, a portion of which may be reimbursed
by the Selling Stockholder. See "Certain Transactions."
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)............ 5,000,000 66.7% $ 3,511,000 13.5% $0.70
New investors....................... 2,500,000 33.3% 22,500,000 86.5% $9.00
--------- ------ ----------- ------
Total..................... 7,500,000 100.0% $26,011,000 100.0%
========= ====== =========== ======
</TABLE>
- ---------------
(1) Dilution is determined by subtracting the pro forma net tangible book value
per share after the Offering from the amount of cash paid by a new investor
for a share of Common Stock.
(2) Sales by the Selling Stockholder in the Offering will reduce the number of
shares held by existing stockholders to 4,130,000 shares, or 55.1% of the
total shares of Common Stock outstanding, and will increase the number of
shares held by new investors to 3,370,000 shares, or 44.9% of the total
shares of Common Stock outstanding after the Offering.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of November 30, 1996 and as adjusted to reflect the sale of 2,500,000 shares of
Common Stock offered by the Company at an assumed public offering price of $9.00
per share (net of underwriter discounts and commissions and estimated Offering
expenses payable by the Company). This table should be read in conjunction with
the Financial Statements and Notes to the Financial Statements of the Company
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," all included herein.
<TABLE>
<CAPTION>
AT NOVEMBER 30, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Bank line of credit................................................. $ 8,984 $ 4,094
Current portion of long-term debt................................... 1,584 --
-------- --------
Total short-term debt....................................... $ 10,568 $ 4,094
======== ========
Long-term debt, net of current portion................................ $ 7,124 --
-------- --------
Redeemable Preferred Stock: 1,000 shares authorized; 1,000 shares
issued and outstanding, actual(1)................................... 3,041 N/A
-------- --------
Stockholders' equity:
Preferred Stock: 999,000 shares authorized; none issued and
outstanding, actual; 1,000,000 shares authorized, $0.01 par value
per share, none issued and outstanding, as adjusted.............. -- --
Common Stock:
Series A Common Stock: 15,000,000 shares authorized; 3,500,000
shares issued and outstanding, actual........................... 3,511 N/A
Series B Common Stock: 5,000,000 shares authorized; 1,500,000
shares issued and outstanding, actual........................... 995 N/A
Common Stock, $0.01 par value per share; 20,000,000 shares
authorized; 7,500,000 shares issued and outstanding, as
adjusted........................................................ N/A $ 75
Additional paid in capital............................................ N/A 24,556
Retained earnings(1).................................................. 5,544 2,058
-------- --------
10,050 26,689
Unearned ESOP shares(2)............................................... (11,000) (11,000)
-------- --------
Total stockholders' equity (deficit)................................ (950) 15,689
-------- --------
Total capitalization........................................ $ 9,215 $ 15,689
======== ========
</TABLE>
- ---------------
(1) The Redeemable Preferred Stock redemption value at November 30, 1996,
including accrued dividends, was approximately $6.5 million. Assuming the
redemption of the Redeemable Preferred Stock, retained earnings, as
adjusted, have been reduced by the difference between the carrying value of
the Redeemable Preferred Stock and its redemption value.
(2) For a discussion of the Unearned ESOP shares see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources."
13
<PAGE> 15
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND WEIGHTED AVERAGE SHARE AMOUNTS)
The following data, insofar as it relates to each of the fiscal years 1994
through 1996, has been derived from audited financial statements, including the
balance sheets at February 28, 1995 and February 29, 1996 and the related
statements of income and of cash flows for the three years ended February 29,
1996 and notes thereto appearing elsewhere herein. The data for the nine months
ended November 30, 1995 and 1996 has been derived from unaudited financial
statements also appearing herein and which, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the unaudited interim periods.
The data for the years ended February 29, 1992 and February 28, 1993 has been
derived from unaudited financial statements not included herein and which, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results, for the
years ended February 29, 1992 and February 28, 1993, respectively.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NOVEMBER 30,
FISCAL YEAR ENDED FEBRUARY 28(29), -----------------------------------------
---------------------------------------------------------------- PRO FORMA
1992 1993 1994 1995 1996 1995 1996 1996(1)
----------- ----------- ---------- ---------- ---------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales........ $ 10,149 $ 13,887 $ 16,628 $ 24,934 $ 29,770 $ 23,459 $ 38,966 $ 38,966
Cost of sales.... 7,385 10,840 11,670 17,040 20,054 15,827 26,267 26,267
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit..... 2,764 3,047 4,958 7,894 9,716 7,632 12,699 12,699
Selling
expenses....... 983 1,438 1,565 2,035 2,832 2,158 3,555 3,555
General and
administrative
expenses....... 1,059 986 1,378 2,118 2,651 1,966 2,664 2,664
Research and
development
expenses....... 320 274 425 423 518 396 444 444
Amortization of
deferred
credit......... (35) (63) (53) -- -- -- -- --
ESOP
contribution(2)... -- -- -- -- -- -- 750 750
Certain
charges(3)..... -- -- -- -- 300 -- 340 340
--------- --------- --------- --------- --------- --------- --------- ---------
Operating
income(4)...... 437 412 1,643 3,318 3,415 3,112 4,946 4,946
Interest
expense........ 329 395 493 470 659 496 1,253 344
--------- --------- --------- --------- --------- --------- --------- ---------
Income before
income taxes... 108 17 1,150 2,848 2,756 2,616 3,693 4,602
Income taxes..... 1 1 110 797 1,200 1,177 1,532 1,910
--------- --------- --------- --------- --------- --------- --------- ---------
Net income....... 107 16 1,040 2,051 1,556 1,439 2,161 2,692
Accretion on
Redeemable
Preferred Stock
and dividend on
Series B Common
Stock, net of
tax
benefit(5)..... -- -- -- -- -- -- (1,137) --
Redemption of
Redeemable
Preferred
Stock.......... -- -- -- -- -- -- -- (3,500)
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)
available to
common
stockholders... $ 107 $ 16 $ 1,040 $ 2,051 $ 1,556 $ 1,439 $ 1,024 $ (808)
========= ========= ========= ========= ========= ========= ========= =========
Per share
information:
Net income
before
adjustment to
net income
available per
common
share........ $ 0.02 $ 0.00 $ 0.22 $ 0.44 $ 0.33 $ 0.31 $ 0.60 $ 0.44
Accretion on
Redeemable
Preferred
Stock and
dividend on
Series B
Common Stock,
net of tax
benefit...... -- -- -- -- -- -- (0.32) --
Redemption of
Redeemable
Preferred
Stock........ -- -- -- -- -- -- -- (0.57)
--------- --------- --------- --------- --------- --------- --------- ---------
Net income
(loss)
available per
common share
to common
stockholders... $ 0.02 $ 0.00 $ 0.22 $ 0.44 $ 0.33 $ 0.31 $ 0.28 $ (0.13)
========= ========= ========= ========= ========= ========= ========= =========
Supplemental net
income per
common share
(unaudited).... -- -- -- -- $ 0.37 -- $ 0.47 --
========= =========
Weighted average
common shares
outstanding.... 4,682,472 4,682,472 4,682,472 4,682,472 4,682,472 4,682,472 3,608,335 6,108,335
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28(29), NOVEMBER 30,
---------------------------------------------------------------- ------------
1992 1993 1994 1995 1996 1996
----------- ----------- ---------- ---------- ---------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working
capital........ $ 919 $ 699 $ 1,176 $ 3,358 $ 4,183 $ 7,124
Total assets..... 4,473 6,929 7,992 10,197 13,035 27,447
Total current
liabilities.... 3,231 5,797 6,153 5,827 7,364 17,556
Long-term debt,
less current
portion........ 1,064 955 571 1,054 818 7,732
Redeemable
Preferred
Stock.......... -- -- -- -- -- 3,041
Stockholders'
equity
(deficit)...... 108 124 1,164 3,215 4,771 (950)
</TABLE>
14
<PAGE> 16
- ---------------
(1) Pro forma amounts are adjusted to reflect (i) the sale by the Company of
2,500,000 shares of Common Stock offered at an assumed Offering price of
$9.00, (ii) the application of net proceeds therefrom (see "Use of
Proceeds") as if the Offering had been consummated on March 1, 1996 and
(iii) the effect of the April 23, 1996 recapitalization transactions
retroactively applied to March 1, 1996. See "Certain Transactions." Pro
forma income before income taxes reflects reduced interest expense on debt
assumed to be repaid with proceeds of the Offering. Pro forma net income is
increased by the tax-effected reduced interest expense. By assuming the
Offering was effective at the beginning of the period, both the Accretion on
the Redeemable Preferred Stock and the dividend on the Series B Common Stock
are eliminated on a pro forma basis. The pro forma Redemption of Redeemable
Preferred Stock represents the difference between the carrying value ($2.5
million) and the redemption value ($6.0 million) at the beginning of the
period. The amount of this difference reduces Net income (loss) available to
common stockholders.
(2) ESOP contributions of $750,000 for the nine months ended November 30, 1996
represent contributions accrued for the period based on an expected Company
contribution of $1.0 million for the fiscal year ending February 28, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operation -- Liquidity and Capital Resources."
(3) Certain charges for the fiscal year ended February 29, 1996 consist of
one-time contractual bonuses accrued on behalf of certain officers in
connection with the Company's formation of the ESOP and the related
recapitalization effected in April 1996. Certain charges for the nine months
ended November 30, 1996 consist of one-time contractual bonuses accrued on
behalf of certain members of senior management as set forth in the
Securities Purchase Agreement, dated April 23, 1996, between the Company and
Churchill ESOP Capital Partners, A Minnesota Limited Partnership.
(4) Operating income before certain charges for the year ended February 29, 1996
and for the nine months ended November 30, 1996 was $3.7 million and $5.3
million, respectively.
(5) Represents (i) accretion of $541,000 reflecting original issue discount and
accrued dividends on the Redeemable Preferred Stock and (ii) dividends of
$995,000 declared and paid on the Series B Common Stock, net of tax benefit
of $399,000.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
OVERVIEW
Founded in 1972, Meade designs, manufactures and distributes telescopes and
accessories for the beginning to serious amateur astronomer. The Company offers
a broad range of products, including more than 40 different telescope models
with several different optical configurations as well as more than 250 accessory
products. The Company manufactures all of its high-end advanced telescopes in
its manufacturing facility in Irvine, California, and employs seven engineers
on-site to develop new products, technological advances and improvements to
existing products. See "Business -- Competitive Strengths -- New
Products/Research and Development." The majority of the Company's less-expensive
telescopes are manufactured in Taiwan. To ensure that the telescopes produced in
Taiwan are of high quality, the Company is party to an exclusive arrangement
with the Taiwanese Factory, in which the Taiwanese Factory manufactures
telescopes only for Meade. See "Business -- Competitive Strengths -- Quality
Control." The Company sells its products domestically through a network of
direct mail order dealers, specialty retailers and mass merchandisers and
internationally through foreign distributors. To complement its extensive line
of telescopes and leverage its distribution system, Meade has recently
introduced a complete line of binoculars to be sold under the Meade brand name.
Net sales for Meade increased from $10.1 million to $29.8 million during
the fiscal years from 1992 to 1996. Furthermore, net sales for the nine months
ended November 30, 1996 increased from $23.5 million to $39.0 million, an
increase of 66.1% over the nine months ended November 30, 1995. Income from
operations increased from $437,000 to $3.4 million during the fiscal years from
1992 to 1996. Income from operations for the nine months ended November 30, 1996
increased by $1.8 million, or 58.9%, over the nine months ended November 30,
1995. In addition, income from operations before certain charges for the nine
months ended November 30, 1996 increased by $2.2 million, or 69.9% over the nine
months ended November 30, 1995. The Company attributes this increase in net
sales and income from operations primarily to its emphasis on research,
development and successful introduction of new products, enhancements to
existing products and its increase in marketing and customer service and support
activities. See "Business -- Introduction."
16
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's Income Statements as a percentage of net sales for the
periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
FEBRUARY 28(29), NOVEMBER 30,
------------------------- ---------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 70.2 68.3 67.4 67.5 67.4
----- ----- ----- ----- -----
Gross profit....................................... 29.8 31.7 32.6 32.5 32.6
Operating expenses:
Selling expenses................................. 9.4 8.2 9.5 9.2 9.1
General and administrative expenses.............. 8.3 8.5 8.9 8.4 6.8
Research and development expenses................ 2.5 1.7 1.7 1.7 1.1
Amortization of deferred credit.................. (0.3) -- -- -- --
ESOP contribution................................ -- -- -- -- 1.9
Certain charges.................................. -- -- 1.0 -- 0.9
----- ----- ----- ----- -----
Total operating expenses................. 19.9 18.4 21.1 19.3 19.8
----- ----- ----- ----- -----
Income from operations............................. 9.9 13.3 11.5 13.2 12.8
Interest expense................................... 3.0 1.9 2.2 2.1 3.2
----- ----- ----- ----- -----
Income before income taxes......................... 6.9 11.4 9.3 11.1 9.6
Provision for income taxes......................... 0.7 3.2 4.0 5.0 3.9
----- ----- ----- ----- -----
Net income......................................... 6.2 8.2 5.3 6.1 5.7
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED NOVEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED NOVEMBER 30,
1995
Net sales increased from $23.5 million for the nine months ended November
30, 1995 to $39.0 million for the nine months ended November 30, 1996, an
increase of 66.1%. This increase was primarily due to (i) an increase of $10.1
million in net sales of less-expensive telescopes, (ii) an increase of $1.3
million in net sales of telescope accessories and (iii) an increase of $3.2
million in net sales of new products introduced in late fiscal 1996 and early
fiscal 1997, including the ETX Astro Telescope, the LX50 and LX10 lines of
Schmidt-Cassegrain and Maksutov-Cassegrain telescopes.
Gross profit increased from $7.6 million (32.5% of net sales) for the nine
months ended November 30, 1995 to $12.7 million (32.6% of net sales) for the
nine months ended November 30, 1996, an increase of 67.1%.
Selling expenses increased from $2.2 million (9.2% of net sales) for the
nine months ended November 30, 1995 to $3.6 million (9.1% of net sales) for the
nine months ended November 30, 1996, an increase of 63.6%. This increase
principally reflects (i) higher advertising and other selling expenses to
support higher sales volumes for the nine months ended November 30, 1996 as
compared to the nine months ended November 30, 1995, (ii) higher freight and
other shipping costs due to higher sales volumes for the nine months ended
November 30, 1996 as compared to the nine months ended November 30, 1995 and
(iii) higher costs due to a net increase in selling and shipping personnel for
the nine months ended November 30, 1996 as compared to the nine months ended
November 30, 1995.
General and administrative expenses increased from $2.0 million (8.4% of
net sales) for the nine months ended November 30, 1995 to $2.7 million (6.8% of
net sales) for the nine months ended November 30, 1996, an increase of 35.0%.
The increase in the general and administrative expenses principally reflects
higher personnel-related costs and general office costs for the nine months
ended November 30, 1996 as compared to the nine months ended November 30, 1995.
The decrease in general and administrative expenses as a percentage of net sales
for the nine months ended November 30, 1996 as compared to the comparable period
in the prior year was primarily due to efficiencies achieved by allocating the
Company's fixed expenses over the increased revenue base.
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<PAGE> 19
Research and development expenses increased from $396,000 (1.7% of net
sales) for the nine months ended November 30, 1995 to $444,000 (1.1% of net
sales) for the nine months ended November 30, 1996, an increase of 12.1%. This
increase was principally due to higher personnel-related costs and higher
outside consulting costs for the nine months ended November 30, 1996, as
compared to the nine months ended November 30, 1995.
The ESOP contribution expense of $750,000 for the nine months ended
November 30, 1996, represents an accrual of three quarters of the expected
Company contribution to the ESOP for the fiscal year ending February 28, 1997
(the ESOP was effective March 1, 1996 and, therefore, there is no comparable
expense for the nine months ended November 30, 1995).
Certain charges for the nine months ended November 30, 1996 represent
one-time contractual bonuses of $340,000 accrued on behalf of certain members of
senior management as described in the Securities Purchase Agreement, dated April
23, 1996, between the Company and Churchill ESOP Capital Partners, A Minnesota
Limited Partnership ("Churchill").
Interest expense increased from $496,000 for the nine months ended November
30, 1995 to $1.3 million for the nine months ended November 30, 1996, an
increase of 162.1%. This increase was principally due to (i) interest expense on
the bank term debt incurred in connection with the ESOP recapitalization in
April 1996, and (ii) increased average outstanding balances on the bank line of
credit to support higher receivables and inventory associated with increased
sales of less-expensive telescopes for the nine months ended November 30, 1996,
as compared to the nine months ended November 30, 1995.
Income taxes increased from $1.2 million (45.0% of income before income
taxes) for the nine months ended November 30, 1995 to $1.5 million (41.5% of
income before income taxes) for the nine months ended November 30, 1996. The
reduction in the tax rate for the nine months ended November 30, 1996, as
compared to the nine months ended November 30, 1995, was due to differences in
the effect of expenses not deductible for tax purposes in each period.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales increased from $24.9 million in fiscal 1995 to $29.8 million in
fiscal 1996, an increase of 19.7%. This increase was due primarily to an
increase of $3.0 million in net sales of the Company's less-expensive
telescopes.
Gross profit increased from $7.9 million (31.7% of net sales) in fiscal
1995 to $9.7 million (32.6% of net sales) in fiscal 1996, an increase of 22.8%.
The increase in the gross profit as a percentage of net sales was principally
due to the increased sales of the Company's less-expensive telescopes, which
generally have a higher gross profit margin than the Company's other products.
Selling expenses increased from $2.0 million (8.2% of net sales) in fiscal
1995 to $2.8 million (9.5% of net sales) in fiscal 1996, an increase of 40.0%.
This increase principally reflects (i) increases in advertising and freight
costs due to higher sales volumes in fiscal 1996 compared to fiscal 1995 and
(ii) higher personnel-related costs due to net increases in selling and shipping
personnel in fiscal 1996 as compared to fiscal 1995.
General and administrative expenses increased from $2.1 million (8.5% of
net sales) in fiscal 1995 to $2.7 million (8.9% of net sales) in fiscal 1996, an
increase of 28.6%. This increase principally reflects higher costs due to net
increases in general and administrative personnel and executive salary increases
in fiscal 1996 as compared to fiscal 1995.
Research and development expenses increased from $423,000 (1.7% of net
sales) in fiscal 1995 to $518,000 (1.7% of net sales) in fiscal 1996, an
increase of 22.5%. This increase principally reflects higher costs due to
increases in research and development personnel.
During fiscal 1996 the Company incurred certain charges that are not
expected to continue into future periods. These charges, totaling $300,000 in
fiscal 1996, related to management bonuses awarded in connection with the
completion of the ESOP recapitalization. There were no comparable charges in
fiscal 1995.
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<PAGE> 20
Interest expense increased from $470,000 in fiscal 1995 to $659,000 in
fiscal 1996, an increase of 40.2%. The increase was primarily due to increased
average outstanding balances on the bank line of credit to support increased
sales for less-expensive telescopes in fiscal 1996 compared to fiscal 1995.
Income taxes increased from $797,000 (28.0% of income before income taxes)
in fiscal 1995 to $1.2 million (43.5% of income before income taxes) in fiscal
1996. The tax rate in fiscal 1995 reflects the utilization of approximately
$430,000 in net operating loss carry forwards, for which no benefit had
previously been recognized. There were no net loss carry forwards available for
utilization in fiscal 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales increased from $16.6 million in fiscal 1994 to $24.9 million in
fiscal 1995, an increase of 50.0%. This increase was due primarily to (i) an
increase of $3.7 million in net sales of the Company's less-expensive
telescopes, (ii) an increase of $2.4 million in net sales of LX200 model
telescopes and, (iii) an increase of $1.2 million in net sales of telescope
accessories.
Gross profit increased from $5.0 million (29.8% of net sales) in fiscal
1994 to $7.9 million (31.7% of net sales) in fiscal 1995, an increase of 58.0%.
The increase in the gross profit as a percentage of net sales was principally
due to the increased sales of the Company's less-expensive telescopes which
generally have a higher gross profit margin than the Company's other products.
Selling expenses increased from $1.6 million (9.4% of net sales) in fiscal
1994 to $2.0 million (8.2% of net sales) in fiscal 1995, an increase of 25.0%.
This increase principally reflects increases in advertising and freight costs
due to higher sales volumes in fiscal 1995 compared to fiscal 1994.
General and administrative expenses increased from $1.4 million (8.3% of
net sales) in fiscal 1994 to $2.1 million (8.5% of net sales) in fiscal 1995, an
increase of 50.0%. This increase principally reflects higher costs due to
increases in general and administrative personnel.
Research and development expenses decreased from $425,000 (2.5% of net
sales) in fiscal 1994 to $423,000 (1.7% of net sales) in fiscal 1995. Increases
in personnel related costs during fiscal 1995 were offset by decreases in
outside consulting expenses as compared to fiscal 1994.
Interest expense decreased from $493,000 in fiscal 1994 to $470,000 in
fiscal 1995, a decrease of 4.7%. This decrease was primarily due to changes in
the mix of bank and other borrowings in fiscal 1995 compared to fiscal 1994.
Income taxes increased from $110,000 (9.6% of income before income taxes)
in fiscal 1994 to $797,000 (28.0% of income before income taxes) in fiscal 1995.
The tax rate in fiscal 1994 reflects the utilization of approximately $145,000
in net operating loss carryforwards, for which no benefit had previously been
recognized and a decrease of $200,000 in the valuation allowance. The tax rate
in fiscal 1995 reflects the utilization of approximately $430,000 in net
operating loss carryforwards, for which no benefit had previously been
recognized.
QUARTERLY RESULTS OF OPERATIONS
The Company has experienced, and expects to continue to experience,
substantial fluctuations in its sales, gross margins and profitability from
quarter to quarter. Factors that influence these fluctuations include the volume
and timing of orders received, changes in the mix of products sold, market
acceptance of the Company's products, competitive pricing pressures, the
Company's ability to meet increasing demand and delivery schedules, the timing
and extent of research and development expenses, and the timing and extent of
product development costs. In addition, a substantial portion of the Company's
net sales and operating income typically occurs in the third quarter of the
Company's fiscal year primarily due to disproportionately higher customer demand
for less-expensive telescopes during the Christmas holiday season.
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<PAGE> 21
The following table presents unaudited financial results for each of the
eight quarters in the period ended November 30, 1996. The Company believes that
all necessary adjustments have been included to present fairly the quarterly
information when read in conjunction with the Financial Statements and Notes
included elsewhere in this Prospectus. The operating results for any quarter are
not necessarily indicative of the results for any subsequent quarter or for the
fiscal year ended February 28, 1997.
<TABLE>
<CAPTION>
FISCAL
1995 FISCAL 1996 FISCAL 1997
------- ------------------------------------- ---------------------------
FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ $5,658 $4,812 $7,260 $11,386 $6,310 $7,166 $12,031 $19,769
Gross profit..................... 1,704 1,400 2,123 4,109 2,084 2,154 3,926 6,619
ESOP contribution................ -- -- -- -- -- 250 250 250
Operating income................. 625 50 686 2,376 303 149 1,552 3,245
Net income (loss)................ $ 380 $ (48) $ 302 $ 1,225 $ 77 $ (58) $ 635 $ 1,584
</TABLE>
Quarterly results can be affected by a number of factors including the
timing of orders, production delays or inefficiencies, and raw materials
availability. See "Risk Factors -- Quarterly Fluctuations and Seasonality" and
"Business -- Operations -- Materials and Supplies."
LIQUIDITY AND CAPITAL RESOURCES
Since 1993, the Company has funded operations primarily through borrowings
from banks and financial institutions and proceeds from related party
subordinated notes. For the nine months ended November 30, 1996, the Company
funded operations principally through borrowings of $6.9 million on its bank
line of credit. At November 30, 1996, the Company had accounts receivable of
$12.9 million, inventory of $11.3 million and working capital of $7.1 million.
Increases in accounts receivable and inventory at November 30, 1996 were
primarily due to increased sales for the period and increased stocking levels to
support anticipated future sales, respectively.
Capital expenditures, including financed purchases of equipment, aggregated
$537,000, $664,000, $377,000 and $304,000 for the nine months ended November 30,
1996 and the fiscal years ended February 29, 1996 and February 28, 1995 and
1994, respectively. The Company had no material capital expenditure commitments
as of November 30, 1996.
The Company leases a 57,000 square foot manufacturing and corporate
facility and a separate 27,000 square foot distribution facility (the "Existing
Leases"). At November 30, 1996, monthly lease expenses for these facilities
aggregate approximately $34,000. In December 1996, the Company entered into a
ten year lease agreement for a new 161,000 square foot facility that the Company
expects to begin to occupy in the third quarter of fiscal 1998. Net lease
expenses on the new facility are approximately $75,000 per month, with fixed
increases of approximately 3% per year. The Company believes there will be no
material expenses incurred in connection with the termination of the Existing
Leases because (i) the Company intends to sublease its manufacturing and
corporate facility and (ii) the distribution facility lease terminates in
October 1997.
In April 1996, the Company entered into a five-year Loan and Security
Agreement with Fleet Capital Corporation (the "Loan Agreement") which provides
for (i) a $10.0 million revolving line of credit facility, secured by the
Company's accounts receivable and inventories and (ii) a $9.5 million term note
(the "term note") secured by the assets of the Company. The term note will be
repaid with the proceeds of this Offering. See "Use of Proceeds." The Loan
Agreement contains certain financial and operating covenants including
compliance with certain financial ratios, limitations on the ability of the
Company to incur additional indebtedness and restrictions on, among other
things, the Company's ability to pay cash dividends and take certain other
corporate actions.
Also in April 1996, the Company was recapitalized through the sale of
Redeemable Preferred Stock to Churchill. For proceeds of $6.0 million, the
Company sold 1,000 shares of newly-issued Redeemable Preferred
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<PAGE> 22
Stock to Churchill and issued a warrant to Churchill to purchase 1,000,000
shares of Series A Common Stock. The Redeemable Preferred Stock has a cumulative
annual 14% dividend on the $6.0 million redemption amount, a liquidation
preference and a five-year mandatory redemption provision. The Redeemable
Preferred Stock will be repurchased by the Company with the proceeds of this
Offering. See "Use of Proceeds." The warrant was exercised in April 1996 for an
aggregate purchase price of $10,000.
In April 1996, the Company made an $11.0 million term loan to the ESOP (the
"ESOP Loan"), the proceeds of which were used by the ESOP to purchase the
Company's Series B Common Stock from senior management. See "Certain
Transactions." The ESOP pledged the stock back to the Company as security for
the ESOP Loan. The ESOP Loan has a ten-year term and bears interest at 6% per
annum. Principal and interest are due semi-annually, subject to the Company
making contributions to the ESOP to fund the principal and interest payments.
Contributions to the ESOP are accounted for as a contribution expense on
the Company's income statement and are accrued quarterly based upon the expected
annual contribution amount. As quarterly contributions are accrued, the
corresponding shares are added to weighted average common shares outstanding;
however, unearned ESOP shares on the Company's Balance Sheet are reduced
annually following Board approval of the contribution. It is expected that the
Board will approve a $1.0 million ESOP contribution for fiscal 1997 which would
result in the release of approximately 135,000 shares of Common Stock from
unearned ESOP shares.
The ESOP uses the contributions to repay amounts due on the ESOP Loan. The
ESOP contribution expense is a net non-cash charge which is added back to net
income to arrive at cash flows provided by operating activities. As the Company
makes these non-cash contributions to the ESOP to fund the repayment of the ESOP
Loan, the Company will realize cash tax savings equal to the product of the
contributions made multiplied by the applicable statutory tax rates in effect at
the time. At November 30, 1996, total future planned contributions to be made to
the ESOP aggregated $10.25 million.
The Company believes that the net proceeds of this Offering, together with
internally generated cash flow and borrowing availability, will be sufficient to
meet its operating, working capital and capital expenditure requirements through
the next twelve months. In the event the Company's plans require more capital
than is presently anticipated, the Company's remaining cash balances may be
consumed and additional sources of liquidity, such as debt or equity financings,
may be required to meet its capital needs. There can be no assurance that
additional capital beyond the amounts the Company currently requires will be
available on reasonable terms, if at all.
INFLATION
The Company does not believe that inflation has had a material effect on
the results of operations during the past three years. There can be no assurance
that the Company's business will not be affected by inflation in the future.
FORWARD-LOOKING INFORMATION
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 Risk Factors and elsewhere in this Prospectus.
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<PAGE> 23
BUSINESS
INTRODUCTION
Meade is the leading designer, manufacturer and distributor of telescopes
and accessories for the beginning to serious amateur astronomer. Recognized for
its expertise in telescope innovation and the superior quality of its products,
Meade has successfully introduced a wide range of new products, resulting in
what the Company believes to be the broadest and most complete line of
telescopes available. The Company offers more than 40 different telescope models
with several different optical configurations, as well as more than 250
accessory products. The Company's telescopes range in aperture from 2 to 16
inches and in retail price from less than $100 to $15,000.
Since its founding in 1972, Meade has strived to develop a reputation for
providing the amateur astronomer with technically sophisticated products at
competitive prices. Meade manufactures the complete line of its advanced
astronomical telescopes in Irvine, California, including the production of the
optical systems, which are critical components of telescopes. Combining its
manufacturing expertise with its dedication to innovation, quality and value,
Meade has developed and produced some of the industry's most technologically
advanced consumer telescopes at affordable prices. Although professional and
institutional applications of Meade's telescopes are not Meade's primary market,
the Company's 8-inch and 10-inch Schmidt-Cassegrain telescopes are used by many
universities, scientific laboratories and aerospace companies, including the
University of California, Los Alamos National Laboratory, Lawrence Livermore
Laboratory, National Radio Astronomy Observatory and NASA/Aames Research. The
Company has capitalized on its brand name recognition among serious amateur
astronomers to market successfully its less-expensive telescopes to beginning
and intermediate amateur astronomers. Meade has become a major supplier of
telescopes to such retailers as The Nature Company, Service Merchandise, Natural
Wonders, Wal-Mart, J.C. Penney and Discovery Channel Stores. To complement its
extensive line of telescopes and leverage its distribution system, the Company
has recently introduced a complete line of binoculars to be sold under the Meade
brand name.
Meade was sold by its founder and current Chief Executive Officer to a
private investor in 1986 and was then reacquired by the Company's current senior
management in 1991. After reacquisition, management reemphasized the importance
of research and development for new products and product enhancements. Recently,
one of Meade's newest products, the ETX Astro Telescope, was the subject of a
product review in the January 1997 issue of Sky and Telescope and was referred
to as the "hottest scope ever." Meade also significantly broadened the Company's
less-expensive telescope line and has an exclusive arrangement with the
Taiwanese Factory to manufacture less-expensive telescopes in accordance with
the Company's proprietary designs. Meade also has increased the marketing of its
products by aggressively advertising in periodicals directed to amateur
astronomers and by providing greater support to the Company's dealers, specialty
retailers, foreign distributors, mass merchandisers, and the end users of
Meade's products. Additionally, Meade publishes a comprehensive, full-color,
high quality product catalogue which provides significant product exposure.
In the United States and Canada, the Company distributes its products
through a network of more than 500 specialty retailers and mass merchandisers,
which offer Meade's products in more than 1,000 retail store locations. The
Company also sells certain of its telescope models to selected national mail
order dealers. Meade sells its products internationally through a network of
approximately 30 foreign distributors, many of which service retail locations in
their respective countries. International sales accounted for approximately 17%
of the Company's net sales for the nine months ended November 30, 1996. The
Company also publishes a comprehensive product catalogue which management
believes provides extensive exposure for the Company's products.
Meade's net sales have increased from $10.1 million for the fiscal year
ended February 28, 1992, to $29.8 million for the fiscal year ended February 29,
1996. During the same period, operating income increased from $437,000 to $3.7
million before certain charges of $300,000. For the nine months ended November
30, 1996, Meade generated net sales of $39.0 million and operating income of
$5.3 million before certain charges of $340,000, compared to $23.5 million and
$3.1 million, respectively, for the nine months ended Novem-
22
<PAGE> 24
ber 30, 1995. These represent increases in net sales and operating income before
certain charges of 66.1% and 69.9%, respectively, for the nine month periods.
See "Selected Financial Information." The Company intends to continue to pursue
an integrated strategy of product line expansion, aggressive marketing,
expansion into the binocular market and expansion of the Company's distribution
network.
INDUSTRY OVERVIEW
Market-size data for the telescope and binocular industries is difficult to
obtain because many of the companies in the industries are either private or
subsidiaries or divisions of larger public companies. The Company believes that
the overall size of the telescope market is driven, in part, by the introduction
of new products.
The telescope industry is generally divided into two categories (i)
advanced astronomical telescopes for serious amateur astronomers who consider
astronomy to be an important leisure activity and (ii) less-expensive telescopes
for beginning to intermediate amateur astronomers. The market for advanced
astronomical or higher-end telescopes is characterized by frequent technological
developments, including the recent introduction of electronic and computer-aided
features. Serious amateur astronomers demand that the optical, electronic and
mechanical performance of the telescopes and accessories they purchase be of
very high quality. This high-end telescope market, while smaller than the
less-expensive telescope market, continues to drive the technological advances
in the industry. Management believes that overall consumer awareness is
increased by the advances made in the high-end telescope market.
Within the industry, manufacturers generally offer three types of
telescopes (a) refracting telescopes, which use a lens at the upper end of the
optical tube to collect light, (b) reflecting telescopes, which use a concave
mirror as the primary optical element and (c) catadioptric (mirror-lens)
telescopes, which employ a combination of mirrors and lenses to form the image.
Each type has its own advantages: refractors are easy to maintain, yield sharp
images and are relatively inexpensive in smaller apertures; reflectors generally
are the lowest-cost means of purchasing larger apertures and are well suited to
the intermediate amateur astronomer; and mirror-lens telescopes are more
portable in larger apertures and are popular among serious amateur astronomers.
COMPETITIVE STRENGTHS
Meade believes that it derives significant benefits from its position as
the leading designer, manufacturer and distributor of telescopes and related
products. These benefits include its ability to offer its customers one of the
most innovative, broadest product lines available, embodying both high quality
and value. The Company attributes its success to the following competitive
strengths:
New Products/Research and Development. Meade places a primary emphasis on
product innovation and quality through its research and development efforts. The
Company currently employs seven engineers on-site, developing new products,
technological advances and improvements to existing products, in an effort to
remain the industry leader. The Company is able to obtain additional benefits by
out-sourcing certain research and development services to supplement its
internal expertise. Because of this dedication to research and development, the
Company has been able to introduce many new products over time and has been able
to take advantage of certain market opportunities as they have occurred. See
"Business -- Products." Meade believes that the members of its senior level
management are among the most experienced in the telescope industry. The
Company's four most experienced officers have been employed in this industry for
an average of more than 21 years. The Company, its management and its employees
are dedicated to the goal of producing technically superior yet
price-competitive products for the amateur astronomer and have been responsible
for some of the industry's most technically advanced consumer telescopes.
Broadest Line of Products. The Company's strategy has been to leverage its
brand name recognition and reputation for high-end telescopes to facilitate the
sales of its less-expensive telescopes. As a result, the Company believes it
currently has the most complete line of telescopes available, including more
than 40 different telescope models with several different optical configurations
as well as more than 250 accessory products. The Company's telescopes range in
aperture from 2 to 16 inches and in retail price from less than $100 to $15,000.
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<PAGE> 25
Optical Systems Expertise. Meade has made substantial investments to
develop an expertise in optical engineering, providing it with the ability to
produce high quality optics on-site. Meade employs highly skilled opticians who
use sophisticated manufacturing techniques and equipment, including specialized
optical polishing machines and vacuum-coating machines, to produce what the
Company believes to be the highest quality optics available in the consumer
telescope market.
Quality Control. Meade's manufacturing and engineering personnel
coordinate the manufacturing process in order to ensure that product quality is
maintained at a high level within an efficient cost structure. The Company has
in place quality controls covering all aspects of the manufacturing process of
its products, from each product's precision optical system to its final assembly
and testing. The Company manufactures all of its high-end advanced telescopes in
its manufacturing facility in Irvine, California, while most of the Company's
less-expensive telescopes are manufactured for the Company in Taiwan through an
exclusive arrangement with the Taiwanese Factory. This exclusive arrangement
provides the Company with the ability to exert control over the telescope
manufacturing process to ensure the quality and performance of its less-
expensive products. To support this arrangement, Meade regularly commits one of
its United States based engineers to the Taiwanese Factory.
Broad Distribution Network. The Company's sales force works closely with
specialty retailers, distributors and mass merchandisers on product quality,
technical knowledge and customer service. Meade has its own on-site graphic arts
department to work with specialty retailers, distributors and mass merchandisers
to produce print advertising, hang-tags for displays within retail outlets, and
other point-of-sale support. This capability provides the Company's customers
with a comprehensive marketing program to assist in their sales efforts. As a
result of these efforts, Meade has become a major supplier of telescopes to such
retailers as The Nature Company, Service Merchandise, Natural Wonders, Wal-Mart,
J.C. Penney and Discovery Channel Stores. Meade also has an expanding
international presence. Its sales to foreign distributors have grown from $3.2
million for the fiscal year ended February 28, 1994 to $7.5 million for the
fiscal year ended February 29, 1996. Sales to foreign distributors reached $6.8
million for the nine months ended November 30, 1996.
Superior Customer Service. Meade believes that its high levels of customer
service and technical support are important factors that differentiate it from
its competitors. In an effort to provide each of the Company's customers with
post-sale service and to relieve them of the burden of such service, Meade has
established multiple dedicated toll-free telephone numbers so that its customers
and end users can call the Company's support personnel with any questions
relating to its products. The Company's experience is that product returns from
first-time telescope users have been historically higher than necessary for the
industry because such first-time customers are often unfamiliar with assembly
procedures and telescope operation. The Company believes that providing this
toll-free assistance reduces product returns by better educating first-time
users. In addition, in an effort to simplify assembly of the Company's products,
Meade pre-assembles a substantial portion of its telescopes prior to packaging.
Meade also makes available to telescope owners astronomical software and other
product enhancements.
GROWTH STRATEGY
Meade's objective is to expand its position in the domestic and
international marketplace for telescopes and binoculars. The key elements of the
Company's strategy to achieve this objective are as follows:
Expansion of Product Lines. The Company continually seeks to develop and
introduce new and innovative telescope products and accessories. The Company
maintains an on-site engineering staff to pursue research and development
opportunities and to respond quickly to market demands for product modification
and innovation. Recent new products the Company has introduced include (i) the
ETX Astro Telescope ("ETX"), (ii) new celestial observation software and (iii)
enhanced CCD digital cameras that permit the generation of high resolution
astronomical images from the telescope to a home personal computer. The Company
believes that the ETX will have a significant impact on certain segments of the
telescope industry permitting, for the first time, the purchase of a
high-quality, attractive, portable instrument of sufficient aperture to enable
the high resolution observation of celestial and terrestrial objects at a
reasonable price. The
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<PAGE> 26
ETX, introduced in 1996, at present has a four-month back-order. Other new
telescopes and existing product upgrades under development are scheduled for
release in calendar 1997 and 1998.
Aggressive Marketing. Meade's marketing philosophy is designed to convey
the quality and value of its products, while communicating the sophistication,
depth and breadth of selection. Meade advertises in most major domestic and
international telescope and astronomy related magazines and periodicals with
comprehensive, full color, technically informative advertisements which present
a consistent message of innovation and quality about the Company and its
products. Meade is a regular advertiser in the two largest domestic astronomy
periodicals, Sky and Telescope and Astronomy, and on average purchases eight
pages of advertising in every issue of each magazine. The Company plans to
market and advertise its binoculars in various bird watching and related
magazines and periodicals during calendar 1997. The Company also works with
specialty retailers, distributors and mass merchandisers by developing
hang-tags, print advertisements, catalogue displays and other print media in an
effort to continually provide customers with a consistent message and to assist
in their marketing efforts. In addition, the Company publishes a 100-page, full
color, high quality catalogue that has been a key component of its overall
marketing strategy. The Company believes this catalogue is the most
comprehensive and informative catalogue within the industry, with an abundance
of technical product information.
Expansion into Binocular Market. To complement its extensive line of
telescopes, Meade has introduced a complete line of binoculars for the consumer
market. The Company plans to access its current distribution network for
telescopes as a means to market its line of binoculars. The Company plans to
follow its sales practices in the telescope market and provide its mail order
dealers, specialty retailers, foreign distributors and mass merchandisers with a
complete line of binoculars, from entry level to high-end products, together
with the same level of marketing and point-of-sale service. See "Risk
Factors -- New Binocular Line." Meade's objective is to obtain a reputation for
high quality products in the binocular market, similar to its established
reputation in the telescope market. As with many of the Company's competitors,
Meade purchases its binoculars from manufacturers outside the United States.
Expansion of Distribution Network. The Company intends to continue to
expand its network of mass merchandisers. For example, in the Spring of 1996,
Meade added Service Merchandise, and for the Christmas holiday season, Wal-Mart,
to its distribution network for telescopes. The Company intends to market to
other mass merchandisers as well.
PRODUCTS
While the human eye is limited by its lens diameter, a telescope serves as
a larger "eye," gathering additional light and permitting the observation of
objects in tremendously increased detail. The most important operative
characteristic of a telescope in gathering light is its aperture, or diameter,
rather than its power or magnification. Generally, higher magnification
increases object resolution, but aperture ultimately determines how much one can
see. Even with the smallest Meade telescopes, one can see clearly and sharply
many celestial objects, including the ring system of Saturn as well as Saturn's
largest moon, the distinctive cloud belt structure and four principal moons of
Jupiter, the moon-like phases of the planet Venus, hundreds of craters and
mountain ranges on the Moon, and a multitude of deep-space objects.
25
<PAGE> 27
The table below describes Meade's primary product introductions, principal
features, suggested retail price and year of introduction. Generally, only
products introduced on or after 1990 continue to be marketed and sold by the
Company.
<TABLE>
<CAPTION>
APPROXIMATE
YEAR SUGGESTED
INTRODUCED PRODUCT RETAIL PRICE PRODUCT DESCRIPTION
- ---------- ----------------------------- ----------------- ----------------------------------------
<C> <S> <C> <C>
1972 Models 200 and 300 Series $ 60-250 2" to 3" small refracting telescopes
imported from Japan. Complete with
tripod and eyepieces on equatorial and
altazimuth mounts.
1977 Model 628 and Model 826 $ 400-500 6" and 8" Newtonian reflecting
telescopes on equatorial mounts. The
first telescopes manufactured by Meade.
1979 Research Series Models 880, $1,000-1,700 8", 10" and 12.5" Newtonian reflecting
1060 and 1266 telescopes. Largest, most sophisticated
mount produced by the Company up to
1979.
1980 Models 2040 and 2080 $ 500-900 4" and 8" fork mounted
Schmidt-Cassegrain telescopes with
AC-powered worm-gear drive. The
Company's first production Schmidt-
Cassegrain telescopes.
1982 Model 2120 $ 1,700 The Company's first 10"
Schmidt-Cassegrain telescope.
1983 Model 90 Series $ 300 90 mm Maksutov-Cassegrain spotting
scopes. The Company's first domestically
produced small, portable, high quality
spotting scopes.
1984 Model LX3 Series $ 1,400 8" and 10" Schmidt-Cassegrain telescopes
with integrated electronic drive systems
to automatically track objects in the
sky. The Company's first DC-powered
electronically driven
Schmidt-Cassegrains.
1986 SALE OF COMPANY BY THE FOUNDING STOCKHOLDER
1988 Model LX6 Series $ 1,600 The Company's first 8" and 10" Schmidt-
Cassegrain telescopes featuring
microprocessor control. The Company's
first telescopes to feature digital
read-out of telescope position and
Smart-Drive permanent periodic error
control.
1990 Models 226, 289 and 4450 $ 150-300 The Company's first 60mm refracting and
114mm reflecting telescopes purchased
from the Taiwanese Factory.
1991 REACQUISITION OF COMPANY BY THE FOUNDING STOCKHOLDER AND SENIOR MANAGEMENT
1992 Models 390, 395 and 4500 $ 400-600 The Company's first 90mm refracting and
114mm deluxe reflecting telescopes
purchased from the Taiwanese Factory.
6", 8", 10" and 16" Newtonian reflecting
telescopes on equatorial mounts.
Starfinder Equatorial Series $ 500-800 Redesign of the Company's Newtonian
telescopes. They have since been
upgraded to include a DC-powered
cordless drive system to track objects
in their paths across the sky.
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
APPROXIMATE
YEAR SUGGESTED
INTRODUCED PRODUCT RETAIL PRICE PRODUCT DESCRIPTION
- ---------- ----------------------------- ----------------- ----------------------------------------
<C> <S> <C> <C>
1992 8" and 10" LX200 Models $2,000-3,000 8" and 10" Schmidt-Cassegrain
(Cont.) computerized telescopes with built-in
747 celestial object library (later
updated to 64,350 objects) and automatic
go-to capabilities. The Company's first
computerized telescopes with go-to
capabilities and an object database.
Model ED Refractor Series $ 2,500-5,000 ED (Extra-low Dispersion) apochromatic
refractors with automatic slewing and
go-to capabilities. This line includes
4", 5", 6" and 7" telescopes.
1993 Starfinder Dobsonian Series $ 300-1,200 6", 8", 10", 12.5" and 16" Newtonian
reflecting telescopes on Dobsonian
mounts. The Company's first large
Newtonian telescopes on a simple
altazimuth mount.
12" LX200 Model $ 4,000 12" Schmidt-Cassegrain computerized
telescope.
1994 16" LX200 Model $ 15,000 16" Schmidt-Cassegrain computerized
telescope.
CCD Autoguider/Imagers $ 400-6,000 Digital imaging equipment. Allows user
to image celestial objects in a fraction
of the time required with traditional
astrophotography equipment.
1995 Model LX50 Series $ 1,200-2,000 7" Maksutov-Cassegrain and 8" and 10"
Schmidt-Cassegrain, DC-powered variable
speed (to guide and center) telescopes.
Saturn, Polaris, Infinity and $ 100-300 60mm refracting and 114mm reflecting
Telestar Models telescopes customized for distribution
through speciality retailers and mass
merchandisers.
7" Model LX200 $ 3,000 7" Maksutov-Cassegrain computerized
telescope.
1996 Epoch 2000 $ 150-200 Celestial and image processing software
for use with Meade's computerized
telescopes and certain other telescopes.
8" Model LX10 $ 1,000 8" Schmidt-Cassegrain, DC-powered
replacement of the Company's original
model 2080 telescope.
Magellan I and II $ 300-500 Computer-assisted telescope pointing
systems.
ETX Astro Telescope $ 500 90mm Maksutov-Cassegrain telescope.
Recognized for its optical quality and
portability at an affordable price.
Binoculars $ 50-450 The Company's introduction of a full
line of general consumer binoculars.
</TABLE>
Meade has developed and expanded its product line to include a full line of
telescopes and accessories for the beginning, intermediate and serious amateur
astronomer. Moreover, in addition to adding new products, the Company
continually refines and improves its existing products. Certain of Meade's
products are described in greater detail below:
LX Series Telescopes. Among the Company's most sophisticated products are
its Schmidt-Cassegrain and Maksutov-Cassegrain telescopes, which incorporate an
optical system that provides high-quality resolution, contrast and light
transmission. The model LX200 telescopes, available in 7, 8, 10, 12 and 16-inch
apertures, are the most popular of the Company's telescopes among serious
amateur astronomers. The LX200 telescopes feature a built-in computer library of
64,350 celestial objects. These objects are catalogued in the Company's
proprietary hand-held keypad electronic command center, which operates the
computerized control system for the LX200 telescopes. By entering any of the
celestial objects into the keypad, the telescope
27
<PAGE> 29
automatically locates and tracks the selected object. The LX series telescopes
represented approximately 2% of telescope units shipped and approximately 22% of
the Company's net sales for the nine months ended November 30, 1996.
Entry-Level Small Refracting and Reflecting Telescopes. Designed
specifically for the beginning to intermediate amateur astronomer or terrestrial
observer, the Company's less-expensive 60mm to 114mm refracting and reflecting
telescopes include some of the features of the more advanced telescopes at
economical prices. The Company also offers several variations of its small
refracting and reflecting telescopes for distribution on an exclusive basis of
selected models to specific specialty retailers. These telescope models comprise
the lower-price end of the Company's product line. Sales of these telescopes
comprised over 90% of the Company's telescope units shipped and approximately
50% of the Company's net sales for the nine months ended November 30, 1996.
ETX Series Telescopes. One of the Company's newest products is the ETX
Astro Telescope. The ETX is a Maksutov-Cassegrain telescope that has opened new
markets for beginning, intermediate and serious amateur astronomers by
permitting, for the first time, the purchase of a high-quality, portable
instrument of sufficient aperture to enable high resolution observation of
celestial and terrestrial objects at a reasonable price. There is currently a
four-month back-order for the ETX.
Starfinder Telescopes. The Starfinder Equatorial/Dobsonian Reflecting
telescopes were introduced by the Company beginning in 1992 and have been well
received by the serious amateur market. These telescopes are economically priced
and offer views of a wide range of celestial objects. The Starfinder series of
telescopes represented approximately 1% of telescope units shipped and
approximately 4% of the Company's net sales for the nine months ended November
30, 1996.
CCD Autoguider/Imagers. Another of the Company's newest product lines is
its CCD Autoguider/ Imagers. CCD technology allows users to create and transfer
high-resolution astronomical digital images directly from their telescope to a
home personal computer. This product has become increasingly popular as an
alternative to traditional astrophotography using conventional photographic
equipment, which requires longer exposure times.
Binoculars. The Company recently introduced a complete line of consumer
binoculars that will initially be sold through the Company's existing
distribution network. The binoculars sold by the Company are purchased from
manufacturers outside the United States.
Accessories. The Company also offers accessories for each of its telescope
series which range from additional eyepieces and camera adapters to celestial
observation software. Approximately 250 accessory products are currently
available from the Company. Sales of accessories represented approximately 9% of
the Company's net sales for the nine months ended November 30, 1996.
SALES AND MARKETING
The Company's telescopes and accessories are sold through a domestic
network of mail order dealers, specialty retailers and mass merchandisers and
through an international network of foreign distributors. The Company's high-end
products are generally sold through mail order retailers or single and multiple
location specialty retailers, while Meade's less-expensive products are sold in
a similar manner but are also sold through mass merchandisers. The Company
maintains direct contact with its larger domestic dealers and foreign
distributors through the Company's sales professionals. A network of independent
representatives is used to maintain contact with its smaller specialty
retailers.
The Company's sales force works closely with its dealers, specialty
retailers, distributors and mass merchandisers on product quality, technical
knowledge and customer service. The Company employs five persons in sales
positions, all of whom have significant industry experience. These individuals
advise the Company's specialty retailers about the quality features of the
Company's products and provide answers to questions from specialty retailers as
well as directly from amateur astronomers. The Company stresses service to both
its customers and end users by providing marketing assistance in the form of
hang-tags, catalogue layouts and other print media and dedicated toll free
customer service telephone numbers. The Company
28
<PAGE> 30
believes toll free telephone numbers help reduce the number of product returns
from end users who are generally unfamiliar with the assembly and operation of
telescopes. In an effort to further simplify assembly and use of the Company's
products, Meade pre-assembles a substantial portion of its telescopes prior to
packaging. See "Business -- Competitive Strengths -- Superior Customer Service."
The Company's products are regularly advertised in most major domestic and
international telescope and astronomy-related magazines and periodicals with
comprehensive, full color, technically informative advertisements which present
a consistent message of innovation and quality about the Company and its
products. The Company's dedication to providing a high level of customer service
is one factor that management believes sets Meade apart from its competition.
In an effort to gain additional expertise in the binocular market, the
Company recently hired R. Daniel George, the Company's Vice President -- Sports
Optics, from Bushnell, where he worked for 18 years in several senior sales
management positions.
The chart below shows the distribution of the Company's net sales for the
fiscal years ended February 28, 1994 and 1995, and February 29, 1996, and for
the nine months ended November 30, 1996, based on dollar value by the type of
distribution channel employed.
LOGO
CUSTOMERS
The Company markets its products domestically through a network of mail
order dealers, specialty retailers and mass merchandisers and internationally
through a network of foreign distributors. Included among the Company's
customers are the following retail outlets, mass merchandisers and foreign
distributors: The Nature Company, Natural Wonders, Service Merchandise, MIC
International Corp. (Japan), Astrocom GmbH (Germany), Wal-Mart, J.C. Penney,
Sears Canada and Discovery Channel Stores.
During fiscal 1996, the Company sold its products to mail order dealers and
to more than 500 specialty retailers and mass merchandisers which offer Meade's
products in over 1,000 retail store outlets. During that period, The Nature
Company, the Company's largest customer, accounted for approximately 12.4% of
the Company's net sales. The Company's seven largest customers, in the
aggregate, accounted for approximately 47.0% of the Company's net sales in
fiscal 1996. See "Risk Factors -- Customer Concentration." Discovery
Communications, Inc., the parent company of Discovery Channel Stores, has
acquired The Nature Company.
29
<PAGE> 31
OPERATIONS
Facilities. The Company's manufacturing and corporate operations are
located in a 57,000 square foot building in Irvine, California. The Company also
leases a separate 27,000 square foot distribution center in Irvine, California.
The Company has executed an agreement to consolidate and expand its operations
into a new 161,000 square foot facility also located in Irvine, California.
Materials and Supplies. The Company purchases high grade optical glass in
order to avoid imperfections that can degrade optical performance. Lenses and
mirrors for the Company's domestically manufactured telescopes are individually
polished and hand-figured by a master optician to achieve a high level of
resolution. The Company purchases metal telescope components from numerous
foundries, metal stamping and metal working companies. The Company's LX200
series telescopes require additional installation of the computerized drive and
celestial object database circuit board. The components of the board are
purchased from various suppliers and assembled by third party vendors and by
certain of the Company's manufacturing personnel. The boards are installed at
the Company's manufacturing facility and undergo a rigorous burn-in period prior
to shipment to customers.
Polishing and Hand Figuring. After a Schmidt-Cassegrain,
Maksutov-Cassegrain, ED-refractor or Newtonian glass surface is fine ground, the
mirror or lens is polished for up to 16 hours to obtain full transmission or
reflectivity. It is at this point that the Company's opticians perform the final
lens or mirror shaping (a process called figuring).
Optical Testing. As each of the Company's ED-refractor, Maksutov-Cassegrain
optical set, Schmidt-Cassegrain optical set, or parabolic Newtonian primary
mirror progresses through the grinding, polishing and hand-figuring stages of
development, it is repeatedly tested and retested for irregularities, smoothness
of figure and correction.
Optical Alignment and Centration. Finished, individually-matched
Maksutov-Cassegrain and Schmidt-Cassegrain optical sets and matched ED-refractor
doublet objective lenses are sent to the optical alignment and centration
department, where each optical set is placed into a special optical tube that
permits rotation of the optical elements about their optical axes. With optimal
orientation fixed, each optics set is placed into machined housings of an
optical tube or collimation lens cell. The optical system is once again tested
and only after passing this final test is an optical tube system ready to be
used.
Most of the Company's less-expensive telescopes are manufactured
exclusively for the Company in Taiwan. Since 1990, the Company has worked
closely with the Taiwanese Factory, developing proprietary telescope designs and
instructing the Taiwanese Factory's personnel in the production of telescopes
that meet the Company's quality standards. In January 1995, in order to assure a
reliable flow of products to meet the Company's increasing requirements, and in
order to ensure the Company would be able to exert sufficient control over the
manufacturing process and thus ensure that its quality standards are maintained,
the Company and the Taiwanese Factory entered into a supply agreement wherein
the Taiwanese Factory agreed to manufacture telescopes exclusively for sale
through Meade and wherein Meade agreed to purchase essentially all of its
less-expensive telescopes from the Taiwanese Factory. The Company owns the
majority of the designs and optical machine tooling used by the Taiwanese
Factory and regularly sends manufacturing and engineering personnel to the
manufacturing facility in Taiwan to ensure that high quality telescopes are
produced.
COMPETITION
The telescope and binocular industries are highly competitive and sensitive
to consumer needs and preferences. In the telescope market, Meade competes in
the United States and Canada with Celestron, Bushnell, Tasco and Simmons and, to
a lesser extent, with other significantly smaller companies which service niche
markets. In Europe and Japan, the Company competes primarily with Celestron and
Vixen Optical Industries, Ltd. and with other smaller regional telescope
importers and manufacturers. In addition, some of the Company's current and
potential competitors in the telescope market may possess greater financial or
30
<PAGE> 32
technical resources and competitive cost advantages due to a number of factors,
including, without limitation, lower taxes and substantially lower costs of
labor associated with manufacturing.
In the binocular market, which is generally more competitive than the
telescope market, with a greater number of competitors at each price point, the
Company competes primarily with Bushnell, Nikon Inc., Canon Inc., Minolta
Camera, Co., Ltd., Pentax Corporation, Tasco, Simmons and various smaller
manufacturers and resellers. Many of these competitors in the binocular market
have significantly greater brand name recognition and financial and technical
resources than those of the Company, and many have long-standing positions,
customer relationships and established brand names in their respective markets.
See "Risk Factors -- Competition."
EMPLOYEES
As of December 31, 1996, Meade had 240 full-time employees. The Company
believes that it offers competitive compensation and other benefits and that its
employee relations are good. None of the Company's employees is represented by a
union. The success of the Company's future operations depends in large part on
the Company's ability to attract and retain highly skilled technical, marketing
and management personnel. There can be no assurance that the Company will be
successful in attracting and retaining key personnel.
In order to enable its employees to share in the Company's growth and
prosperity, Meade established the ESOP, effective March 1, 1996. The ESOP
provides participating employees an opportunity to receive beneficial ownership
of Meade's Common Stock.
PROPERTIES
The Company leases a 57,000 square foot manufacturing and corporate
facility and a separate 27,000 square foot distribution center, each located in
Irvine, California. The lease for the manufacturing and corporate facility
expires in March 2000 and the lease for the distribution center expires in
October 1997. In December 1996, the Company executed a ten year lease agreement
for a new 161,000 square foot facility also located in Irvine, California that
the Company expects to occupy in the third quarter of fiscal year 1998. The
Company believes there will be no material expenses incurred in connection with
the termination of the Existing Leases because (i) the Company intends to
sublease its manufacturing and corporate facility and (ii) the distribution
facility lease terminates in October 1997.
LITIGATION
The Company is involved from time to time in litigation incidental to its
business. Management believes that the outcome of current litigation will not
have a material adverse effect on the Company.
Prior to the reacquisition of the Company by certain members of its senior
management, Meade agreed to be bound by the provisions of an order ("Order") of
the United States Federal Trade Commission ("FTC") prohibiting the Company from
making certain acquisitions. The Order provides that Meade shall not acquire,
without the prior approval of the FTC, any stock, equity interest or assets,
other than purchases of manufactured product in the ordinary course of business,
of any company engaged in the manufacture or sale of Schmidt-Cassegrain
telescopes with apertures of 8 to 11 inches in the United States. The Order is
effective until August 30, 2001.
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<PAGE> 33
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Board of Directors is divided into three classes: Class I, Class II and
Class III. After his initial term, each director serves for a term ending after
the third annual meeting following the annual meeting at which such director is
elected and until his successor is elected. The terms of office of directors in
Class I, Class II and Class III end after the annual meetings of stockholders of
the Company in 1998, 1999 and 2000, respectively. See "Description of Capital
Stock -- Application of the California General Corporation Law to Delaware
Corporations." The following table sets forth information for the directors,
executive officers and certain key employees of the Company as of November 30,
1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------------
<S> <C> <C>
John C. Diebel................... 53 Chairman of the Board and Chief Executive Officer
Steven G. Murdock................ 45 President and Chief Operating Officer, Director
Joseph A. Gordon, Jr............. 46 Senior Vice President of North American Sales,
Director
Ronald Ezra...................... 46 Chief Engineer
Brent W. Christensen............. 37 Vice President -- Finance and Chief Financial
Officer
Kenneth Baun..................... 48 Vice President -- Engineering
Robert Wood...................... 35 Vice President -- Manufacturing
R. Daniel George................. 51 Vice President -- Sports Optics
(1)(2)(3)............ Future Director
(1)(2)(3)............ Future Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Each individual named as a Future Director in the table has been elected as
a Director of the Company effective upon the completion of this Offering and
has consented to be named as such herein.
John C. Diebel founded Meade Instruments Corp. in 1972. He has been the
Chairman of the Board and Chief Executive Officer of the Company for the
majority of the time since December 1975. Prior to founding the Company, Mr.
Diebel worked as an engineer for TRW Inc. and Hughes Aircraft Co. Mr. Diebel
graduated from the California Institute of Technology with BS and MS degrees in
electrical engineering and received his Ph.D. degree in electrical engineering
from the University of Southern California.
Steven G. Murdock has been the Company's President and Chief Operating
Officer since October 1990. From May 1980 to October 1990, Mr. Murdock was the
Company's Vice President of Optics. From November 1968 to May 1980, Mr. Murdock
worked as the optical manager for Coulter Optical, Inc., an optics manufacturer.
Mr. Murdock received his BS degree in business administration from California
State University at Northridge.
Joseph A. Gordon, Jr. has been the Company's Senior Vice President of North
American Sales since June 1995. From December 1984 to June 1995, he worked as
the Company's Vice President of North American Sales. From January 1981 to
December 1984, Mr. Gordon was the Vice President of Sales at Celestron. Mr.
Gordon graduated from the University of Cincinnati with a BS degree in
marketing.
Ronald Ezra has been the Company's Chief Engineer since June 1995. From
1976 to June 1995, Mr. Ezra held various positions at the Company including
Project Engineer, Manufacturing Manager and Vice President -- Engineering. Mr.
Ezra received his BS degree in electrical engineering from California State
University at Long Beach.
Brent W. Christensen has been the Company's Vice President -- Finance since
June 1995 and Chief Financial Officer since April 1996. From August 1993 to June
1995, he worked as the Company's controller. Mr. Christensen is a Certified
Public Accountant, and from January 1985 to August 1993, he worked as an
32
<PAGE> 34
audit manager with Ernst & Young LLP. Mr. Christensen received his BA degree in
business administration from California State University at Fullerton.
Kenneth Baun has been the Company's Vice President -- Engineering since
June 1995. From March 1995 to June 1995, he worked as an engineering manager for
the Company. From 1991 to 1995, Mr. Baun was the President of Summit Instruments
Corp., a producer of disk drive test equipment. In addition, from 1973 to 1980,
Mr. Baun worked as an engineering department manager at UNISYS. Mr. Baun
received his BA degree in electrical engineering and his MS degree in computer
science from the University of California at Los Angeles.
Robert Wood has been the Company's Vice President -- Manufacturing since
June 1995. From March 1991 to June 1995, he was the Company's Manager-Optics.
From October 1988 to March 1991, he worked as a project engineer for the
Company. Mr. Wood received his BS degree in electronics engineering technology
from Brigham Young University.
R. Daniel George has been the Company's Vice President -- Sports Optics
since February 1996. From 1978 to February 1996, he was employed by Bushnell
Optical Co., holding several sales management positions including regional sales
manager and sales planning manager. Mr. George received his BS degree in
Business Administration from California State University at Long Beach.
DIRECTORS
The Certificate of Incorporation divides the Board of Directors into three
classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors will be elected at each annual
meeting of stockholders. All directors hold office until their respective terms
expire and until their successors have been duly elected and qualified or until
such director's earlier resignation or removal. Officers serve at the discretion
of the Board of Directors. See "Management -- Directors, Executive Officers and
Key Employees."
COMMITTEES OF THE BOARD OF DIRECTORS
The Company will have an Audit Committee and a Compensation Committee, each
of which will be comprised of outside directors. The Audit Committee's functions
will include recommending to the Board of Directors the engagement of the
Company's independent accountants, reviewing with such accountants the plan and
results of their examination of the Financial Statements. The Compensation
Committee will review and make recommendations with respect to compensation of
officers and key employees, including the grant of options or other awards under
the Company's Stock Incentive Plan. See "Management -- Benefit Plans -- 1997
Stock Option Plans."
DIRECTORS' FEES
Directors who also are employees of the Company are reimbursed for expenses
incurred in attending Board or Committee meetings but do not otherwise receive
compensation for serving as directors of the Company. Each director who is not
an employee of the Company is entitled to receive (i) an annual fee of $5,000
for his services as a director, (ii) a fee of $750 for each Board or Committee
meeting attended, (iii) 5,000 options to purchase Common Stock upon his initial
election to the Board together with an additional grant of 5,000 options on the
date of each annual meeting of stockholders preceeding a year in which such
director will continue in office and (iv) reimbursement for expenses incurred in
attending Board or Committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, all matters concerning executive officer compensation
were addressed by the entire Board of Directors. The Company did not have a
Compensation Committee in fiscal 1996. John C. Diebel was both a director and an
executive officer of the Company during the fiscal year ended February 29, 1996.
See "Management -- Directors, Executive Officers and Key Employees."
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<PAGE> 35
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to the Company's Chief Executive Officer and to the other four
most highly compensated executive officers of the Company who were serving as
executive officers during the fiscal year ended February 29, 1996 (together with
the Company's Chief Executive Officer, the "Named Officers").
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)(2)
-------------------
SALARY BONUS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($)(3) ($) COMPENSATION(4)
- ------------------------------------------------- ---- ------- ------- ---------------
<S> <C> <C> <C> <C>
John C. Diebel................................... 1996 399,000(5) -- 1,600
Chairman of the Board and Chief Executive
Officer
Steven G. Murdock................................ 1996 223,000 -- --
President and Chief Operating Officer
Joseph A. Gordon, Jr. ........................... 1996 124,000 -- 700
Senior Vice President of North American Sales
Ronald Ezra(6)................................... 1996 108,000 -- 1,100
Chief Engineer
Brent W. Christensen............................. 1996 79,000 160,000(7) 800
Vice President -- Finance, Chief Financial
Officer
</TABLE>
- ---------------
(1) The aggregate amount of perquisites and other personal benefits, securities
or property paid to each of the Named Officers during fiscal 1996 did not
exceed the lesser of 10% of such officer's total annual salary and bonus for
fiscal 1996 or $50,000. Therefore, any such amounts are not included in the
table.
(2) In connection with the formation of the ESOP, Messrs. Diebel, Murdock,
Gordon and Ezra will be paid an aggregate contractual bonus for the fiscal
year ended February 28, 1997 of $340,000. See "Selected Financial
Information."
(3) Mr. Diebel's annual base salary for fiscal 1998 will be $295,000 and he will
be eligible for a bonus to be determined by the Compensation Committee.
(4) Contribution by the Company in the name of the individual under the
Company's 401(k) Plan.
(5) As of the completion of this Offering, Mr. Diebel's annual base salary will
be $295,000. See "Management -- Employment Agreements."
(6) Mr. Ezra is no longer an executive officer of Meade, but he continues to be
a key employee of the Company.
(7) Includes a one-time contractual bonus of $150,000 accrued in connection with
the Company's recapitalization effected in April 1996. See "Selected
Financial Information."
BENEFIT PLANS
Employee Stock Ownership Plan. The Board of Directors adopted the ESOP
effective March 1, 1996. The purpose of the ESOP is to enable participating
employees to share in the growth and prosperity of the Company and to provide an
opportunity for participating employees to accumulate capital for their future
economic advantage by receiving beneficial ownership of the Company's stock in
proportion to their relative compensation. The ESOP is intended to be a stock
bonus plan that is qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). Except for certain officers of the Company and
their families, all employees who have completed at least 1,000 hours of service
on an annual basis are eligible to participate in the ESOP. Generally, a
participant becomes fully vested in contributions to the ESOP upon completion of
five years of service with the Company or its affiliates (including service
prior to the adoption of the ESOP).
To establish the ESOP, the Company borrowed from certain lending
institutions and raised capital through the sale of its Redeemable Preferred
Stock, and then loaned a portion of such funds to the ESOP to allow it to
purchase 1,500,000 shares of the Company's Series B Common Stock from the
Company's
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<PAGE> 36
stockholders. See "Certain Transactions." As the Company makes contributions to
the ESOP, the ESOP pays its indebtedness owed to the Company. As of November 30,
1996, the outstanding amount of the ESOP's indebtedness to the Company was
approximately $10.0 million. Distributions from the ESOP are generally made to
participants only following termination of employment. Shares of Common Stock
allocated to participants' accounts are voted in the manner directed by such
participants, and the ESOP Committee directs the voting of unallocated shares
and shares for which participants do not provide voting instructions.
1997 Stock Incentive Plan. In February 1997, the Company and its
stockholders adopted the Company's 1997 Stock Incentive Plan (the "Plan"). The
Plan provides a means to attract and retain key employees (including officers,
whether or not directors) of the Company and its subsidiaries and promote the
success of the Company.
Under the Plan, awards consist of any combination of stock options
(incentive or nonqualified), restricted stock, stock appreciation rights
("SARs") and performance share awards. The number of shares of Common Stock that
may be issued under the Plan is 750,000. Awards under the Plan may be made to
any officer or key employee of the Company and to consultants to the Company
whether or not such consultants are employees.
Participants in the Plan are selected by the Compensation Committee. The
Compensation Committee is selected by the Board of Directors and is empowered to
determine the terms and conditions of each award made under the Plan, subject to
the limitations that the exercise price of incentive stock options cannot be
less than the fair market value of the Common Stock on the date of grant (110%
if granted to an employee who owns 10% or more of the Common Stock), and no
incentive stock option can be granted to anyone other than an employee of the
Company or its subsidiaries. Non-qualified stock options may be granted under
the Plan with an exercise price determined by the Compensation Committee.
Options granted under the Plan may be exercised as determined by the
Compensation Committee, but in no event after ten years from the date of grant.
Incentive stock options that are granted to an employee who owns 10% or more of
the Common Stock may not be exercised after five years from the date of grant.
Restricted stock awards may be granted on the basis of such factors as the
Compensation Committee deems appropriate. Each restricted stock award agreement
shall specify the number of shares of Common Stock to be issued, the date of
such issuance, the price, if any, to be paid for such shares by the participant,
whether and to what extent the cash consideration paid for such shares shall be
returned upon a forfeiture and the restrictions imposed on such shares. Shares
subject to restricted stock awards are nontransferable until such shares have
vested and are subject to a risk of forfeiture unless certain conditions are
satisfied.
SARs may be granted in connection with stock options or separately. SARs
granted in connection with stock options will provide for payments to the holder
based upon increases in the price of the Common Stock over the exercise price of
the related option on the exercise date. The SARs may provide that the holder of
the SARs may exercise the SARs or the option in whole or in part. The
Compensation Committee may elect to pay SARs in cash or in Common Stock or in a
combination of cash and Common Stock. The Compensation Committee may also grant
limited SARs exercisable only upon or in respect of a change in control or any
other specified event ("Limited SARs"). The Limited SARs may relate to or
operate in tandem with other SARs, options or other awards under the Plan.
Performance share awards may be granted on the basis of such factors as the
Compensation Committee deems appropriate. Generally, these awards will be based
upon specific agreements and will specify the number of shares of Common Stock
subject to the award, the price, if any, to be paid for such shares by the
participant and the conditions upon which the issuance to the participant will
be based.
Special performance-based share awards ("Performance-Based Awards") may
also be granted to executive officers of the Company. The Performance-Based
Awards will be based upon the degree of
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<PAGE> 37
achievement of certain performance goals relative to pre-established levels for
the Company as selected by the Compensation Committee in its discretion.
Options and SARs, which have not yet become exercisable, will lapse upon
the date a participant is no longer employed by the Company for any reason.
Options and SARs which have become exercisable must be exercised within three
months after such date if the termination of employment was for any reason other
than retirement, total disability, death or discharge for cause. In the event a
participant is discharged for cause, all options and SARs shall lapse
immediately upon such termination of employment. If the termination of
employment was due to total disability or death, the options and SARs, which are
exercisable on the date of such termination, must be exercised within twelve
months of the date of such termination or such shorter period provided in the
award agreement. If the termination of employment was due to retirement, the
non-qualified stock options, which are exercisable on the date of such
termination, must be exercised within twelve months of such date and the
incentive stock options, which are exercisable on the date of such termination,
must be exercised within three months of such date, or such shorter periods as
may be provided in the award agreement. Shares subject to restricted stock
awards that have not become vested upon the date a participant is no longer
employed by the Corporation for any reason will be forfeited in accordance with
the terms of the related award agreements. With respect to performance share
awards, the Committee may provide for full or partial credit in the event the
participant is no longer employed by the Company for any reason.
The Plan also provides for the automatic granting of stock options to
non-employee directors. Each time a new non-employee director is elected, a
stock option to purchase 5,000 shares of Common Stock will be automatically
granted to such non-employee director at the then fair market value of the
Common Stock. In addition, non-employee directors will receive an additional
grant of 5,000 options on the date of each annual meeting of stockholders
(commencing in 1998) preceding a year in which such director will continue in
office. All options granted to non-employee directors will be non-qualified
stock options. The option exercise price will be the fair market value of the
Common Stock as of the date of the grant.
In the event the stockholders of Company approve the dissolution or
liquidation of the Company, certain mergers or consolidations, or the sale of
substantially all of the business assets of the Company, unless prior to such
event the Board of Directors determines that there shall be either no
acceleration or limited acceleration of awards, each option and related SAR
shall become immediately exercisable, restricted stock shall immediately vest
and the number of shares covered by each performance share award shall be issued
to the participant.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. John C. Diebel, Steven
G. Murdock, Joseph A. Gordon, Jr., and Ronald Ezra (the "Senior Management").
Each of the employment agreements has a term of one year which is automatically
extended on a daily basis such that the remaining term of the agreement shall at
all times be one full year. The agreements provide for the payment of an annual
base salary of $400,000 to Mr. Diebel, $225,000 to Mr. Murdock, $125,000 to Mr.
Gordon and $100,000 to Mr. Ezra. The fiscal 1997 annual base salary for Mr. Ezra
has been reduced to $75,000. The fiscal 1998 annual base salary for Mr. Diebel
has been reduced to $295,000 and he will be eligible for a bonus to be
determined by the Compensation Committee. Annual base salaries will be reviewed
annually by the Company's Compensation Committee of the Board of Directors. The
Senior Management is also entitled to participate in and be covered by all
health, insurance, pension and other employee plans and benefits currently
established for the employees of the Company. In addition, the agreements
provide the Senior Management vacation benefits of three weeks per year and
reimbursement of all business expenses. If the Company terminates a Senior
Management member's employment without cause or as a result of a disability, or
if a Senior Management member terminates his employment under certain
circumstances set forth in the agreement, then the member of Senior Management
shall be entitled to continuation of employee benefits and salary continuation
for a period equal to the remainder of the term of his agreement. In addition,
Senior Management may not compete with the Company or solicit its customers,
employees, agents or independent contractors during the term of the agreement.
The Company does not currently have a bonus plan for its executive officers,
however, the Company intends to adopt such a plan for the 1998 fiscal year.
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<PAGE> 38
CERTAIN TRANSACTIONS
On April 23, 1996, pursuant to an Exchange Agreement among the Company and
Messrs. John C. Diebel, Steven G. Murdock, Joseph A. Gordon, Jr., and Ronald
Ezra (collectively, the "Stockholders"), the Stockholders exchanged their shares
of Common Stock for 2,571,361 shares of Series A Common Stock and 1,500,000
shares of Series B Common Stock in order to facilitate their sales of Series B
Common Stock to the ESOP. Immediately following such exchange, under the Meade
Redemption Agreement, among the Stockholders and the Company, the Company
repurchased in the aggregate 71,361 shares of Series A Common Stock from the
Stockholders, at the price of $3.50 per share (an aggregate purchase price of
$250,000).
On April 23, 1996, the Company loaned the ESOP $11.0 million, which funds
were used by the ESOP to purchase a total of 1,500,000 shares of Series B Common
Stock from the Stockholders, at a price of $7.33 per share (an aggregate
purchase price of $11.0 million). This transaction was structured in a manner
intended to permit any of the Stockholders who so elected to receive tax
deferred treatment on any gain from the sale under Section 1042 of the Code.
In connection with the ESOP's purchase of the Stockholders' Series B Common
Stock, pursuant to a Securities Purchase Agreement, dated April 23, 1996, the
Company issued and sold 1,000 shares of Redeemable Preferred Stock to Churchill
for an aggregate purchase price of $6.0 million. In addition, the Company issued
to Churchill a Series A Common Stock Warrant covering 1,000,000 shares of Series
A Common Stock for an aggregate exercise price of $10,000, which Churchill
exercised in full immediately after the closing of Churchill's purchase of the
Redeemable Preferred Stock.
On April 23, 1996, the Company repaid the then outstanding $2.0 million of
indebtedness (together with the interest accrued thereon) owed to the
Stockholders ($1,788,000 owed to Mr. Diebel, $152,000 owed to Mr. Murdock,
$51,000 owed to Mr. Ezra and $25,000 owed to Mr. Gordon).
Under Incentive Compensation Agreements ("Incentive Agreements"), between
the Company and each of Mr. Robert Wood and Mr. Brent W. Christensen, each of
Messrs. Wood and Christensen was entitled to a bonus payment from the Company in
the event of certain change-in-control transactions. Pursuant to Settlement
Agreements, dated April 22, 1996, the Company paid each of Mr. Wood and Mr.
Christensen a $150,000 bonus payment in exchange for termination of their rights
under the Incentive Agreements.
In connection with this Offering, the Company and Churchill entered into a
Letter Agreement, dated as of January 31, 1997, which provides, in part, that
upon the completion of this Offering, Churchill may reimburse the Company for up
to $400,000 of its expenses related to this Offering, depending upon various
factors set forth therein, including the number of shares sold in this Offering
and the Offering price of such shares.
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<PAGE> 39
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of January 31, 1997, as adjusted to
reflect the sale of the Common Stock offered hereby, for (i) each person who
beneficially owns more than 5% of the Common Stock, (ii) each of the directors
and Named Officers, (iii) all directors and executive officers as a group and
(iv) the Selling Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE THIS OFFERING NUMBER OF AFTER THIS OFFERING(1)
---------------------- SHARES ----------------------
NUMBER PERCENTAGE OFFERED(1) NUMBER PERCENTAGE
--------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
John C. Diebel(2).......................... 1,275,000 25.5% -- 1,275,000 17.0%
Steven G. Murdock(2)....................... 762,500 15.3% -- 762,500 10.2%
Ronald Ezra(2)............................. 295,000 5.9% -- 295,000 3.9%
Joseph A. Gordon, Jr.(2)................... 167,500 3.4% -- 167,500 2.2%
Brent W. Christensen(2).................... -- -- -- -- --
Future Director............................ -- -- -- -- --
Future Director............................ -- -- -- -- --
Meade Instruments Corp. Employee Stock
Ownership Plan(3)........................ 1,500,000 30.0% -- 1,500,000 20.0%
Churchill ESOP Capital Partners(4)......... 1,000,000 20.0% 870,000 130,000 1.7%
All current directors and executive
officers as a group (4 persons).......... 2,500,000 50.0% -- 2,500,000 33.3%
</TABLE>
- ---------------
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) The address for all officers of the Company is c/o Meade Instruments Corp.,
16542 Millikan Avenue, Irvine, California 92606.
(3) Common Stock held by the ESOP is voted by the trustee of the ESOP, Wells
Fargo Bank, N.A. (the "Trustee"), as directed by the ESOP Committee, except
that participants in the ESOP are entitled to direct the Trustee as to how
to vote shares allocated to their ESOP accounts. The Trustee's address is
707 Wilshire Boulevard, Los Angeles, California 90017.
(4) The address for Churchill ESOP Capital Partners is 2400 Metropolitan Centre,
333 South Seventh Street, Minneapolis, Minnesota 55402.
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<PAGE> 40
DESCRIPTION OF CAPITAL STOCK
REINCORPORATION
The Company was originally incorporated in the State of California on
December 19, 1975. Prior to the completion of this Offering, the Company will
reincorporate as a Delaware corporation to be named Meade Instruments Corp.
pursuant to a merger with and into a newly-formed and wholly-owned Delaware
subsidiary, with such Delaware subsidiary to be the surviving corporation.
OUTSTANDING CAPITAL
As of the completion of this Offering, and after giving effect to the
reincorporation of the Company, the authorized capital stock of the Company
consists of two classes of capital stock, designated respectively, "Common
Stock" and "Preferred Stock." The Company is authorized to issue 20,000,000
shares of Common Stock, $.01 par value per share, and 1,000,000 shares of
Preferred Stock, $.01 par value per share. The summary description included
herein relating to the capital stock of the Company does not purport to be
complete. Reference is made to the Certificate of Incorporation of the Company,
which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, for a detailed description of the provisions thereof
summarized below.
COMMON STOCK
Holders of Common Stock are entitled to receive such dividends as may from
time to time be declared by the Board of Directors of the Company out of funds
legally available therefor. Holders of Common Stock are entitled to one vote per
share on all matters on which the holders of Common Stock are entitled to vote
and do not have any cumulative voting rights. The Board of Directors is divided
into three classes. See "Description of Capital Stock -- Certain Anti-Takeover
Effects -- Classified Board of Directors." Holders of Common Stock have no
preemptive, conversion, redemption or sinking funds rights. In the event of a
liquidation, dissolution or winding-up of the Company, holders of Common Stock
are entitled to share equally and ratably in the assets of the Company, if any,
remaining after the payment of all debts and liabilities of the Company and the
liquidation preference of any outstanding Preferred Stock. The outstanding
shares of Common Stock are, and the shares of Common Stock offered by the
Company hereby when issued will be, fully paid and nonassessable. The rights,
preferences and privileges of holders of Common Stock are subject to any series
of Preferred Stock that the Company may issue in the future. As of January 31,
1997, there were six holders of the Company's Common Stock.
PREFERRED STOCK
The Board of Directors is authorized to provide for the issuance of
Preferred Stock in one or more series and to fix the designations, preferences,
powers and relative, participating, optional and other rights, qualifications,
limitations and restrictions thereof, including the dividend rate, conversion
rights, voting rights, redemption price and liquidation preference, and to fix
the number of shares to be included in any such series. Any Preferred Stock so
issued may rank senior to the Common Stock with respect to the payment of
dividends or amounts upon liquidation, dissolution or winding-up, or both. In
addition, any such shares of Preferred Stock may have class or series voting
rights. Upon completion of this Offering, the Company will not have any shares
of Preferred Stock outstanding. Issuances of Preferred Stock, while providing
the Company with flexibility in connection with general corporate purposes, may,
among other things, have an adverse effect on the rights of holders of Common
Stock, may have the effect of delaying, deferring or preventing a change in
control of the Company without further action by the stockholders, may
discourage bids for the Company's Common Stock at a premium over the market
price of the Common Stock, and may adversely affect the market price of and the
voting and other rights of the holders of Common Stock. At present, the Company
has no plans to issue any of the Preferred Stock. As of January 31, 1997, there
was one holder of the Company's Preferred Stock.
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<PAGE> 41
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is ,
California.
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the Certificate of Incorporation and the Bylaws of the
Company (the "Bylaws") summarized in the succeeding paragraphs may be deemed to
have anti-takeover effects and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider to be in such stockholder's
best interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders. However, certain of the
following provisions may be limited or prohibited by the application of Section
2115 of the California General Corporation Law described below.
Classified Board of Directors. The Certificate of Incorporation divides
the Board of Directors into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of Directors
will be elected at each annual meeting of stockholders.
The classification of directors and provisions in the Certificate of
Incorporation that limit the ability of stockholders to increase the size of the
Board of Directors, together with provisions in the Certificate of Incorporation
that limit the ability of stockholders to remove directors and that permit the
remaining directors to fill any vacancies on the Board, will have the effect of
making it more difficult for stockholders to change the composition of the Board
of Directors. As a result, two annual meetings of stockholders may be required
for the stockholders to change a majority of the directors, whether or not a
change in the Board of Directors would be beneficial to the Company and its
stockholders and whether or not a majority of the Company's stockholders
believes that such a change would be desirable.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws establish advance notice procedures with regard to
stockholder proposals and the nomination, other than by or at the direction of
the Board of Directors or a committee thereof, of candidates for election as
directors. The Company may reject a stockholder proposal or nomination that is
not made in accordance with such procedures.
Prohibition on Stockholder Action by Written Consent and Limitations on
Calling Stockholder Meetings. The Certificate of Incorporation and Bylaws
prohibit stockholder action by written consent in lieu of a meeting, and provide
that stockholder action can be taken only at an annual or special meeting of
stockholders. The Certificate of Incorporation and Bylaws provide that, subject
to the rights of holders of any series of Preferred Stock to elect additional
directors under specified circumstances, special meetings of stockholders can be
called only by the Board of Directors, the Chairman of the Board of Directors or
the Chief Executive Officer of the Company. Stockholders are not permitted to
call a special meeting or to require that the Board of Directors call a special
meeting of stockholders. Such provision may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting unless a
special meeting is called by the Board of Directors, the Chairman of the Board
or the Chief Executive Officer of the Company.
Section 203 of the Delaware General Corporation Law. Subject to certain
exclusions summarized below, Section 203 of the Delaware General Corporation Law
("Section 203") prohibits any interested stockholder (an "Interested
Stockholder") from engaging in a "business combination" with a Delaware
corporation for three years following the date such person became an Interested
Stockholder. Interested Stockholder generally includes (i) any person who is the
beneficial owner of 15% or more of the outstanding voting stock of the
corporation and (ii) any person who is an affiliate or associate of the
corporation and who held 15% or more of the outstanding voting stock of the
corporation at any time within three years before the date on which such
person's status as an Interested Stockholder is determined. Subject to certain
exceptions a "business combination" includes, among other things: (i) any merger
or consolidation involving the corporation; (ii) the sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets having an aggregate
market value equal to 10% or more of either the aggregate market value of all
assets of the corporation determined on a consolidated basis or the aggregate
market value of all the outstanding stock of the corporation; (iii) any
transaction that results in the issuance or transfer by the corporation of any
stock of
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<PAGE> 42
the corporation to the Interested Stockholder, except pursuant to a transaction
that effects a pro rata distribution to all stockholders of the corporation;
(iv) any transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class or series, or securities
convertible into the stock of any class or series, of the corporation that is
owned directly or indirectly by the Interested Stockholder; and (v) any receipt
by the Interested Stockholder of the benefit (except proportionately as a
stockholder) of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation.
Section 203 does not apply to a business combination if (i) before a person
became an Interested Stockholder, the board of directors of the corporation
approved the transaction in which the Interested Stockholder became an
Interested Stockholder or the business combination, (ii) upon consummation of
the transaction that resulted in the person becoming an Interested Stockholder,
the Interested Stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commences (other than
certain excluded shares) or (iii) following a transaction in which the person
became an Interested Stockholder, the business combination is (a) approved by
the board of directors of the corporation and (b) authorized at a regular or
special meeting of stockholders (and not by written consent) by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the Interested Stockholder.
APPLICATION OF THE CALIFORNIA GENERAL CORPORATION LAW TO DELAWARE CORPORATIONS
Under Section 2115 of the California General Corporation Law, certain
foreign corporations (i.e., corporations not organized under the California
General Corporation Law) are placed in a special category if they have
characteristics of ownership and operation which indicate that they have
significant contacts with California. So long as a Delaware or other foreign
corporation is in this special category, and it does not qualify for one of the
statutory exemptions, it is subject to a number of key provisions of the
California General Corporation Law applicable to corporations incorporated in
California. Among the more important provisions are those relating to the
election and removal of directors, cumulative voting, classified boards of
directors, standards of liability and indemnification of directors,
distributions, dividends and repurchases of shares, stockholder meetings,
approval of certain corporate transactions, dissenters' rights and inspection of
corporate records. Exemptions from Section 2115 are provided for corporations
whose shares are listed on a major national securities exchange, such as the New
York Stock Exchange, or whose shares are listed on the Nasdaq National Market
and which have 800 or more stockholders.
LIMITATION OF LIABILITY OF DIRECTORS
The Certificate of Incorporation provides that a director will not be
personally liable for monetary damages to the Company or its stockholders for
breach of fiduciary duty as a director, except to the extent such exemption for
liability or limitation thereof is not permitted under the Delaware General
Corporation Law (i.e., liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for paying a dividend or approving a stock repurchase in violation of
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit).
While the Certificate of Incorporation provides directors with protection
from awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Certificate of Incorporation will have no
effect on the availability of equitable remedies, such as an injunction or
rescission based on a director's breach of such director's duty of care.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation provides that each person (and the heirs,
executors, or administrators of such 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, by
41
<PAGE> 43
reason of the fact that such person is or was a director or officer of the
Company or is or was serving at the request of the Company as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, will be indemnified and held harmless by the Company to the fullest
extent permitted by the Delaware General Corporation Law. The Certificate of
Incorporation further provides that the right to indemnification includes the
right to be paid by the Company for expenses incurred in connection with any
such proceeding in advance of its final disposition to the fullest extent
permitted by the Delaware General Corporation Law, and that the right to
indemnification conferred thereunder is deemed a contract right.
The Certificate of Incorporation further provides that the Company may, by
action of its Board of Directors, provide indemnification to such of the
employees and agents of the Company and such other persons serving at the
request of the Company as employees or agents of another corporation,
partnership, joint venture, trust or other enterprise to such extent and to such
effect as is permitted by the Delaware General Corporation Law and the Board of
Directors.
Pursuant to the Certificate of Incorporation, the Company has the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss incurred by such person in any such capacity or
arising out of his or her status as such, whether or not the Company would have
the power to indemnify such person against such liability under the Delaware
General Corporation Law.
The Certificate of Incorporation provides that (i) the rights and authority
described above are not exclusive of any other right that any person otherwise
may have or acquire and (ii) no amendment, modification or repeal of the
Certificate of Incorporation, or adoption of any additional provision of the
Certificate of Incorporation or the Bylaws or, to the fullest extent permitted
by the Delaware General Corporation Law, any amendment, modification or repeal
of law will eliminate or reduce the effect of the provisions in the Certificate
of Incorporation limiting liability or indemnifying certain persons or adversely
affect any right or protection then existing thereunder in respect of any acts
or omissions occurring prior to such amendments, modifications, repeal or
adoption.
The Company has entered into indemnification agreements with its directors
and officers that require the Company to indemnify the directors and officers to
the fullest extent permitted by applicable provisions of the Delaware General
Corporation Law and, to the extent necessary, the California General Corporation
Law.
The Company believes the foregoing provisions are necessary to attract and
retain qualified persons as directors and officers.
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<PAGE> 44
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and assuming that the over-allotment option
granted to the Underwriters is not exercised, the Company will have 7,500,000
shares of Common Stock outstanding. The 2,500,000 shares of Common Stock sold by
the Company and the 870,000 shares of Common Stock sold by the Selling
Stockholder in the Offering will be freely tradeable in the public market
without restriction or limitation under the Securities Act. Although the
remaining 4,130,000 shares of Common Stock will be deemed "restricted"
securities within the meaning of the Securities Act, the Company believes that
2,500,000 of such shares will be available for sale under Rule 144 of the
Securities Act ("Rule 144").
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 (as the term is defined under the Securities Act), would be entitled to
sell (in accordance with the provisions specified in Rule 144), within any
three-month period, that number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock of the Company (75,000
shares immediately after the Offering) or (ii) the average weekly trading volume
of the then outstanding shares of Common Stock during the four calendar weeks
preceding each such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and availability of current public
information about the Company.
An "affiliate" of the Company may sell securities that are not "restricted"
without regard to the period of beneficial ownership but subject to the volume
limitations described above and other conditions of Rule 144, subject to
restrictions on affiliates. A person who is not deemed an "affiliate" of the
Company (and has not been such for at least 90 days) and who has beneficially
owned his or her shares for at least three years, would be entitled to sell such
shares under Rule 144 without regard to the volume limitations described above,
manner of sales provisions, notice requirements or availability of public
information. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly or indirectly controls, or is controlled by, or is under common
control with such issuer.
The Company, each of its executive officers and directors and the ESOP have
agreed that they will not, directly or indirectly, offer, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, grant of any option
to purchase or other sale or disposition) of any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for, any shares of
Common Stock without the prior written consent of Morgan Keegan & Company, Inc.
for a period of 270 days from the date of this Prospectus. In addition, the
remaining 130,000 shares of Common Stock held by the Selling Stockholder after
the Offering shall become eligible for sale in the public market 180 days after
the date of this Prospectus, subject to the holding period, volume and other
restrictions of Rule 144. See "Underwriting" and "Principal and Selling
Stockholders."
Prior to this Offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that future sales of shares,
or the availability of such shares for future sale, will have on the market
price for the Common Stock prevailing from time to time. Nevertheless, sales by
the existing stockholders of substantial amounts of the Common Stock in the
public market could adversely affect prevailing market conditions.
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<PAGE> 45
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by Morgan
Keegan & Company, Inc. and Crowell, Weedon & Co. (the "Representatives"), have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement (the "Underwriting Agreement"), to purchase from the
Company and the Selling Stockholder the number of shares of Common Stock
indicated below opposite their respective names at the initial public offering
price less the underwriting discount set forth on the cover page of this
Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
------------------------------------------------------------------------- ---------
<S> <C>
Morgan Keegan & Company, Inc. ...........................................
Crowell, Weedon & Co. ...................................................
-------
Total..........................................................
=======
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any of such shares are
purchased. The Company and the Selling Stockholder have been advised by the
Underwriters that the Underwriters propose to offer the shares of Common Stock
to the public at the initial public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share of Common Stock. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share to
other dealers. The initial public offering price and the concessions and
discount to dealers may be changed by the Underwriters after the initial public
offering.
The Company and the Selling Stockholder have granted to the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase up
to an additional 505,500 shares of Common Stock (of which the first 130,000
shares will be sold by the Selling Stockholder and the remaining 375,500 shares
will be sold by the Company) at the initial public offering price, less
underwriting discounts and commissions, as shown on the cover page of this
Prospectus. The Underwriters may exercise such option solely for the purpose of
covering over-allotments incurred in the sale of the shares of Common Stock
offered hereby.
The Company and the Selling Stockholder have agreed to indemnify the
several Underwriters or to contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.
The Company, each of its executive officers and directors and the ESOP have
agreed, for a period of 270 days from the date of this Prospectus, not to,
directly or indirectly, offer, sell, offer to sell, contract to sell, grant any
option to purchase, or otherwise dispose (or announce any offer, sale, grant of
any option to purchase or other disposition) of any shares of Common Stock, or
any securities convertible into, or exercisable or exchangeable for, shares of
Common Stock, in the public market, without the prior written consent of the
Representatives. In addition, the remaining 130,000 shares of Common Stock held
by the Selling Stockholder after the Offering shall become eligible for sale in
the public market 180 days after the date of this Prospectus, subject to the
holding period, volume and other restrictions of Rule 144.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the Common Stock will
be determined by negotiations among the Company, the Selling Stockholder and the
Representatives. Among the factors considered in determining the initial public
offering price of the Common Stock will be the history of, and the prospects
for, the Company and the industry in which it competes, an assessment of the
Company's management, the Company's past and present operations, its past and
present earnings and the trend of such earnings, the prospects for future
earnings of the Company, the general condition of the securities market at the
time of the Offering and the market prices of publicly traded companies that the
Company and the Representatives believe to be comparable to the Company.
44
<PAGE> 46
Application has been made for inclusion of the Common Stock on the Nasdaq
National Market under the symbol "MEAD." The Company has been advised by the
Representatives that each of the Representatives presently intend to make a
market in the Common Stock offered hereby; however, the Representatives are not
obligated to do so, and any market making activity may be discontinued at any
time. There can be no assurance that an active public market for the Common
Stock will develop and continue after this Offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholder by O'Melveny & Myers LLP,
Newport Beach, California. Certain legal matters will be passed upon for the
Underwriters by Gibson, Dunn & Crutcher LLP, Los Angeles, California.
EXPERTS
The financial statements of Meade Instruments Corp. as of February 28,
1994, February 28, 1995 and February 29, 1996 and for each of the three years in
the period ended February 29, 1996 included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules to the Registration Statement. For further information with respect to
the Company and such Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part of the
Registration Statement. Statements contained in this Prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, as well as the reports and
other information filed by the Company with the Securities and Exchange
Commission, may be inspected without charge at the Public Reference Room of the
Securities and Exchange Commission's principal office at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Securities and Exchange
Commission's regional offices at Seven 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 also be obtained at
prescribed rates from the Public Reference Section of the Securities and
Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. Electronic filings made through the Electronic Data Gathering Analysis
and Retrieval System are also publicly available through the Securities and
Exchange Commission's Web Site (http://www.sec.gov).
45
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Meade Merger Corp.
Report of Independent Accountants................................................. F-2
Balance Sheet..................................................................... F-3
Note to Balance Sheet............................................................. F-4
Meade Instruments Corp.
Report of Independent Accountants................................................. F-5
Balance Sheets.................................................................... F-6
Income Statements................................................................. F-7
Statements of Stockholders' Equity (Deficit)...................................... F-8
Statements of Cash Flows.......................................................... F-9
Notes to Financial Statements..................................................... F-10
</TABLE>
F-1
<PAGE> 48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Meade Merger Corp.
The incorporation described in Note 1 to the balance sheet has not been
consummated at February 3, 1997. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Meade Merger Corp. at
February , 1997 in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the
Company's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit of
this statement in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for the opinion
expressed above."
PRICE WATERHOUSE LLP
Costa Mesa, California
February , 1997
F-2
<PAGE> 49
MEADE MERGER CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY ,
1997
------------
<S> <C>
Assets
Cash.................................................. $100
------
$100
=========
STOCKHOLDERS' EQUITY
Stockholders' equity:
Preferred stock; $0.01 par value; 1,000,000
shares authorized; no shares issued and
outstanding Series A common stock; $0.01 par
value; 15,000,000 shares authorized; 10 shares
issued and outstanding.........................
Series B common stock; $0.01 par value; 5,000,000
shares authorized; no shares issued and
outstanding
Additional paid-in capital....................... $100
------
Total stockholders' equity....................... 100
------
$100
=========
</TABLE>
F-3
<PAGE> 50
MEADE MERGER CORP.
NOTE TO BALANCE SHEET
1. THE COMPANY
Meade Merger Corp. (the Company) was incorporated in Delaware on February 4,
1997. Upon completion of the public offering of Meade Instruments Corp., a
California corporation, the Company will merge with the California corporation
and exchange at a ratio of one to one all of the outstanding shares of the
redeemable Series A preferred stock and Series A and Series B common stock of
the California corporation. Subsequently, the then outstanding shares of Series
A and Series B common stock of the Company will be converted to one series of
common stock at a ratio of one to one.
The balance sheet should be read in conjunction with the historical financial
statements of Meade Instruments Corp., a California corporation, included
elsewhere in the registration statement.
F-4
<PAGE> 51
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Meade Instruments Corp.
In our opinion, the accompanying balance sheets and related statements of
income, of stockholders' equity (deficit) and of cash flows present fairly, in
all material respects, the financial position of Meade Instruments Corp. at
February 28, 1995 and February 29, 1996, and the results of its operations and
its cash flows for each of the three years in the period ended February 29,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Costa Mesa, California
January 3, 1997
F-5
<PAGE> 52
MEADE INSTRUMENTS CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY
28, 29, NOVEMBER 30,
1995 1996 1996
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash........................................................ $ 42,000 $ 3,000 $ 3,000
Accounts receivable, less allowance for doubtful accounts of
$189,000 in 1995, $333,000 in 1996 and $198,000 at
November 30, 1996........................................ 3,386,000 4,539,000 12,852,000
Inventories (Note 2)........................................ 5,427,000 6,462,000 11,264,000
Deferred income taxes....................................... 226,000 330,000 513,000
Prepaid expenses and other current assets................... 104,000 213,000 48,000
----------- ----------- ------------
Total current assets................................ 9,185,000 11,547,000 24,680,000
Other assets.................................................. 151,000 263,000 1,287,000
Property and equipment, net (Note 3).......................... 861,000 1,225,000 1,480,000
----------- ----------- ------------
$10,197,000 $13,035,000 $ 27,447,000
=========== =========== ============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank line of credit (Note 4)................................ $ 1,409,000 $ 2,127,000 $ 8,984,000
Notes payable to related parties (Note 5)................... 1,775,000 2,000,000
Current portion of long-term debt (Note 6).................. 200,000 200,000 1,584,000
Current portion of capital lease obligations (Note 7)....... 54,000 146,000 212,000
Accounts payable............................................ 1,252,000 1,406,000 2,796,000
Accrued liabilities......................................... 877,000 863,000 2,545,000
Income taxes payable........................................ 260,000 622,000 1,435,000
----------- ----------- ------------
Total current liabilities........................... 5,827,000 7,364,000 17,556,000
----------- ----------- ------------
Long-term debt, net of current portion (Note 6)............... 650,000 450,000 7,124,000
----------- ----------- ------------
Notes payable to related parties, net of current portion (Note
5).......................................................... 225,000
----------- ----------- ------------
Long-term capital lease obligations, net of current portion
(Note 7).................................................... 179,000 368,000 608,000
----------- ----------- ------------
Deferred rent................................................. 101,000 82,000 68,000
----------- ----------- ------------
Commitments (Note 7)
Redeemable Series A preferred stock; 1,000 shares authorized,
issued and outstanding (Note 8)............................. 3,041,000
----------- ----------- ------------
Stockholders' equity (deficit):
Preferred stock; 999,000 shares authorized, none issued and
outstanding..............................................
Series A common stock; 15,000,000 shares authorized; issued
and outstanding 2,571,361 shares at February 28, 1995 and
February 29, 1996 and 3,500,000 shares at November 30,
1996..................................................... 1,000 1,000 3,511,000
Series B common stock; 5,000,000 shares authorized;
1,500,000 shares issued and outstanding at February 28,
1995, February 29, 1996 and November 30, 1996 (Note 9)... 995,000
Retained earnings........................................... 3,214,000 4,770,000 5,544,000
----------- ----------- ------------
3,215,000 4,771,000 10,050,000
Unearned ESOP shares (Note 9)............................... (11,000,000)
----------- ----------- ------------
Total stockholders' equity (deficit)................ 3,215,000 4,771,000 (950,000)
----------- ----------- ------------
$10,197,000 $13,035,000 $ 27,447,000
=========== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 53
MEADE INSTRUMENTS CORP.
INCOME STATEMENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED FEBRUARY 28(29), NOVEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................... $16,628,000 $24,934,000 $29,770,000 $23,459,000 $38,966,000
Cost of sales....................... 11,670,000 17,040,000 20,054,000 15,827,000 26,267,000
----------- ----------- ----------- ----------- -----------
Gross profit........................ 4,958,000 7,894,000 9,716,000 7,632,000 12,699,000
Selling expenses.................... 1,565,000 2,035,000 2,832,000 2,158,000 3,555,000
General and administrative
expenses.......................... 1,378,000 2,118,000 2,951,000 1,966,000 3,004,000
Research and development expenses... 425,000 423,000 518,000 396,000 444,000
ESOP contribution................... 750,000
Amortization of deferred credit..... (53,000)
----------- ----------- ----------- ----------- -----------
Operating income.................... 1,643,000 3,318,000 3,415,000 3,112,000 4,946,000
Interest expense.................... 493,000 470,000 659,000 496,000 1,253,000
----------- ----------- ----------- ----------- -----------
Income before income taxes.......... 1,150,000 2,848,000 2,756,000 2,616,000 3,693,000
Provision for income taxes (Note
10)............................... 110,000 797,000 1,200,000 1,177,000 1,532,000
----------- ----------- ----------- ----------- -----------
Net income.......................... 1,040,000 2,051,000 1,556,000 1,439,000 2,161,000
Deductions for accretion on
redeemable preferred stock and
dividend on Series B common stock
(Note 1).......................... 1,137,000
----------- ----------- ----------- ----------- -----------
Net income available to common
stockholders...................... $ 1,040,000 $ 2,051,000 $ 1,556,000 $ 1,439,000 $ 1,024,000
=========== =========== =========== =========== ===========
Net income per share................ $ 0.22 $ 0.44 $ 0.33 $ 0.31 $ 0.28
=========== =========== =========== =========== ===========
Weighted average number of shares
outstanding (Note 1).............. 4,682,472 4,682,472 4,682,472 4,682,472 3,608,335
=========== =========== =========== =========== ===========
Supplemental net income per share
(Note 12), unaudited.............. $ 0.37 $ 0.47
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 54
MEADE INSTRUMENTS CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B
COMMON STOCK COMMON STOCK
---------------------- -------------------- RETAINED UNEARNED
SHARES AMOUNT SHARES AMOUNT EARNINGS ESOP SHARES TOTAL
--------- ---------- ---------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1993....... 2,571,361 $ 1,000 1,500,000 $ $ 123,000 $ $ 124,000
Net income......................... 1,040,000 1,040,000
--------- ---------- --------- -------- ---------- ------------ ------------
Balance at February 28, 1994....... 2,571,361 1,000 1,500,000 1,163,000 1,164,000
Net income......................... 2,051,000 2,051,000
--------- ---------- --------- -------- ---------- ------------ ------------
Balance at February 28, 1995....... 2,571,361 1,000 1,500,000 3,214,000 3,215,000
Net income......................... 1,556,000 1,556,000
--------- ---------- --------- -------- ---------- ------------ ------------
Balance at February 29, 1996....... 2,571,361 1,000 1,500,000 4,770,000 4,771,000
Redemption of Series A common
stock............................ (71,361) (250,000) (250,000)
Purchase and exercise of warrant
for shares of Series A common
stock............................ 1,000,000 3,510,000 3,510,000
Unearned ESOP shares............... (11,000,000) (11,000,000)
Dividends declared and paid to
ESOP............................. (995,000) (995,000)
Tax benefit on dividends paid to
ESOP............................. 399,000 399,000
Contribution of capital by Series B
common stockholders.............. 995,000 995,000
Accretion on redeemable preferred
stock............................ (541,000) (541,000)
Net income......................... 2,161,000 2,161,000
--------- ---------- --------- -------- ---------- ------------ ------------
Balance at November 30, 1996
(unaudited)...................... 3,500,000 $3,511,000 1,500,000 $995,000 $5,544,000 $(11,000,000) $ (950,000)
========= ========== ========= ======== ========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 55
MEADE INSTRUMENTS CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED FEBRUARY 28(29), NOVEMBER 30,
--------------------------------------- --------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 1,040,000 $ 2,051,000 $ 1,556,000 $ 1,439,000 $ 2,161,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 120,000 150,000 300,000 220,000 422,000
ESOP contribution.............................. 750,000
Amortization of deferred credit (Note 1)....... (53,000)
Changes in assets and liabilities:
Increase in accounts receivable.............. (334,000) (924,000) (1,153,000) (3,811,000) (8,313,000)
Increase in inventories...................... (312,000) (853,000) (1,035,000) (1,632,000) (4,802,000)
Increase in deferred income taxes............ (208,000) (18,000) (104,000) (183,000)
(Increase) decrease in prepaid expenses and
other current assets...................... 22,000 (23,000) (109,000) (39,000) 165,000
Increase in other assets..................... (122,000) (112,000) (79,000) (1,164,000)
(Decrease) increase in accounts payable...... (1,209,000) 21,000 154,000 413,000 1,390,000
(Decrease) increase in accrued liabilities... 507,000 201,000 (33,000) (98,000) 918,000
Increase in income taxes payable............. 210,000 50,000 362,000 569,000 1,212,000
----------- ----------- ----------- ----------- ------------
Total adjustments......................... (1,257,000) (1,518,000) (1,730,000) (4,457,000) (9,605,000)
----------- ----------- ----------- ----------- ------------
Net cash provided by (used in) operating
activities.............................. (217,000) 533,000 (174,000) (3,018,000) (7,444,000)
----------- ----------- ----------- ----------- ------------
Cash flows from investing activities:
Capital expenditures............................. (304,000) (215,000) (247,000) (138,000) (93,000)
----------- ----------- ----------- ----------- ------------
Net cash used in investing activities..... (304,000) (215,000) (247,000) (138,000) (93,000)
----------- ----------- ----------- ----------- ------------
Cash flows from financing activities:
Payments on long-term debt....................... (591,000) (800,000) (200,000) (150,000) (1,442,000)
Proceeds from long-term debt..................... 800,000 1,000,000 9,500,000
Net borrowings (payments) under bank line of
credit......................................... (1,187,000) (307,000) 718,000 3,368,000 6,857,000
Proceeds from (payments on) notes payable to
related parties................................ 1,500,000 (2,000,000)
Redemption of common stock....................... (250,000)
Issuance of preferred stock...................... 2,500,000
Purchase and exercise of warrant for common
stock.......................................... 3,510,000
Unearned ESOP shares............................. (11,000,000)
Payment of Series B common stock dividend........ (995,000)
Contribution of capital.......................... 995,000
Payments under capital lease obligations......... (173,000) (136,000) (101,000) (138,000)
----------- ----------- ----------- ----------- ------------
Net cash provided by (used in) financing
activities.............................. 522,000 (280,000) 382,000 3,117,000 7,537,000
----------- ----------- ----------- ----------- ------------
Net increase (decrease) in cash.................... 1,000 38,000 (39,000) (39,000) -0-
Cash at beginning of period........................ 3,000 4,000 42,000 42,000 3,000
----------- ----------- ----------- ----------- ------------
Cash at end of period.............................. $ 4,000 $ 42,000 $ 3,000 $ 3,000 $ 3,000
=========== =========== =========== =========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest....................................... $ 496,000 $ 455,000 $ 639,000 $ 491,000 $ 1,152,000
Income taxes................................... $ 11,000 $ 859,000 $ 940,000 $ 540,000 $ 540,000
Non-cash financing activities:
Capital lease obligations...................... $ 162,000 $ 417,000 $ 417,000 $ 444,000
Accretion on redeemable preferred stock........ $ 541,000
Tax benefit of dividends paid to ESOP.......... $ 399,000
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 56
MEADE INSTRUMENTS CORP.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Meade Instruments Corp. ("the Company"), a California corporation,
manufactures, imports and distributes telescopes and telescope accessories.
On February 28, 1991, Meade Holding Corp. ("MHC") acquired all of the
outstanding common stock (17,200 shares) of the Company for $1,000 in cash. The
acquisition was accounted for using the purchase method of accounting, and the
assets and liabilities of Meade Instruments Corp. reflect the underlying basis
of Meade Holding Corp. in the Company. The fair market value of the net assets
acquired exceeded the cost. This excess over cost was allocated to reduce
noncurrent assets to zero. The remainder of the excess was classified as a
deferred credit (negative goodwill) and was amortized using the straight-line
method over three years.
On February 26, 1996, MHC was merged into Meade Instruments Corp., which
was the surviving corporation of the merger. In the merger, all 17,200 shares of
the outstanding common stock of the Company were canceled, and 1,000 shares of
the outstanding common stock of MHC (representing all of the issued and
outstanding shares of MHC) were converted, on a one to one basis, into the
common stock of the surviving Meade Instruments Corp.
In April 1996, the Company effected a recapitalization. The existing
stockholders exchanged their existing common stock for 2,571,361 shares of
Series A and 1,500,000 shares of Series B common stock. The accompanying
financial statements have been retroactively adjusted to give effect to this
transaction. The Company redeemed 71,361 shares of Series A common stock for
$250,000. The Company also issued 1,000 shares of redeemable Series A preferred
stock and a warrant to purchase 1,000,000 shares of Series A common stock at
$0.01 per share for $6.0 million in the aggregate. The warrant was exercised
immediately upon purchase of the Series A preferred stock. The Company has
allocated $2.5 million of the proceeds as the fair value of the Series A
preferred stock and $3.5 million as the fair value of the Series A common stock.
Also in April 1996, the Company's newly-formed Employee Stock Ownership
Plan (ESOP) purchased all of the outstanding shares of Series B common stock
(1,500,000 shares) from the existing stockholders. The ESOP financed the
purchase through the proceeds of an $11.0 million term loan from the Company.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost, as determined using the
first-in, first-out (FIFO) method, or market. Costs include materials, labor and
manufacturing overhead.
Property and equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets which range
from three to seven years. Properties held under capital leases are recorded at
the present value of the noncancellable lease payments over the term of the
lease and are amortized over the shorter of the lease term or the estimated
useful lives of the assets.
Income taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets
F-10
<PAGE> 57
MEADE INSTRUMENTS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and liabilities and are measured using the enacted tax rates that will be in
effect when the differences are expected to reverse. The Company files its tax
return for the year ending August 31, rather than for the financial reporting
period ending the last day of February.
Research and development
Expenditures for research and development costs are charged to expense as
incurred.
Net income per share
Net income per share is based upon the weighted average number of common
shares outstanding during each period, after giving retroactive effect to the
conversion of shares to Series A and B common stock (as discussed above).
Pursuant to the requirements of the Staff of the Securities and Exchange
Commission, the shares related to stock sold subsequent to November 30, 1995
have been shown as outstanding for all periods presented. Net income available
to common stockholders for the nine month period ended November 30, 1996 is
computed by deducting from net income (1) the accretion on the redeemable
preferred stock of $541,000 (Note 8) during such period and (2) the dividend of
$995,000, net of income tax benefit of $399,000, on the Series B common stock
paid during such period (Note 9).
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of credit risk, are principally accounts receivable. The Company
maintains an allowance for doubtful accounts but historically has not
experienced any significant losses related to individual customers or groups of
customers in any particular industry or geographic area.
Fair value of financial instruments
The Company's financial instruments include cash, accounts receivable,
prepaid expenses and other current assets, accounts payable, accrued
liabilities, and short-term loans. The carrying value of these financial
instruments approximates fair value due to their short-term nature.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
respective reporting periods. Actual results could differ from those estimates.
New accounting pronouncements
The Financial Accounting Standards Board ("FASB") issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS No. 121") which is effective for fiscal years beginning
after December 15, 1995. SFAS No. 121 was adopted by the Company on March 1,
1996 and did not have a material impact on the Company's financial position,
results of operations or liquidity.
The FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") which is effective for fiscal years beginning
after December 15, 1995. SFAS No. 123 establishes an alternative method of
accounting for stock-based compensation plans and must be adopted in the
Company's fiscal 1997 financial statements. The Company intends to adopt only
the disclosure provisions for stock compensation and
F-11
<PAGE> 58
MEADE INSTRUMENTS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
does not expect that the adoption of SFAS No. 123 will have a material impact on
the Company's financial position, results of operations or liquidity.
Unaudited interim information
The information presented as of November 30, 1996 and for the nine-month
periods ended November 30, 1995 and 1996, is unaudited. In the opinion of
management, the unaudited interim financial information includes all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position as of November 30, 1996, and the
results of its operations and its cash flows for the nine-month periods ended
November 30, 1995 and 1996. The Company's results of operations and cash flows
for the interim periods are not necessarily indicative of the results to be
expected for any other interim period or a full year. The data disclosed in
these notes to financial statements at such dates and for such periods are also
unaudited.
Reclassifications
Certain reclassifications, which have no effect on retained earnings, have
been made to conform the 1994 and 1995 information to the 1996 presentation.
2. INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, NOVEMBER 30,
1995 1996 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials................................. $ 2,698,000 $ 2,433,000 $ 3,412,000
Work in process............................... 1,140,000 1,500,000 1,839,000
Finished goods................................ 1,589,000 2,529,000 6,013,000
----------- ----------- ------------
$ 5,427,000 $ 6,462,000 $ 11,264,000
=========== =========== ============
</TABLE>
3. PROPERTY AND EQUIPMENT
The composition of property and equipment is as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, NOVEMBER 30,
1995 1996 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Molds and dies................................ $ 436,000 $ 668,000 $ 720,000
Machinery and equipment....................... 362,000 866,000 1,339,000
Furniture and fixtures........................ 99,000 27,000 37,000
Leasehold improvements........................ 299,000 299,000 301,000
----------- ----------- ----------
1,196,000 1,860,000 2,397,000
Less accumulated depreciation and
amortization................................ (335,000) (635,000) (917,000)
----------- ----------- ----------
$ 861,000 $ 1,225,000 $1,480,000
=========== =========== ==========
</TABLE>
The gross value of assets under capital leases included in machinery and
equipment above is $252,000 at February 28, 1995, $669,000 at February 29, 1996,
and $1.1 million at November 30, 1996.
F-12
<PAGE> 59
MEADE INSTRUMENTS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. BANK DEBT
At February 29, 1996, the Company's bank line of credit extended to June
30, 1996 and was evidenced by a note payable which provided for borrowings of up
to 80% of eligible accounts receivable, as defined, plus 50% of eligible
inventory, as defined. The note, which bore interest at the bank's reference
rate (8.25% at February 29, 1996) plus 1.0%, was secured by substantially all of
the Company's assets and was guaranteed by the Company's stockholders. The
Company's $1.0 million term loan at February 29, 1996 was secured by
substantially all of the Company's assets and guaranteed by the Company's
stockholders (Note 6). The line of credit and term loan were subject to certain
restrictive covenants including certain financial statement ratios, restrictions
on capital expenditures, and a minimum tangible net worth. Furthermore, the bank
agreement restricted the Company from declaring or paying dividends.
In April 1996, the Company replaced its revolving line of credit with a
$10.0 million line of credit with a new lender secured by receivables and
inventory. The line of credit bears interest at the bank's base rate (8.25% at
November 30, 1996) plus 0.5%, interest payable monthly in arrears. In April
1996, the Company also borrowed $9.5 million evidenced by a term note (Note 6).
The Loan and Security Agreement between the bank and the Company, which governs
the line of credit and term note, contains certain financial covenants including
minimum working capital, minimum profitability, and minimum interest and debt
coverage ratios. Furthermore, the bank agreement restricts the Company from
declaring or paying dividends on its Series A common stock.
5. NOTES PAYABLE TO RELATED PARTY
In July 1993, the Company borrowed $1.5 million from a stockholder
evidenced by a promissory note payable. Interest was payable monthly at the rate
of 10.0% per annum. The note was subordinated to the bank debt and was due, as
amended, on July 8, 1996. Also, payable to stockholders were subordinated notes
payable totaling $500,000 and due on various dates between February 28, 1996 and
March 29, 1996. Interest was payable quarterly at the First National Bank of
Boston's base rate (8.25% at February 29, 1996) plus 2.0%. Payment of principal
was subordinated to the bank indebtedness. The notes payable to related parties
were repaid in full in April 1996. Interest expense on the notes payable to
related parties was $140,000, $198,000, $204,000 and $16,000 for the years ended
February 28, 1994, February 28, 1995 and February 29, 1996 and for the nine
months ended November 30, 1996, respectively.
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, NOVEMBER 30,
1995 1996 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to bank, interest at the bank's
base rate (8.25% at November 30, 1996) plus
0.75% payable monthly, principal payments are
due in defined quarterly amounts totaling
$1,584,000 annually for five years commencing
July 1996, any remaining principal and
interest amounts are due in full at April 2001
(Note 4)...................................... $ 8,708,000
Note payable to bank, interest at the bank's
reference rate (9% at February 28, 1995 and
8.25% at February 29, 1996) plus 1.25% payable
monthly, principal payments are due in equal
monthly installments over five years
commencing June 1, 1994....................... $ 850,000 $ 650,000
---------- ---------- ------------
850,000 650,000 8,708,000
Less current portion of long-term debt.......... (200,000) (200,000) (1,584,000)
---------- ---------- ------------
$ 650,000 $ 450,000 $ 7,124,000
========== ========== ============
</TABLE>
F-13
<PAGE> 60
MEADE INSTRUMENTS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, NOVEMBER 30,
FISCAL YEAR 1996 1996
---------------------------------------------------- ------------ ------------
(UNAUDITED)
<S> <C> <C>
1997.............................................. $200,000 $ 525,000
1998.............................................. 200,000 1,584,000
1999.............................................. 200,000 1,584,000
2000.............................................. 50,000 1,584,000
2001.............................................. 1,584,000
Thereafter........................................ 1,847,000
-------- ----------
$650,000 $8,708,000
======== ==========
</TABLE>
7. LEASES AND OTHER COMMITMENTS
The Company is obligated under certain long-term noncancellable leases and
other noncancellable agreements for its office and manufacturing facilities and
certain equipment and machinery. Aggregate future minimum commitments under
noncancellable leases and other agreements at February 29, 1996 that have
remaining terms in excess of one year are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL OPERATING
---------------------------------------------------- ------------ ------------
<S> <C> <C>
1997.............................................. $ 197,000 $ 292,000
1998.............................................. 173,000 292,000
1999.............................................. 137,000 292,000
2000.............................................. 121,000 292,000
2001.............................................. 4,000
---------- ----------
Net minimum lease payments.......................... 632,000 $1,168,000
==========
Less amount representing interest................... (118,000)
----------
Capital lease obligations........................... $ 514,000
==========
</TABLE>
For the years ended February 28, 1994, February 28, 1995 and February 29,
1996 and the nine months ended November 30, 1996, the Company incurred rent
expense of $387,000, $309,000, $373,000 and $261,000, respectively.
In November 1992, the Company executed a lease commencing March 1993 for
its office and manufacturing facilities. The lease term is seven years,
extendable for an additional five years at the Company's option. Aggregate
future minimum lease commitments for this lease are included in the schedule
above. Such commitments are subject to periodic upward adjustment, based upon
increases in the Consumer Price Index.
In December 1996, the Company entered into a ten-year lease agreement for
new office and manufacturing facilities that is expected to commence in October
1997 upon completion of certain tenant improvements. Aggregate future minimum
commitments under noncancellable operating leases are expected to increase
$254,000 in 1998, $610,000 in 1999 and 2000, $684,000 in 2001, and $7.2 million
in the aggregate thereafter.
8. REDEEMABLE PREFERRED STOCK
The Redeemable Series A preferred stock has a cumulative 14% dividend per
annum payable quarterly and is mandatorily redeemable in April 2001. In the
event that the Company does not declare and pay the dividends in cash which have
accumulated on any quarterly due date or the Series A preferred stock is not
redeemed
F-14
<PAGE> 61
MEADE INSTRUMENTS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
when due, then thereafter additional dividends shall accrue on the Series A
preferred stock at the rate of 14% per annum, compounded quarterly, with the
amount of such additional dividends added to accrued dividend payments or
redemption value until all such amounts have been paid in full. Upon any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Series A preferred stock will be entitled to be paid, before
any payment shall be made to the common stockholders, an amount in cash equal to
$6,000 for each share of Series A preferred stock plus all accrued and unpaid
dividends to date. If the Company does not satisfy certain covenants in the
preferred stock purchase agreement, the preferred stockholder may designate a
majority of the Company's Board of Directors. The Company recorded the Series A
preferred stock at $2.5 million, its fair value, and is recording accretion to
increase the carrying value of the Series A preferred stock to the redemption
value of $6.0 million by April 23, 2001, the redemption date, plus unpaid
dividends.
9. EMPLOYEE STOCK OWNERSHIP PLAN
Adoption of the Employee Stock Ownership Plan (ESOP) was effective March 1,
1996 and covers all employees of the Company who meet certain service and
eligibility requirements. The ESOP year ends on the last day of February each
year. A participant becomes 100% vested in his ESOP account if, while employed
at the Company, the participant (i) reaches his 65th birthday, (ii) becomes
disabled (as defined), (iii) dies, or (iv) achieves five years of credited
service (as defined). Distributions of a participant's vested account are
directed by the ESOP's Administrative Committee. The Company provides a put
option to any participant who receives a distribution of Company stock, unless
the stock is readily tradable on an established market.
In April 1996, the ESOP purchased all of the outstanding shares of the
Company's Series B common stock (1,500,000 shares) held by the existing
stockholders for $11.0 million. The Series B common stock has a cumulative
dividend of $0.513 per share and a liquidation preference over the Series A
common stock. The ESOP financed the purchase of the Series B common stock (the
financed shares) with the proceeds of an $11.0 million term loan (the
acquisition loan) from the Company. The financed shares are held by the Meade
Instruments Corp. Employee Stock Ownership Trust (the ESOP trust). The ESOP
pledged the financed shares to the Company as security for the acquisition loan.
The financed shares were initially credited to a suspense account on the books
of the ESOP and will be allocated to the accounts of individual ESOP
participants, as of each plan year end, for payments made on the acquisition
loan. The acquisition loan has a ten year term and bears interest at 6% per
annum. Principal and interest is due semi-annually, subject to the Company
making contributions to the ESOP to fund the principal and interest payments.
The release of financed shares from collateral is based on the ratio that the
payment of principal bears to the initial principal of the acquisition loan. The
Company accounts for its ESOP in accordance with Statement of Position 93-6.
Accordingly, the shares pledged as collateral are reported as unearned ESOP
shares in the balance sheet. As shares are released from collateral, the Company
records compensation expense, and the shares become outstanding for net income
per share purposes. Dividends on allocated shares are recorded as a reduction of
retained earnings; dividends on unallocated ESOP shares are recorded as a
reduction of debt and accrued interest.
For the nine months ended November 30, 1996, the Company has recognized
ESOP contribution expense of $750,000. In August 1996, the Company's board of
directors (i) authorized a contribution to the ESOP in the amount of $237,000 to
fund the semi-annual interest payment due on the acquisition loan and (ii)
declared and paid a dividend on the Series B common stock in the amount of
$995,000. The ESOP trust used the proceeds of the contribution to pay the
semi-annual interest payment due on the acquisition loan. The ESOP used the
proceeds of the dividend to make a contribution of capital of $995,000. The
dividend, net of income tax benefit of $399,000, has been deducted from net
income available to common stockholders in the computation of net income per
share for the nine months ended November 30, 1996.
F-15
<PAGE> 62
MEADE INSTRUMENTS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of November 30, 1996, no shares in the ESOP trust have been allocated to
individual participants. Allocations will be made as of December 31, 1996 for
the plan year ending February 28, 1997. Allocation to individual participant
accounts are made in the ratio that the compensation of each participant bears
to the total compensation of all such participants. There are no shares
committed to be released as of November 30, 1996. Shares in suspense at November
30, 1996 are 1,500,000.
The fair value of the Series B common stock upon purchase from the existing
stockholders in April 1996 was determined to be $7.33 per share. Under the terms
of the ESOP, the fair value of the stock at any plan year end is to be
determined by an independent appraiser so long as the stock is not readily
tradable on an established market. At November 30, 1996, there is no repurchase
obligation.
10. INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED FEBRUARY 28(29), ENDED
------------------------------------- NOVEMBER 30,
1994 1995 1996 1996
--------- -------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal.......................... $ 259,000 $649,000 $1,094,000 $1,442,000
State............................ 59,000 166,000 210,000 273,000
--------- --------- ----------- -----------
318,000 815,000 1,304,000 1,715,000
--------- --------- ----------- -----------
Deferred:
Federal.......................... (163,000) (14,000) (87,000) (153,000)
State............................ (45,000) (4,000) (17,000) (30,000)
--------- --------- ----------- -----------
(208,000) (18,000) (104,000) (183,000)
--------- --------- ----------- -----------
$ 110,000 $797,000 $1,200,000 $1,532,000
========= ========= =========== ===========
</TABLE>
The provision for income taxes differed from the amount computed by
applying the U.S. federal statutory rate to income before income taxes due to
the effects of the following:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY NINE MONTHS
28(29), ENDED
------------------------ NOVEMBER 30,
1994 1995 1996 1996
----- ----- ---- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Federal income tax rate......................... 34.0% 34.0% 34.0% 34.0%
State income taxes, net of federal income tax
benefit....................................... 6.1 6.1 6.1 6.1
Benefit of operating loss carryforwards......... (12.6) (15.2)
Reduction in valuation allowance................ (18.0)
Other........................................... 0.1 3.1 3.5 1.4
----- ----- ---- ----
9.6% 28.0% 43.6% 41.5%
===== ===== ==== ====
</TABLE>
Deferred tax assets at February 28, 1995, February 29, 1996 and November
30, 1996 consist of certain inventory and accounts receivable reserves as well
as differences in the bases of fixed asset which are measured differently for
tax and financial reporting purposes.
F-16
<PAGE> 63
MEADE INSTRUMENTS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. SIGNIFICANT CUSTOMERS AND FOREIGN SALES
The Company generated 13%, 16% and 12% of its revenue from one customer
during the years ended February 28, 1994, February 28, 1995, February 29, 1996,
respectively, and 24% of its revenue from two customers during the nine months
ended November 30, 1996. Export sales approximated 19%, 17%, 25% and 17% of
sales for the years ended February 28, 1994, February 28, 1995, February 29,
1996 and the nine months ended November 30, 1996, respectively. The Company
exports primarily to Europe and Japan.
12. SUBSEQUENT EVENTS (UNAUDITED)
Proposed public offering
In December 1996, the Company entered into an agreement in principle with
two underwriters (the Underwriters), whereby the Underwriters have agreed in
principle to act as underwriters in an initial public offering (the Offering) of
up to 2,875,500 shares of newly-issued Company common stock (2,500,000 shares
intended to be offered to the public and 375,500 shares which the Underwriters
have the option to purchase to cover over-allotments, if any). Prior to the
closing of this Offering, the Company will reincorporate into a Delaware
corporation pursuant to a merger with and into a newly-formed and wholly-owned
Delaware subsidiary, with the Delaware subsidiary to be the surviving
corporation. All of the outstanding shares of the Series A and Series B common
stock and Series A preferred stock of the Company will be exchanged on a ratio
of one for one with shares of Series A and Series B common stock and Series A
preferred stock of the Delaware subsidiary.
The Company intends to use the proceeds to redeem all of the outstanding
shares of the redeemable preferred stock and to repay the Company's term note
and a portion of the line of credit. Supplemental net income per share is based
upon the weighted average number of common shares outstanding during the year
ended February 29, 1996 and the nine months ended November 30, 1996, after
giving retroactive effect to the beginning of the period for the redemption of
the preferred stock and the repayment of the Company's term note and a portion
of the line of credit. Pursuant to Accounting Principles Board Statement No. 15,
the number of weighted average shares outstanding has been increased by
2,077,778 shares. This is the number of shares necessary, at an assumed public
offering price of $9.00 per share, to retire $12.7 million of term and revolving
debt and to redeem $6.0 million of Series A preferred stock.
Stock Incentive Plan
In February 1997, the Company's Board of Directors adopted the 1997 Stock
Incentive Plan (the Plan). The Plan provides for the grant of incentive and
non-qualified stock options, restricted stock, stock appreciation rights (SARs),
and performance stock awards to certain key employees (including officers,
whether or not directors) of the Company. Under the Plan, the Company may grant
options and other awards with respect to 750,000 shares of Common Stock. Awards
under the Plan generally vest after six months and become exercisable over a
four-year period, or as determined by the Compensation Committee of the Board of
Directors. Stock options generally remain exercisable for a period of ten years
from the date of grant.
F-17
<PAGE> 64
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE OBTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION PRESENTED HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
AS OF WHICH SUCH INFORMATION IS GIVEN. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK TO
WHICH IT RELATES, OR ANY SUCH SHARES IN ANY JURISDICTION TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
Use of Proceeds............................ 11
Dividend Policy............................ 11
Dilution................................... 12
Capitalization............................. 13
Selected Financial Information............. 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 16
Business................................... 22
Management................................. 32
Certain Transactions....................... 37
Principal and Selling Stockholders......... 38
Description of Capital Stock............... 39
Shares Eligible for Future Sale............ 43
Underwriting............................... 44
Legal Matters.............................. 45
Experts.................................... 45
Additional Information..................... 45
Index to Financial Statements.............. F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF THE DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,370,000 SHARES
LOGO
LOGO
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
MORGAN KEEGAN & COMPANY, INC.
CROWELL, WEEDON & CO.
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 65
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the
issuance and distribution of the Common Stock being registered. All amounts are
estimates except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........................ $11,744
NASD filing fee............................................................ 4,376
Nasdaq National Market listing fee......................................... *
Accounting fees and expenses............................................... *
Legal fees and expenses.................................................... *
Blue Sky qualification fees and expenses................................... 10,000
Printing and engraving expenses............................................ *
Transfer agent and registrar fees.......................................... *
Miscellaneous.............................................................. *(1)
--------
Total............................................................ $ *
========
</TABLE>
- ---------------
* To be filed by amendment.
(1) A portion of such expenses may be reimbursed by the Selling Stockholder. See
"Certain Transactions."
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
LIMITATION OF LIABILITY OF DIRECTORS
The Certificate of Incorporation provides that a director will not be
personally liable for monetary damages to the Company or its stockholders for
breach of fiduciary duty as a director, except to the extent such exemption for
liability or limitation thereof is not permitted under the Delaware General
Corporation Law (i.e., liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for paying a dividend or approving a stock repurchase in violation of
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit).
While the Certificate of Incorporation provides directors with protection
from awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Certificate of Incorporation will have no
effect on the availability of equitable remedies, such as an injunction or
rescission based on a director's breach of such director's duty of care.
The Certificate of Incorporation provides that each person (and the heirs,
executors, or administrators of such 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, by reason of the fact that such person is or was a director or
officer of the Company or is or was serving at the request of the Company as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, will be indemnified and held harmless by the Company to the
fullest extent permitted by the Delaware General Corporation Law. The
Certificate of Incorporation further provides that the right to indemnification
includes the right to be paid by the Company for expenses incurred in connection
with any such proceeding in advance of its final disposition to the fullest
extent permitted by the Delaware General Corporation Law, and that the right to
indemnification conferred thereunder is deemed a contract right.
II-1
<PAGE> 66
The Certificate of Incorporation further provides that the Company may, by
action of its Board of Directors, provide indemnification to such of the
employees and agents of the Company and such other persons serving at the
request of the Company as employees or agents of another corporation,
partnership, joint venture, trust or other enterprise to such extent and to such
effect as is permitted by the Delaware General Corporation Law and the Board of
Directors.
The Company has entered into indemnification agreements with certain of its
directors and officers that require the Company to indemnify such directors and
officers to the fullest extent permitted by applicable provisions of law,
provided that any settlement of a third party action against a director or
officer is approved by the Company, and subject to limitations for actions
initiated by the director or officer, penalties paid by insurance and violations
of Section 16(b) of the Securities Exchange Act of 1934, as amended, and similar
laws.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its directors and officers for certain liabilities arising under the Securities
Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) On April 23, 1996, pursuant to a recapitalization of the Company, the
Stockholders exchanged their shares of Common Stock for shares of Series A
Common Stock and shares of Series B Common Stock. Immediately following such
exchange, the Stockholders sold all of such shares of Series B Common Stock. See
"Certain Transactions." The issuances described in this Item 15(a) were deemed
exempt from registration under the Securities Act in reliance upon Section
3(a)(9) of the Securities Act.
(b) On April 23, 1996, the Company issued and sold 1,000 shares of its
Redeemable Preferred Stock to Churchill ESOP Capital Partners ("Churchill") for
an aggregate purchase price of $6.0 million. In addition, the Company issued
Churchill that certain Series A Common Stock Purchase Warrant to purchase
1,000,000 shares of Series A Common Stock. Churchill exercised such warrant
immediately after the closing of its purchase of the Redeemable Preferred Stock,
and pursuant thereto the Company issued and sold 1,000,000 shares of Series A
Common Stock to Churchill for an aggregate purchase price of $10,000. The
issuances described in this Item 15 were deemed to be exempt from registration
under the Securities Act, in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving a public offering. In addition,
Churchill represented its intentions to acquire the securities for 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. Churchill had adequate access to information about the
Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ---------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Company
3.2* Bylaws of the Company
4.1* Specimen stock certificate
5.1* Opinion of O'Melveny & Myers LLP
10.1* Form of Directors' and Officers' Indemnity Agreement
10.2 Exchange Agreement, dated April 23, 1996, among Messrs. John C. Diebel, Steven G.
Murdock, Ronald Ezra and Joseph A. Gordon, Jr. (the "Stockholders") and the
Company
10.3 Redemption Agreement, dated April 23, 1996, among the Stockholders and the
Company
10.4 Security Purchase Agreement, dated April 23, 1996, among Churchill ESOP Capital
Partners, A Minnesota Limited Partnership ("Churchill"), and the Company
</TABLE>
II-2
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ---------------------------------------------------------------------------------
<C> <S>
10.5 Series A Common Stock Purchase Warrant, dated April 23, 1996, issued to Churchill
10.6 Stockholder Agreement, dated April 23, 1996, among the Stockholders, Churchill
and the Company
10.7 Industrial Lease (Single Tenant; Net; Stand-Alone), dated December 20, 1996,
between The Irvine Company and the Company
10.8 Indemnity Agreement, dated April 23, 1996, among the Stockholders, the Company
and Churchill
10.9 Employment Agreement, dated April 23, 1996, between John C. Diebel and the
Company
10.10 Employment Agreement, dated April 23, 1996, between Steven G. Murdock and the
Company
10.11 Employment Agreement, dated April 23, 1996, between Ronald Ezra and the Company
10.12 Employment Agreement, dated April 23, 1996, between Joseph A. Gordon, Jr. and the
Company
10.13 Meade Instruments Corp. Employee Stock Ownership Plan (the "ESOP"), effective as
of March 1, 1996
10.14 Employee Stock Ownership Trust Agreement, dated as of March 1, 1996, between the
Company and Wells Fargo Bank, N.A.
10.15 Employee Stock Ownership Plan Loan and Pledge Agreement, dated April 23, 1996,
between the ESOP and the Company
10.16 Loan and Security Agreement, dated as of April 23, 1996, between the Company and
Fleet Capital Corporation
10.17 Purchase and Sales Agreement, dated as of December 29, 1994, between the Company
and Weidy Optical Co., Ltd.
10.18 Standard Industrial/Commercial Single-Tenant Lease-Net, dated as of November 20,
1992, between the Company and Rossmore Enterprises
10.19 Promissory Note, dated July 8, 1995, between the Company and John C. Diebel
10.20 Form of Trademark Distribution Agreement for EEC Countries
10.21 Form of Trademark Distribution Agreement for Non-EEC Countries
10.22 Incentive Compensation Agreement, dated as of October 4, 1995, between the
Company and Brent Christensen
10.23 Standard Industrial/Commercial Multi-Tenant Lease-Gross, dated as of January 31,
1996, by and between the Company and CNH, LLC
10.24* Celtic Master Lease, dated as of February 23, 1995, by and between the Company
and Celtic Leasing Corp.
10.25* Stock Purchase Agreement, dated as of April 23, 1996, by and among the ESOP, the
Company, the Diebel Living Trust u/d/t dated January 12, 1995 and John C. Diebel
10.26* Stock Purchase Agreement, dated as of April 23, 1996, by and among the ESOP, the
Company, the Murdock 1986 Trust u/d/t dated October 23, 1986 and Steven G.
Murdock
10.27* Stock Purchase Agreement, dated as of April 23, 1996, by and among the ESOP, the
Company and Ronald Ezra
10.28* Stock Purchase Agreement, dated as of April 23, 1996, by and among the ESOP, the
Company and Joseph A. Gordon, Jr.
10.29* Meade Instruments Corp. 1997 Stock Incentive Plan
</TABLE>
II-3
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ---------------------------------------------------------------------------------
<C> <S>
23.1* Consent of Price Waterhouse LLP (contained on page II-)
23.2* Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
24.1 Power of Attorney (contained on page II-4)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be provided by amendment.
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are not required, are not
applicable, or the information is included in the Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned 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.
(b) 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 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.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
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 the
registration statement as of the time it was declared effective.
(2) For purposes 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> 69
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, County of Orange,
State of California, on the 4th day of February, 1997.
MEADE INSTRUMENTS CORP.
By: /s/ JOHN C. DIEBEL
------------------------------------
John C. Diebel
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints John C. Diebel and Steven G.
Murdock and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, or any
related registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act, 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 connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their,
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- ---------------------------------- -------------------
<C> <S> <C>
/s/ JOHN C. DIEBEL Chairman of the Board and Chief February 4, 1997
- ---------------------------------- Executive Officer (Principal
John C. Diebel Executive Officer)
/s/ STEVEN G. MURDOCK Director, President and Chief February 4, 1997
- ---------------------------------- Operating Officer
Steven G. Murdock
/s/ BRENT W. CHRISTENSEN Vice President -- Finance and February 4, 1997
- ---------------------------------- Chief Financial Officer
Brent W. Christensen (Principal Financial and
Accounting Officer)
/s/ JOSEPH A. GORDON, JR. Director and Senior Vice President February 4, 1997
- ---------------------------------- of North American Sales
Joseph A. Gordon, Jr.
</TABLE>
II-5
<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- --------------------------------------------------------------------- -----------
<C> <S> <C>
1.1* Form of Underwriting Agreement.......................................
3.1* Certificate of Incorporation of the Company..........................
3.2* Bylaws of the Company................................................
4.1* Specimen stock certificate...........................................
5.1* Opinion of O'Melveny & Myers LLP.....................................
10.1* Form of Directors' and Officers' Indemnity Agreement.................
10.2 Exchange Agreement, dated April 23, 1996, among Messrs. John C.
Diebel, Steven G. Murdock, Ronald Ezra and Joseph A. Gordon, Jr. (the
"Stockholders") and the Company......................................
10.3 Redemption Agreement, dated April 23, 1996, among the Stockholders
and the Company......................................................
10.4 Security Purchase Agreement, dated April 23, 1996, among Churchill
ESOP Capital Partners, A Minnesota Limited Partnership ("Churchill"),
and the Company......................................................
10.5 Series A Common Stock Purchase Warrant, dated April 23, 1996, issued
to Churchill.........................................................
10.6 Stockholder Agreement, dated April 23, 1996, among the Stockholders,
Churchill and the Company............................................
10.7 Industrial Lease (Single Tenant; Net; Stand-Alone), dated December
20, 1996, between The Irvine Company and the Company.................
10.8 Indemnity Agreement, dated April 23, 1996, among the Stockholders,
the Company and Churchill............................................
10.9 Employment Agreement, dated April 23, 1996, between John C. Diebel
and the Company......................................................
10.10 Employment Agreement, dated April 23, 1996, between Steven G. Murdock
and the Company......................................................
10.11 Employment Agreement, dated April 23, 1996, between Ronald Ezra and
the Company..........................................................
10.12 Employment Agreement, dated April 23, 1996, between Joseph A. Gordon,
Jr. and the Company..................................................
10.13 Meade Instruments Corp. Employee Stock Ownership Plan (the "ESOP"),
effective as of March 1, 1996........................................
10.14 Employee Stock Ownership Trust Agreement, dated as of March 1, 1996,
between the Company and Wells Fargo Bank, N.A. ......................
10.15 Employee Stock Ownership Plan Loan and Pledge Agreement, dated April
23, 1996, between the ESOP and the Company...........................
10.16 Loan and Security Agreement, dated as of April 23, 1996, between the
Company and Fleet Capital Corporation................................
10.17 Purchase and Sales Agreement, dated as of December 29, 1994, between
the Company and Weidy Optical Co., Ltd. .............................
10.18 Standard Industrial/Commercial Single-Tenant Lease-Net, dated as of
November 20, 1992, between the Company and Rossmore Enterprises......
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- --------------------------------------------------------------------- -----------
<C> <S> <C>
10.19 Promissory Note, dated July 8, 1995, between the Company and John C.
Diebel...............................................................
10.20 Form of Trademark Distribution Agreement for EEC Countries...........
10.21 Form of Trademark Distribution Agreement for Non-EEC Countries.......
10.22 Incentive Compensation Agreement, dated as of October 4, 1995,
between the Company and Brent Christensen............................
10.23 Standard Industrial/Commercial Multi-Tenant Lease-Gross, dated as of
January 31, 1996, by and between the Company and CNH, LLC............
10.24* Celtic Master Lease, dated as of February 23, 1995, by and between
the Company and Celtic Leasing Corp. ................................
10.25* Stock Purchase Agreement, dated as of April 23, 1996, by and among
the ESOP, the Company, the Diebel Living Trust u/d/t dated January
12, 1995 and John C. Diebel..........................................
10.26* Stock Purchase Agreement, dated as of April 23, 1996, by and among
the ESOP, the Company, the Murdock 1986 Trust u/d/t dated October 23,
1986 and Steven G. Murdock...........................................
10.27* Stock Purchase Agreement, dated as of April 23, 1996, by and among
the ESOP, the Company and Ronald Ezra................................
10.28* Stock Purchase Agreement, dated as of April 23, 1996, by and among
the ESOP, the Company and Joseph A. Gordon, Jr. .....................
10.29* Meade Instruments Corp. 1997 Stock Incentive Plan....................
23.1* Consent of Price Waterhouse LLP (contained on page II-) .............
23.2* Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)...........
24.1 Power of Attorney (contained on page II-5)...........................
27.1 Financial Data Schedule..............................................
</TABLE>
- ---------------
* To be provided by amendment.
<PAGE> 1
EXHIBIT 10.2
EXCHANGE AGREEMENT
This Exchange Agreement (this "AGREEMENT") is made as of April
23, 1996, by and among John C. Diebel, as Trustee of the Diebel Living Trust
u/d/t dated as of January 12, 1995, Steven G. Murdock, as Trustee of the Murdock
1986 Trust u/d/t dated as of October 23, 1986, Ron Ezra, an individual, Joseph
A. Gordon, Jr., an individual, (collectively, the "SHAREHOLDERS") and Meade
Instruments Corp., a California corporation (the "COMPANY").
RECITALS
A. The Company is authorized to issue up to 15,000,000 shares of
Series A Common Stock, no par value (the "SERIES A COMMON STOCK"). The
Shareholders own 100% of the Company's outstanding Series A Common Stock.
B. The Company is also authorized to issue up to 5,000,000 shares
of Series B Common Stock, no par value, having the rights, preferences,
privileges and restrictions set forth in the Company's Restated Articles of
Incorporation, none of which has been issued by the Company (the "SERIES B
COMMON STOCK").
C. The parties desire to enter into this Agreement to effect the
transfer of the Shareholders' shares of Series A Common Stock to the Company in
exchange for shares of Series A Common Stock and Series B Common Stock.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
TERMS OF EXCHANGE
1.1 EXCHANGE OF SECURITIES. Each of the Shareholders hereby
exchanges with the Company all of such Shareholder's shares of Series A Common
Stock as is set forth on Schedule A attached hereto opposite such Shareholder's
name under the heading "Number of Series A Shares To Be Contributed," solely in
exchange for (i) the number of shares of Series A Common Stock as is set forth
opposite such Shareholder's name under the heading "Number of Series A Shares To
Be Received" and (ii) the number of shares of Series B Common Stock as is set
forth opposite such Shareholder's name under the heading "Number of Series B
Shares To Be Received."
<PAGE> 2
1.2 DELIVERY. Upon the execution of this Agreement, each
Shareholder shall deliver to the Company the share certificate representing the
number of Series A Shares To Be Contributed, and the Company shall return two
stock certificates to such Shareholder as follows: (i) one or more certificates
representing the Number of Series A Shares To Be Received under the exchange
provided in Section 2.1; and (ii) one or more certificates representing the
Number of Series B Shares To Be Received under the exchange as provided in
Section 2.1.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER
Each Shareholder hereby represents and warrants to, and agrees
with, the Company as follows:
2.1 OWNERSHIP. The Shareholder is the sole record and
beneficial owner of the number of shares of Series A Common Stock of the Company
set forth opposite such Shareholder's name in Schedule A hereto under the
heading "Number of Series A Shares To Be Contributed," and such shares are owned
by such Shareholder free and clear of all liens, security interests, charges,
claims or other encumbrances whatsoever. Except as provided in that certain
Amended and Restated Stock Transfer and First Refusal Agreement ("Shareholder
Agreement") dated as of January 31, 1995 by and between the Company and each of
the Shareholders, the Shareholder represents and warrants that there are no
outstanding warrants, calls, options, contracts or other agreements, commitments
or understandings of any kind, whether oral or written, with respect to any of
such Shareholder's shares. Each Shareholder hereby waives the applicability, in
all respects, of the Shareholder Agreement to the transactions contemplated
hereby.
2.2 AUTHORIZATION. The Shareholder has full power and
authority to enter into this Agreement and to perform such Shareholder's
obligations hereunder. When executed and delivered by the Shareholder, this
Agreement will constitute the valid and legally binding obligation of such
Shareholder, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting the enforcement of creditors'
rights.
2.3 NO CONFLICT. Except for the Shareholder Agreement (which
each Shareholder waives any breach thereof resulting from the terms and
conditions of this Agreement), the execution, delivery and performance of this
Agreement by the Shareholder will not (a) conflict with or result in any
violation of or constitute a default under any agreement, judgment, decree,
order, law or regulation by which such Shareholder or any of such
2
<PAGE> 3
Shareholder's properties or assets is or may be bound, or (b) require any
consent, approval, authorization, declaration, order or permit of, or filing,
registration, qualification or designation with or notification to, any
governmental or regulatory authority.
2.4 RESTRICTIONS ON TRANSFER. The Shareholder shall not sell
or otherwise dispose of any shares of Series A Common Stock or Series B Common
Stock received hereunder, except in compliance with the Securities Act of 1933,
as amended (the "Act"), the rules and regulations of the Securities and Exchange
Commission ("Commission") promulgated thereunder, any similar securities laws of
any state and the terms of this Agreement. The Shareholder acknowledges that the
shares of Series A Common Stock and Series B Common Stock received hereunder
will be subject to restrictions upon transfer imposed by applicable law and that
the Company has no obligation to register or qualify such shares under the laws
of any jurisdiction.
2.5 LEGEND ON CERTIFICATES. The Shareholder understands and
acknowledges that each stock certificate of the Company evidencing Series A
Common Stock or Series B Common Stock being transferred hereunder shall bear the
following (or a substantially equivalent) legend on the face or reverse side
thereof:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NO SALE, GIFT,
TRANSFER OR OTHER DISPOSITION THEREOF OR OF ANY INTEREST THEREIN SHALL
BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH SECURITIES ARE (I)
REGISTERED PURSUANT TO THE PROVISIONS OF SUCH ACT AND REGISTERED OR
QUALIFIED UNDER APPLICABLE STATE SECURITIES OR 'BLUE SKY' LAWS, OR (II)
EXEMPT FROM SUCH REGISTRATION."
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and agrees
with, the Shareholders, as follows:
3.1 ORGANIZATION AND GOOD STANDING. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California.
3.2 AUTHORIZATION. The Company has all necessary corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
When executed and delivered by the Company, this Agreement will constitute the
valid and legally binding obligation of the Company, enforceable
3
<PAGE> 4
in accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights.
3.3 NO CONFLICT. The execution, delivery and performance of
this Agreement by the Company will not (a) require any consent, approval,
authorization, declaration, order or permit of, or filing, registration,
qualification or designation with or notification to, any governmental or
regulatory authority, (b) conflict with or violate the Restated Articles of
Incorporation or Bylaws of the Company, or any agreement of the Company, or (c)
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to the Company or pursuant to which any property or asset of the
Company is bound or affected.
3.4 VALID ISSUANCE OF THE SERIES A COMMON STOCK AND SERIES B
COMMON STOCK. The shares of Series A Common Stock and Series B Common Stock to
be transferred by the Company hereunder in exchange for the shares of the
outstanding Series A Common Stock will, upon issuance pursuant to the terms
hereof, be duly and validly issued, fully paid and nonassessable and will be
free from any liens or encumbrances. The Series A Common Stock and Series B
Common Stock, when issued and delivered pursuant to this Agreement, will be
issued in compliance with federal and all applicable state securities laws.
ARTICLE 4
MISCELLANEOUS PROVISIONS
4.1 AMENDMENTS; WAIVERS. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto. Any party
hereto may (i) waive any inaccuracy in the representations and warranties
contained herein and (ii) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.
4.2 SUCCESSORS. This Agreement shall be binding upon, inure
solely to the benefit of, and be enforceable by, the parties hereto and their
successors and permitted assigns.
4.3 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
4.4 FURTHER ASSURANCES. The Shareholders and the Company will
execute and deliver all such further documents and instruments and take all such
further actions as may be necessary to consummate the transactions contemplated
hereby.
4
<PAGE> 5
4.5 ENTIRE AGREEMENT. This Agreement, constitutes the entire
agreement between the Shareholders and the Company with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between the Shareholders and the Company with respect to the
subject matter hereof.
4.6 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party.
4.7 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which when executed shall be deemed an original, but
all of which taken together shall constitute one and the same agreement.
4.8 ATTORNEYS' FEES. In the event of any controversy or
litigation arising out of or in connection with this Agreement, the prevailing
party in any such action or proceeding shall be entitled to recover from the
other party all costs and expenses of the action or suit, including reasonable
attorneys' fees, in addition to any other relief to which it may be entitled.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
MEADE INSTRUMENTS CORP.,
a California corporation
By: /s/ STEVEN MURDOCK
-------------------------------------------
SHAREHOLDERS
/s/ JOHN C. DIEBEL
----------------------------------------------
JOHN C. DIEBEL, as Trustee of the
Diebel Living Trust
/s/ STEVEN G. MURDOCK
----------------------------------------------
STEVEN G. MURDOCK, as Trustee of
the Murdock 1986 Trust
/s/ RON EZRA
----------------------------------------------
RON EZRA
/s/ JOSEPH A. GORDON, JR.
----------------------------------------------
JOSEPH A. GORDON, JR.
6
<PAGE> 7
SCHEDULE A
<TABLE>
<CAPTION>
Number of Number of Number of
Series A Shares Series A Shares Series B Shares
Shareholder To Be Contributed To Be Received To Be Received
<S> <C> <C> <C>
Diebel Living Trust 510 1,311,394 765,000
Murdock 1986 Trust 305 784,265 457,500
Ron Ezra 118 303,421 177,000
Joseph A. Gordon,
Jr. 67 172,281 100,500
- ----------------- ----- ---------- ----------
TOTAL 1,000 2,571,361 1,500,000
</TABLE>
A-1
<PAGE> 1
EXHIBIT 10.3
MEADE REDEMPTION AGREEMENT
THIS MEADE REDEMPTION AGREEMENT (this "Agreement") is entered
into as of this 23rd day of April, 1996, by and among John C. Diebel, as Trustee
of the Diebel Living Trust, Steven G. Murdock , as Trustee of the Murdock 1986
Trust, Ron Ezra, an individual, Joseph A. Gordon, Jr., an individual,
(collectively, the "Founders") and Meade Instruments Corp., a California
corporation (the "Company").
BACKGROUND FACTS
The Company desires to purchase from the Founders 71,361
shares of the Company's Series A Common Stock (the "Shares"), and the Founders
desire to sell the Shares to the Company, on the terms and conditions set forth
in this Agreement.
AGREEMENT
In consideration of the foregoing and the representations,
warranties and covenants set forth in this Agreement, the parties agree as
follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchase and Sale of Shares. Subject to the terms and
conditions set forth in this Agreement, each of the Founders hereby sells,
transfers and delivers to the Company the number of shares of Series A Common
Stock as is set forth on Exhibit A opposite such Founder's name under the
heading "Number of Shares," and the Company hereby purchases, acquires and
accepts such shares from such Founder, for the purchase price as is set forth on
Exhibit A opposite such Founder's name under the heading "Purchase Price."
1.2 Delivery by the Founders. Concurrently with the execution
and delivery of this Agreement by each of the Founders, each Founder hereby
delivers to the Company a certificate representing the number of the Shares sold
by such Founder as provided on the attached Exhibit A, which certificates shall
be either duly endorsed in blank or accompanied by stock powers duly executed in
blank.
1.3 Delivery by the Company. Concurrently with the execution
and delivery of this Agreement by the Company, it hereby delivers to each of the
Founders the amount of their respective Purchase Price as provided on Exhibit A.
<PAGE> 2
ARTICLE II
REPRESENTATIONS, WARRANTIES AND CONSENT OF
THE COMPANY
The Company hereby represents and warrants to the Founders as
follows:
2.1 Authority. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
and the Company has full corporate power and authority, corporate or otherwise,
to execute and deliver this Agreement and to perform its obligations under and
to consummate the transactions contemplated by the Agreement, and all corporate
action of the Company necessary for such execution, delivery and performance has
been duly and validly taken and remains in full force and effect. This Agreement
has been duly and validly executed and delivered by the Company.
2.2 Binding Obligation. This Agreement constitutes the legal,
valid, and binding obligation of the Company enforceable in accordance with its
terms against the Company, except that (i) such enforcement may be limited by
the effect of applicable bankruptcy, reorganization, insolvency, moratorium, or
other laws of general application to or affecting the enforcement of creditors,
rights from time to time in effect; and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceedings
therefor may be brought.
2.3 No Violation. The consummation of the transactions
contemplated by this Agreement and fulfillment of the terms hereof will not
breach any of the terms and provisions of, or constitute a default by the
Company under, any agreement or instrument to which it is a party or by which it
is bound, or any statute, ruling, decree, judgment, order or regulation of any
governmental authority having jurisdiction over the Company or its property; and
no consent, approval, authorization or order of any court or governmental agency
or body is required for the consummation by the Company of the transactions on
its part contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE FOUNDERS
Each of the Founders represents and warrants to the Company as
follows:
2
<PAGE> 3
3.1 Title to Shares. Such Founder is the owner of his or its
respective number of Shares as set forth on Exhibit A opposite such Founder's
name under the heading "Number of Shares." No other person or entity has any
right, title, or interest, beneficially or of record, in or to such Shares owned
by such Founder, and such Shares are free and clear of any claims, liens,
encumbrances, security agreements, equities, options, charges, restrictions, or
other adverse interests, and can be delivered and surrendered to the Company
pursuant hereto without obtaining the consent or approval of any other person or
governmental authority. Upon the transfer and delivery of such Shares to the
Company in accordance with this Agreement, the Company will become the owner and
holder of all of such Shares free and clear of all liens, encumbrances, pledges,
claims, charges, restrictions, and other adverse interest (to the extent that
such Shares do not revert to unissued shares of the authorized capital of the
Company pursuant to this Agreement).
3.2 Authority. Such Founder has all requisite power and
authority to execute and deliver this Agreement and to perform its obligations
under and to consummate the transactions contemplated by this Agreement. This
Agreement has been duly and validly executed and delivered by such Founder.
3.3 Binding Obligation. This Agreement constitutes the legal,
valid, and binding obligation of such Founder enforceable in accordance with its
terms, except that (i) such enforcement may be limited by the effect of
applicable bankruptcy, reorganization, insolvency, moratorium, or other laws of
general application to or affecting the enforcement of creditors, rights from
time to time in effect; and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceedings
therefor may be brought.
ARTICLE IV
GENERAL PROVISIONS
4.1 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same instrument.
4.2 Governing Law. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with the laws of the
State of California applicable to agreements made and to be performed wholly
within the State of California.
4.3 Entire Agreement. This Agreement and the Exhibit hereto
contain all of the agreements between the parties with
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respect to the matters contained herein and supersede all prior written or oral
and all contemporaneous oral agreements or understandings between the parties
pertaining to any such matters. No provision of this Agreement may be amended or
added to except by an agreement in writing signed by the parties to this
Agreement or their respective successors in interest and expressly stating that
it is an amendment of this Agreement.
4.4 Third Party Rights. The parties do not intend to confer
any benefit hereunder on any person, firm or corporation other than the parties
hereto.
4.5 Exhibit. The Exhibit referred to herein and attached
hereto is an integral part of this Agreement and is incorporated herein by this
reference.
4.6 Further Assurances. The parties agree to do such further
acts and things and to execute and deliver such additional agreements and
instruments as the other may reasonably require to consummate, evidence or
confirm the agreements contained herein in the manner contemplated hereby.
4.7 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be assigned by any party without the prior written
consent of the other parties, and any attempted assignment is void.
4.8 Successors and Assigns. Subject to Section 4.7 hereof,
this Agreement shall be binding upon each of the parties to it and their
respective permitted successors and assigns.
4.9 Severability. In the event any provision of this Agreement
shall finally be determined to be unlawful, such provision shall be deemed to be
severed from this Agreement and every other provision of this Agreement shall
remain in full force and effect.
4.10 Costs and Expenses. Each Party shall pay the costs and
expenses incurred by it in connection with the entering into and the completion
of this Agreement.
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The parties hereto have executed this Agreement as of the day
and year first above written.
"THE COMPANY"
MEADE INSTRUMENTS CORP., a
California corporation
By: /s/ STEVEN MURDOCK
-------------------------------------
"FOUNDERS"
/s/ JOHN DIEBEL
-----------------------------------------
John Diebel, as Trustee of the
Diebel Living Trust
/s/ STEVEN MURDOCK
-----------------------------------------
Steven Murdock, as Trustee of the
Murdock 1986 Trust
/s/ RON EZRA
-----------------------------------------
Ron Ezra
/s/ JOSEPH A. GORDON, JR.
-----------------------------------------
Joseph A. Gordon, Jr.
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EXHIBIT A
SCHEDULE OF SHARES AND PURCHASE PRICES
<TABLE>
<CAPTION>
NAME PURCHASE PRICE NUMBER OF SHARES
---- -------------- ----------------
<S> <C> <C>
Diebel Living Trust $127,449.10 36,394
Murdock 1986 Trust $76,249.32 21,765
Ron Ezra $29,501.29 8,421
Joseph Gordon $16,749.28 4,781
- ------------------- -------------- ----------------
TOTAL $249,998.99 71,361
============== ================
</TABLE>
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EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of April 23, 1996, between Meade
Instruments Corp., a California corporation (the "Company"), and Churchill ESOP
Capital Partners, A Minnesota Limited Partnership (the "Purchaser").
RECITALS:
WHEREAS, the Company desires to issue and sell, and the Purchaser
desires to purchase, certain of the Company's securities.
NOW, THEREFORE, in consideration of the Premises and mutual covenants
and conditions hereinafter contained, the Company and the Purchaser agree as
follows:
1. DEFINITIONS.
1.1. Definitions. For all purposes of this Agreement the following
terms shall have the meanings (and such meanings shall be equally applicable to
both the singular and plural form of the terms defined, as the context may
require) set forth herein or elsewhere in the provisions hereof:
Adjusted Net Income. Adjusted Net Income shall mean, for any fiscal
period, the Company's Net Income for such period, but excluding therefrom to the
extent included; (a) non-operating gains (including extraordinary or unusual
gains, gains from discontinuance of operations, gains arising from the sale of
assets other than Inventory, and other non-recurring gains) during such period;
and (b) similar non-operating losses during such period, but only to the extent
that any such loss has not caused, or will not cause, any cash expenditure.
Affiliate. Affiliate shall mean any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with the
Company (or other specified Person) and shall include (a) any Person who, in the
case of the Company, is a member of the Managing Group, or a director or
beneficial holder of at least 10% of any class of the then outstanding capital
stock (or other shares of beneficial interest) of the Company (or other
specified Person) and Family Members of any such Person, (b) any Person of which
the Company (or other specified Person) or an Affiliate (as defined in clause
(a) above) of the Company (or other specified Person) shall, directly or
indirectly, either beneficially own at least 10% of any class of the then
outstanding capital stock (or other shares of beneficial interest) or constitute
at least a 10% equity participant, and (c) in the case of a specified Person who
is an individual, Family Members of such Person and any trust created by such
Person for his benefit or the benefit of
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his Family Members; provided, however, that the Purchaser shall not be an
Affiliate of the Company for the purposes of this Agreement.
Balance Sheet Date. See Section 4.6(a)(i).
Call Closing Date. See Section 9.3.
Call Notice. See Section 9.3.
Capital Expenditures. Capital Expenditures shall mean amounts paid or
Indebtedness incurred by the Company in connection with the purchase or lease of
fixed assets (both tangible and intangible) that is capitalized and shown on the
balance sheet of such Person in accordance with Generally Accepted Accounting
Principles.
Capital Transaction. Capital Transaction shall mean the occurrence of
any of the following: (a) a merger, consolidation, liquidation, sale of more
than 51% of the assets of the Company based on the book value of such assets, in
each case in one or a series of related transactions, or other similar corporate
action pursuant to which the Company or the holders of Common Stock receive
cash, securities or other property; (b) any transaction or series of related
transactions pursuant to which a majority of the Common Stock of the Company is
sold; or (c) any Public Sale.
Capitalized Lease. Capitalized Leases shall mean all leases which shall
have been or should be, in accordance with Generally Accepted Accounting
Principles, recorded as capital leases on the lessee's or obligor's balance
sheet.
CECP Appraiser. See Section 9.5(b).
CECP Floor Amount. CECP Floor Amount shall mean at least 10% of the
Series A Common Stock, on a Fully Diluted Basis; provided, however, that, if the
Company cannot pay the Repurchase Price for the Warrant and Warrant Stock in
immediately available funds because of a Statutory Restriction and if the
members of the Managing Group have failed to exercise their "Right of
Repurchase" under the Shareholder Agreement with respect to the Rescinded Put
Shares resulting from such Statutory Restriction, then the CECP Floor Amount
shall mean the number of Warrant and Warrant Stock held by the Purchaser from
time to time.
CERCLA. See Section 4.19.
Charter. Charter shall mean the Company's Amended and Restated Articles
of Incorporation in the form of Exhibit C-1 attached hereto as from time to time
amended or modified including, without limitation, by the Certificate of
Determination of Rights, Preferences, Privileges and Restrictions of Series A
Preferred Stock in the form of Exhibit C-2 attached hereto (sometimes
hereinafter being referred to as the "Certificate of Determination").
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Closing. See Section 2.4.
Closing Date. See Section 2.4.
Code. Code shall mean the Internal Revenue Code of 1986, as amended,
any successor statute of similar import, and the rules and regulations
thereunder, collectively and as from time to time amended and in effect.
Commission. Commission shall mean the Securities and Exchange
Commission.
Common Stock. Common Stock shall mean, collectively, the Series A
Common Stock and the Series B Common Stock, each having the rights and
privileges set forth in the Company's Charter and in addition, any capital stock
or other securities into which or for which Series A Common Stock or Series B
Common Stock shall have been converted or exchanged pursuant to any
recapitalization, reorganization or merger of the Company.
Company. Company shall have the meaning provided in the preamble
hereto.
Company Appraiser. See Section 9.5(b).
Credit Agreement. Credit Agreement shall mean the Fleet Loan Agreement
and any Refinancing Agreement in respect thereof entered into by the Company
that does not violate Sections 7.10(i) or 7.21(b) of this Agreement.
Credit Agreement Restrictions. Credit Agreement Restrictions shall mean
the restrictions imposed from time to time under the then applicable Credit
Agreement upon the Company's ability to redeem the Preferred Stock or to pay the
Repurchase Price with respect to the Warrants and the Warrant Stock, so long as
such restrictions do not conflict with the provisions of Section 7.21(b).
Disposal (or Disposed). Disposal (or Disposed) shall have the meaning
specified in RCRA and regulations promulgated thereunder as of the date hereof;
provided, that to the extent that the laws of a state wherein any Property lies
establishes a meaning for "Disposal" (or "Disposed") which is broader than
specified in RCRA, such broader meaning shall apply.
Distribution. Distribution shall mean: (a) the declaration or payment
of any dividend on or in respect of any shares of any class of capital stock of
the Company or other specified Person; (b) the purchase, redemption or other
retirement of any shares of any class of capital stock of the Company or other
specified Person, directly or indirectly or otherwise, including without
limitation any repurchase of shares of Common Stock pursuant to the terms of the
ESOP; or (c) any other distribution on or in respect of any shares of any class
of capital stock of the Company or other specified Person.
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EBIT. EBIT shall mean, for any fiscal period, the sum of: (a) the
Adjusted Net Income for such period; plus (b) the sum of the following amount
deducted therefrom: (i) Interest Expense; plus (ii) income taxes; plus (iii)
contributions to the ESOP; plus (iv) the ESOP Qualifying Dividends paid on the
Series B Common Stock with respect to such period's Net Income; plus (v) the
dividends accrued on the Preferred Stock during such period; plus (vi) any
expense item charged against such period's net income arising from the actual,
proposed or contractual right to, redemption of the Warrants or the Warrant
Stock; plus (vii) if such period is a fiscal year, then the bonuses or other
compensation payable to the members of the Managing Group with respect to such
fiscal year, other than base salary paid or payable to the Managing Group and
benefits generally made available to the Company's employees, but in no event
more than the Maximum Incentive Compensation payable with respect to such fiscal
year; plus (viii) one-time bonuses aggregating up to $300,000 paid to Brent W.
Christensen and Robert Wood described on Schedule 7.15.
EBITA. EBITA shall mean, for any fiscal period, the sum of: (a) the
EBIT for such period; plus (b) the non-cash amortization deducted from the
Adjusted Net Income used in the calculation of such EBIT.
Employer Securities. Employer Securities shall mean the shares of the
Company's Series B Common Stock purchased by the ESOP with the proceeds of the
ESOP Loan in accordance with the ESOP Purchase Agreement.
Employment Agreements. Employment Agreements shall mean the Employment
Agreements dated as of the date hereof entered into by the Company and John
Diebel, Steve Murdock, Ron Ezra and Joseph A. Gordon, Jr., respectively; in each
case, as originally executed and as amended, modified, supplemented or restated
in accordance with the prior written consent of the Purchaser.
Enforcement Action. Enforcement Action means any or all of (a) the
commencement or prosecution of a lawsuit, action, arbitration, or other
proceeding to obtain a money judgment against the Company based upon or arising
out of this Agreement or any of the other Financing Agreements, whether sounding
in contract or tort, including without limitation, any such lawsuit, action,
arbitration, or other proceeding seeking to rescind the purchase of the
Securities, (b) the commencement or prosecution of any action or writ to
garnish, attach, levy, or otherwise obtain a statutory or judicial lien upon all
or any portion of the Company's property or assets or (c) the initiation or
commencement of, or participation in the initiation or commencement of, any
involuntary bankruptcy or insolvency proceeding against the Company.
Environmental Laws. See Section 4.19.
EPA. See Section 4.19.
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ERISA. ERISA shall mean the federal Employee Retirement Income Security
Act of 1974, as amended, any successor statute of similar import, and the rules
and regulations thereunder, collectively and as from time to time amended and in
effect.
ERISA Affiliate. ERISA Affiliate shall mean any Person that is a member
of a group of which the Company is a member and which is treated as a single
employer with the Company under Section 414 of the Code.
ESOP. ESOP shall mean the "Meade Instruments Corp. Employee Stock
Ownership Plan" established and maintained by the Company as an employee benefit
plan, effective March 1, 1996, pursuant to the Meade Instruments Corp. Employee
Stock Ownership Plan (the "ESOP Plan Document") and the ESOP Trust Agreement.
ESOP Loan. ESOP Loan shall mean the loan made by the Company to the
ESOP Trustee in order to enable the ESOP Trustee to purchase the Employer
Securities in accordance with the ESOP Purchase Agreements.
ESOP Loan Documents. ESOP Loan Documents shall mean: (a) the ESOP Loan
and Pledge Agreement dated as of date hereof between the Company and the ESOP
Trustee pursuant to which the ESOP Loan will be made by the Company to the ESOP
Trustee; (b) the "Note" (as defined in the ESOP Loan Agreement); and (c) each
other instrument or document executed and/or delivered by the ESOP Trustee to
the Company to evidence or create any obligation of the ESOP to the Company to
repay the ESOP Loan; in each case, as originally executed and as amended,
modified or supplemented from time to time.
ESOP Purchase Agreement(s). ESOP Purchase Agreements shall mean
collectively the "Stock Purchase Agreements" dated as of the date hereof among
each member of the Managing Group and the ESOP Trustee pursuant to which such
members of the Managing Group have agreed to sell, and the Trustee has agreed to
purchase 1,500,000 shares of the Company's Series B Common Stock for $7.3333 per
share and an aggregate consideration of $10,999,950.
ESOP Qualifying Dividends. ESOP Qualifying Dividends shall mean, with
respect to any period, the preference dividends on the Company's Series B Common
Stock permitted by Sections 3.1(a)(i) and (ii) of the Company's Charter that are
paid in cash during such period.
ESOP Transaction. ESOP Transaction shall mean: (a) the Company's
establishment of the ESOP in accordance with the terms of the ESOP and the ESOP
Trust Agreement; (b) the ESOP Trustee's purchase, and the Managing Group's sale,
of the Company's Series B Common Stock in accordance with the terms of the ESOP
Purchase Agreements; and (c) the Company's receipt of the "Term Loan" under the
Fleet Loan Agreement and the Company's use of such "Term Loan" proceeds to make
the ESOP Loan to the ESOP Trustee in accordance with the terms of the ESOP Loan
Documents.
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ESOP Transaction Documents. ESOP Transaction Documents shall mean: (a)
the ESOP Plan Document; (b) the ESOP Trust Agreement; (c) the ESOP Purchase
Agreements; and (d) the ESOP Loan Documents; in each case as originally executed
and as amended, modified or supplemented from time to time.
ESOP Trust. ESOP Trust shall mean the trust created by the Meade
Instruments Corp. Employee Stock Ownership Trust Agreement, effective March 1,
1996 (the "ESOP Trust Agreement"), between the Company, as grantor, and Wells
Fargo Bank, N.A., as trustee (the "ESOP Trustee"), created to hold the assets of
the ESOP.
Events of Non-Compliance. See Section 8.1.
Exchange Act. Exchange Act shall mean the Securities Exchange Act of
1934, as amended, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
Fair Market Value. See Section 9.5(b).
Family Members. Family Members shall mean, as applied to any
individual, any parent, spouse, child, spouse of a child, brother or sister of
the individual, and each trust created for the benefit of one or more of such
Persons and each custodian of a property of one or more such Persons.
Financing Agreements. Financing Agreements shall include this
Agreement, the Securities, the Shareholder Agreement, the Registration Rights
Agreement, the Managing Group Indemnity Agreement, the Charter and any and every
other present or future instrument or agreement from time to time entered into
between the Company or any member of the Managing Group, on the one hand, and
the Purchaser or any other Permitted Transferee of the Securities, on the other
hand, which relates to this Agreement or is stated to be a Financing Agreement,
as from time to time amended or modified, and all statements, reports or
certificates delivered by or on behalf of the Company, or any member of the
Managing Group, on the one hand, to the Purchaser or any other Permitted
Transferee of the Securities, on the other hand, in connection herewith or
therewith.
Fleet. Fleet shall mean Fleet Capital Corporation, a Connecticut
corporation, or any other lender party to a Credit Agreement which is not the
Fleet Loan Agreement.
Fleet Loan Documents. Fleet Loan Documents shall mean: (a) the Loan and
Security Agreement dated as of the date hereof (the "Fleet Loan Agreement")
between the Company and Fleet; (b) the Secured Promissory Note, dated as of the
date hereof (the "Term Note"), issued by the Company to the order of Fleet in
the original principal amount of $9,500,000; and (c) each of the other Loan
Documents (as that term is defined in the Fleet Loan Agreement or any successor
Credit Agreement); in each case, as such agreement or instruments may be
modified,
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amended, supplemented, restated, extended, or renewed from time to time in a
manner that does not conflict with Section 7.21(b).
Fully Diluted Basis. Fully diluted basis shall mean giving effect to
the exercise or conversion of all then outstanding options, warrants,
convertible securities and similar rights, whether or not then exercisable or
convertible, without assuming that the proceeds of any such exercise would be
used to repurchase any Common Stock.
Generally Accepted Accounting Principles. Generally Accepted Accounting
Principles shall mean accounting principles which are: (a) consistent with the
principles promulgated or adopted by the Financial Accounting Standards Board
and its predecessors, as in effect from time to time; and (b) such that a
certified public accountant would, insofar as the use of accounting principles
is pertinent, be in a position to deliver an unqualified opinion as to financial
statements in which such principles have been properly applied.
Hazardous Substances. See Section 4.19.
Indebtedness. Indebtedness shall include all obligations, contingent
and otherwise, which in accordance with Generally Accepted Accounting Principles
should be classified upon the obligor's balance sheet as liabilities, or to
which reference should be made by footnotes thereto as contingent liabilities,
including without limitation, in any event and whether or not so classified: (a)
all debt and similar monetary obligations, whether direct or indirect; (b) all
liabilities secured by any mortgage, pledge, security interest, lien, charge, or
other encumbrance existing on property owned or acquired subject thereto,
whether or not the liability secured thereby shall have been assumed; (c) all
guaranties, endorsements and other contingent obligations whether direct or
indirect in respect of Indebtedness of others, including any obligation to
supply funds to or in any manner to invest in, directly or indirectly, the
debtor, to purchase Indebtedness, or to assure the owner of Indebtedness against
loss, through an agreement to purchase goods, supplies, or services for the
purpose of enabling the debtor to make payment of the Indebtedness held by such
owner or otherwise; and (d) obligations to reimburse issuers of any letters of
credit.
Indebtedness for Borrowed Money. Indebtedness for Borrowed Money shall
mean: (a) all Indebtedness of the Company for borrowed money, whether current or
funded, or secured or unsecured; (b) all Indebtedness of the Company for the
deferred purchase price of property or services represented by a note or other
security; (c) all Indebtedness of the Company created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by the Company (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property); (d) all Indebtedness of the Company secured by a
purchase money mortgage or other lien to secure all or part of the purchase
price of property subject to such mortgage or lien; (e) all obligations under
Capitalized Leases in respect of which the Company is liable as lessee or
obligor; (f) any liability of the Company in respect of banker's acceptances or
letters of credit; and (g) all
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Indebtedness referred to in clause (a), (b), (c), (d), (e) or (f) above which is
directly or indirectly guaranteed by the Company or which the Company has agreed
(contingently or otherwise) to purchase or otherwise acquire or in respect of
which it has otherwise assured a creditor against loss.
Independent Appraiser. See Section 9.5(b).
Independent Financial Adviser. Independent Financial Adviser shall mean
the independent financial adviser selected by the ESOP Trustee to evaluate that
the purchase price being paid by the ESOP Trustee for the Employer Securities
does not exceed the fair market value thereof.
Interest Expense. Interest Expense shall mean, for any fiscal period,
the aggregate interest expense (including capitalized interest) of the Company
for such period including, without limitation, the interest portion of any
payment on any Capitalized Lease; provided, however, that the foregoing shall be
adjusted to reflect only the net effect of any interest rate swap, interest
hedging transaction, or other similar arrangement entered into by the Company in
order to reduce or eliminate variations in its interest expenses.
Investments. Investments shall mean: (a) any share of capital stock,
evidence of Indebtedness or other security issued by any other Person; (b) any
loan, advance, or extension of credit to, or contribution to the capital of, any
other Person; (c) any purchase of the securities or business or integral part of
the business of any other Person (including, without limitation, any purchase of
all or any substantial portion of the assets of such Person), or commitment to
make such purchase; and (d) any other investment in any other Person; provided,
however, that the term "Investment" shall not include: (i) trade and customer
accounts and notes receivable for goods sold or services rendered in the
ordinary course of business and, except for those acquired in connection with
the satisfaction or enforcement of Indebtedness or claims due or owing to the
Company, payable in accordance with customary trade terms, and all letters of
credit or other instruments securing or evidencing the same; (ii) advances to
employees for travel expenses, drawing accounts and similar expenditures made in
the ordinary course of business; (iii) stock or other securities acquired in
connection with the satisfaction or enforcement of Indebtedness or claims due or
owing to the Company or as security for any such Indebtedness or claim; or (iv)
deposits, prepayments, and other advances made by the Company in the ordinary
course of business.
Knowledge. Knowledge shall mean the present and actual knowledge of any
Shareholder or of Brent Christensen.
Lien. Lien shall mean: (a) any encumbrance, mortgage, pledge, lien,
charge or other security interest of any kind upon any property or assets of any
character, or upon the income or profits therefrom; or (b) any acquisition of or
agreement to have an option to acquire any property or assets upon conditional
sale or other title retention agreement, device or arrangement
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(including a Capitalized Lease); or (c) any sale, assignment, pledge or other
transfer for security of any accounts, general intangibles, or chattel paper,
with or without recourse.
Major Holder. Major Holder shall mean the holder or holders at the
relevant time (excluding the Company) of: (a) in the case of the Preferred
Stock, at least 51% of the then issued and outstanding shares of the Preferred
Stock, or (b) in the case of the Warrants and Warrant Stock, of at least 51% of
the total number of (i) shares of Warrant Stock then issuable upon exercise of
the outstanding Warrants and (ii) then outstanding shares of Warrant Stock.
Majority Holders. Majority Holders shall mean the holder or holders at
the relevant time (excluding the Company) of (a) in the case of the Preferred
Stock, 51% or more of the issued and outstanding shares of the Preferred Stock,
or (b) in the case of the Warrants and Warrant Stock, 51% or more of the sum of
the number of shares of (i) Warrant Stock then issuable upon exercise of the
outstanding Warrants and (ii) the then outstanding shares of Warrant Stock.
Managing Group. Managing Group shall mean John Diebel, Steve Murdock,
Ron Ezra and Joseph A. Gordon, Jr.
Managing Group Indemnity Agreement. Managing Group Indemnity Agreement
shall mean that certain Indemnity Agreement dated as of the date hereof, made by
each member of the Managing Group and certain of their Affiliates in favor of
the Purchaser, as originally executed and as amended, modified, supplemented or
restated from time to time.
Managing Group Stock Sale. Managing Group Stock Sale shall mean: (a)
the Company's redemption (the "Meade Redemption") of 71,361 shares of the
Company's Series A Common Stock owned by the Managing Group immediately prior to
the consummation of the Transactions for an aggregate consideration of $250,000
in accordance with the terms of that certain Meade Redemption Agreement dated as
of the date hereof (the "Meade Redemption Agreement") among the Company and the
members of the Managing Group; and (b) the ESOP Trustee's purchase of 1,500,000
shares of the Company's Series B Common Stock owned by the Managing Group in
order to consummate the ESOP Transaction.
Material Adverse Effect. Material Adverse Effect shall mean a material
adverse effect on the business, assets or financial condition of the Company
taken as a whole.
Maximum Incentive Compensation. Maximum Incentive Compensation shall
mean, for any fiscal year, an amount equal to 40% of the difference (but not
less than $0.00 (zero)) between the Company's: (i) actual EBIT for such fiscal
year; and (ii) the Target EBIT for such fiscal year.
Negotiation Period. See Section 9.5(b).
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Net Income. Net Income, shall mean, for any fiscal period, the
after-tax net income of the Company for such period determined in accordance
with Generally Accepted Accounting Principles.
Net Proceeds. Net Proceeds shall mean, with respect to any sale,
transfer or other disposition of any assets of the Company or its Subsidiaries
(other than sales of inventory in the ordinary course of business), the cash
proceeds received by the Company or any of its Subsidiaries from such
transaction less the sum of: (a) the costs incurred in connection with such
transaction in the ordinary course of business; and (b) the amount of any
liabilities which are required to be paid in connection with such transaction.
PBGC. PBGC shall mean the Pension Benefit Guaranty Corporation created
by Section 4002 of ERISA and any successor entity or entities having similar
responsibilities.
Permitted Indebtedness. See Section 7.10.
Permitted Liens. See Section 7.11.
Permitted Stock Issues. Permitted Stock Issues shall mean: (a) the
issuance of shares of Series A Common Stock in consideration of the payment of
the fair market value thereof on the date of issuance as determined in good
faith by the Company's board of directors; (b) the issuance of options (the
"Permitted Employee Stock Options") to key employees (other than members of the
Managing Group (excluding Joseph A. Gordon, Jr.) or any of their respective
Affiliates) permitting the acquisition of shares of Series A Common Stock, on an
aggregate basis for all such key employees, of up to 10% of the Company's Common
Stock, on a Fully Diluted Basis, where the exercise price is not less than 85%
of the fair market value of the Company's Series A Common Stock on the date of
the grant of the relevant option as determined in good faith by the Company's
board of directors and the issuance of the applicable shares of the Company's
Series A Common Stock upon the exercise of such options; and (c) the issuance of
any preferred stock or convertible or exchangeable preferred stock which is
junior to the liquidation, dividend, redemption, and distribution rights of the
Preferred Stock in consideration of the payment of the fair market value thereof
on the date of issuance as determined in good faith by the Company's board of
directors and the issuance of the applicable shares of the Company's Series A
Common Stock upon the conversion or exchange of any such convertible or
exchangeable preferred stock; it being understood and agreed that any right of
the holders of such preferred stock to elect any member of the Company's board
of directors shall be subject to the Purchaser's rights to elect a majority of
the Company's board of directors upon the occurrence of a Specified Event of
Non-Compliance.
Permitted Transferee. Permitted Transferee shall mean any Affiliate of
any holder of Securities, any commercial bank, insurance company or other
financial institution or Affiliate thereof, any reputable corporate or
institutional investor, or any other Person reasonably acceptable to the
Company.
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Person. Person shall mean an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization, and any
government, governmental department or agency or political subdivision thereof.
Plan. Plan shall mean an employee benefit plan or other plan,
maintained for employees of the Company or of any ERISA Affiliate, and subject
to Title IV of ERISA or Section 412 of the Code.
Post-Closing Year. Post-Closing Year shall mean each of the annual
periods commencing on the Closing Date (or its anniversary date in any
subsequent year) and ending on the day preceding the anniversary date of the
Closing Date in the immediately following calendar year.
Preferred Stock. See Section 2.1.
Preferred Stock Early Redemption Date. See Section 7.24.
Preferred Stock Redemption Date. Preferred Stock Redemption Date shall
mean, as the context may require: (a) the Preferred Stock Early Redemption Date;
or (b) the Preferred Stock Stated Redemption Date.
Preferred Stock Stated Redemption Date. Preferred Stock Stated
Redemption Date shall mean April 1, 2001.
Preferred Stock Redemption Price. Preferred Stock Redemption Price
shall mean, at any date of determination, the sum of: (a) the "Liquidation
Value" (as defined in Section 3.2(a) of the Certificate of Determination) at
such date; plus (b) all accrued, but unpaid, dividends through and including
such date; plus (c) if the redemption is being made on a Preferred Stock Early
Redemption Date, then the Preferred Stock Early Redemption Premium required by
Section 7.24.
Projections. See Section 4.6(a)(iii).
Property. Property means the properties owned, leased or operated by
the Company.
Public Sale. Public Sale shall mean any sale of Common Stock to the
public pursuant to a public offering registered under the Securities Act or to
the public through a broker or market-maker pursuant to the provisions of Rule
144 (or any successor rule) adopted under the Securities Act or any other public
offering not required to be registered under the Securities Act.
Purchase Price. See Section 2.3.
Purchased Securities. See Section 2.3.
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<PAGE> 12
Purchaser's Representative. Purchaser's Representative shall mean
either: (a) the Company's director designated by the Purchaser; or (b) if the
Purchaser does not exercise its right to designate a director, the Person
authorized by the Purchaser to attend the meetings of the Company's board of
directors meetings as the Purchaser's observer; provided, however, that the
Purchaser's rights to have a Purchaser's Representative on or to the Company's
board of directors shall terminate when: (a) the Preferred Stock is no longer
outstanding; and (b) either: (i) the Purchaser ceases to own Warrants or Warrant
Stock aggregating at least 10% of the Series A Common Stock of the Company, on a
Fully Diluted Basis; or (ii) the Company consummates, or has previously
consummated, a Qualified Public Sale.
Put Closing Date. See Section 9.2.
Put Notice. See Section 9.1.
Qualified Public Sale. Qualified Public Sale shall mean a Public Sale
of the Company's Series A Common Stock to the public pursuant to an underwritten
public offering registered under the Securities Act for an aggregate
consideration of at least $15,000,000.00.
RCRA. See Section 4.19.
Refinancing Agreements. Refinancing Agreements means an agreement or
agreements entered into by the Company pursuant to which the Company incurs
Refinancing Indebtedness, as such agreement or agreements may be amended,
modified, supplemented, restated, extended, or renewed from time to time;
provided, however, that if such Indebtedness is: (a) evidenced by the Credit
Agreement (or a Refinancing Agreement in respect thereof), no such refinancing
shall be made on terms and conditions that would be prohibited by Section
7.21(b), if the Indebtedness refinanced thereby was not being refinanced but was
being modified or amended; or (b) not evidenced by the Credit Agreement (or a
Refinancing Agreement in respect thereof), no such refinancing shall be made on
terms and conditions that would be prohibited by Section 7.21(a), if the
Indebtedness refinanced thereby was not being refinanced but was being modified
or amended.
Refinancing Indebtedness. Refinancing Indebtedness means Indebtedness
of the Company incurred pursuant to any Refinancing Agreement the proceeds of
which are applied to refinance all or a portion of the Indebtedness at the time
outstanding and permitted under Section 7.10. With respect to any refinancing of
Indebtedness under the Credit Agreement, Refinancing Indebtedness also may
include any additional Indebtedness permitted under Section 7.10.
Registration Rights Agreement. Registration Rights Agreement shall mean
the Registration Rights Agreement dated as of the date hereof among the Company
and the Purchaser, in the form of Exhibit E hereto, as originally executed and
as amended, modified, supplemented or restated from time to time.
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<PAGE> 13
Related Agreements. Related Agreements shall mean, collectively the
Employment Agreements, the ESOP Transaction Documents and the Fleet Loan
Documents (and any Refinancing Agreements therefor).
Release. Release shall have the meaning specified in CERCLA and
regulations promulgated thereunder as of the date hereof; provided, that to the
extent that the laws of a state wherein any Property lies establishes a meaning
for "Release" which is broader than specified in CERCLA, such broader meaning
shall apply.
Repurchase Price. See Section 9.5(a).
Rescinded Put Shares. See Section 9.4.
Rescission Notice. See Section 9.4.
Restricted Payment. Restricted Payment shall mean any payment (whether
in cash, securities or other property) to or for the benefit of any Affiliate of
the Company in respect of any Indebtedness owed by or other obligation of the
Company to such Affiliate.
SARA. See Section 4.19.
Securities. Securities shall mean the Preferred Stock, the Warrants and
the shares of Warrant Stock.
Securities Act. Securities Act shall mean the Securities Act of 1933,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
Series A Common Stock. See Section 4.4(a)(i).
Series B Common Stock. See Section 4.4(a)(ii).
Shareholder Agreement. Shareholder Agreement shall mean the Shareholder
Agreement dated as of the date hereof among the Company, the Management Group
and the Purchaser, in the form of Exhibit D hereto, as originally executed and
as amended, modified, supplemented or restated from time to time in accordance
with the provisions of Section 17 hereof.
Shares. See Section 2.1.
Specified Event of Non-Compliance. Specified Event of Non-Compliance
shall mean the occurrence of any Event of Non-Compliance under Section 8.1(a),
(b), (c), (g), or (h) prior to the redemption of the Preferred Stock in full.
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<PAGE> 14
Statutory Restriction. Statutory Restriction shall mean the
restrictions imposed on the Company's right to make distributions to its
shareholder under applicable provision of the California Corporations Code or
any other state's laws then governing the Company's organization, in each case
as from time to time amended and in effect.
Subsidiary. Subsidiary shall mean any Person of which the Company or
other specified Person now or hereafter shall at the time own directly or
indirectly through a Subsidiary at least a majority of the outstanding capital
stock (or other shares of beneficial interest) entitled to vote generally.
Target EBIT. Target EBIT shall mean, for each fiscal year, the amount
shown in the table below for such fiscal year:
<TABLE>
<CAPTION>
Fiscal Year Target EBIT
----------- -----------
<S> <C>
1997 $ 5,380,000
1998 $ 6,860,000
1999 $ 8,370,000
2000 $ 9,620,000
2001 $10,630,000.
</TABLE>
Transactions. Transactions shall mean: (a) the Managing Group Stock
Sale; (b) the ESOP Transaction; (d) the Company's sale, and the Purchaser's
purchase, of the Securities in accordance with this Agreement and the other
Financing Agreements; and (d) the disbursement of the proceeds of the initial
revolving credit loan and the term loan by Fleet pursuant to the Fleet Loan
Agreement.
Transaction Costs. See Section 4.24.
Transfer Notice. See Section 13.2.
Unmatured Event of Non-Compliance. Unmatured Event of Non-Compliance
shall mean an event or condition which with the passage of time or giving of
notice, or both, would become an Event of Non-Compliance.
Unrepurchased Securities. See Section 9.4.
Warrant(s). Warrants shall mean the Series A Common Stock Warrant of
the Company issued to the Purchaser pursuant to Section 2.2 hereof and any other
Warrants transferred to any other Permitted Transferee pursuant to Section 13
hereof.
Warrant Stock. Warrant Stock shall mean Common Stock previously issued
or, at the time of determination, issuable upon exercise of the Warrants in
accordance with their terms and
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<PAGE> 15
any capital stock or other securities into which or for which such Common Stock
shall have been converted or exchanged pursuant to any recapitalization,
reorganization or merger of the Company and any shares of capital stock issued
with respect to the foregoing pursuant to a stock split or stock dividend.
1.2. Accounting Terms and Calculations. Except as may be expressly
provided to the contrary herein, all accounting terms used herein shall be
interpreted and the accounting determinations of compliance with the EBITA
covenant set forth in Section 7.26 hereof) shall be made in accordance with
Generally Accepted Accounting Principles consistently applied.
1.3. Computation of Time Periods. In this Agreement, in the computation
of a period of time from a specified date to a later specified date, unless
otherwise stated, the word "from" means "from and including" and the words "to"
or "until" each means "to but excluding."
1.4. Other Definitional Provisions. The words "hereof," "herein," and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, Schedules and like references are
to this Agreement unless otherwise expressly provided.
2. SALE AND PURCHASE OF PURCHASED SECURITIES.
2.1. Authorization of the Preferred Stock. The Company has, or before
the Closing will have, authorized the sale and issuance of 1,000 shares (the
"Shares") of its Series A Preferred Stock, no par value (the "Preferred Stock"),
having the rights, restrictions, privileges and preferences as set forth in the
Certificate of Determination.
2.2 Issuance of Securities. Subject to all of the terms and conditions
hereof, the Company agrees to issue and sell to the Purchaser and, and the
Purchaser agrees to purchase from the Company, the Securities listed below:
(a) the Shares; and
(b) the Series A Common Stock Purchase Warrant No. W-1 for the purchase
of 1,000,000 shares of Series A Common Stock in the form of Exhibit A hereto.
2.3. Purchase Price. The aggregate purchase price for the Securities
purchased pursuant to Section 2.2 (the "Purchased Securities") is $6,000,000
(the "Purchase Price"). The parties hereto agree that the entire Purchase Price
shall be allocated to the Shares, and will be reported as such by both parties
for federal, state and local tax purposes.
2.4. Closing. The closing of the purchase and sale of the Purchased
Securities (the "Closing") will take place at the offices of O'Melveny & Myers,
610 Newport Center Drive, Suite 1700, Newport Beach, CA 92660, at 10:00 a.m. on
April 23, 1996, or at such other time,
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<PAGE> 16
date and place as the parties hereto may agree upon (the "Closing Date"). At the
Closing, the Company will deliver to the Purchaser the Purchased Securities
against payment by the Purchaser of the Purchase Price in immediately available
funds. Each of the Purchased Securities will be issued to the Purchaser or any
nominee specified by the Purchaser on or before the Closing Date and registered
in the Purchaser's name or the name of such specified nominee in the records of
the Company.
2.5. Use of Proceeds. The proceeds from the sale of the Purchased
Securities hereunder will be used solely to partially fund the ESOP Loan and to
partially recapitalize the Company (including the Managing Group Stock Sale) in
connection with the consummation of the Transactions. The Company agrees that it
will not use any part of the proceeds from the sale of the Purchased Securities
to purchase or carry any "margin security" or "margin stock", as such terms are
defined in any regulation, rule or interpretation of the Board of Governors of
the Federal Reserve System.
3. CERTAIN RELATED AGREEMENTS.
3.1. Registration Rights Agreement. The Company shall afford the
holders of the Shares and the Warrants registration rights in accordance with
the terms and conditions of the Registration Rights Agreement.
3.2 Shareholder Agreement. The Company and the members of the Managing
Group shall afford the holders of the Shares and the Warrants the rights,
privileges and benefits provided in the Shareholder Agreement.
4. REPRESENTATIONS AND WARRANTIES.
In order to induce the Purchaser to enter into this Agreement and to
purchase the Purchased Securities, the Company hereby represents and warrants
that, both before and immediately after giving effect to the Closing and the
consummation of the Transactions:
4.1. Organization and Good Standing. The Company is duly organized and
existing in good standing in its jurisdiction of incorporation and is duly
qualified as a foreign corporation and authorized to do business in all other
jurisdictions in which the nature of its business or property makes such
qualification necessary and where failure to qualify either individually or in
the aggregate would have a Material Adverse Effect. The Company has the
corporate power to own its properties and to carry on its business as now
conducted.
4.2. Authorization; Approvals. The execution, delivery and performance
by the Company of this Agreement and each Related Agreement to which the Company
is a party, and the issuance and sale by the Company of the Securities
hereunder, (a) are within the Company's corporate power and authority, (b) have
been duly authorized by all necessary corporate proceedings, (c) do not conflict
with or result in any breach of any provision of the Charter or
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<PAGE> 17
bylaws of the Company or any law, regulation, order, judgment, writ, injunction,
material license, permit, agreement or instrument binding on, or applicable to
the Company or any of its property, (d) do not require any consent, approval or
filing pursuant to, the Charter or bylaws of the Company or any law, regulation,
order, judgment, writ, injunction, material license, permit, agreement or
instrument binding on, or applicable to the Company or any of its property,
other than approval of the shareholders and directors of the Company which will
be obtained on or prior to the Closing Date and (e) except for Liens created by
the Fleet Loan Documents, do not result in the creation of any Lien upon any of
the property of the Company.
4.3. Enforceability. The execution and delivery by the Company of this
Agreement and each Related Agreement to which the Company is a party, and the
issuance and sale by the Company of the Securities hereunder, will result in
legally binding obligations of the Company enforceable against the Company in
accordance with the respective terms and provisions hereof and thereof, except
to the extent that (a) such enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights, (b) the availability of the remedy of specific
performance or injunctive or other equitable relief is subject to the discretion
of the court before which any proceeding therefor may be brought and (c) the
enforceability of the indemnities and contribution provisions contained in the
Registration Rights Agreement may be limited under federal securities laws.
4.4. Capitalization.
(a) Capital Stock. At Closing, the authorized capital stock of
the Company consists solely of: (i) one class of Common Stock
consisting of: (A) 15,000,000 shares of Series A Common Stock, no par
value (the "Series A Common Stock"); (B) 5,000,000 shares of Series B
Common Stock, no par value (the "Series B Common Stock"); and (ii)
1,000,000 shares of Preferred Stock. On the Closing Date, after giving
effect to the Transactions, the Company will have no outstanding
capital stock other than 3,500,000 shares of Series A Common Stock, on
a Fully Diluted Basis, 1,500,000 shares of Series B Common Stock and
1,000 shares of Preferred Stock, all of which will be owned as set
forth in Schedule 4.4(a) hereto and will be duly authorized, validly
issued, fully paid and nonassessable.
(b) Options, Etc. Except for the Warrants and the Series B
Common Stock, the Company has no outstanding rights (either pre-emptive
or other) or options to subscribe for or purchase from the Company and
no warrants or other agreements providing for or requiring the issuance
by the Company of, any capital stock or any securities convertible into
or exchangeable for its capital stock.
(c) Reservation, Etc. Sufficient shares of authorized but
unissued Series A Common Stock have been reserved by appropriate
corporate action in connection with the prospective exercise of the
Warrants assuming for such purposes the exercise of the
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<PAGE> 18
Warrants on the date hereof. The issuance of the Warrants or the shares
of Warrant Stock (i) will not require any further corporate action by
the stockholders or directors of the Company, (ii) will not be subject
to pre-emptive rights in any present or future stockholder of the
Company under the Company's Charter as currently in effect, any current
agreements or existing law and (iii) will not conflict with any
provision of any agreement as currently in effect to which the Company
is a party or by which it is bound. All shares of Warrant Stock, when
issued upon exercise of the Warrants in accordance with their terms or
upon such conversion, will be duly authorized, validly issued, fully
paid and non-assessable.
(d) Registration. No class of any security of the Company has
been or is required to be registered with the Commission pursuant to
Section 12 of the Exchange Act.
4.5. Subsidiaries. Except as otherwise set forth on Schedule 4.5
hereto, the Company does not have any Subsidiary and does not own or hold of
record and/or beneficially any shares of any class of the capital of any
corporations or any legal and/or beneficial interests in any partnership,
business trust or joint venture or in any other unincorporated trade or business
enterprise.
4.6. Reports and Financial Statements.
(a) The Purchaser has heretofore been furnished with complete and
correct copies of the following:
(i) the audited balance sheet of the Company as at
February 28, 1995 (the "Balance Sheet Date") and the related
statements of income and retained earnings and cash flows for
the fiscal year then ended, and the unaudited balance sheet of
the Company, as at February 29, 1996, and the related
statements of income and cash flows for the twelve-month
period then ended;
(ii) the pro forma balance sheet of the Company as at
February 29, 1996, taking into account the Transactions as of
such date, such balance sheet being attached hereto as
Schedule 4.6(a)(ii); and
(iii) the projections of the Company's future
performance for each of the five fiscal years following
February 29, 1996, including income, balance sheets, and cash
flows, dated as of April 23, 1996 and attached hereto as
Schedule 4.6(a)(iii) (the "Projections"); provided, however
that the Company may deliver such Projections in two
installments with the first installment consisting of
Projections for the first three years of the required five
year period being required to be delivered on or prior to the
Closing Date and the second installment consisting of
Projections for the remaining two years of such five-year
period
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<PAGE> 19
being required to be delivered within 60 days after the
Closing Date; in each case, such Projections shall comply with
subsection (d) below.
(b) Subject in the case of unaudited financial statements to
(i) the absence of footnote disclosures, cash flow financial statements
and other presentation items and (ii) changes resulting from year-end
adjustments consistent with year-end adjustments made in connection
with the audits of the Company's financial statements for the fiscal
year ended February 28, 1995, each of the financial statements
delivered under Section 4.6(a)(i) hereof was prepared in accordance
with Generally Accepted Accounting Principles applied on a basis
consistent with prior periods except as otherwise stated therein; each
of the balance sheets included in such financial statements fairly
presents the financial position of the Company as at the close of
business on the date thereof; and each of the statements of income
included in such financial statements fairly presents in all material
respects the results of operations of the Company for the fiscal period
then ended.
(c) The pro forma balance sheet of the Company referred to in
Section 4.6(a)(ii) has been prepared by the Company and fairly presents
the pro forma financial position in all material respects of the
Company as of the Closing Date after taking into consideration the
effect of the Transactions. The Company has no Knowledge of any
material fact inconsistent with the assumptions used in the preparation
thereof, each of which material assumptions has been set forth therein.
Immediately after giving effect to the Transactions, the Company will
not have any material liabilities, contingent or otherwise, which are
not referred to in such balance sheet or in the notes thereto or
pertaining to or arising from the agreements described or identified in
the Schedules hereto except for obligations and liabilities incurred in
the ordinary course of business subsequent to February 29, 1996.
(d) All material assumptions used in the preparation of the
Projections are attached thereto. The Projections were prepared in good
faith, there is a reasonable basis for such Projections, and such
Projections represent the Company's good faith estimate of its future
performance.
4.7. Material Adverse Change. There has been no material adverse change
in the business, assets, or financial condition of the Company since the Balance
Sheet Date whether or not covered by insurance or arising from transactions in
the ordinary course of business.
4.8. Indebtedness and Liens. The Company does not have any Indebtedness
other than Permitted Indebtedness or Liens upon any of its properties other than
Permitted Liens.
4.9. Related Agreements. The Company has heretofore or simultaneously
herewith furnished the Purchaser with complete and correct copies of all of the
Related Agreements. This Agreement and the Related Agreements are the only
material agreements relating to the
19
<PAGE> 20
Transactions. The Company is not in default on any of its obligations under this
Agreement or any Related Agreement to which it is a party and, to the best
Knowledge of the Company, no other party to any Related Agreement is in material
default thereunder.
4.10. Licenses, Etc. The Company has all of the material franchises,
patents, patent applications, patent licenses, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, licenses, permits,
authorizations and other rights as are necessary for the conduct of its business
as currently conducted. All of the foregoing are in full force and effect, and
the Company is in compliance with the foregoing without any known conflict with
the valid rights of others which would have a Material Adverse Effect.
4.11. INTENTIONALLY OMITTED.
4.12. Title to Assets; Leases. Except as disclosed on Schedule 4.12
hereto, the Company owns all of the assets reflected in the pro forma balance
sheet of the Company as at the Closing Date, subject to no Liens other than
Permitted Liens. Except as disclosed on Schedule 4.12 hereto, the Company enjoys
peaceful and undisturbed possession, and is in compliance with the material
terms, of all leases of real property on which facilities operated by it are
situated and of all leases of personal property, and to the Company's Knowledge,
all such leases are valid and in full force and effect.
4.13. Litigation. There is no litigation, at law or in equity, or any
proceeding before any court, board or other governmental or administrative
agency or any arbitrator pending or, to the Knowledge of the Company, threatened
which, individually or in the aggregate, is reasonably likely to result in any
final judgment or liability which, after giving effect to any applicable
insurance, would have a Material Adverse Effect or which, to the Company's
Knowledge, seeks to enjoin the consummation of the Transactions, or which
questions the validity of, any of the Transactions, except for the matters set
forth on Schedule 4.13 hereto, all of which are fully covered by insurance
except to the extent otherwise disclosed therein. Except as disclosed on
Schedule 4.13, no judgment, decree or order of any court, board or other
governmental or administrative agency or arbitrator has been issued against or
binds the Company or its assets which has or may have a Material Adverse Effect.
4.14. Tax Returns. Except as disclosed on Schedule 4.14 hereto, the
Company has filed all tax returns and reports which are required to be filed
with any foreign, federal, state or local governmental authority or agency and
has paid, or made adequate provision for the payment of, all assessments
received and all taxes reflected in such returns which have or may become due
under applicable foreign, federal, state or local governmental law or
regulations with respect to the periods in respect of which such returns and
reports were filed (other than taxes, fees or charges the amount or validity of
which is currently being contested in good faith by appropriate proceedings and
with respect to which reserves in accordance with Generally Accepted Accounting
Principles have been provided on the books of the Company). The sum of the
charges, accruals and reserves on the books of the Company in respect of taxes
and other
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<PAGE> 21
governmental charges are adequate to pay and discharge all such taxes. Except as
set forth on Schedule 4.14 hereto, the Company knows of no additional
assessments since the date of such returns and reports, and, there will be no
additional assessments for which adequate reserves appearing on the balance
sheet referred to in Section 4.6(a)(ii) have not been established. The Company
has made adequate provision for all accrued and unpaid taxes.
4.15. Events of Non-Compliance. No Unmatured Event of Non-Compliance or
Event of Non-Compliance exists on the date hereof. The Company is not in default
under any provisions of its Charter or by-laws or under any provision of any
franchise, contract, agreement, lease or other instrument to which it is a party
or by which it or its property is bound (other than a Financing Agreement or a
Related Agreement) or in violation of any law, judgment, decree or governmental
order, rule or regulation that would have a Material Adverse Effect.
4.16. Burdensome Obligations. The Company is not a party to or bound by
any agreement, deed, lease or other instrument which is reasonably believed by
the Company to be so unusual or burdensome as to materially and adversely affect
or impair the business, assets or financial condition of the Company.
4.17 ERISA. No employee benefit plan established or maintained by the
Company or to which the Company has made contributions, which is subject to Part
3 of Subtitle B of Title I of ERISA or Section 412 of the Code, had an
accumulated funding deficiency (as such term is defined in Section 302 of ERISA
or Section 412 of the Code), whether or not waived, as of the last day of the
most recent fiscal year of such plan heretofore ended. No liability to the PBGC
(other than required insurance premiums, all of which heretofore due have been
paid) has been incurred with respect to any such plan and there has not been any
reportable event within the meaning of ERISA and the regulations promulgated
thereunder, or any other event or condition, which presents a material risk of
termination of any such plan by the PBGC. Neither any such plan nor any trust
created thereunder, nor any trustee or administrator thereof, has engaged in a
prohibited transaction (as such term is defined in Section 4975 of the Code or
Section 406 of ERISA) that could subject any such plan, trust, trustee or
administrator or the Company to any material tax or material penalty on
prohibited transactions imposed under said Section 4975 of ERISA. No material
liability has been incurred with respect to any multi-employer plan, within the
meaning of Section 4001(a)(3) of ERISA, as a result of the complete or partial
withdrawal by the Company from such a multi-employer plan under Section 4201 or
4204 of ERISA; nor has the Company been notified by any such multi-employer plan
that such multi-employer plan is in reorganization or insolvency under and
within the meaning of Section 4241 or 4245 of ERISA or that such multi-employer
plan intends to terminate or has been terminated under Section 4041A of ERISA.
4.18. Governmental Regulations. The Company is not a "holding company",
or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935; nor is the Company a
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<PAGE> 22
"registered investment company", or an "affiliated person" or a "principal
underwriter" of a "registered investment company", as such terms are defined in
the Investment Company Act of 1940, as amended.
4.19. Safety, Zoning and Environmental Compliance. Neither the plants,
offices or properties in or on which the Company carries on its business or the
activities carried on therein are in material violation of any zoning, health or
safety law or regulation including, without limitation, the Occupational Safety
and Health Act of 1970, as amended. Except as set forth on Schedule 4.19 hereto:
(a) Neither of the Company or any operator of any real property
presently or formerly owned, leased or operated by the Company is in
violation, or alleged violation, of any judgment, decree, order, law,
license, rule or regulation pertaining to environmental matters,
including without limitation those arising under the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended ("CERCLA"),
the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the
Federal Clean Water Act, the Solid Wastes Disposal Act, as amended, the
Federal Clean Air Act, as amended, the Toxic Substances Control Act, or
any state or local statute, regulation, ordinance, order or decree
relating to health, safety or the environment (hereinafter
"Environmental Laws") which violation, or alleged violation, is
reasonably believed to have a Material Adverse Effect;
(b) The Company has not received notice from any third party
including without limitation any federal, state or local governmental
authority, (i) that the Company or any predecessor in interest has been
identified by the United States Environmental Protection Agency ("EPA")
as a potentially responsible party under CERCLA with respect to a site
listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B
(1986); (ii) that any "hazardous waste" as defined by 42 U.S.C.
Section 6903(5), any "hazardous substances" as defined by 42 U.S.C.
Section 9601(14), any "pollutant or contaminant" as defined by
42 U.S.C. Section 9601(33) or any toxic substance, oil or hazardous
materials or other chemicals or substances regulated by any
Environmental Laws ("Hazardous Substances") which any one of them has
generated, transported or Disposed of has been found at any site at
which a federal, state or local agency or other third party has
conducted or has ordered that the Company or any predecessor in
interest conduct a remedial investigation, removal or other response
action pursuant to any Environmental Law; or (iii) that any of them is
or shall be a named party to any claim, action, cause of action,
complaint or legal or administrative proceeding (in each case,
contingent or otherwise) arising out of any third party's incurrence of
costs, expenses, losses or damages of any kind whatsoever in connection
with the Release of Hazardous Substances;
(c)(i) No portion of any real property presently or formerly
owned, leased or operated by the Company has been used for the
handling, manufacturing, processing,
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<PAGE> 23
storage or Disposal of Hazardous Substances in material violation of
any Environmental Law; and no underground tank or other underground
storage receptacle for Hazardous Substances is located on such
properties; (ii) in the course of any activities conducted by the
Company or operators of any real property presently or formerly owned,
leased or operated by the Company, no Hazardous Substances have been
generated or are being used on such properties; (iii) there have been
no Releases (i.e. any past or present releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
disposing or dumping) or threatened Releases of Hazardous Substances
on, upon, into or from any real property presently or formerly owned,
leased or operated by the Company in material violation of any
Environmental Law; (iv) to the Knowledge of the Company, there have
been no Releases of Hazardous Substances on, upon, from or into any
real property in the vicinity of any real property presently or
formerly owned, leased or operated by the Company which, through soil
or groundwater contamination, may have come to be located on any of the
properties of the Company; and (v) in addition, any Hazardous
Substances that have been generated on any real property presently or
formerly owned, leased or operated by the Company have been transported
offsite only by carriers having an identification number issued by the
EPA, treated or Disposed of only by treatment or disposal facilities
maintaining valid permits as required under applicable Environmental
Laws, which transporters and facilities have been and are, to the best
knowledge of the Company, operating in compliance with such permits and
applicable Environmental Laws; and
(d) No real property presently or formerly owned, leased or
operated by the Company is or shall be subject to any applicable
environmental cleanup responsibility law or environmental restrictive
transfer law or regulation by virtue of the transactions set forth
herein and contemplated hereby.
4.20. Intentionally Omitted.
4.21. Disclosure. No representation or warranty of the Company to the
Purchaser contained in this Agreement or any other document, certificate, or
written statement furnished to the Purchaser by the Company for use in
connection with the transactions contemplated by this Agreement contains an
untrue statement of a material fact or omits to state a material fact (to the
Company's Knowledge, in the case of any document not furnished by it) necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances in which the same were made.
4.22. Withholding, Union Contracts, Labor Relations.
(a) The Company has withheld all amounts required by law or
agreement to be withheld by it from the wages, salaries and other
payments to its employees and is not liable for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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(b) The Company is not a party to any written employment
agreement, written arrangement or written understanding with any of its
officers or employees, other than as set forth on Schedule 4.22 hereto.
The Company has never been subject to a collective bargaining agreement
covering any of the employees of the Company. Except as disclosed in
Schedule 4.13, there are no pending, or, to the Knowledge of the
Company, threatened or anticipated (i) employment discrimination
charges or complaints against or involving the Company before any
federal, state, or local board, department, commission or agency, (ii)
unfair labor practice charges or complaints, disputes or grievances
affecting the Company, (iii) union representation petitions respecting
the employees of the Company, (iv) efforts being made to organize any
of the employees of the Company or (v) strikes, slow downs, work
stoppages, or lockouts or threats thereof affecting the Company.
4.23. Potential Conflicts of Interest. Except as set forth on Schedule
4.23 hereto, no Affiliate of the Company: (a) owns, directly or indirectly, any
interest in (excepting not more than 1% stock holdings for investment purposes
in securities of publicly held and traded companies) or is an officer, director,
employee or consultant of any Person which is a competitor, lessor, lessee,
customer or supplier of the Company; (b) owns, directly or indirectly, in whole
or in part, any tangible or intangible property which the Company is using or
the use of which is necessary for the business of the Company; or (c) has any
cause of action or other claim whatsoever against, or owes any amount to, the
Company, except for claims in the ordinary course of business, including,
without limitation, claims for accrued vacation pay, accrued benefits under
employee benefit plans and similar matters and agreements.
4.24. Transaction Costs. Except as set forth on Schedule 4.24 hereto,
there are no Transaction Costs, as defined below, that will be payable by the
Company with respect to the Transactions. The term "Transaction Costs" shall
mean all of the costs, fees and expenses incurred by the Company in connection
with the Transactions, as set forth in Schedule 4.24, including without
limitation, broker's, finder's or placement fees or commissions, attorneys' fees
and fees of other professionals; provided, however, that with respect to any
such Transaction Costs not available on the Closing Date, then Schedule 4.24 may
contain the Company's estimate thereof identified as an estimate.
4.25. ESOP Qualification. The ESOP qualifies as an "employee stock
ownership plan" within the meaning of Section 4975(e)(7) of the Code and
qualifies under Section 401(a) of the Code, and the ESOP Trust is exempt under
Section 501(a) of the Code.
4.26. ESOP Loan. The ESOP Loan is an "exempt loan" within the meaning
of Treas. Reg. Section 54-4975-7(b). The transactions contemplated by this
Agreement and the Related Agreements including, without limitation, the
Company's making of the ESOP Loan to the ESOP Trustee, and the ESOP Trustee's
purchase and retention of the Employer Securities are not "prohibited
transactions" within the meaning of Section 4975 of the Code or Section 406 of
ERISA.
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4.27. ESOP Trustee; Independent Financial Adviser; etc. Both the ESOP
Trustee and the Independent Financial Adviser are independent of the Company and
its Affiliates as defined in Prop. DOL Reg. Section 2510.3-18(b)(3)(iii).
4.28. 1996 Fiscal Year Financial Performance. The Company's: (a) net
revenues for its fiscal year ending February 29, 1996 are not less than
$29,000,000; and (b) EBIT for such fiscal year is not less than $3,700,000.
4.29 Trade Relations. There exists no actual or, to the Knowledge of
the Company, threatened termination, cancellation or limitation of, or any
modification or change in, the business relationship between the Company and any
customer or any group of customers whose purchases individually or in the
aggregate are material to the business of the Company, or with any material
supplier, and, to the Knowledge of the Company, there exists no present
condition or state of facts or circumstances that reasonably could be expected
to materially adversely affect the Company or prevent the Company from
conducting such business after the consummation of the transactions contemplated
by this Agreement in substantially the same manner in which it has heretofore
been conducted.
5. INVESTMENT REPRESENTATION.
In order to induce the Company to enter into this Agreement and to sell
the Securities to the Purchaser, the Purchaser hereby represents and warrants
that, both before and immediately after giving effect to the Closing and the
consummation of the Transactions:
5.1. Organization and Good Standing. The Purchaser is duly organized
and existing in good standing in its jurisdiction of organization and is duly
qualified as a foreign limited partnership and authorized to do business in the
State of California to the extent that the nature of its business or property
makes such qualification necessary. The Purchaser has the partnership power to
own its properties and to carry on its business as now conducted.
5.2. Authorization; Approvals. The execution, delivery and performance
by the Purchaser of this Agreement and each Related Agreement to which the
Purchaser is a party, and the purchase by the Purchaser of the Purchased
Securities hereunder, (a) are within the Purchaser's partnership power and
authority, (b) have been duly authorized by all necessary partnership action,
(c) do not conflict with or result in any breach of any provision of the
partnership agreement of the Purchaser or any law, regulation, order, judgment,
writ, injunction, material license, permit, agreement or instrument binding on,
or applicable to the Purchaser or any of its property, and (d) do not require
any consent, approval or filing pursuant to, the partnership agreement of the
Purchaser or any law, regulation, order, judgment, writ, injunction, material
license, permit, agreement or instrument binding on, or applicable to the
Purchaser or any of its property.
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5.3. Enforceability. The execution and delivery by the Purchaser of
this Agreement and each Related Agreement to which the Purchaser is a party, and
the purchase by the Purchaser of the Purchased Securities hereunder, will result
in legally binding obligations of the Purchaser enforceable against the
Purchaser in accordance with the respective terms and provisions hereof and
thereof, except to the extent that (a) such enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and (b) the
availability of the remedy of specific performance or injunctive or other
equitable relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
5.4 Accredited Investor. The Purchaser represents and warrants to the
Company that the Purchaser is (a) an "accredited investor" as defined in Rule
501 promulgated under the Securities Act, and (b) acquiring the Purchased
Securities for investment and not with a view to selling or otherwise
distributing the Purchased Securities; provided, however, that the disposition
of the Purchaser's property shall at all times be and remain in the Purchaser's
control, subject to the provisions of Section 13 hereof. Purchaser acknowledges
that the Securities have not been registered under the Securities Act. Purchaser
further represents and warrants to the Company that no portion of the funds to
be used by Purchaser to purchase the Securities are assets of a "plan" as
defined in Section 4975(e)(1) of the Code, which may be subject to the excise
tax provisions of Section 4975 of the Code.
5.5 Broker's Fees. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the Transactions based
on any agreement or arrangement by the Purchaser that would impose any
obligation or liability on the Company.
6. CONDITIONS TO PURCHASE.
The Purchaser's obligation to purchase the Purchased Securities
pursuant to this Agreement is subject to compliance by the Company with its
agreements herein contained, and to the satisfaction, on or prior to the Closing
Date, of the following conditions:
6.1. Related Agreements. Each of the Related Agreements shall have been
executed and delivered in a form satisfactory to the Purchaser, and each of the
Related Agreements shall be in full force and effect and no term or condition
thereof shall have been amended, modified or waived without the disclosure
thereof to the Purchaser and, if the Purchaser determines such amendment or
waiver to be material, the Purchaser's prior written consent thereto. All
covenants, agreements and conditions contained in the Related Agreements which
are to be performed or complied with on or prior to the Closing Date shall have
been performed or complied with (or waived with the Purchaser's prior written
consent) in all material respects.
6.2. Charter Documents; Good Standing Certificate. The Purchaser shall
have received from the Company a copy of the Charter certified by the California
Secretary of State and a copy of the bylaws of the Company, certified by a duly
authorized officer of the Company to
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be true and complete as of the Closing Date; and a certificate, dated not more
than ten (10) days prior to the Closing Date, of the Secretary of State or other
appropriate official of each state in which the Company is incorporated or
qualified to do business, as to the Company's corporate good standing or
qualification to do business in such state, as the case may be.
6.3. Proof of Corporate Action. The Purchaser shall have received from
the Company copies, certified by a duly authorized officer thereof to be true
and complete as of the Closing Date, of the records of all corporate action
taken by the Company to authorize the execution, delivery and performance of
this Agreement and each of the Financing Agreements or Related Agreements to
which such Person is or is to become a party.
6.4. Incumbency Certificate. The Purchaser shall have received from the
Company an incumbency certificate, dated as of the Closing Date, signed by a
duly authorized officer thereof and giving the name and bearing a specimen
signature of each individual who shall be authorized to sign, in the name and on
behalf of such Person, this Agreement and each of the Related Agreements to
which such Person is or is to become a party, and to give notices and to take
other action on behalf of such Person under each of such documents.
6.5. Legal Opinion. The Purchaser shall have received from counsel to
the Company and to the members of the Managing Group its opinion, substantially
in the form of Exhibit B hereto.
6.6. Representations and Warranties; Officers' Certificates. The
representations and warranties contained or incorporated by reference herein
shall be true and correct immediately after completion of the Transactions on
and as of the Closing Date; no event or condition shall have occurred or would
result from the issuance of any of the Securities which would be an Unmatured
Event of Non-Compliance or an Event of Non-Compliance on and as of the Closing
Date, and the Company shall have performed and complied with all conditions and
agreements required to be performed or complied with by it prior to the Closing;
and the Purchaser shall have received on the Closing Date a certificate to these
effects signed by an authorized officer of the Company.
6.7. Legality; Governmental Authorization. The purchase of the
Purchased Securities shall not be prohibited by any law or governmental order or
regulation, and shall not subject the Purchaser to any penalty, special tax, or
other onerous condition. All necessary consents, approvals, licenses, permits,
orders and authorizations of, or registrations, declarations and filings with,
any governmental or administrative agency or of or with any other Person, with
respect to any of the Transactions shall have been duly obtained or made and
shall be in full force and effect.
6.8. Intentionally Omitted.
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6.9. Closing Fee. The Purchaser shall have received from the Company
payment in full of a closing fee in the amount of $120,000.
6.10. Fleet Financing. Simultaneously with the purchase and sale of the
Purchased Securities hereunder, the Company and Fleet shall have executed and
delivered the Fleet Loan Agreement, such agreement to provide total credit of
not more than $19,500,000 and contain other terms and conditions satisfactory to
the Purchaser. On the Closing Date, after giving effect to the Transactions, the
Company shall have aggregate cash and cash equivalents, including availability
to borrow under the revolving credit facility evidenced by the Credit Agreement
of at least $1,500,000.
6.11. Completion of Transactions. On the Closing Date, simultaneously
with the purchase and sale of the Purchased Securities hereunder, the Company
shall have completed the Transactions, on terms satisfactory to the Purchaser in
all respects.
6.12. Payment of Certain Fees and Disbursements. Fabyanske, Svoboda,
Westra & Hart, P.A., special counsel to the Purchaser, shall have received
payment in full for all reasonable legal fees charged and all costs and expenses
incurred by such counsel through the Closing Date in connection with the
Transactions. All of the other reasonable fees, expenses and disbursements
incurred by the Purchaser or its accountants and other consultants in connection
with its due diligence investigation of the Company shall have been paid in full
by the Company.
6.13. No Material Change. There shall not have been, or threatened to
be after giving effect to the Transactions, any material damage to or loss or
destruction of any properties owned or leased by the Company (whether or not
covered by insurance) or any material adverse change in the business, assets or
financial condition of the Company or imposition of any laws, rules or
regulations which would materially adversely affect the business, assets or
financial condition of the Company.
6.14. No Litigation. No restraining order or injunction shall prevent
the Transactions and no action, suit or proceeding shall be pending or
threatened before any court or administrative body in which it will be, or is,
sought to restrain or prohibit or to obtain damages or other relief in
connection with this Agreement or the consummation of the Transactions.
6.15. Fairness. The Purchaser shall have received a copy of a favorable
opinion of FMV Opinions, Inc. addressed to the ESOP Trustee and stating to the
effect that the purchase price being paid by the ESOP Trustee for the Employer
Securities does not exceed the fair market value thereof and the Transactions
are fair to the ESOP from a financial point of view.
6.16. General. All instruments and legal, governmental, administrative
and corporate proceedings in connection with the Transactions shall be
satisfactory in form and substance to the Purchaser, and the Purchaser shall
have received copies of all documents, including, without
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limitation, records of corporate or other proceedings, opinions of counsel,
consents, licenses, approvals, permits and orders which the Purchaser may have
requested in connection therewith.
7. COVENANTS APPLICABLE TO THE COMPANY WHILE SECURITIES ARE OUTSTANDING.
Subject to Section 7.25, the Company covenants that, for so long as the
Purchaser owns any Securities or for such other period of time as is expressly
provided below, the Company will comply with the following provisions unless
otherwise consented to in writing by the Purchaser:
7.1. Financial Information. The Company will furnish the following
reports to the Purchaser:
(a) As soon as available and in any event within 90 days after the
end of each fiscal year of the Company, the annual audit report of the
Company prepared in conformity with Generally Accepted Accounting
Principles consistently applied, consisting of at least statements of
operations and retained earnings and cash flows for such fiscal year,
and a balance sheet as at the end of such year, setting forth in each
case in comparative form corresponding figures from the previous annual
audit, audited by an independent public accounting firm of
nationally-recognized standing meeting the requirements of Section 7.9
selected by the Company. Each of the financial statements delivered
hereunder shall be certified without qualification as to the scope of
the audit or as to the Company's viability as a going-concern by such
accounting firm to have been prepared in accordance with Generally
Accepted Accounting Principles consistently applied, accompanied by:
(i) any management letters, management reports or other supplementary
comments or reports to the Company or its board of directors furnished
by such accounting firm and the Company's response thereto; and (ii) if
the then applicable Credit Agreement requires a certificate from such
accounting firm addressing the Company's compliance or non-compliance
with the financial covenants set forth in such Credit Agreement, then a
similar certificate from such accounting firm addressing the Company's
compliance or non-compliance with the EBITA covenant set forth in
Section 7.26 of this Agreement.
(b) Within 45 days after the end of each fiscal month
commencing with the first month ending March 31, 1996, the Company will
deliver to the Purchaser internal, unaudited balance sheets and
statements of income, retained earnings and cash flows of the Company
as of the end of each such month and for the year-to-date together with
comparisons to the financial statements for the same month and the same
year-to-date period of the immediately preceding fiscal year and to the
budget delivered to the Purchaser as part of Schedule 4.6(a)(iii) or,
with respect to subsequent years, pursuant to Section 7.1(c).
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(c) The Company will deliver to the Purchaser, within 30 days
after the commencement of each fiscal year, an annual budget and
projected monthly balance sheets and statements of income for such
fiscal year, prepared on a comparative basis to the Projections and as
soon as practical after preparation thereof, complete and correct
copies of all quarterly (if any) or annual (if any) analyses in the
form customarily prepared by management for the use of the board of
directors of the Company.
(d) Contemporaneously with the mailing thereof, the Company
will mail to the Purchaser, copies of all material of a financial
nature delivered to Fleet or other lender party to the Credit Agreement
including, without limitation, a borrowing base certificate as of the
end of each of the Company's fiscal months and each financial covenant
compliance certificate.
(e) Together with delivery of financial statements of the
Company pursuant to Sections 7.1(a) and (b) above, the Company will
deliver to the Purchaser a certificate of the chief financial officer
of the Company: (i) stating that such statements have been prepared in
accordance with Generally Accepted Accounting Principles consistently
applied and present fairly in all material respects the financial
position of the Company as of the dates specified and the results of
its operations and cash flows with respect to the periods specified
(subject in the case of interim financial statements only to normal
year-end audit adjustments and a lack of footnotes); (ii) setting forth
the computation demonstrating compliance with the EBITA covenant set
forth in Section 7.26 of this Agreement; and (iii) stating that such
officer has caused the provisions of this Agreement and the Securities
to be reviewed and has no Knowledge of any Unmatured Event of
Non-Compliance or Event of Non-Compliance, or if such officer has such
Knowledge, specifying such Unmatured Event of Non-Compliance or Event
of Non-Compliance and the nature thereof, and what action the Company
has taken, is taking or proposes to take with respect thereto.
(f) Within five days after any executive officer of the
Company obtaining knowledge of any Unmatured Event of Non-Compliance or
Event of Non-Compliance, a notice describing the nature thereof and
what action the Company has taken, is taking or proposes to take with
respect thereto.
(g) Within five days after any executive officer of the
Company obtaining knowledge of the occurrence thereof, notice of the
institution of any litigation, arbitration or governmental proceeding
against the Company or any of its property which, if determined
adversely to the Company, would constitute a Material Adverse Effect,
or the rendering of a judgment or decision in such litigation or
proceeding which constitutes a Material Adverse Effect, and the steps
being taken by the Company with respect thereto.
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(h) Within five days after any executive officer of the
Company obtaining knowledge of any default or event of default under
any Related Agreement, or any agreement relating to any Indebtedness
for Borrowed Money that has an outstanding principal balance of
$1,000,000 or more, the Company will furnish a notice specifying the
nature and period of existence thereof. Promptly after the receipt
thereof, the Company will provide copies of any reports as to
adequacies in accounting controls submitted by independent accountants
with respect to the Company.
(i) Promptly after any executive officer of the Company
obtaining knowledge of the occurrence thereof, notice of any violation
as to any environmental matter by the Company and of the commencement
of any judicial or administrative proceeding relating to health, safety
or environmental matters: (i) in which an adverse determination or
result could result in the revocation of or have a material adverse
effect on any operating permits, air emission permits, water discharge
permits, hazardous waste permits or other permits held by such Person
which are material to the operations of the Company; or (ii) which will
or threatens to impose a material liability on the Company to any other
Person or which will require a material expenditure by the Company to
cure any alleged problem or violation.
(j) Promptly upon becoming available, a copy of all regular or
periodic reports which the Company shall file with the Commission or
any national securities exchange.
(k) From time to time, such other information regarding the
business, operation and financial condition of the Company as the
Purchaser may reasonably request.
7.2. Records and Accounts. The Company will keep true and accurate
records and books of account in which full, true and correct entries will be
made in accordance with Generally Accepted Accounting Principles and maintain,
in accordance with Generally Accepted Accounting Principles, adequate accounts
and reserves for all taxes (including income taxes), all depreciation,
depletion, obsolescence and amortization of its properties and all other
contingencies.
7.3. Corporate Existence; Maintenance of Properties. The Company will
preserve and keep in full force and effect its corporate existence and all
rights and franchises then material to its operations. The Company will engage
in the business currently conducted by it and businesses reasonably related
thereto. The Company will maintain all of its properties used or useful in the
conduct of its business in good condition, repair and working order and cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section 7.3 shall prevent the Company from discontinuing the operation and
maintenance of any of such properties if such discontinuance is, in the judgment
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of the Board of Directors of the Company, desirable in the conduct of the
Company's business and does not in the aggregate have a Material Adverse Effect.
7.4. Insurance. The Company will maintain, with financially sound and
reputable insurance companies, funds or underwriters, casualty loss insurance on
its properties and assets, and liability insurance against its liability to
other persons, properties and assets, covering the risks and in the amounts and
with such deductibles as are customarily carried by companies conducting
businesses similar to that of the Company or having properties similar to that
of the Company; provided, however, that in all events the amount of such
insurance be sufficient to prevent the Company from becoming a co-insurer. The
Company will maintain such other insurance as may be required by law.
7.5. Taxes. The Company will pay and discharge, or cause to be paid and
discharged, before the same shall become overdue, all taxes, assessments and
other governmental charges imposed upon the Company and its real properties,
sales and activities, or any part thereof, or upon the income or profits
therefrom, as well as all claims for labor, materials, or supplies, which if
unpaid might by law become a Lien or charge upon any of its properties;
provided, however, that any such tax, assessment, charge, levy or claim need not
be paid if the validity or amount thereof shall currently be contested in good
faith by appropriate action or proceedings and if the Company shall have set
aside on its books adequate reserves with respect thereto in accordance with
Generally Accepted Accounting Principles; provided, further, that the Company
will pay or cause to be paid all such taxes, assessments, charges, levies or
claims forthwith upon the commencement of foreclosure on any Lien which may have
attached as security therefor.
7.6. Inspection of Properties and Books. The Company shall permit the
Purchaser or any of its designated representatives to visit and inspect any of
the properties of the Company, to examine the books of account of the Company
(and to make copies thereof and extracts therefrom), and to discuss the affairs,
finances and accounts of the Company with, and to be advised as to the same by,
officers of the Company, all at such reasonable times and intervals as the
Purchaser may reasonably request.
7.7. Compliance with Laws, Contracts, Licenses, and Permits. The
Company will comply in all material respects with: (a) all applicable laws and
regulations wherever its business is conducted; (b) the provisions of its
Charter and bylaws; (c) all agreements and instruments by which it or any of its
properties may be bound (including, without limitation, the Financing Agreements
and the Related Agreements); and (d) all applicable decrees, orders, and
judgments except, in each case, where the effect of such non-compliance under
any of such subsections would not have a Material Adverse Effect. If any
authorization, consent, approval, operating right, permit or license from any
officer, agency or instrumentality of any government shall become necessary or
required in order that the Company may fulfill any of its obligations hereunder,
the Company promptly will take or cause to be taken all reasonable steps within
its power to obtain such authorization, consent, approval, operating right,
permit or license and furnish the Purchaser with evidence thereof.
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7.8. Further Assurances. The Company will execute such further
instruments and documents as the Purchaser shall reasonably request to carry out
the transactions contemplated by this Agreement and the Financing Agreements.
7.9. Independent Public Accountants. The Company will retain a
so-called "Big 6" nationally recognized firm of independent public accountants
as the Company's independent public accountants to audit the Company's financial
statements at the end of each fiscal year. No retained firm of the independent
public accounts shall be terminated without the approval of the Company's Board
of Directors.
7.10. Restrictions on Indebtedness. The Company will not create,
incur, assume, guarantee or be or remain liable, contingently or otherwise, with
respect to any Indebtedness other than the following("Permitted Indebtedness"):
(a) Indebtedness outstanding under the Credit Agreement;
provided, however, that the amount of such Indebtedness shall not
exceed the sum of: (i) in the case of a revolving credit facility, the
greater of (A) $10,000,000, or (B) the amount that the aggregate amount
of credit that can be advanced based upon customary advance rates for
the Company's accounts receivable and inventory, the determination of
the customary nature of such advance rates to be made from time to time
in the reasonable judgment of the lender or lenders under the Credit
Agreement plus (ii) the outstanding principal balance of the term loan
evidenced by the Term Note (or a Refinancing Agreement in respect
thereof);
(b) Current liabilities incurred in the ordinary course of
business not incurred through: (i) the borrowing of money; or (ii) the
obtaining of credit except for credit on an open account basis
customarily extended in connection with purchases of goods and
services; provided, however, that the Company shall pay such open
accounts in accordance with its customary trade practices except where
the Company is contesting in good faith the amount or validity thereof
by appropriate proceedings and then only to the extent that the Company
has set aside on its books adequate reserves with respect thereto in
accordance with Generally Accepted Accounting Principles;
(c) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and
supplies to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of Section 7.5
hereof;
(d) Indebtedness in respect of: (i) judgments or awards which
have been in force for less than the applicable period for taking an
appeal so long as execution is not levied thereunder or in respect of
which the Company shall at the time in good faith be prosecuting an
appeal or proceedings for review and in respect of which a stay of
execution shall have been obtained pending such appeal or review; or
(ii) actions, suits
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or proceedings which, if adversely determined, would not have a
Material Adverse Effect;
(e) Endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
(f) Indebtedness under or in respect of the agreements or
instruments existing on the date of this Agreement listed and described
on Schedule 7.10 hereto, but only to the extent of the amounts listed
thereon;
(g) Indebtedness for Borrowed Money and Capitalized Leases
incurred in connection with the acquisition of fixed assets; provided,
however, that the aggregate outstanding principal amount of such
Indebtedness shall not exceed $3,000,000 at any time;
(h) Other Indebtedness of the Company in an aggregate amount
outstanding at any one time of not more than $4,000,000; and
(i) Refinancing Indebtedness incurred pursuant to any
Refinancing Agreement, in an aggregate principal amount outstanding not
to exceed the amount of the Indebtedness refinanced with the proceeds
of such Refinancing Indebtedness; provided, however, that with respect
to any refinancing of Indebtedness under the Credit Agreement,
Refinancing Indebtedness also may include Indebtedness arising from the
funding of unused revolving credit commitment permitted by subsection
(a)(i) above.
7.11. Restrictions on Liens. The Company will not create or incur or
suffer to be created or incurred or to exist any Lien upon any of its property
or assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; or transfer any of such property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; or acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; or suffer to exist
for a period of more than 30 days after the same shall have been incurred any
Indebtedness or claim or demand against it which if unpaid might by law or upon
bankruptcy or insolvency, or otherwise, be given any priority whatsoever over
its general creditors (other than those claims which the Company is contesting
in good faith by appropriate proceedings and as to which the Company shall have
set aside on its books, adequate reserves with respect thereto); or sell,
assign, pledge or otherwise transfer any accounts, contract rights, general
intangibles or chattel paper, with or without recourse; provided, however, that
the Company may create or incur or suffer to be created or incurred or to exist
any of the following ("Permitted Liens"):
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<PAGE> 35
(a) Liens to secure taxes, assessments and other government
charges or claims for labor, material or supplies in respect of
obligations not overdue (other than any such overdue taxes, levies,
claims, assessments or charges, to the extent the payment therefor
shall not at the time be required to be made in accordance with the
provisions of Section 7.5 hereof);
(b) Deposits or pledges made in connection with, or to secure
payment of, worker's compensation, unemployment insurance, old age
pensions or other social security obligations;
(c) Liens in respect of judgments or awards, the Indebtedness
with respect to which is permitted by Section 7.10(d);
(d) Liens of carriers, warehousemen, mechanics and
materialmen, and other like liens, in existence less than 60 days from
the date of creation thereof or in respect of obligations not overdue
or, if overdue, all such liens that the Company is contesting in good
faith by appropriate actions or proceedings which prevent enforcement
of the lien;
(e) Encumbrances consisting of easements, rights of way,
zoning restrictions, restrictions on the use of real property and
irregularities in the title thereto, landlord's or lessor's Liens under
leases to which the Company is a party, and other Liens none of which
interferes materially with the use of the property affected in the
ordinary conduct of the business of the Company or which does not
individually or in the aggregate have a Material Adverse Effect;
(f) Any Liens on the assets and property of the Company from
time to time securing Indebtedness permitted by Sections 7.10(a), (g)
or (h) and Liens presently outstanding as shown on Schedule 7.11
hereto; and
(g) Liens incurred in connection with Capital Expenditures
made after the date of this Agreement by way of purchase money security
interest, purchase money mortgage, conditional sale or other title
retention agreement, Capitalized Lease or other deferred payment
contract, and attaching only to the property being acquired; provided,
however, that the Indebtedness secured thereby is permitted by Section
7.10(g), and the amount of such secured Indebtedness does not exceed
the lesser of the purchase price or the fair market value of such
property and related acquisition costs at the time of its acquisition;
and
(h) Liens securing Refinancing Indebtedness to the extent any
such Lien replaces a Lien securing the Indebtedness so refinanced and
is limited to the properties or assets that were subject to the Lien
securing the Indebtedness so refinanced; provided, however, that in the
case of Refinancing Indebtedness incurred in order to refinance the
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<PAGE> 36
Indebtedness owing under and pursuant to the Credit Agreement, the
Liens may extend to any and all properties and assets of the Company.
7.12. Distributions. The Company shall not make any Distribution
except:
(a) to the extent not prohibited by any Credit Agreement
Restriction, the Company:
(i) shall redeem the Preferred Stock on the Preferred Stock
Stated Redemption Date;
(ii) may repurchase the Warrants and Warrant Stock in
accordance with Section 9 hereof;
(iii) may purchase the "Deceased Founder's Shares" (as
defined in the Shareholder Agreement) in accordance with, and
subject to, the terms and conditions of the Shareholder
Agreement; and
(iv) may: (A) make contributions to the ESOP; (B) make cash
distributions to participants in the ESOP required by the ESOP
Plan Document; (C) purchase any share of the Series B Common
Stock put to the Company pursuant to Section 14(b) of the ESOP
Plan Document; and (D) pay ESOP Qualifying Dividends; and
(b) the Company may redeem the Preferred Stock on each
Preferred Stock Early Redemption Date.
7.13. Merger, Consolidation or Sale of Assets. The Company will not
become a party to any merger or consolidation, or sell, lease, sublease or
otherwise transfer or dispose of any of its assets other than: (a) transactions
requiring the consent of a majority of each class of the Company's issued and
outstanding capital stock under California law or receiving the consent of a
majority of each class of the Company's issued and outstanding capital stock;
(b) any merger or consolidation with a wholly-owned Subsidiary permitted by
Section 7.14(f) so long as the Company is the surviving corporation; or (c) any
of the following transactions if such shareholder consent is not required or
obtained: (i) sales of inventory in the ordinary course of business; (ii) sales
of obsolescent equipment permitted by the terms of the then applicable Credit
Agreement with respect to sales of equipment subject to a Lien in favor of the
lender party thereto; or (iii) sales or other dispositions of other assets or
property so long as, after giving effect to the contemplated transaction, the
aggregate Net Proceeds from all such transactions would not exceed $1,000,000.
7.14. Investments. The Company will not have outstanding or acquire or
commit itself to acquire or hold any Investment except for the ESOP Loan and for
the Investments set forth
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<PAGE> 37
on Schedule 7.14 hereto and except Investments in: (a) marketable direct
obligations issued or guaranteed by the United States of America which mature
within one year from the date of acquisition thereof or which are subject to a
repurchase agreement, exercisable within 90 days from the date of acquisition of
such agreement, with any commercial bank or trust company incorporated under the
laws of the United States of America or any State thereof or the District of
Columbia; (b) commercial paper maturing within one year from the date of
acquisition thereof and having, at the date of acquisition thereof, the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation; (c) bankers' acceptances eligible for rediscount under Federal
Reserve Board requirements accepted by any commercial bank or trust company
referred to in clause (a) hereof; (d) certificates of deposit maturing within
one year from the date of acquisition thereof issued by any commercial bank or
trust company referred to in clause (a) hereof and having capital and surplus of
at least $100,000,000 and having at least an "A" rating or better; (e)
certificates of deposit issued by banks organized under the laws of any other
jurisdiction, each having combined capital and surplus of not less than
$100,000,000, and having at least an "A" rating or better; (f) wholly-owned
Subsidiaries organized solely to consummate an Investment permitted by
subsection (g) below so long as such Subsidiary is merged into, or consolidated
with, the Company as soon as practicable after the consummation of such
Investment but in no event more than 30 days thereafter; and (g) the assets or
capital stock of any other Person so long as, after giving effect to the
contemplated Investment, the aggregate amount of such Investments would not
exceed $2,000,000.
7.15. Transactions with Affiliates. The Company will not: (a) except
pursuant to the Financing Agreements or the Related Agreements (including,
without limitation, the ESOP Transactions Documents), engage in any transaction
with any Affiliate on terms more favorable to such Affiliate than would have
been obtainable on an arms-length basis in the ordinary course of business; or
(b) make any Restricted Payment other than: (i) contributions made, and
dividends paid, to the ESOP to enable the ESOP to pay the principal of, and/or
interest on, the ESOP Loan; (ii) in the case of each of the members of the
Managing Group, payments of: (A) base salary and employee benefits (other than
bonuses) in the amount of base salary and types of employee benefits provided by
the terms of the Employment Agreements as in effect on the Closing Date plus,
commencing with the Company's fiscal year beginning March 1, 1997, an additional
amount of base salary not to exceed 10% (or 15% in the case of the fiscal year
beginning March 1, 1997) of the prior fiscal year's base salary in the aggregate
for all members of the Managing Group so long as no Specified Event of
Non-Compliance or Unmatured Event of Non-Compliance which with notice and/or
lapse of time would constitute a Specified Event of Non-Compliance has occurred
and is continuing at the time of any such salary increase or would result
therefrom; and (B) bonuses to members of the Managing Group with respect to each
of the Company's 1997, 1998, 1999, 2000 and 2001 fiscal years, commencing with
the fiscal year ending February 28, 1997, so long as: (1) the aggregate amount
of such bonuses paid to any or all of the members of the Managing Group does not
exceed the Maximum Incentive Compensation for such fiscal year; (2) no Specified
Event of Non-Compliance or Unmatured Event of Non-Compliance which with notice
and/or lapse of time would constitute a Specified Event of Non-Compliance has
occurred and is continuing at the time of any such bonus payment
37
<PAGE> 38
or would result therefrom; and (3) such bonuses are not paid with respect to any
fiscal year until after the Company delivers its annual audited financial
statements for such fiscal year to the Purchaser in accordance with Section 7.1;
(ii) payments made pursuant to the terms of any agreement or instrument, as in
effect on the Closing Date, listed on Schedule 7.15; and (iii) premiums on life
insurance policies maintained by the Company on the lives of members of the
Managing Group in accordance with the Shareholder Agreement and repurchases of
any "Deceased Founder's Shares" in accordance with, and subject to, the terms
and conditions of the Shareholder Agreement.
7.16. Intentionally Omitted.
7.17. Availability of Common Stock. The Company will keep such number
of shares of Series A Common Stock unissued and available for issuance in order
to permit issuance of the Warrant Stock.
7.18. Dilution Protection. Except for the Series B Common Stock and for
Permitted Stock Issues the Company will not: (a) issue, sell, give away,
transfer, pledge, mortgage, assign or otherwise dispose of; (b) grant any rights
(either preemptive or other) or options to subscribe for or purchase; or (c)
enter into any agreements, or issue any warrants, providing for the issuance of
any stock or any stock or securities convertible into or exchangeable for any
stock of the Company. Except for Permitted Stock Issues, the Company will not
authorize any additional class or series of capital stock or increase the number
of shares of authorized capital stock from that set forth in Section 4.4 hereof,
as applicable, except to the extent necessary to comply with its obligations
under Section 9 hereof.
7.19. Directors, etc. So long as the Purchaser is permitted to have a
Purchaser's Representative to or on the Company's board of directors, the
Company will call and hold a meeting of its board of directors at least once
each fiscal quarter and the Company will give the Purchaser's Representative at
least five business days' prior written notice (at least three business days'
prior written notice in the case of a telephone meeting and in the case of an
urgent meeting, such lesser number of days' prior written notice as is
reasonably practicable) of the time, place and subject matter of any proposed
meeting (or action by written consent) of the board of directors of the Company
(except written consents executed solely in connection with the establishment of
bank accounts or other purely administrative matters), such notice in all cases
to include true and complete copies of all documents furnished to any director
in connection with such meeting or consent. The Purchaser's Representative, if
not a board member, shall be entitled to attend as an observer at any such
meeting or, if a meeting is held by telephone conference, to participate therein
for the purpose of listening thereto. All normal travel and out-of-pocket
expenses incurred by directors in connection with attending any meetings of the
board will be paid by the Company so long as such payments do not violate
applicable law. Upon the Purchaser's request at any time when the Purchaser has
exercised its rights to designate one of the Company's directors, the Company
will purchase a reasonable amount of director's and officer's insurance
(including fiduciary coverage) for directors of the
38
<PAGE> 39
Company, including the Purchaser's Representative; provided, however, that: (a)
the Company's obligation is limited to spending no more than the aggregate
amount of $75,000 during any fiscal year on premiums for insurance on all
directors; and (b) the Company, in no event, shall provide any less favorable
coverage for the Purchaser's Representative than it provides for any other
director.
7.20. Stockholders' Meetings. So long as the Purchaser is permitted
to have a Purchaser's Representative to or on the Company's board of directors,
the Purchaser may call for a stockholders' meeting.
7.21. Amendment of Related Agreements; etc. The Company shall not:
(a) agree to any amendment or modification of, or grant any
waiver or fail to enforce any of its rights pursuant to, any of the
Related Agreements (other than the Fleet Loan Documents or any
Refinancing Agreements in respect thereof) which would have a material
adverse effect on the holders of the Securities or on any of their
rights hereunder or under any of the Financing Agreements including,
without limitation, the amendment or modification of any term
restricting the Company's ability to redeem or pay dividends on the
Preferred Stock or to purchase the Warrants or the Warrant Stock; or
(b) enter into any amendment or modification of any of the
provisions of the Credit Agreement (or a Refinancing Agreement in
respect thereof), without having obtained the prior written consent of
the Majority Holders if the effect thereof would be to (i) extend the
final maturity of the Term Note (or any Refinancing Agreement in
respect thereof) beyond October 23, 2002, or (ii) prohibit the
redemption of the Preferred Stock on or after the date on which the
Term Note has been repaid in full so long as no default or event of
default then exists or would result under the Credit Agreement as a
result thereof; provided, however, that the incurrance of any
Refinancing Indebtedness to repay the Term Note shall not be deemed to
constitute a repayment for purposes of this Section.
7.22. Impairment of Rights. The Company will not enter into any
contract or agreement which by its terms restricts the Company's ability to
redeem or pay dividends on the Preferred Stock or to purchase the Warrants or
the Warrant Stock or which may otherwise restrict the Company's ability to
comply with and perform the terms of this Agreement and the other Financing
Agreements except for the Credit Agreement Restrictions, if any, set forth in
the Fleet Loan Agreement or any successor Credit Agreement or take any action,
or permit any action to be taken by others, solely or primarily for the purpose
of increasing the value of any class of stock of the Company if the effect of
such action is to reduce the value or security of the Preferred Stock.
39
<PAGE> 40
7.23. Charter Amendments; etc. The Charter of the Company shall not be
amended or modified in any manner that would adversely affect the rights of the
holders of the Preferred Stock.
7.24. Redemption. The Company shall redeem the outstanding Preferred
Stock on the Preferred Stock Stated Redemption Date unless such redemption is
prohibited by a Credit Agreement Restriction; provided, however, that if a
Credit Agreement Restriction prohibits such redemption, then the Company shall
immediately redeem the Preferred Stock upon the termination of such Credit
Agreement Restriction. At any time when redemption of the Preferred Stock is not
prohibited by any Credit Agreement Restriction, the Company may elect to redeem
the Preferred Stock in whole, or in part, by giving the Purchaser (or the then
holder of the Preferred Stock) and Fleet (or the lender or lenders under a
successor Credit Agreement) at least 30 business days' prior written notice of
the Company's election; provided, however, that any partial voluntary redemption
shall be for the number of shares of Preferred Stock having a Liquidation Value
of not less than $1,000,000. The Company's written notice of election shall
specify a redemption date (each a "Preferred Stock Early Redemption Date") which
shall be no later than 10 days after the end of the 30 day notice period. On the
relevant Preferred Stock Redemption Date, the Company shall redeem the Preferred
Stock by paying the Preferred Stock Redemption Price to the Purchaser in
immediately available funds. For the purpose of calculating the Preferred Stock
Redemption Price on the Preferred Stock Early Redemption Date, the "Preferred
Stock Early Redemption Premium" shall be the percentage of the Liquidation Value
(as of the date of the original issuance) of the shares of the Preferred Stock
to be redeemed specified in the table below for the Post-Closing Year in which
such early redemption occurs:
<TABLE>
<CAPTION>
Preferred Stock
Post-Closing Year Early Redemption Premium
----------------- ------------------------
<S> <C>
First 5%
Second 4%
Third 3%
Fourth 2%
Fifth 1%.
</TABLE>
7.25 Termination of Covenants. Upon the Company's redemption of all of
the Preferred Stock, all of the covenants under this Section 7 shall terminate
except that, so long as the Purchaser holds at least the CECP Floor Amount, the
covenants under the following Sections shall remain in full force and effect:
Sections 7.1(a), (b), (c), (e) (exclusive of clause (ii)), and (k), Section
7.12, Section 7.15, Section 7.17, Section 7.18, Section 7.19, Section 7.20,
Section 7.21 and Section 7.22; provided, however that all such remaining
covenants shall terminate upon the closing of a Qualified Public Sale.
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<PAGE> 41
7.26 EBITA. The Company will not permit, as of the end of any of
its fiscal quarters, commencing with the fiscal quarter ending on February 28,
1997, its EBITA for the four fiscal quarters ending with such fiscal quarter to
be less than the amount specified in the following table for any fiscal quarter
occurring in the specified fiscal year:
<TABLE>
<CAPTION>
Fiscal Year EBITA
----------- -----
<S> <C>
1997 $2,250,000
1998 $3,000,000
1999 $3,350,000
2000 $3,700,000
2001 $3,700,000.
</TABLE>
8. Non-Compliance.
8.1. Events of Non-Compliance. Holders of the Securities will be
entitled to exercise the remedies provided by Section 8.2 hereof in accordance
with the terms thereof if any one or more of the following events ("Events of
Non-Compliance") shall occur:
(a) the Company shall fail to redeem the Preferred Stock on
the Preferred Stock Stated Redemption Date, regardless of whether such
failure results from a Statutory Restriction, Credit Agreement
Restriction or otherwise;
(b) the Company shall fail to pay the Repurchase Price payable
under Section 9.2 in accordance with Section 9.4 or shall fail to make
any payment required by Section 9.6 on the date when due or, if payable
on demand, on the date demanded unless such payment cannot be made
because of a Statutory Restriction or Credit Agreement Restriction; or
(c) the Company shall fail to perform or observe the covenant
applicable to it set forth in Section 7.26; or
(d) the Company shall fail to perform or observe any of the
covenants applicable to it set forth in Sections 7.3, 7.10, 7.12, 7.13,
7.14 or 7.15; or
(e) the Company shall fail to perform or observe any covenant,
agreement or provision set forth in this Agreement or any covenant,
agreement, or provision to be performed or observed by it under any
Financing Agreements (other than those provisions set forth in other
subsections of this Section 8.1) and such failure shall not be
rectified or cured to the Purchaser's satisfaction within thirty (30)
days after written notice from the Purchaser; or
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<PAGE> 42
(f) any representation or warranty in writing made by the
Company to the Purchaser in connection with the execution and delivery
of this Agreement or any other Financing Agreement or in connection
with the execution and delivery of any amendment to this Agreement or
any other Financing Agreement shall prove to have been false, in any
material respect, on the date as of which it was made; or
(g) the Company shall fail to pay when due any scheduled
installment payment of principal on any Indebtedness for Borrowed Money
having an outstanding principal balance of $1,000,000 or more and such
failure shall not be cured by the payment thereof within twelve (12)
months of the original due date; provided, however, that it is agreed
that no waiver or rescheduling of such payment after the default by the
holder of the relevant Indebtedness shall be deemed to constitute a
cure under this subsection; or
(h) the holder of any Indebtedness for Borrowed Money having
an outstanding principal of $1,000,000 or more shall: (i) accelerate
the payment thereof so that the same shall have become due and payable
prior to the date on which the same is scheduled to be due and payable
or the holder of any Indebtedness for Borrowed Money payable on demand
shall demand payment thereof and payment thereof is not made within 30
days thereof unless, other than with respect to any such Indebtedness
arising under any Credit Agreement, the Company is contesting such
acceleration in good faith by appropriate actions or proceedings; or
(ii) commence any action to enforce any security interest in or other
Lien on any property securing any such Indebtedness through judicial
proceedings or foreclosure or repossession of collateral and such
action shall not be dismissed within ___ days of the commencement
thereof unless, other than with respect to any Lien arising under the
Credit Agreement, the Company is contesting such proceedings in good
faith by appropriate actions or proceedings and the Company's right
to use any such property during such contest is not materially
impaired; or
(i) a final judgment which in the aggregate with other
outstanding final judgments against the Company exceeds $500,000 shall
be rendered against the Company if, within 30 days after entry thereof,
such judgment shall not have been satisfied and discharged or stayed
pending appeal or bonded, or within 30 days after expiration of such
stay such judgment shall not have been discharged; or
(j) the Company shall:
(i) commence a voluntary case under Title 11
of the United States Code as from time to time in
effect, or authorize, by appropriate proceedings of
its board of directors or other governing body, the
commencement of such a voluntary case;
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<PAGE> 43
(ii) have filed against it a petition
commencing an involuntary case under said Title 11
and such petition shall not have been dismissed or
stayed within 60 days;
(iii) seek relief as a debtor under any
applicable law, other than said Title 11, of any
jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or
alteration of the rights of creditors, or consent to
or acquiesce in such relief;
(iv) have entered against it an order by a
court of competent jurisdiction (x) finding it to be
bankrupt or insolvent, (y) ordering or approving its
liquidation, reorganization or any modification or
alteration of the rights of its creditors, or (z)
assuming custody of, or appointing a receiver or
other custodian for, all or a substantial part of its
property;
(v) make an assignment for the benefit of
creditors, or enter into a composition with its
creditors generally, or appoint or consent to the
appointment of a receiver or other custodian for all
or a substantial part of its property; or
(k) the employment of any of John Diebel, Steve Murdock, Ron
Ezra or Joseph A. Gordon, Jr. shall be terminated for any reason, and
the Company, if requested by the Purchaser, shall not have hired a
replacement for any such Person who is reasonably satisfactory to the
Purchaser, within 180 days thereafter.
8.2. Remedies.
Subject to the provisions of Section 8.5 hereof, the Purchaser, upon
the occurrence and continuance of any of the Events of Non-Compliance under
Section 8.1 hereof, may proceed to protect and enforce its rights by suit in
equity, action at law or other appropriate proceeding for specific performance
of, or injunctive relief enjoining any violation of, any covenant, provision or
condition contained or incorporated by reference in this Agreement or in any
Financing Agreement, or in aid of the exercise of any power granted in this
Agreement or any Financing Agreement, and, if such Event of Non-Compliance is a
Specified Event of Non-Compliance, the Purchaser shall also have the rights
provided in Section 3.5 of the Certificate of Determination.
8.3. Waivers. The Company hereby waives, to the extent not
prohibited by applicable law, (a) all presentments, demands for performance and
notices of nonperformance (except to the extent specifically required by the
provisions hereof), (b) any requirement of diligence or promptness on the part
of any holder of Securities in the enforcement of its rights under the
provisions of this Agreement, the Company's Charter, or any Financing Agreement,
and (c) any and all notices of every kind and description which may be required
to be given by any statute or rule of law.
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8.4. Course of Dealing. No course of dealing, between the Company on
the one hand, and the Purchaser or any holder of Securities, on the other hand,
shall operate as a waiver of any of the Purchaser's rights under this Agreement,
the Company's Charter, or any Financing Agreement. No delay or omission in
exercising any right under this Agreement, the Company's Charter, or any
Financing Agreement shall operate as a waiver of such right or any other right.
A waiver on any one occasion shall not be construed as a bar to or waiver of any
right or remedy on any other occasion.
8.5 Credit Agreement Restrictions. Anything contained herein to the
contrary notwithstanding, the Purchaser (and any transferee of a Security by its
acceptance thereof) agrees that, except for a subordinated claim set forth in
the proviso hereto, it shall have no "claim" (used in its broadest sense, as
contemplated by and defined in Section 101(5) of the Bankruptcy Code) as a
result of the occurrence of any Unmatured Event of Non-Compliance or any Event
of Non-Compliance and shall not commence or prosecute any Enforcement Action as
a result of the occurrence of any such Unmatured Event of Non-Compliance or any
Event of Non-Compliance; provided, however, that, subject to the prior execution
and delivery by Purchaser (or its successors or assigns, as applicable) in favor
of the lender or lenders under the Credit Agreement (or any Refinancing
Agreement) of a subordination agreement containing terms and conditions
reasonably satisfactory to such lender or lenders, the Purchaser shall be
entitled to commence and prosecute a lawsuit, arbitration, or other proceeding
solely to be able to establish the amount of any damages that it may have
suffered as a result of the occurrence of any such Unmatured Event of
Non-Compliance or any Event of Non-Compliance; it being understood and agreed
that, the foregoing limited exception notwithstanding, in no event shall the
Purchaser be entitled to commence or prosecute any of the actions described in
clauses (b) or (c) of the definition of Enforcement Action. For purposes of this
Section, "reasonably satisfactory" terms and conditions shall mean the
subordination terms customarily found in subordination agreements between a
senior lender and the seller of a business with respect to a note taken back by
such seller in connection with the sale of a business. The lender or lenders
shall deliver a draft of the subordination agreement contemplated by this
Section within 10 business days after the Purchaser's written request therefor
in connection with an Event of Non-Compliance and shall diligently attempt to
reach agreement with the Purchaser on such reasonably satisfactory terms and
conditions. The foregoing agreement by the Purchaser is made for the direct and
intended benefit of Fleet (or any other lender or lenders under the Credit
Agreement) and may not be amended or revoked without their prior written consent
except that this Section shall automatically terminate without further action on
the Company's or any lender's or lenders' part upon payment in full of all
obligations under the then applicable Credit Agreement. This Section is not
intended to benefit the Company and the Company shall not have any rights
hereunder.
9. REPURCHASE OF WARRANTS AND WARRANT STOCK.
9.1. Right to Put Warrants or Warrant Stock. At any time and from time
to time on or after the Preferred Stock Stated Redemption Date, but in any case
only prior to the consummation of a Qualified Public Sale, the Majority Holders
of the Warrants and Warrant
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<PAGE> 45
Stock may, by notice to the Company and Fleet (or the lender or lenders under
the then applicable Credit Agreement) (a "Put Notice"), elect to sell to the
Company and, subject to the absence of any Credit Agreement Restrictions, the
Company hereby agrees to repurchase from such holders, at the Repurchase Price
specified in Section 9.5 hereof, such number of shares of Warrant Stock and/or
such portion of the Warrants exercisable for that number of shares of Warrant
Stock as are specified in the Put Notice. For all purposes of this Section 9,
each Warrant shall be treated as the number of shares of Warrant Stock for which
it is then exercisable. Notwithstanding anything herein to the contrary, the
Majority Holders of Warrants and Warrant Stock may exercise their put rights
under this Section 9.1 no more than once each fiscal year and three times in the
aggregate and may not require the Company to repurchase at any put closing
hereunder Warrants and Warrant Stock representing in the aggregate the lesser of
(i) 250,000 shares (as such number of shares may be adjusted from time to time)
of Warrant Stock or (ii) such lesser number of shares of Warrant Stock as are
then outstanding or issuable pursuant to then outstanding Warrants.
9.2. Put Closing. The put closing shall take place at the offices of
the Company at 10:00 a.m. local time on a date (a) not more than 30 days after
the date a Put Notice is received by the Company (or the lender or lenders under
the then applicable Credit Agreement) as the Company shall specify by notice to
the holders of Warrants and Warrant Stock, or at such later time as Fair Market
Value shall have been determined under Section 9.5(b) hereof, or (b) at such
other time and place as the Majority Holders of Warrants and Warrant Stock and
the Company may agree upon (a "Put Closing Date"). At the put closing the
holders of Warrants and Warrant Stock will deliver to the Company a certificate
or certificates evidencing the Warrant Stock and Warrants then to be purchased
by the Company (properly endorsed or accompanied by stock powers or, in the case
of any Warrant, assignments with signature(s) guaranteed or similar appropriate
documentation of authority to transfer) against payment of the Repurchase Price
to the holders of Warrants and Warrant Stock in the manner specified in Section
9.4 hereof (together with a certificate or certificates evidencing any shares of
Warrant Stock, and Warrants evidencing the right to purchase any shares of
Warrant Stock, presented to the Company but not then being purchased by the
Company). Except to the extent prohibited by applicable law, prior to the Put
Closing Date, the Company will provide the Majority Holders of Warrants and
Warrant Stock with all available information that may be material to the
exercise of their rights under this Section 9, including any plans or proposals
for any mergers, sales of assets, acquisitions and substantial sales of stock by
its stockholders.
9.3. Right to Call Warrants or Warrant Stock; Call Closing. At any time
after the Preferred Stock Stated Redemption Date, but in any case only after the
termination of any Credit Agreement Restriction and when the Company is then
able to pay the Repurchase Price in immediately available funds out of funds
legally available therefor, the Company may, by notice to the holders of
Warrants and Warrant Stock (the "Call Notice"), elect to purchase from the
holders of Warrants and Warrant Stock (and the holders of Warrants and Warrant
Stock hereby agree to sell to the Company), at the Repurchase Price, all or a
portion of the shares of Warrant Stock and the Warrants as are then outstanding
on a date specified in such notice not fewer than
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30 nor more than 90 days after the date of the Call Notice; provided, however,
that the Company may exercise its partial call rights no more than twice and may
not require the Purchaser to sell Warrants and Warrant Stock at the initial Call
Closing Date that would reduce the Purchaser's Warrants and Warrant Stock to
less than 10% of the Company's Common Stock, on a Fully Diluted Basis. The
closing under this Section 9.3 shall take place at the offices of the Company at
10:00 a.m. local time on the date so specified or at such later time as Fair
Market Value shall have been determined under Section 9.5(b) hereof, or at such
other time and place as the Company and the Majority Holders of Warrants and
Warrant Stock may agree upon (the "Call Closing Date"). At the closing, the
holders of Warrants and Warrant Stock will deliver to the Company a certificate
or certificates evidencing the Warrant Stock and/or the Warrant or Warrants
(properly endorsed or accompanied by stock powers or assignments with
signature(s) guaranteed or similar appropriate documentation of authority to
transfer), and the Company shall pay the Repurchase Price for such Warrants
and/or Warrant Stock to the holders of the Warrants and Warrant Stock.
9.4. Payment. Subject to any Statutory Restriction or Credit
Agreement Restriction, the Company shall pay the Repurchase Price at any closing
under Section 9.2 or 9.3 hereof out of funds legally available therefor in cash
or immediately available funds. In the event that any portion of the Repurchase
Price payable on any Put Closing Date is not paid:
(a) as a result of any Statutory Restriction or during any
period when a Credit Agreement Restriction prohibits or restricts such
payment, the holders of Warrants and Warrant Stock shall be deemed to
have rescinded their put as to that number of shares of Warrant Stock
or portion of the Warrants exercisable for that number of shares as
such unpaid portion of the Repurchase Price represents (the "Rescinded
Put Shares") and shall retain all their then applicable rights
hereunder and under and in connection with the Warrants and Warrant
Stock as to the Rescinded Put Shares; or
(b) as a result of any reason, other than a Statutory
Restriction, during any period when a Credit Agreement Restriction does
not prohibit or restrict such payment, the holders of Warrants and
Warrant Stock shall retain all their then applicable rights hereunder
and under and in connection with the Warrants and Warrant Stock, as to
that number of shares of Warrant Stock or portion of the Warrants
exercisable for that number of shares as such unpaid portion of the
Repurchase Price represents (the "Unrepurchased Securities"), until
such time as the unpaid portion of the Repurchase Price and interest
thereon, determined as set forth below, shall be paid to the holders of
Warrants and Warrant Stock in full; and the Majority Holders of the
Warrants and Warrant Stock shall, at any time prior to its or their
request for the demand note described below for the payment of the
Repurchase Price for any Unrepurchased Securities, be entitled, by
notice to the Company (the "Rescission Notice"), to rescind their put
of such Unrepurchased Securities pursuant to Section 9.1. Unless and
until the Company receives a Rescission Notice permitted by this
Section 9.4, the unpaid portion of the Repurchase Price allocable to
the Unrepurchased Securities shall remain an
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obligation of the Company. In the circumstances governed by this
Section 9.4(b), the holders of Unrepurchased Securities may request, at
their option, that the Company issue a demand note to evidence such
unpaid portion of the Repurchase Price, and all rights to rescind the
put are terminated. In the circumstances governed by this Section
9.4(b), interest shall accrue on any unpaid portion of the Repurchase
Price for Unrepurchased Securities from (and including) the relevant
Put Closing Date until (but excluding) the date of payment in full
thereof at the rate of 18% per annum, compounded on a monthly basis to
the extent permitted by law and payable on demand.
9.5. Repurchase Price for Warrants and Warrant Stock.
(a) Repurchase Price. The repurchase price (the "Repurchase
Price") shall be an amount equal to (i) in the case of each share of
Warrant Stock, the quotient obtained by dividing (A) the Fair Market
Value (as determined pursuant to Section 9.5(b) hereof), calculated as
of the date of the related Put Notice or Call Notice under Section 9.1
or 9.3 hereof, respectively, by (B) the sum of (1) the number of shares
of Common Stock (all classes) then outstanding plus (2) the number of
shares of Common Stock then issuable upon exercise of then outstanding
Warrants plus (3) the number of shares of Common Stock issuable upon
the exercise of any of the outstanding Permitted Employee Stock Options
or the conversion or exchange into Common Stock of any convertible or
exchangeable preferred stock issued in a Permitted Stock Issue, and
(ii) in the case of each Warrant, the difference between (A) the
product of the repurchase price per share of Warrant Stock then
purchasable thereunder as determined under this Section 9.5(i)
multiplied by the number of such shares then purchasable thereunder,
minus (B) the aggregate exercise price for such shares.
(b) Fair Market Value. For a period of 10 days after the date
of any Put Notice or Call Notice (the "Negotiation Period"), each party
hereto agrees to negotiate in good faith to reach agreement upon the
fair market value of 100% of the Company's common stock equity
determined as though there were a willing seller and a willing buyer
for all of such equity, neither being under any compulsion, and as
though the Series B Common Stock has been exchanged for Series A Common
Stock and any outstanding Permitted Employee Stock Options have been
exercised and any convertible or exchangeable preferred stock issued in
a Permitted Stock Issue has been converted or exchanged in accordance
with the terms thereof, there were no other warrants, options or
convertible securities outstanding (the "Fair Market Value"). In the
event that the parties are unable to agree upon the Fair Market Value
by the end of the Negotiation Period, the Fair Market Value of the
Company's common stock equity shall be determined for purposes of this
Section 9.5(b) by an appraiser (the "Independent Appraiser") selected
in accordance with the procedures set forth in this Section 9.5(b).
Within 30 days after the end of the Negotiation Period, the Company
shall select an appraiser (the "Company Appraiser") and notify the
Majority Holders of Warrants and Warrant Stock in writing (such notice
being the "Company Appraiser Notice") of the Company's selection. If
the
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Majority Holders of Warrants and Warrant Stock do not notify the
Company in writing of its or their objection (such objection being the
"CECP Objection") to such selection within 15 days after receipt of the
Company Appraiser Notice, then the Company's Appraiser shall be deemed
to be the Independent Appraiser and the fair market value determined by
the Company Appraiser shall be the Fair Market Value. If the Majority
Holders of Warrants and Warrant Stock timely object to the Company
Appraiser, then, within 15 days after the delivery of the CECP
Objection, the Majority Holders of Warrants and Warrant Stock shall
select an Appraiser (the "CECP Appraiser") and notify the Company in
writing (such notice being the "CECP Appraiser Notice") of the
selection of the CECP Appraiser provided, however, that if CECP fails
to timely select the CECP Appraiser, then the Company Appraiser shall
be deemed to be the Independent Appraiser and the appraised value
determined by the Company Appraiser shall be the Fair Market Value. If
the Company does not notify the Majority Holders of Warrants and
Warrant Stock in writing of its objection (such objection being the
"Company Objection") to such selection within 15 days after receipt of
the CECP Appraiser Notice, then the CECP Appraiser shall be deemed to
be the Independent Appraiser and the appraised value determined by the
CECP Appraiser shall be the Fair Market Value. If the Company timely
objects to the CECP Appraiser, then the Company Appraiser and the CECP
Appraiser shall meet to select the Independent Appraiser within 15 days
after the Company's delivery of the Company Objection. If the Company
Appraiser and the CECP Appraiser cannot agree upon the Independent
Appraiser within 30 days after the Company's delivery of the Company
Objection to the CECP Appraiser, then the selection of the Independent
Appraiser shall be submitted to the Chief Judge of the United States
District Court for the District of Minnesota. Fair Market Value shall
then be determined by the Independent Appraiser within 30 days after
its selection, and the determination of the Independent Appraiser shall
be conclusive and binding upon the Company and the holders of Warrants
and Warrant Stock. Fair Market Value shall in all cases be calculated
by determining the Fair Market Value of the entire common stock equity
interest of the Company taken as a whole, without premium for control
or discounts for minority interests, restrictions on transfer or
liquidity. All expenses of the Company Appraiser, the CECP Appraiser
and the Independent Appraiser shall be borne by the Company.
9.6. Additional Payments Upon Merger, Etc. If at any time within three
(3) months after any Put Closing Date or nine (9) months after any Call Closing
Date with respect to the repurchase or exchange of any Warrants and/or Warrant
Stock, the Company shall become party to any Capital Transaction or the Company
or their respective stockholders enter into any agreement or letter of intent
contemplating any Capital Transaction, the Company shall, simultaneously with
the consummation of such Capital Transaction or at such later time as any
payment is received by the Company or any of its stockholders in respect of such
Capital Transaction, make an additional payment to each Person who held Warrants
or Warrant Stock which were repurchased on such Put Closing Date or such Call
Closing Date in an amount per share of Warrant Stock (or Warrant Stock issuable
upon exercise of any Warrant) repurchased
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from such Person pursuant to Section 9.2 or 9.3 hereof equal to the excess, if
any, of the value per share of the cash, securities and other property that such
Person would have received (or that the Company received and in which such
Person would have had a beneficial interest as a stockholder of the Company) had
such Person's Warrant Stock and/or Warrants not been previously repurchased
pursuant to Section 9.2 or 9.3 hereof, over the payment received by such Person
with respect to each such share pursuant to Section 9.2 or 9.3 hereof. Each
payment to any such Person pursuant to this Section 9.6 shall be made either in
cash or in the form of consideration received by the holders of common equity of
the Company (or the Company).
10. SUBSEQUENT HOLDERS OF SECURITIES.
Whether or not any express assignment has been made in this Agreement,
the provisions of this Agreement and the Financing Agreements that are for the
Purchaser's benefit as the holder of any Securities are also for the benefit of,
and enforceable by: (a) any subsequent holder of at least 51% of the Preferred
Stock; and/or (b) any subsequent holder of at least the CECP Floor Amount of the
Warrants or the Warrant Stock (assuming for this purpose the complete exercise
of the Warrant); subject, however to the express terms of any other Financing
Agreement. Any transferee of Securities agrees by acceptance thereof to be bound
by the terms of Section 7.24 hereof.
11. REGISTRATION RIGHTS.
The Purchaser shall have certain registration rights with respect to
the Securities as set forth in the Registration Rights Agreement.
12. REGISTRATION AND TRANSFER OF SECURITIES.
12.1. Registration, Transfer and Exchange of Preferred Stock.
(a) The Company shall keep at its principal office a register
in which shall be entered the names and addresses of the holders of the
Preferred Stock and the particulars (including, without limitation the
class thereof) of the respective Preferred Stock held by them and of
all transfers of shares of Preferred Stock. References to the "holder"
or "holder of record" of any Preferred Stock shall mean the holder
thereof unless the holder shall have presented the stock certificates
evidencing same to the Company for transfer and the transferee shall
have been entered in said register as a subsequent holder, in which
case the terms shall mean such subsequent holder. The ownership of any
of the Preferred Stock shall be proven by such register and the Company
may conclusively rely upon such register.
(b) Upon surrender at such office of any certificate
representing shares of Preferred Stock for registration of exchange or
(subject to compliance with the applicable provisions of this
Agreement, including without limitation the conditions set forth in
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Section 13 hereof) transfer or conversion, the Company shall issue, at
its expense, one or more new certificates, in such denomination or
denominations as may be requested, for shares of such class of
Preferred Stock as may be requested, and registered as such holder may
request. Any certificate representing shares of Preferred Stock
surrendered for registration of transfer shall be duly endorsed, or
accompanied by a written instrument of transfer duly executed by the
holder of such certificate or his attorney duly authorized in writing.
The Company will pay shipping and insurance charges, from and to each
holder's principal office, upon any transfer, exchange or conversion
provided for in this Section 12.1.
(c) Each stock certificate evidencing Preferred Stock, whether
originally or in substitution for, or upon transfer, conversion or
exchange of, any Preferred Stock shall be registered on the date of
execution thereof by the Company. The registered holder of record shall
be deemed to be the owner of the Preferred Stock for all purposes of
this Agreement. All notices given hereunder to the holder of record
shall be deemed validly given if given in the manner specified in
Section 15 hereof.
12.2. Registration, Transfer and Exchange of Warrants.
(a) The Company shall keep at its principal office a register
in which shall be entered the names and addresses of the holders of
Warrants issued by it and particulars of the respective Warrants held
by them and of all transfers of such Warrants. References to the
"holder" or "holder of record" of any Warrant shall mean the holder
thereof unless the holder shall have presented such Warrant to the
Company for transfer and the transferee shall have been entered in said
register as a subsequent holder, in which case the terms shall mean
such subsequent holder. The ownership of any of the Warrants shall be
proven by such register and the Company may conclusively rely upon such
register.
(b) The holder of any of the Warrants may at any time and from
time to time prior to exercise, repurchase or redemption thereof
surrender any Warrant held by it for exchange or (subject to compliance
with Section 13 hereof) transfer at said office of the Company. On
surrender for exchange of the Warrants, properly endorsed, to the
Company, the Company at its expense will issue and deliver to or on the
order of the holder thereof a new warrant or warrants of like tenor, in
the name of such holder or, upon payment by such holder of any
applicable transfer taxes, as such holder may direct, calling in the
aggregate on the face or faces thereof for the number of shares of
Warrant Stock called for on the face or faces of the Warrants so
surrendered. The Company will pay shipping and insurance charges, from
and to each holder's principal office, involved in the exchange or
transfer of any Warrant.
(c) Each Warrant issued hereunder, whether originally or in
substitution for, or upon transfer or exchange of, any Warrant shall be
registered on the date of execution
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thereof by the Company. The registered holder of record shall be deemed
to be the owner of the Warrant for all purposes of this Agreement. All
notices given hereunder to the holder of record shall be deemed validly
given if given in the manner specified in Section 15 hereof.
12.3. Transfer and Exchange of Common Stock.
(a) The Company shall keep at its principal office a register
in which shall be entered the names and addresses of the holders of the
Common Stock and the particulars (including, without limitation the
class thereof) of the respective Common Stock held by them and of all
transfers of shares of Common Stock or conversions of shares of Common
Stock from one class to another. References to the "holder" or "holder
of record" of any Common Stock shall mean the holder thereof unless the
holder shall have presented the stock certificates evidencing same to
the Company for transfer and the transferee shall have been entered in
said register as a subsequent holder, in which case the terms shall
mean such subsequent holder. The ownership of any of the Common Stock
shall be proven by such register and the Company may conclusively rely
upon such register.
(b) Upon surrender at such office of any certificate
representing shares of Common Stock for registration of exchange or
(subject to compliance with the applicable provisions of this
Agreement, including without limitation the conditions set forth in
Section 13 hereof) transfer or conversion, the Company shall issue, at
its expense, one or more new certificates, in such denomination or
denominations as may be requested, for shares of such class of Common
Stock as may be requested, and registered as such holder may request.
Any certificate representing shares of Common Stock surrendered for
registration of transfer shall be duly endorsed, or accompanied by a
written instrument of transfer duly executed by the holder of such
certificate or his attorney duly authorized in writing. The Company
will pay shipping and insurance charges, from and to each holder's
principal office, upon any transfer, exchange or conversion provided
for in this Section 12.3.
(c) Each stock certificate evidencing Common Stock, whether
originally or in substitution for, or upon transfer, conversion or
exchange of, any Common Stock or upon the exercise of any Warrant shall
be registered on the date of execution thereof by the Company. The
registered holder of record shall be deemed to be the owner of the
Common Stock for all purposes of this Agreement. All notices given
hereunder to the holder of record shall be deemed validly given if
given in the manner specified in Section 15 hereof.
12.4. Replacement of Securities. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Security and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity bond in such reasonable amount as the
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Company may determine (or, in the case of any Security held by the Purchaser or
another institutional holder, an unsecured indemnity agreement from the
Purchaser or such other holder reasonably satisfactory to the Company) or, in
the case of any such mutilation, upon the surrender of such Security for
cancellation to the Company at its principal office, the Company, at its own
expense, will execute and deliver, in lieu thereof, a new Security of like
tenor, dated in the case of a Note so that there will be no loss of interest.
Any Security in lieu of which any such new Security has been so executed and
delivered by the Company shall not be deemed to be outstanding for any purpose
of this Agreement.
13. RESTRICTIONS ON TRANSFER.
13.1. General Restriction. The Securities shall be transferable (a)
only upon the satisfaction of the conditions set forth below in this Section 13
and (b) only to Permitted Transferees.
13.2. Notice of Transfer. Prior to any transfer of any Securities, the
holder thereof shall be required to give written notice to the Company
describing in reasonable detail the manner and terms of the proposed transfer
and the identity of the proposed transferee (the "Transfer Notice"), accompanied
by (a) an opinion of Purchaser's counsel addressed to the Company, or other
counsel reasonably acceptable to the Company, that such transfer may be effected
without registration of such Securities under the Securities Act, and (b) the
written agreement of the proposed transferee to be bound by all of the
provisions hereof and of the Financing Agreements, applicable to holders of such
Securities hereunder or thereunder.
13.3. Restrictive Legends. Except as otherwise permitted by this
Section 13, each Security shall bear the legend specified for such Security in
Schedule 13.3 hereto.
13.4. Termination of Restrictions. The restrictions imposed by this
Section 13 upon the transferability of Securities shall terminate as to any
particular Securities sold pursuant to a Public Sale. Whenever any of such
restrictions shall terminate as to any Securities, the holder thereof shall be
entitled to receive from the Company, at the Company's expense, new Securities
without such legends.
14. EXPENSES; INDEMNITY.
(a) The Company hereby agrees to pay on demand all reasonable
out-of-pocket expenses incurred by the Purchaser, in connection with
the transactions contemplated by this Agreement and the Related
Agreements and in connection with any amendments or waivers (whether or
not the same become effective) hereof or thereof and all reasonable
out-of-pocket expenses incurred by the Purchaser or any holder of any
Security issued hereunder in connection with the enforcement of any
rights hereunder, under any other Financing Agreement or with respect
to any Security, including without limitation (i) the cost and expenses
of preparing and duplicating this Agreement, each other Financing
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Agreement and the Securities; (ii) the cost of delivering to the
Purchaser's principal offices, insured to the Purchaser's satisfaction,
the Securities sold to the Purchaser hereunder and any Securities
delivered to the Purchaser in exchange therefor or upon any exercise,
conversion or substitution thereof; (iii) the fees, expenses and
disbursements of Fabyanske, Svoboda, Westra & Hart, P. A., the
Purchaser's special counsel, in connection with the transactions
contemplated by this Agreement and the Related Agreements and any
amendments, modifications, approvals, consents or waivers hereunder or
thereunder; (iv) the reasonable fees, expenses and disbursements of the
Purchaser's accountants and other consultants, in connection with the
Purchaser's due diligence investigation of the Company; (v) subject to
the terms of the Registration Rights Agreement, all taxes (other than
taxes determined with respect to income), including any recording fees
and filing fees and documentary stamp and similar taxes at any time
payable in respect of this Agreement, any other Financing Agreement or
the issuance of any of the Securities; (vi) the reasonable fees and
disbursements of counsel for any holder of Securities in connection
with all opinions rendered by such counsel pursuant to Section 13
hereof; and (vii) all reasonable out-of-pocket expenses (including
without limitation reasonable attorneys' fees and costs, whether or not
such attorneys are the Purchaser's employees, all costs associated with
any rights of board attendance, observation or inspection and travel
and lodging expenses related thereto and reasonable consulting,
accounting, appraisal, investment banking and similar professional fees
and charges) incurred by the Purchaser in connection with: (A) the
exercise, enforcement or preservation of rights under this Agreement or
any of the Financing Agreements against the Company or the
administration thereof whether before or after the occurrence of an
Unmatured Event of Non-Compliance or Event of Non-Compliance; and (B)
any litigation, proceeding or dispute whether arising hereunder or
otherwise, in any way related to the Purchaser's relationship with the
Company.
(b) The Company hereby further agrees to indemnify, exonerate
and hold the Purchaser and its stockholders, officers, directors,
employees and agents free and harmless from and against any and all
actions, causes of action, suits, losses, liabilities, damages and
expenses (including, without limitation, reasonable attorneys' fees and
disbursements), incurred in any capacity by any of the indemnitees as a
result of or relating to (A) any transaction financed or to be financed
in whole or in part directly or indirectly with proceeds from the sale
of any of the Securities, or (B) the execution, delivery, performance
or enforcement of this Agreement (including, without limitation, any
failure by the Company to comply with any of its covenants hereunder),
the Related Agreements or any instrument contemplated hereby or
thereby, except, in each such case, for any such liabilities arising
from any indemnitee's breach of this Agreement, gross negligence or
willful misconduct.
(c) The Company hereby indemnifies the Purchaser against and
agrees that it will hold the Purchaser harmless from any claim, demand
or liability for any broker's, finder's or placement fees or lender's
incentive fees alleged to have been incurred by it
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in connection with the transactions contemplated by this Agreement or
the Related Agreements.
(d) Except to the extent otherwise expressly provided herein,
the Company shall pay on demand interest at a rate per annum equal to
the lesser of the maximum rate of interest permitted by law or 18% (in
each case, compounded monthly) on all overdue amounts payable under
this Agreement until such amounts shall be paid in full.
(e) The obligations of the Company under this Section 14 shall
survive payment or transfer of the Securities and the termination of
this Agreement.
15. NOTICES.
Any notice or other communication in connection with this Agreement,
any other Financing Agreement or the Securities shall be deemed to be delivered
if in writing (or in the form of a telex or telecopy) addressed as provided
below (a) when actually delivered, telexed or telecopied to said address or (b)
in the case of a letter, three business days shall have elapsed after the same
shall have been deposited in the United States mails, postage prepaid and
registered or certified:
If to the Company, then to its address set forth on
the signature page hereof, addressed to the attention of the
notice party described on such signature page or at such other
address or to such other Person as the Company shall have
specified by notice actually received by the Purchaser.
If to the Purchaser, then to its address set forth on
signature page hereof, addressed to the attention of the
notice party described on such signature page or at such other
address or to such other Person as the Purchaser shall have
specified by notice actually received by the Company.
If to any other holder of record of any Security, to
it at its address set forth in the applicable register
referred to in Section 12 hereof.
16. SURVIVAL AND TERMINATION OF COVENANTS.
All covenants, agreements, representations and warranties made herein
or in any other document referred to herein or delivered to the Purchaser
pursuant hereto shall be deemed to have been relied on by the Purchaser,
notwithstanding any investigation made by the Purchaser or on the Purchaser's
behalf, and shall survive the execution and delivery to the Purchaser hereof and
of the Securities and shall thereafter terminate as provided for in this
Agreement.
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17. AMENDMENTS AND WAIVERS.
Any term of this Agreement or any other Financing Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Company and the Majority Holders of the
Preferred Stock and the Majority Holders of the Warrants and Warrant Stock,
respectively, with respect to any provision of this Agreement or other Financing
Agreement which by its terms operates for the benefit of such respective
holders. Notwithstanding the foregoing, (a) without the prior written consent of
each holder of the Preferred Stock, no such amendment or waiver shall extend the
scheduled date of any required repurchase of such respective Securities held by
such holder or reduce the repurchase price or dividend rate payable thereon, (b)
without the prior written consent of each holder of the Warrants or the Warrant
Stock, no such amendment or waiver shall extend the scheduled date of any
required repurchase of such respective Securities held by such holder or reduce
the repurchase price payable thereon, (c) without the written consent of each
holder of the Warrants and Warrant Stock reduce the percentage of Securities
which is required to consent to any such amendment or waiver or (d) without the
written consent of the percentage of the holders of each Security required to
exercise the remedies provided in Section 8.2 hereof, increase such required
percentage. Any amendment or waiver effected in accordance with this Section 17
shall be binding upon each holder of any Security sold pursuant to this
Agreement and the Company.
18. CONSENT TO JURISDICTION.
THE COMPANY HEREBY AGREES TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION
OF THE COURTS IN AND OF THE STATE OF MINNESOTA, AND CONSENTS THAT SERVICE OF
PROCESS WITH RESPECT TO ALL COURTS IN AND OF THE STATE OF MINNESOTA MAY BE MADE
BY REGISTERED MAIL TO IT AT ITS ADDRESS FOR NOTICES.
19. RIGHT TO PUBLICIZE.
The Company hereby acknowledges that the Purchaser will have the right
to publicize its investment in the Company as contemplated hereby by means of a
tombstone advertisement or other customary advertisement in newspapers and other
periodicals.
20. WAIVER OF JURY TRIAL.
THE COMPANY AND THE HOLDERS OF THE SECURITIES HEREBY EXPRESSLY WAIVE
ANY RIGHT THEY MAY HAVE TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING
EXISTING UNDER OR RELATING TO THIS AGREEMENT, THE SECURITIES OR ANY OF THE OTHER
FINANCING AGREEMENTS.
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21. MISCELLANEOUS.
21.1 Entire Agreement; etc. This Agreement and the other Financing
Agreements set forth the entire understanding of the parties hereto with respect
to the transactions contemplated hereby and supersede any prior written or oral
understandings with respect thereto. The invalidity or unenforceability of any
term or provision hereof shall not affect the validity or enforceability of any
other term or provision hereof. The headings in this Agreement are for
convenience of reference only and shall not alter or otherwise affect the
meaning hereof. THIS AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS
WHICH TOGETHER SHALL CONSTITUTE ONE INSTRUMENT AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT
GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE THAT WOULD
CAUSE THE APPLICATION OF THE DOMESTIC SUBSTANTIVE LAWS OF ANY OTHER STATE, AND
SHALL BIND AND INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE
SUCCESSORS AND ASSIGNS.
21.2. Confidentiality. The Purchaser agrees that, except as may be
required by applicable law or regulation, or by reason of subpoena, court order
or government action, the Purchaser will hold in confidence any Confidential
Information (as hereinafter defined). For purposes of this Agreement,
"Confidential Information" shall mean any proprietary information of the Company
provided or made available to the Purchaser pursuant to this Agreement and the
other Financing Agreements, except any such information which (a) was known to
the Purchaser prior to the date of its disclosure to the Purchaser by the
Company, or (b) was known to the public prior to the date of its disclosure to
the Purchaser, or (c) becomes known to the public subsequent to the date of its
disclosure by the Company through no act of the Purchaser, or (d) becomes known
to the Purchaser on a non-confidential basis from a source other than the
Company. The Purchaser may furnish any information concerning the Company in the
possession of the Purchaser from time to time to the Purchaser's officers,
directors, employees auditors and agents and to Permitted Transferees and
prospective Permitted Transferees; provided that the Purchaser shall require
that any such Permitted Transferee or prospective Permitted Transferee agrees to
be a bound by the provisions of this Section 21.2.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
Meade Instruments Corp.
By: /s/ STEVEN MURDOCK
-----------------------------------------
Title: President
Address: 16542 Millikan Avenue
Irvine, CA 92714
Attention:_____________________________
Telecopier No.: 714-756-1450
Churchill ESOP Capital Partners,
A Minnesota Limited Partnership
By: Churchill Capital Investment Partners,
A Minnesota Limited Partnership
Its: General Partner
By: Churchill Capital, Inc.
Its: General Partner
By: /s/ ROBERT L. DAVIS
-------------------------------
Title: Vice President
Address: 2400 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402
Attention:___________
Telecopier No. (612) 673-6630
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EXHIBIT 10.5
Right to Purchase 1,000,000 Shares of
Series A Common Stock
of Meade Instruments Corp.
This Warrant and any shares acquired upon the exercise of this Warrant
have not been registered under the Securities Act of 1933, as amended, and may
not be sold or transferred in the absence of such registration or an exemption
therefrom under such Act or any applicable state securities laws. Furthermore,
this Warrant and any shares acquired upon the exercise of this Warrant may be
sold or otherwise transferred only in compliance with the conditions specified
in Section 13 of the Securities Purchase Agreement referred to hereinafter,
complete and correct copies of which are available for inspection at the
principal office of Meade Instruments Corp. and will be furnished without charge
to the holder of this Warrant upon written request.
This Warrant is also subject to certain put rights of the holder hereof
and certain call rights of the issuer set forth in said Securities Purchase
Agreement. This Warrant is issued pursuant to the Securities Purchase Agreement
and if any provision of this Warrant is found to conflict with the Securities
Purchase Agreement, the provisions of the Securities Purchase Agreement shall
prevail.
No. W-1
Meade Instruments Corp.
Series A Common Stock Purchase Warrant
Meade Instruments Corp., a California corporation (together with any
corporation which shall succeed to or assume the obligations of Meade
Instruments Corp. hereunder, the "Company"), hereby certifies that, for value
received, Churchill ESOP Capital Partners, A Minnesota Limited Partnership
("CECP"), or its assigns, is entitled, subject to the terms set forth below, to
purchase from the Company promptly after the "Closing" on the "Closing Date"
(each quoted term being used as defined in the Securities Purchase Agreement),
up to 1,000,000 fully paid and non-assessable shares of Common Stock (as defined
in Section 6.1 hereof), at an initial purchase price per share of $0.01 (such
price is referred to herein as the "Exercise Price").
This Warrant is issued pursuant to the Securities Purchase Agreement
(as amended and in effect from time to time, the "Securities Purchase
Agreement"), dated as of April 23, 1996, between the Company and the Purchaser,
a copy of which is on file at the principal office of the
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Company. The holder of this Warrant shall be entitled to all of the benefits and
shall be subject to all of the obligations of the Securities Purchase Agreement.
1. DEFINITIONS. Terms defined in the Securities Purchase Agreement and not
otherwise defined herein are used herein with the meanings so defined. Certain
terms are used in this Warrant as specifically defined in Section 6 hereof.
2. EXERCISE OF WARRANT.
2.1. Exercise. This Warrant may be exercised in full in connection with
the consummation of the Transactions on the Closing Date, by surrender of this
Warrant, with the form of subscription at the end hereof duly executed by such
holder, to the Company at its principal office, accompanied by payment, by
certified or official bank check payable to the order of the Company or by wire
transfer to its account, in the amount obtained by multiplying the number of
shares of Common Stock for which this Warrant is then being exercised by the
Exercise Price then in effect.
2.2. Class of Stock Receivable Upon Exercise. Intentionally omitted.
2.3. Conflict With Other Laws. Intentionally Omitted.
2.4. Warrant Agent. (Intentionally Omitted).
2.5. Termination. This Warrant shall terminate upon exercise in full.
3. PUT AND CALL OPTIONS; REGISTRATION RIGHTS. The holder of this Warrant has the
option to require the Company to, and the Company has the option to, purchase
this Warrant and/or shares of Warrant Stock at the times and in the manner
specified in Section 9 of the Securities Purchase Agreement. The holder of this
Warrant has the right to cause the Company to register shares of Warrant Stock,
and any shares issued upon exercise hereof, under the Securities Act and any
blue sky or securities laws of any jurisdictions within the United States at the
time and in the manner specified in the Registration Rights Agreement.
4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
4.1. Delivery. As soon as practicable after the exercise of this
Warrant in full or in part, and in any event within ten (10) business days
thereafter, the Company, at its expense (including the payment by it of any
applicable issue taxes), will cause to be issued in the name of and delivered to
the holder hereof, or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and non-assessable shares of Common Stock (or Other
Securities) to which such holder shall be entitled on such exercise, together
with any other stock or other securities and property (including cash, where
applicable) to which such holder is entitled upon such exercise.
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4.2. Fractional Shares. In the event that the exercise of this Warrant,
in full or in part, would result in the issuance of any fractional share of
Common Stock, then in such event the number of shares to be issued upon exercise
shall be rounded to the closet whole number (with one-half (1/2) rounded
upward).
5. ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS AND RECLASSIFICATIONS. (Intentionally
Omitted).
6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. (Intentionally
Omitted).
7. ADJUSTMENTS OF ISSUANCE OF COMMON STOCK AND AMOUNT OF OUTSTANDING COMMON
STOCK. (Intentionally Omitted).
5. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company will at all
times reserve and keep available, solely for issuance and delivery on the
exercise of this Warrant, a number of shares of Series A Common Stock equal to
the total number of shares of Series A Common Stock from time to time issuable
upon exercise of this Warrant, and, from time to time, will take all steps
necessary to amend its Charter to provide sufficient reserves of shares of
Common Stock issuable upon exercise of this Warrant.
6. DEFINITIONS. As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
6.1. The term Common Stock means: (i) the Company's Series A Common
Stock, no par value (the "Series A Common Stock"); and (ii) any other securities
into which or for which any of the securities described in clause (i) above have
been converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
6.2. The term Other Securities refers to any stock (other than Common
Stock) and other securities of the Company or any other entity (corporate or
otherwise) which the holder of this Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of this Warrant, in lieu of or
in addition to Common Stock.
7. REMEDIES. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
8. NOTICES. All notices and other communications from the Company to the holder
of this Warrant shall be mailed by first class registered or certified mail,
postage prepaid, or sent by overnight courier (or sent in the form of a telex
or telecopy) at such address as may have been
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<PAGE> 4
furnished to the Company in writing pursuant to the Securities Purchase
Agreement.
9. MISCELLANEOUS. In case any provision of this Warrant shall be invalid,
illegal or unenforceable, or partially invalid, illegal or unenforceable, the
provision shall be enforced to the extent, if any, that it may legally be
enforced and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. This Warrant
and any term hereof may be changed, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant shall be
governed by and construed in accordance with the internal laws (and not the
conflict of law rules) of the State of California. The headings in this Warrant
are for purposes of reference only, and shall not limit or otherwise affect any
of the terms hereof.
10. GOVERNING LAW. The validity, performance, construction and effect of this
Agreement shall be governed by and construed in accordance with the internal
laws of the State of Minnesota, without giving effect to any choice or conflict
of law provision or rule that would cause the application of the domestic
substantive laws of any other state.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
Dated as of April 23, 1996
Meade Instruments Corp.
By: /s/ STEVEN MURDOCK
----------------------------
Title: President
4
<PAGE> 5
FORM OF SUBSCRIPTION
(To be signed only on exercise
of Common Stock Purchase Warrant)
TO: Meade Instruments Corp.
The undersigned, the Holder of the within Common Stock Purchase
Warrant, hereby irrevocably elects to exercise this Common Stock Purchase
Warrant for, and to purchase thereunder 1,000,000 shares of Series A Common
Stock of Meade Instruments Corp. and herewith makes payment of $10,000 therefor,
and requests that the certificates for such shares be issued in the name of, and
delivered to Churchill ESOP Capital Partners, A Minnesota Limited Partnership,
whose address is 2400 Metropolitan Centre, 333 South Seventh Street,
Minneapolis, MN 55402.
Dated: April 23, 1996 Churchill ESOP Capital Partners, A Minnesota
Limited Partnership
By: Churchill Capital Investment Partners,
A Minnesota Limited Partnership
Its: General Partner
By: Churchill Capital, Inc.
Its: General Partner
By:____________________________________
Title:_________________________________
Address:
2400 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402
5
<PAGE> 1
EXHIBIT 10.6
THIS SHAREHOLDER AGREEMENT made and entered into as of the 23rd day of
April, 1996 among:
(a) Meade Instruments Corp., a California corporation
(the "Company");
(b) John Diebel, a resident of the State of California acting
in his individual capacity (in such capacity being "Diebel"), and also
acting as the trustee (in such capacity being the "Diebel Trustee") of
the Diebel Living Trust u/d/t dated January 12, 1995 (the "Diebel
Trust"), Steve Murdock, a resident of the State of California acting in
his individual capacity (in such capacity being "Murdock"), Steve
Murdock and Tracie Elaine Murdock as trustees (in such capacity being
collectively the "Murdock Trustees") of the Murdock 1986 Trust u/d/t
dated October 23, 1986 , 1986 (the "Murdock Trust") Ron Ezra, a
resident of the State of California ("Ezra") and Joseph A. Gordon, Jr.,
a resident of the State of California ("Gordon"; and together with
Diebel, the Diebel Trustee, Murdock, the Murdock Trustees, and Ezra
being sometimes hereinafter referred to individually as a "Founder" and
collectively as the "Founders"); and
(c) Churchill ESOP Capital Partners, A Minnesota Limited
Partnership ("CECP"; and together with it successors and assigns and
transferees being sometimes hereinafter referred to individually as a
"Holder" and collectively as the "Holders"; and together with the
Founders being sometimes hereinafter referred to individually as a
"Shareholder" and collectively as the "Shareholders").
WITNESSETH
WHEREAS, the Founders own beneficially and/or of record the issued and
outstanding shares of the Company's Series A Common Stock, no par value (the
"Series A Common Stock") set forth opposite their names on Exhibit A attached
hereto and incorporated herein by reference; and
WHEREAS, the Company and CECP have entered into a Securities Purchase
Agreement (the "Purchase Agreement;" capitalized terms not otherwise defined
herein being used herein as therein defined) dated of even date with this
Agreement pursuant to which CECP will purchase 1,000 shares of the Company's
Series A Preferred Stock, no par value (the "Preferred Stock") and Warrants
permitting CECP to acquire 1,000,000 shares of the Series A Common Stock; and
WHEREAS, the Founders and CECP deem it in their best interest and the best
interest of the Company to provide for the corporate governance of the Company
and desire to enter into this Agreement in order to effectuate that purpose; and
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WHEREAS, the Founders and CECP further desire to establish certain
rights with respect to the sale, assignment, transfer, encumbrance or other
disposition of the shares of Common Stock and to provide for certain other
rights and obligations in respect thereof as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, CECP, the Founders and
the Company, intending to be legally bound, agree as follows:
1. Corporate Governance.
(a) Charter and Bylaws; etc. The Company's Charter and Bylaws
as in effect on the date hereof are attached hereto as Exhibits B and
C, respectively. The Charter and Bylaws may be amended in any manner
permitted thereunder and under the California General Corporation Law
("Cal Code") except that neither the Charter nor the Bylaws shall be
amended in any manner that would conflict with, or be inconsistent
with, the provisions of this Agreement.
(b) Board of Directors. The Founders and CECP agree that:
(i) So long as CECP's rights to have a Purchaser's
Representative to or on the Company's board of directors
have not terminated in accordance with the Purchase
Agreement, CECP shall be entitled to designate one
director; provided, however, that at any time and from
time to time, CECP, by written notice to Diebel (or his
successor appointed by the Founders holding a majority of
the Voting Stock held by the Founders (such holders being
the "Majority Founders")), may elect not to designate its
director, in which event CECP agrees to vote its shares of
Voting Stock for an additional director designated by the
Majority Founders.
(ii) In addition to its rights under subsection (i)
above but only so long as the Preferred Stock is
outstanding, CECP shall be entitled to designate the
majority of the directors upon the happening and
continuation of a Specified Event of Non-Compliance in
accordance with the Purchase Agreement and the Company's
Charter.
Each Founder and CECP shall retain at all times the right to vote such
person's shares of the Company's Voting Stock, in that person's sole
discretion, on all matters other than those set forth in subsections
(i) and (ii) of this Section (b) or in Section 1(e) that are at any
time presented for a vote to Company's stockholders generally. If CECP
elects not to exercise its right to designate a director at any time,
then CECP
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may subsequently change its election by giving written notice to the
Founders, whereupon the Founders, if necessary to elect CECP's
designee, shall cause one of their designated directors to resign and,
if necessary to elect CECP's designee, CECP and the Founders agree to
call a special meeting of the Company's stockholders to elect a
director designated by CECP at the earliest time permitted by the
Company's Charter and Bylaws.
(c) Initial Board of Directors. As of the date hereof, the
Company's board of directors consists of the following members:
John Diebel
Steve Murdock
Joseph A. Gordon, Jr.,
each of whom shall hold his or her office until the 1997 annual meeting
of stockholders (or such earlier time as may otherwise be provided in
the Charter) at which time directors shall be nominated and elected in
the manner provided in the Charter, Bylaws, Cal Code and this
Agreement.
(d) Covenant to Vote. Each Founder and Holder shall appear in
person or by proxy at any annual or special meeting of stockholders of
the Company for the purpose of obtaining a quorum and shall vote his,
her, or its shares of Voting Stock upon any matter submitted to a
stockholders' vote in a manner so as to be consistent and not in
conflict with, and to implement, the terms of this Agreement including,
without limitation:
(i) each Founder hereby covenants to vote all of that
Founder's shares of Voting Stock in accordance with this
Section 1 for the election of directors designated by CECP;
and
(ii) CECP hereby covenants to vote all of CECP's
shares of Voting Stock in accordance with this Section 1 for
the election of one or more directors designated by the
Majority Founders.
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(e) Certain Corporate Matters. Each Founder agrees with
CECP that, so long as the CECP's rights to have a Purchaser's
Representative to or on the Company's board of directors have not been
terminated in accordance with the Purchase Agreement:
(i) if any of the following actions proposed to be
taken by the Company would constitute an Event of
Non-Compliance (other than after the redemption of the
Preferred Stock), then the Company's taking of such action
requires the affirmative prior vote of the Purchaser's
Representative and that such Founder will not take any action
as a director of the Company or otherwise with respect to any
of such actions that does not receive the Purchaser's
Representative's affirmative vote:
(A) the Company's making of any Distribution;
(B) the Company's merger or consolidation
with any other person or the Company's sale, lease,
exchange or other disposition of its property and
assets;
(C) the Company's commencement of a
voluntary case under Title 11 of the United States
Code as from time to time in effect, or the Company's
authorization of the commencement of such a voluntary
case;
(D) the Company's seeking of relief as a
debtor under any applicable law, other than said
Title 11, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the
modification or alteration of the rights of
creditors, or the Company's consenting to or
acquiescing in such relief;
(E) the Company's making an assignment for
the benefit of, or entering into a composition with,
its creditors, or the Company's appointment or
consenting to the appointment of a receiver or other
custodian for all or a substantial part of its
property. or
(F) the Company's issuance of any capital
stock; and
(ii) agrees that if: (A) a Specified Event of
Non-Compliance occurs and is continuing; (B) CECP has
exercised its rights under the Company's Charter to designate
a majority of the Company's directors; and (C) CECP notifies
the Founders in writing (such notice being the "CECP Sale
Notice") that CECP desires that the Company be sold, then such
Founder shall affirmatively vote
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his shares of Voting Stock in favor of a Qualifying Sale
unless, within the 30 day period immediately following
CECP's written presentation to the Founders and the
Company of a bona fide Qualifying Sale offer, the Company
redeems the Preferred Stock in full for the Preferred
Stock Redemption Price and pays the Repurchase Price for
the Warrants and the Warrant Stock in full, in each case
in immediately available funds; provided, however, that
the Fair Market Value used in the computation of the
Repurchase Price shall be determined simultaneously with
the determination of the Appraised Value and through the
same appraisal procedures used in the determination of
such Appraised Value.
2. Co-Sale Rights.
(a) Rights. Except for Permitted Transfers, no Shareholder
(such Shareholder being a "Selling Shareholder") shall sell, transfer
or otherwise dispose of any or all of his shares of the Company's
Common Stock to any person (a "Purchaser") unless each other
Shareholder who is not a Selling Shareholder (individually, a "Co-Sale
Offeree" and collectively, the "Co-Sale Offerees") is given an
opportunity to sell or otherwise dispose to the Purchaser on a pro-rata
basis such Co-Sale Offeree's shares of Common Stock and Warrants (for
purposes of this Section 2, each Warrant shall be treated as the number
of shares of Common Stock for which it is exercisable) in accordance
with the provisions of this Section 2. A Co-Sale Offeree's pro rata
share shall be equal to the product of (M) the fraction, the numerator
of which is the number of shares of Common Stock held by such Co-Sale
Offeree, and the denominator of which is the aggregate number of shares
of Common Stock owned by the Selling Shareholder and the Co-Sale
Offerees participating in such sale, multiplied by (N) the number of
shares of Common Stock to be sold in the contemplated sale, with the
Warrant being considered to represent the number of shares of Common
Stock for which it is exercisable.
(b) Offer. Prior to the consummation by the Selling
Shareholder of any sale or other disposition of all or a portion of
such Selling Shareholder's shares of Common Stock, the Selling
Shareholder shall cause the bona fide offer from the Purchaser to
purchase or otherwise acquire such shares from the Selling Shareholder
to be reduced to writing (the "Co-Sale Offer") and shall deliver
written notice of the Co-Sale Offer, together with a true copy of the
Co-Sale Offer, to each Co-Sale Offeree. Each Co-Sale Offer shall
include an offer to purchase or otherwise acquire from each Co-Sale
Offeree, such Co-Sale Offeree's Common Stock at the same time, at the
same price (except for a reduction equal to the aggregate exercise
price for the Warrants) and on the same terms as apply to the sale or
other disposition by the Selling Shareholder to the Purchaser and
according to the terms and subject to the conditions of this Agreement.
(c) Acceptance Notice. If a Co-Sale Offeree desires to
accept the Co-Sale
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Offer with respect to its shares of Common Stock, such Co-Sale Offeree
shall do so by delivering to the Selling Shareholder a written notice
stating such Co-Sale Offeree's irrevocable acceptance of the Co-Sale
Offer with respect to such Co-Sale Offeree's shares of Common Stock
(the "Co-Sale Acceptance Notice"), which Co-Sale Acceptance Notice
shall be delivered to the Selling Shareholder within 20 days after the
delivery of the Co-Sale Notice to such Co-Sale Offeree. Such Co-Sale
Acceptance Notice shall constitute such Co-Sale Offeree's agreement to
sell such Co-Sale Offeree's shares of the Company's Common Stock to the
Purchaser. In addition, such Co-Sale Acceptance Notice shall include a
written undertaking of the Co-Sale Offeree to cooperate in making
arrangements reasonably satisfactory to the Purchaser regarding
delivery of such documents as shall be reasonably required to transfer
the shares of Common Stock that the Purchaser agrees to sell pursuant
to the Co-Sale Offer. If a Co-Sale Offeree does not deliver a Co-Sale
Acceptance Notice to the Selling Shareholder in accordance with the
provisions of this Section 2(c), such Co-Sale Offeree shall be deemed
to have irrevocably rejected the Co-Sale Offer.
(d) Consummation. If there is a decrease in the price to be
paid by the Purchaser for the shares of the Common Stock to be sold
from the price set forth in the Co-Sale Offer, which decrease is
acceptable to the Selling Shareholder, or other material change in
terms which are less favorable to the Selling Shareholder but which are
acceptable to the Selling Shareholder, the Selling Shareholder shall
notify the Co-Sale Offerees of such decrease or other material change
in terms, and each Co-Sale Offeree shall have five business days from
the date of receipt of the notice of such decrease to rescind its
previously delivered Acceptance Notice. The Selling Shareholder shall
act as agent for the Co-Sale Offerees in connection with such sale or
other disposition and shall cause to be remitted promptly to each of
the Co-Sale Offerees the total consideration of the shares sold by such
Co-Sale Offeree pursuant thereto, which consideration shall be in the
same form as the consideration received by the Selling Shareholder and
shall be net of such Co-Sale Offeree's applicable portion of the
expenses of such sale or other disposition, as provided in Section 2(e)
below and net of the aggregate exercise price of the Warrants which
shall be remitted to the Company. The Selling Shareholder shall
furnish, or shall cause to be furnished, promptly such other evidence
of the consummation and time of consummation of such sale or other
disposition and the terms thereof as shall be reasonably requested. If
the Selling Shareholder does not complete such sale or other
disposition, the Selling Shareholder shall return to the Co-Sale
Offerees all documents (including stock assignments and stock
certificates, if any) and powers-of-attorney which the Co-Sale Offerees
delivered to the Selling Shareholder pursuant to the terms of this
Section 2 or otherwise in connection with such sale or other
disposition.
(e) Expenses. Each Co-Sale Offeree shall bear such Co-Sale
Offeree's pro rata share (based upon the ratio of the number of shares
of Common Stock sold by such Co-Sale Offeree bears to the aggregate
number of shares of Common Stock sold
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in such transaction by all of the Company's stockholders) of the
reasonable expenses incurred by the Selling Shareholder in connection
with any sales or other dispositions of such Co-Sale Offeree's shares
of Common Stock made pursuant to the co-sale rights set forth herein.
(f) Assignability. The rights granted to CECP under this
Section 2 shall be assignable by CECP only to a person acquiring the
number of CECP's shares of Common Stock at least equal to the CECP
Floor Amount on the date of CECP's transfer to such person.
(g) Cumulative Rights. The obligations and rights of the
Founders set forth in this Section 2 are in addition to the obligations
and rights of the Founders set forth in Section 4 but the Offeree
Founders' rights under Section 4 are exercisable prior to the
Shareholders' exercise of their rights under this Section 2.
(h) Termination. The obligations and rights set forth in this
Section 2 shall terminate upon the consummation of a Qualified Public
Sale and shall terminate with respect to any shares of Common Stock
transferred by a Selling Shareholder and any Co-Sale Offeree to any
person after compliance with this Section.
3. Founders' Repurchase Option.
(a) Repurchase Option. If CECP exercises its right under
Section 9.1 of the Purchase Agreement to put its Warrant Stock to the
Company and the Company cannot pay the Repurchase Price for CECP's
Warrant Stock in immediately available funds because of a Statutory
Restriction or a Specified Credit Agreement Restriction, then CECP,
within 10 Business Days after what would have been the Put Closing
Date, shall give notice (a "Repurchase Offer Notice") in writing to the
Founders, setting forth the number of Rescinded Put Shares and the
Repurchase Price thereof. The Founders, subject to the terms and
conditions hereinafter set forth, shall have the irrevocable right and
option (the "Repurchase Option") to purchase all, but not less than
all, of the Rescinded Put Shares at the Repurchase Price thereof. Each
Founder may subscribe to any number of the Rescinded Put Shares;
subject, however to adjustment as hereinafter provided. A Founder
("Repurchase Subscribing Founder") may exercise the Repurchase Option
by depositing with CECP within 30 days of the date of such Repurchase
Offer Notice (such period being the "Repurchase Subscription Period")
an acceptance of the Repurchase Option (a "Repurchase Subscription"),
which acceptance shall be binding and irrevocable. Each Repurchase
Subscription shall state the maximum number of Rescinded Put Shares to
be purchased by the Repurchase Subscribing Founder, up to the total
number of Rescinded Put Shares. At the end of the Repurchase
Subscription Period, CECP shall prepare a list of Repurchase
Subscriptions, showing the maximum number of Rescinded Put Shares to be
purchased pursuant to each Repurchase Subscription, and
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the total maximum number of Rescinded Put Shares to be purchased
pursuant to all Repurchase Subscriptions and shall deliver a copy of
such list to each Founder and the Company. If the total maximum number
of Rescinded Put Shares to be purchased pursuant to all Repurchase
Subscriptions is equal to or greater than the number of Rescinded Put
Shares and (i) if each Repurchase Subscribing Founder shall have
subscribed for at least his pro rata share based upon the ownership
interests of the Repurchase Subscribing Founders, then each Repurchase
Subscribing Founder shall be deemed to have purchased the number of
shares that would be purchased by each Repurchase Subscribing Founder
if such Repurchase Subscribing Founder purchased his pro rata share of
the Rescinded Put Shares, or (ii) if one or more Repurchase Subscribing
Founders shall have subscribed to less than his pro rata share, then
such Repurchase Subscribing Founders shall be deemed to have subscribed
to their actual subscription and the shares in excess of such
Repurchase Subscribing Founder's actual subscriptions shall be
allocated to the oversubscribing Repurchase Subscribing Founders (in
each case, proportionate to the oversubscribing Repurchase Subscribing
Founders' respective pro rata shares) first to all of the
oversubscribing Repurchase Subscribing Founders up to the maximum
number of shares specified in their respective Repurchase Subscriptions
and thereafter to only those oversubscribing Repurchase Subscribing
Founders whose respective Repurchase Subscriptions have not been
accepted up to the maximum number of shares specified therein. For
purposes of this Section, a Founder's pro rata share shall be the ratio
that such Founder's ownership interest in the Company bears to the
total ownership interests of all of the Founders.
(b) Purchase of Shares by Founders. Each Repurchase
Subscribing Founder's Repurchase Subscription shall be accompanied by a
deposit, in immediately available funds, of the Repurchase Price of the
Rescinded Put Shares subject to such Repurchase Subscribing Founder's
Repurchase Subscription; provided, however, that if such Founder's
Repurchase Subscription is for more than his pro rata share, then his
required deposit is limited to his pro rata share of the aggregate
Repurchase Price. At the end of the Repurchase Subscription Period,
CECP shall notify each Repurchase Subscribing Founder of the number of
Rescinded Put Shares purchased by such Repurchase Subscribing Founder,
the aggregate Repurchase Price thereof and the amount of any additional
payment to be made by such Repurchase Subscribing Founder over his
deposit and CECP shall return the excess amount of such Repurchase
Subscribing Founder's deposit to him. Within 5 days after such notice,
each Repurchase Subscribing Founder shall pay, in immediately available
funds, the remainder of the Repurchase Price, if any, for the Rescinded
Put Shares purchased by him.
(c) Failure to Exercise Repurchase Option. Unless all
Rescinded Put Shares are purchased pursuant to Repurchase Subscriptions
delivered to CECP in accordance with this Section 3, then the Founders
and the Repurchase Subscribing
8
<PAGE> 9
Founders shall be deemed to have failed to have exercised the
Repurchase Option and the Founders' and the Repurchase Subscribing
Founders' rights hereunder shall terminate at the end of the Repurchase
Subscription Period without further action on the part of CECP.
(d) Notice Requirements. CECP shall give Repurchase Offer
Notices to the Founders in accordance with the terms of this Agreement.
Repurchase Subscriptions in response to an Repurchase Offer Notice
shall be deemed made when received by CECP.
(e) Termination. The rights and obligations set forth in this
Section 3 shall terminate upon the consummation of a Qualified Public
Sale.
4. Right of First Refusal.
(a) Right of First Refusal. In the event a Founder ("Offeror
Founder") proposes to sell, exchange or otherwise dispose of all or any
part of the Offeror Founder's Common Stock ("Offered Shares") or
interest therein, whether for cash or other consideration, and has
received a bona fide offer from a third party to purchase the Offered
Shares, then the Offeror Founder shall, within ten business days
thereof, deliver to the other Founder's (individually an "Offeree
Founder" and collectively the "Offeree Founders") written notice (the
"Option Notice") setting forth in detail the circumstances of such
event, and the Offeree Founders shall have a right of first refusal to
purchase the Offered Shares at the price and upon the terms and
conditions set forth in the Option Notice.
(b) Purchase of Offered Shares. Within 30 days after receipt
of the Option Notice by the Offeree Founders, the Offeree Founders may
elect to purchase the Offered Shares pro rata based on their stock
ownership interests in the Company on the terms and conditions provided
in the Option Notice. If all of the Offeree Founders do not elect to
purchase their pro rata share of the Offered Shares, each Offeree
Founder desiring to purchase a portion of the Offered Shares remaining
in excess of his portionate share thereof shall be entitled to purchase
that proportion of the Offered Shares which remains unpurchased as his
stock ownership interest in the Company bears to the interest of all
other Offeree Founder's desiring to purchase portions of such Offered
Shares in excess of their proportionate shares thereof. If one or more
of the Offeree Founders elect to purchase all of the Offered Shares
during such 30 days period, the Offeror Founder shall sell the Offered
Shares to the Offeree Founder(s), and shall not be required to provide
to any Holder the co-sale rights under Section 2 hereof. If the Offeree
Founders do not elect to purchase all of the Offered Shares within the
30-day period, the Offeror may transfer the Offered Shares to the third
party upon the terms and conditions described in the Option Notice;
provided that the Offeror Founder must provide the co-sale rights in
Section 2 hereof
9
<PAGE> 10
to all of the Shareholders.
(c) Termination. The rights and obligations set forth in this
Section 4 shall terminate upon the consummation of a Qualified Public
Sale.
5. Right of Repurchase Upon a Founder's Death.
(a) Mandatory Sale and Purchase. If any Founder's employment
with the Company terminates as a result of his death, then the
representative(s) of the estate of the deceased Founder (hereinafter
called the "Representative") or the respective trustee(s) of the Diebel
Trust, the Murdock Trust or any other Permitted Trust (hereinafter
called the "Trustee") shall sell to the Company, and the Company shall,
subject to any limits then imposed by the Company's lenders, purchase
from the Representative or such Trustee, the number of shares of Common
Stock owned by the deceased Founder (and/or, in the case of Murdock,
Diebel or any other Founder who has transferred shares of Common Stock
to a Permitted Trust, owned by the Trustees of the respective Murdock
Trust, the Diebel Trust or such Permitted Trust) in accordance with
this Section 5 (such shares being the "Deceased Founder's Shares").
(b) Purchase Price. The purchase price for the Deceased
Founder's Shares (the "Purchase Price") shall be the Repurchase Price
thereof except that the Fair Market Value to be used in determining the
Repurchase shall be determined in accordance with the Founder Appraisal
Procedures set forth in Section 6(j) hereof. The Purchase Price shall
be paid by check to the Representative or Trustee within ten days of
the later of (A) the Company's receipt of the life insurance proceeds
from the Policies maintained on the deceased Founder's life as
contemplated by Section 5(c) of this Agreement and (B) the
determination of the Founder Fair Market Value. Notwithstanding the
foregoing, if the proceeds from such Policies (after deducting a
reasonable reserve for any tax likely to be borne by the Company
attributable to the proceeds of such Policies) ("Available Proceeds")
are less than the Purchase Price, the Available Proceeds shall be used
to purchase that number of shares equal to the product of (X) the
Available Proceeds times (Y) the number of the Deceased Founder's
Shares divided by the Purchase Price.
(c) Life Insurance.
(i) Subject to the provisions of Section 5(c)(v):
(A) The Company shall apply for and become the
owner and beneficiary of life insurance policies on
the life of each Founder in the amount set forth on
Exhibit D attached to this Agreement
(the "Policies"); and
10
<PAGE> 11
(B) So long as a Founder continues to be
employed by the Company (or, in the case of the
Murdock Trust, the Diebel Trust or any Permitted
Trust, Murdock, Diebel or the Founder who has
established the Permitted Trust, as the case may be,
continues to be employed by the Company) and while
this Agreement shall be in effect, the Company
shall: (1) use its best efforts to maintain such
Policies in full force and effect; (2) not exercise
any powers of ownership by canceling any such
Policy, by changing the named beneficiary, by
assigning ownership or by otherwise changing the
nature or amounts of the Policies; provided,
however, that the board of directors may increase
the amounts of such Polices to no more than what the
Repurchase Price of such Founder's Deceased
Founder's Shares would be based upon the most
current annual appraisal conducted for the ESOP; and
(3) pay the premiums on all such Policies within 30
days after each such premium shall become due and
payable and may, in its discretion, apply any
dividends declared on the policies to the payment of
such premiums.
(ii) To the extent permitted by any Credit Agreement and
permissible under California law, the Company shall use Available
Proceeds to satisfy its obligation to repurchase the Deceased Founder's
Shares of the deceased Founder, as applicable (except that in the case
of the Policies purchased on the life of Murdock, Diebel or other
Founder who has established a Permitted Trust, the proceeds shall be
used to purchase the shares of Common Stock owned by the Murdock Trust,
the Diebel Trust or the Permitted Trust, respectively).
(iii) If the Available Proceeds of any Policy are insufficient
or unavailable to repurchase the relevant Deceased Founder's Shares in
full, then the full amount of Available Proceeds shall be used to
repurchase the number of such Deceased Founder's Shares calculated in
accordance with Section 5(b) pro rata from the holders thereof or such
other percentages as may be agreed upon by the Representative and the
Trustee. Any shares of Common Stock unavailable to be repurchased shall
no longer be subject to repurchase by the Company but shall remain
subject to the other terms and conditions of this Agreement. For
purposes of this Section, the relevant Representative's or Trustee's
pro rata share shall be the ratio that such person's ownership interest
in the Company bears to the total ownership interests of such
Representative and Trustee.
(iv) If any proceeds remain from the Policies after the
payment of the obligations of the Company as set forth in this Section
5, such proceeds
11
<PAGE> 12
shall be retained by the Company and used to pay other
redemption costs and, thereafter, for general corporate
purposes.
(v) Notwithstanding the foregoing, the Company's
board of directors retains its right to terminate or cancel
the Policies on the lives of all, but not less than all, of
the then currently employed Founders or reduce the Policies on
the lives of all, but not less of all, of the then currently
employed Founders proportionate to the amount of the Policies
then in effect.
(c) Termination of Obligation to Buy and Sell. The
obligations of the Representatives, the Murdock Trust, the Diebel
Trust, any Permitted Trust or the Trustee to sell their Common Stock
set forth in this Section 5 of this Agreement and the obligation of the
Company to buy in accordance with such Section shall terminate upon one
of the following events:
(i) A Qualified Public Sale of the Company's Common
Stock;
(ii) A reorganization, merger, or consolidation of
the Company with one or more entities (except for a
transaction, the purpose of which is to change the domicile of
the Company), as a result of which the Company goes out of
existence or becomes a subsidiary of another entity (which
shall be deemed to occur if another entity or group of
entities acting in concert shall own, directly or indirectly,
more than 50% of the aggregate voting power of all outstanding
equity securities of the Company); or
(iii) A sale of all or substantially all of the
Company's assets.
6. Miscellaneous.
(a) Governing Law. All matters relating to the
interpretation, construction, validity and enforcement of this
Agreement shall be governed by the internal laws of the State of
California without giving effect to any choice or conflict of law
provision or rule (whether of the State of California or any other
jurisdiction) that would cause the application of laws of any
jurisdiction other than the State of California.
(b) Legended Certificates. The certificates evidencing
the Common Stock and Preferred Stock shall be legended to disclose the
existence of the rights set forth in this Agreement.
(c) Entire Agreement. This Agreement and exhibits hereto
contain the entire agreement between the parties relating to me subject
matter hereof and supersede all prior agreements and understandings
with respect to such subject matter, and the parties hereto have made
no agreements, representations or warranties relating
12
<PAGE> 13
to the subject matter of this Agreement which are not set forth herein.
(d) Amendments. No amendment or modification of this Agreement
shall be deemed effective unless made in writing and signed by all of
the parties hereto.
(e) No Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce
any provisions of this Agreement, except by a statement in writing
signed by the party against whom enforcement of the waiver or estoppel
is sought. Any written waiver shall not be deemed a continuing waiver
unless specifically stated, shall operate only as to the specific term
or condition waived and shall not constitute a waiver of such term or
condition for the future or as to any act other than that specifically
waived.
(f) Binding Effect. This Agreement shall become effective upon
CECP's exercise in full of its Warrant and, after becoming effective,
shall be binding upon, and inure to the benefit of, the parties hereto
and their respective successors, assigns and personal representatives
except as otherwise expressly stated herein. Until all of the rights
and obligations arising under Sections 1, 2, 3, 4 and/or 5 hereof are
terminated in accordance with their respective terms, no sale,
transfer, assignment, exchange or other disposition of shares of Common
Stock shall be made by any Shareholder to any person unless such person
shall agree in writing to be bound by the then applicable provisions of
this Agreement. The rights of CECP hereunder are afforded to it as a
holder of Series A Common Stock.
(g) Counterparts. This Agreement may be simultaneously
executed in any number of counterparts, and such counterparts executed
and delivered, each as an original, shall constitute but one and the
same instrument.
(h) Severability. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered
deleted herefrom and the remainder of such provision and of this
Agreement shall be unaffected and shall continue in full force and
effect.
(i) Captions and Headings. The captions and paragraph headings
used in this Agreement are for convenience of reference only, and shall
not affect the construction or interpretation of this Agreement or any
of the provisions hereof.
(j) Certain Definitions. In addition to the terms defined
elsewhere in this Agreement, for purposes of this Agreement, the
following terms shall have the meanings ascribed to them in this
subsection:
"Appraised Value" shall mean the appraised value of
the Company as determined by an appraiser (the "Independent
Appraiser") selected in
13
<PAGE> 14
accordance with the procedures set forth in this definition. Within 30
days after CECP delivers the CECP Sale Notice, CECP shall select an
appraiser (the "CECP Appraiser") and notify the Founders in writing
(such notice being the "CECP Appraiser Notice") of CECP's selection. If
the Majority Founders do not notify CECP in writing of their objection
(such objection being the "Founder Objection") to such selection within
15 days after receipt of the CECP Appraiser Notice, then the CECP
Appraiser shall be deemed to be the Independent Appraiser and the
appraised value determined by the CECP Appraiser shall be the Appraised
Value. If the Majority Founders timely object to the CECP Appraiser,
then, within 15 days after the delivery of the Founder Objection, the
Majority Founders shall select an Appraiser (the "Founder Appraiser")
and notify CECP in writing (such notice being the "Founder Appraiser
Notice") of the selection of the Founder Appraiser; provided, however,
that if the Majority Founders fail to timely select the Founder
Appraiser, then the CECP Appraiser shall be deemed to be the
Independent Appraiser and the appraised value determined by the CECP
Appraiser shall be the Appraised Value. If CECP does not notify the
Founders in writing of its objection (such objection being the "CECP
Objection") to such selection within 15 days after receipt of the
Founder Appraiser Notice, then the Founder Appraiser shall be deemed to
be the Independent Appraiser and the appraised value determined by the
Founder Appraiser shall be the Appraised Value. If CECP timely objects
to the Founder Appraiser, then the CECP Appraiser and the Founder
Appraiser shall meet to select the Independent Appraiser within 15 days
after CECP's delivery of the CECP Objection. If the CECP Appraiser and
the Founder Appraiser cannot agree upon the Independent Appraiser
within 30 days after CECP's delivery of the CECP Objection to the
Founder Appraiser, then the selection of the Independent Appraiser
shall be submitted to the Chief Judge of the United States District
Court for the District of Minnesota. Appraised Value shall then be
determined by the Independent Appraiser within 30 days after its
selection, and the determination of the Independent Appraiser shall be
conclusive and binding upon the Company, the Founders and CECP. All
expenses of the Founder Appraiser, the CECP Appraiser and the
Independent Appraiser shall be borne by the Company.
"Common Stock" shall mean the Company's Series A Common Stock,
and Series B Common Stock.
"Founder Appraisal Procedures" shall mean the procedures set
forth in this definition. For a period of 60 days after the date on
which any Founder's employee status with the Company is terminated as a
result of his death (the "Negotiation Period"), the Representative, any
applicable Trustee and the Company agree to negotiate in good faith to
reach agreement upon the Fair
14
<PAGE> 15
Market Value. In the event that the Representative, the applicable
Trustee and the Company are unable to agree upon the Fair Market Value
by the end of the Negotiation Period, the Fair Market Value shall be
determined for purposes of Section 5 by an appraiser (the "Independent
Appraiser") selected in accordance with the following procedures:
(a) Within 30 days after the end of the
Negotiation Period, the Company shall select an
appraiser (the "Company Appraiser") and notify the
Representative and applicable Trustee in writing
(such notice being the "Company Appraiser Notice") of
the Company's selection. If the Representative or
such Trustee does not notify the Company in writing
of its objection (such objection being the "Estate
Objection") to such selection within 15 days after
receipt of the Company Appraiser Notice, then the
Company's Appraiser shall be deemed to be the
Independent Appraiser and the fair market value
determined by the Company Appraiser shall be the Fair
Market Value.
(b) If the Representative or the applicable
Trustee timely objects to the Company Appraiser,
then, within 15 days after the delivery of the Estate
Objection, the objecting person (or, if both the
Representative and the Trustee timely object, then
the Representative and the Trustee jointly) shall
select an Appraiser (the "Estate Appraiser") and
notify the Company in writing (such notice being the
"Estate Appraiser Notice") of the selection of the
Estate Appraiser; provided, however, that if the
objecting person(s) fail to timely select the Estate
Appraiser, then the Company Appraiser shall be deemed
to be the Independent Appraiser and the appraised
value determined by the Company Appraiser shall be
the Fair Market Value.
(c) If the Company does not notify the
Representative and the applicable Trustee in writing
of its objection (such objection being the "Company
Objection") to such selection within 15 days after
receipt of the Estate Appraiser Notice, then the
Estate Appraiser shall be deemed to be the
Independent Appraiser and the fair market value
determined by the Estate Appraiser shall be the Fair
Market Value.
(d) If the Company timely objects to the
Estate Appraiser, then the Company Appraiser and the
Estate Appraiser shall meet to select the Independent
Appraiser within 15 days after the Company's delivery
of the Company Objection. If the Company Appraiser
and the Estate Appraiser cannot agree upon the
Independent Appraiser within 30 days after the
Company's delivery of the Company Objection to the
Estate Appraiser, then the selection of the
Independent Appraiser shall
15
<PAGE> 16
be submitted to Judicial Arbitration Mediator
Services, Inc./ENDISPUTE in Orange County,
California.
(e) In all cases, the Independent Appraiser
shall determine the Fair Market Value within 30 days
after its selection, and the determination of the
Independent Appraiser shall be conclusive and binding
upon the Company, the Representative and the Trustee.
(f) All expenses of the Company Appraiser
shall be borne by the Company, all expenses of the
Estate Appraiser shall be borne pro rata by the
Representative and the Trustee and all expenses of
the Independent Appraiser shall be borne equally by
the Company, the Representative and the Trustee.
"Qualifying Sale" shall mean any merger,
consolidation, liquidation or sale of the Company's assets or
transaction involving the sale of at least a majority of the
shares of the Company's issued and outstanding capital stock
that CECP proposes be accepted by the Company and/or the
holders of the shares of the Company's stock, as the case may
be, where the consideration payable in such transaction is
based upon a value of the Company equal to at least 85% of the
Company's Appraised Value.
"Permitted Transfers" shall mean: (a) any transfer by
a Founder of shares of Common Stock, without consideration, to
the trustee of a trust (a "Permitted Trust" for the benefit of
such Founder and the family members of such Founder where such
Founder is the initial trustee and such trust is revocable and
the trustee agrees to be bound by the terms of this Agreement;
provided, however, that the grantor Founder's rights under
this Agreement shall not inure to the benefit of such
Permitted Trust except as provided in Sections 2, 3 or 5 but
the grantor Founder's obligations under this Agreement shall
be binding upon such Permitted Trust to the same extent as
binding upon the grantor Founder at the time of transfer; (b)
any transfer by a Shareholder or a Permitted Trust of shares
of Common Stock through a Public Sale so long as all of the
Shareholders have had an opportunity to participate in such
Public Sale; (c) any transfer by CECP of Rescinded Put Shares
to a Repurchase Subscribing Founder pursuant to Section 3 or
of any transfer to any person of Rescinded Put Shares that
were not timely repurchased by the Founders in accordance with
Section 3; (d) any transfer by CECP of shares of Common Stock
to the Company pursuant to Section 9.1 or 9.3 of the Purchase
Agreement; and (e) any transfer by an Offeror Founder of
Offered Shares to the Offeree Founders pursuant to Section 5.
"Specified Credit Agreement Restriction" shall mean
any Credit
16
<PAGE> 17
Agreement Restriction which prohibits the Company from paying
the Repurchase Price of the shares of Warrant Stock put to the
Company pursuant to Section 9.1 of the Purchase Agreement at
any time after the principal of, and accrued interest on, the
Term Note (or any Refinancing Indebtedness in respect thereof)
has been paid in full and no event of default has occurred and
is continuing on the then applicable Credit Agreement or would
result from such payment.
"Voting Stock" shall mean the Company's capital stock
that is entitled to participate in the election of directors
and shall include the Company's Series A Common Stock and the
Company's Series B Common Stock.
(k) Notices. Any notice provided for in this Agreement will be
in writing and will be deemed properly delivered if either personally
delivered or sent by overnight courier or telecopier or mailed
certified or registered mail, return receipt requested, postage
prepaid, to the recipient at the address specified below:
(i) if to a CECP, at CECP's address for notices
under the Purchase Agreement;
(ii) if to any other Holder, at such Holder's
address on the stock transfer books of the Company;
(iii) if to the Company or any Founder, at:
16542 Millikan Avenue
Irvine, CA 92714
and thereafter at such other address, notice of which is given in
accordance with the provisions of this Section 6(k). Any such notice
shall be effective (A) if delivered personally or by telecopy, when
received, (B) if sent by overnight courier, when receipted for, and (C)
if mailed, three (3) days after being mailed as described above.
(l) Prior Agreement Superseded. This Agreement hereby
supersedes in its entirety the Amended and Restated Stock Transfer and
First Refusal Agreement dated as of January 31, 1995 by and among the
Shareholders ("Prior Agreement"). Upon the execution of this Agreement
by the parties, the Prior Agreement shall no longer be of any force or
effect.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date set forth in the first paragraph hereof.
Meade Instruments Corp.
By: /s/ JOHN DIEBEL
-------------------------------------
Its: Chairman and Chief Executive Officer
/s/ JOHN DIEBEL
-----------------------------------------
John Diebel
/s/ JOHN DIEBEL
-----------------------------------------
John Diebel in his capacity as a
trustee of the Diebel Living Trust
created under Agreement dated
January 12, 1995.
/s/ STEVE MURDOCK
-----------------------------------------
Steve Murdock
/s/ STEVE MURDOCK
-----------------------------------------
Steve Murdock in his capacity as a
trustee of the Murdock 1986 Trust
under Agreement dated October 23, 1986.
/s/ RON EZRA
-----------------------------------------
Ron Ezra
/s/ JOSEPH A. GORDON, JR.
-----------------------------------------
Joseph A. Gordon, Jr.
18
<PAGE> 19
Churchill ESOP Capital Partners,
A Minnesota Limited Partnership
By: Churchill Capital Investment Partners,
A Minnesota Limited Partnership
Its: General Partner
By: Churchill Capital, Inc.
Its: General Partner
By: /s/ ROBERT L. DAVIS
---------------------------------
Its: Vice President
19
<PAGE> 20
EXHIBIT A TO
SHAREHOLDER AGREEMENT
FOUNDERS AND SHARES
<TABLE>
<CAPTION>
Founder Shares
------- ------
<S> <C>
John Diebel directly and as a beneficiary
of the Diebel Trust. 1,275,000
Steve Murdock directly and as a beneficiary
of the Murdock Trust. 762,500
Ron Ezra 295,000
Joseph A. Gordon, Jr. 167,500
</TABLE>
1
<PAGE> 21
EXHIBIT D TO
SHAREHOLDER AGREEMENT
INSURANCE POLICIES FOR SHAREHOLDERS
<TABLE>
Person Upon Whose Life the
Policy is to be Issued Amount of Policy
<S> <C>
John C. Diebel $ 9,630,000.00
Steve Murdock $ 4,965,000.00
Ron Ezra $ 1,534,000.00
Joseph A. Gordon $ 871,000.00
</TABLE>
1
<PAGE> 1
EXHIBIT 10.7
INDUSTRIAL LEASE
(SINGLE TENANT; NET; STAND-ALONE)
BETWEEN
THE IRVINE COMPANY
AND
MEADE INSTRUMENTS CORP.
<PAGE> 2
INDEX TO INDUSTRIAL LEASE
(Single Tenant; Net; Stand-Alone)
<TABLE>
<S> <C>
ARTICLE I. BASIC LEASE PROVISIONS.................................... 1
ARTICLE II. PREMISES.................................................. 2
SECTION 2.1. LEASED PREMISES.................................. 2
SECTION 2.2. ACCEPTANCE OF PREMISES........................... 2
SECTION 2.3. BUILDING NAME AND ADDRESS........................ 3
ARTICLE III. TERM...................................................... 3
SECTION 3.1. GENERAL.......................................... 3
SECTION 3.2. DELAY IN POSSESSION.............................. 4
ARTICLE IV. RENT AND OPERATING EXPENSES............................... 4
SECTION 4.1. BASIC RENT....................................... 4
SECTION 4.2. OPERATING EXPENSES............................... 5
SECTION 4.3. SECURITY DEPOSIT................................. 6
ARTICLE V. USES...................................................... 7
SECTION 5.1. USE.............................................. 7
SECTION 5.2. SIGNS............................................ 7
SECTION 5.3. HAZARDOUS MATERIALS.............................. 7
ARTICLE VI. SERVICES.................................................. 10
SECTION 6.1. UTILITIES AND SERVICES........................... 10
SECTION 6.2. PARKING.......................................... 10
ARTICLE VII. MAINTAINING THE PREMISES.................................. 10
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR.................. 10
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR................ 11
SECTION 7.3. ALTERATIONS...................................... 11
SECTION 7.4. MECHANIC'S LIENS................................. 12
SECTION 7.5. ENTRY AND INSPECTION............................. 12
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY................ 12
ARTICLE IX. ASSIGNMENT AND SUBLETTING................................. 13
SECTION 9.1. RIGHTS OF PARTIES................................ 13
SECTION 9.2. EFFECT OF TRANSFER............................... 14
SECTION 9.3. SUBLEASE REQUIREMENTS............................ 14
SECTION 9.4. CERTAIN TRANSFERS................................ 15
ARTICLE X. INSURANCE AND INDEMNITY................................... 15
SECTION 10.1. TENANT'S INSURANCE............................... 15
SECTION 10.2. LANDLORD'S INSURANCE............................. 15
SECTION 10.3. TENANT'S INDEMNITY............................... 16
SECTION 10.4. LANDLORD'S NONLIABILITY.......................... 16
SECTION 10.5. WAIVER OF SUBROGATION............................ 16
ARTICLE XI. DAMAGE OR DESTRUCTION..................................... 17
SECTION 11.1. RESTORATION...................................... 17
SECTION 11.2. LEASE GOVERNS.................................... 18
ARTICLE XII. EMINENT DOMAIN............................................ 18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 12.1. TOTAL OR PARTIAL TAKING.......................... 18
SECTION 12.2. TEMPORARY TAKING................................. 18
SECTION 12.3. TAKING OF PARKING AREA........................... 18
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS........... 18
SECTION 13.1. SUBORDINATION.................................... 18
SECTION 13.2. ESTOPPEL CERTIFICATE............................. 19
SECTION 13.3 FINANCIALS........................................... 19
ARTICLE XIV. DEFAULTS AND REMEDIES..................................... 19
SECTION 14.1. TENANT'S DEFAULTS................................ 19
SECTION 14.2. LANDLORD'S REMEDIES.............................. 20
SECTION 14.3. LATE PAYMENTS.................................... 21
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM..................... 22
SECTION 14.5. DEFAULT BY LANDLORD.............................. 22
SECTION 14.6. EXPENSES AND LEGAL FEES.......................... 22
SECTION 14.7. WAIVER OF JURY TRIAL............................. 23
SECTION 14.8. SATISFACTION OF JUDGMENT......................... 23
SECTION 14.9. LIMITATION OF ACTIONS AGAINST LANDLORD........... 23
ARTICLE XV. END OF TERM............................................... 23
SECTION 15.1. HOLDING OVER..................................... 23
SECTION 15.2. MERGER ON TERMINATION............................ 23
SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY....... 23
ARTICLE XVI. PAYMENTS AND NOTICES...................................... 24
ARTICLE XVII. RULES AND REGULATIONS..................................... 24
ARTICLE XVIII. BROKER'S COMMISSION....................................... 24
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST........................... 25
ARTICLE XX. INTERPRETATION............................................ .25
SECTION 20.1. GENDER AND NUMBER................................ 25
SECTION 20.2. HEADINGS......................................... 25
SECTION 20.3. JOINT AND SEVERAL LIABILITY...................... 25
SECTION 20.4. SUCCESSORS....................................... 25
SECTION 20.5. TIME OF ESSENCE.................................. 25
SECTION 20.6. CONTROLLING LAW.................................. 25
SECTION 20.7. SEVERABILITY..................................... 25
SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES................... 26
SECTION 20.9. INABILITY TO PERFORM............................. 26
SECTION 20.10. ENTIRE AGREEMENT................................. 26
SECTION 20.11. QUIET ENJOYMENT.................................. 26
SECTION 20.12. SURVIVAL......................................... 26
ARTICLE XXI. EXECUTION AND RECORDING................................... 26
SECTION 21.1. COUNTERPARTS..................................... 26
SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY.............. 26
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER........... 26
SECTION 21.4. RECORDING........................................ 27
SECTION 21.5. AMENDMENTS....................................... 27
SECTION 21.6. EXECUTED COPY.................................... 27
SECTION 21.7. ATTACHMENTS...................................... 27
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XXII. MISCELLANEOUS............................................. 27
SECTION 22.1. NONDISCLOSURE OF LEASE TERMS..................... 27
SECTION 22.2. GUARANTY......................................... 27
SECTION 22.3. CHANGES REQUESTED BY LENDER...................... 27
SECTION 22.4. MORTGAGEE PROTECTION............................. 27
SECTION 22.5. COVENANTS AND CONDITIONS......................... 27
SECTION 22.6. SECURITY MEASURES................................ 28
SECTION 22.7. OFF-SITE OBLIGATIONS............................. 28
</TABLE>
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INDUSTRIAL LEASE
(SINGLE TENANT; NET; STAND-ALONE)
THIS LEASE is made as of the 20th day of December, 1996, by and between
The Irvine Company, a Michigan corporation, hereafter called "Landlord," and
Meade Instruments Corp., a California corporation hereinafter called "Tenant."
ARTICLE I. BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean
and refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.
1. Premises: The Premises are more particularly described in Section 2.1.
2. Address of Building: To be determined.
3. Use of Premises: General office and manufacturing, warehouse and
distribution of telescopes, microscopes, binoculars and related optical
products.
4. Estimated Commencement Date: October 1, 1997
5. Lease Term: One Hundred Twenty (120) months, plus such additional days
as may be required to cause this Lease to terminate on the final day of
the calendar month.
6. Basic Rent: Seventy-Five Thousand One Hundred Thirty-Two Dollars
($75,132.00) per month, based on $.465 per rentable square foot.
Basic Rent is subject to adjustment as follows:
Commencing on the first day of the thirty-first (31st) month of the
Lease Term, the Basic Rent shall be Eighty-One Thousand Nine Hundred
Nineteen Dollars ($81,919.00) per month, based on $.507 per rentable
square foot.
Commencing on the first day of the sixty-first (61st) month of the
Lease Term, the Basic Rent shall be Eighty-Nine Thousand One Hundred
Eighty-Nine Dollars ($89,189.00) per month, based on $.552 per rentable
square foot.
Commencing on the first day of the ninety-first (91st) month of the
Lease Term, the Basic Rent shall be Ninety-Seven Thousand Two Hundred
Sixty-Eight Dollars ($97,268.00) per month, based on $.602 per rentable
square foot.
7. Guarantor(s): N/A
8. Floor Area of Premises: approximately 161,575 rentable square feet
9. Security Deposit: $107,000.00
10. Broker(s): CB Commercial
11. Additional Insureds: Insignia Commercial Group, Inc.
12. Address for Payments and Notices:
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LANDLORD TENANT
Prior to Commencement Date:
INSIGNIA COMMERCIAL GROUP, INC. MEADE INSTRUMENTS CORP.
One Technology Drive, Suite F-207 16542 Millikan Avenue
Irvine, CA 92718 Irvine, CA 92714
After the Commencement Date:
At the Premises
with a copy of notices to:
IRVINE INDUSTRIAL COMPANY
P.O. Box 6370
Newport Beach, CA 92658-6370
Attn: Vice President, Industrial Operations
13. Tenant's Liability Insurance Requirement: $1,000,000.00
14. Vehicle Parking Spaces: Three Hundred Fifteen (315)
Exhibits:
A Description of Premises E Rules and Regulations
A-1 Description of the Site X Work Letter
B Environmental Questionnaire X-1 Outline Specification
C Landlord's Disclosures X-2 Oak Canyon Streetscape Plan
D Insurance Requirements 5.3 Chemical Inventory List
ARTICLE II. PREMISES
SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant
leases from Landlord the premises shown in Exhibit A (the "Premises"), including
the building identified in Item 2 of the Basic Lease Provisions (which together
with the underlying real property, is called the "Building"), and containing
approximately the floor area set forth in Item 8 of the Basic Lease Provisions.
The Building is located on the site (the "Site") shown on EXHIBIT A-1 attached
hereto.
SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that neither
Landlord nor any representative of Landlord has made any representation or
warranty with respect to the Premises or the Building or the suitability or
fitness of either for any purpose, including without limitation any
representations or warranties regarding zoning or other land use matters. Tenant
further acknowledges that neither Landlord nor any representative of Landlord
has agreed to undertake any alterations or additions or construct any
improvements to the Premises except as expressly provided in this Lease. The
taking of possession or use of the Premises by Tenant for any purpose other than
construction shall conclusively establish that the Premises and the Building
were in satisfactory condition and in conformity with the provisions of this
Lease in all respects, except for those matters which Tenant shall have brought
to Landlord's attention on a written punch list. The list shall be limited to
any items required to be accomplished by Landlord under the Work Letter attached
as Exhibit X, and shall be delivered to Landlord within thirty (30) days after
the term ("Term") of this Lease commences as provided in Article III below. If
no items are required of Landlord under the Work Letter, by taking possession of
the Premises Tenant
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accepts the improvements in their existing condition, and waives any right or
claim against Landlord arising out of the condition of the Premises. Nothing
contained in this Section shall affect the commencement of the Term or the
obligation of Tenant to pay rent. Landlord shall diligently complete all punch
list items of which it is notified as provided above.
SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any
name selected by Landlord from time to time for the Building as any part of
Tenant's corporate or trade name. Landlord shall have the right to change the
name or designation of the Building without liability to Tenant.
ARTICLE III. TERM
SECTION 3.1. GENERAL.
(a) The Term shall be for the period shown in Item 5 of the
Basic Lease Provisions. Subject to the provisions of Section 3.2 below, the Term
shall commence ("Commencement Date") on the earlier of (a) the date upon which
all relevant governmental authorities have approved the Tenant Improvements in
accordance with applicable building codes, as evidenced by written approval
thereof in accordance with the building permits issued for the Tenant
Improvements or issuance of a temporary or final certificate of occupancy for
the Premises, provided that Landlord shall give Tenant not less than fifteen
(15) days written notice prior to such approval or issuance or (b) the date
Tenant acquires possession or commences use of the Premises for any purpose
other than construction of Tenant Improvements by Tenant under the Work Letter.
Within ten (10) days after possession of the Premises is tendered to Tenant, the
parties shall memorialize on a form provided by Landlord the actual Commencement
Date and the expiration date ("Expiration Date") of this Lease. Tenant's failure
to execute that form shall not affect the validity of Landlord's determination
of those dates. If the Commencement Date has not occurred on or before a date
eight (8) months after the Estimated Commencement Date specified in Item 4 of
the Basic Lease Provisions for reasons other than Tenant's delays, then Tenant
may terminate this Lease by written notice given to Landlord within thirty (30)
days after such date.
(b) Provided that Tenant is not in default under any provision
of this Lease, either at the time of exercise of the extension right granted
herein or at the time of the commencement of such extension, and provided
further that Tenant has not assigned its interest in this Lease or sublet in the
aggregate more than one-half of the rentable square footage of the Premises,
Tenant may extend the Term of this Lease for two (2) consecutive periods of
sixty (60) months each. Tenant shall exercise its right to extend the Term by
and only by delivering to Landlord, not less than nine (9) months or more than
twelve (12) months prior to the expiration date of the initial Term in the case
of the first extension period, and not less than nine (9) months or more than
twelve(12) months after the expiration of the Term as extended by the first
extension period in the case of the second extension period, Tenant's
irrevocable written notice of its commitment to extend (the "Commitment
Notice"). The Basic Rent payable under the Lease during each extension of the
Term shall be determined prior to the commencement of each extension period at
the fair market rental, including subsequent adjustments, for comparable
industrial space being leased by Landlord in the Irvine Spectrum; provided that
such rate shall in no event be less than the rate payable by Tenant during the
final month of the initial Term in the case of the first extension period, or
the final month of the first extension period, in the case of the second
extension period. In the event that the parties are not able to agree on the
fair market rental within one hundred twenty (120) days prior to the
commencement of the applicable extension period, then either party may elect, by
written notice to the other party, to cause said rental, including subsequent
adjustments, to be determined by appraisal as follows.
Within ten (10) days following receipt of such
appraisal election, the parties shall attempt to agree on an appraiser to
determine the fair market rental. If the parties are unable to agree in that
time, then each party shall designate an appraiser within ten (10) days
thereafter. Should either party fail to so designate an appraiser within that
time, then the appraiser designated by the other party shall determine the fair
rental value. Should each of the parties timely designate an appraiser, then the
two appraisers so designated shall appoint a third appraiser who shall, acting
alone, determine the fair rental value of the Premises. Any appraiser designated
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hereunder shall have an M.A.I. certification with not less than five (5) years
experience in the valuation of commercial industrial buildings in Orange County,
California.
Within thirty (30) days following the selection of
the appraiser, such appraiser shall determine the fair market rental value,
including subsequent adjustments of the Premises. In determining such value, the
appraiser shall consider rental comparables for similarly improved space in the
Irvine Spectrum area with appropriate adjustments for differences in location
and quality of project. In no event shall the appraiser attribute factors for
brokerage commissions to reduce said fair market rental. The fees of the
appraiser(s) shall be shared equally by both parties.
Within twenty (20) days after the determination of
the fair market rental, Landlord shall prepare a reasonably appropriate
amendment to this Lease for the applicable extension period and Tenant shall
execute and return same to Landlord within ten (10) days. Should the fair market
rental not be established by the commencement of the applicable extension
period, then Tenant shall continue paying rent at the rate in effect during the
last month of the initial Term or the last month of the first extension period,
as applicable, and a lump sum adjustment shall be made promptly upon the
determination of such new rental.
If Tenant fails to timely comply with any of the
provisions of this paragraph, Tenant's right to extend the Term shall be
extinguished and the Lease shall automatically terminate as of the expiration
date of the Term, without any extension and without any liability to Landlord.
If Tenant fails to exercise its right to extend the term for the first sixty
(60) month extension period, Tenant's right to extend the Term for a second
sixty (60) month period shall be extinguished. Any attempt to assign or transfer
any right or interest created by this paragraph shall be void from its
inception. Tenant shall have no other right to extend the Term beyond the two
sixty (60) month extensions created by this paragraph. Unless agreed to in a
writing signed by Landlord and Tenant, any extension of the Term, whether
created by an amendment to this Lease or by a holdover of the Premises by
Tenant, or otherwise, shall be deemed a part of, and not in addition to, any
duly exercised extension period permitted by this paragraph.
SECTION 3.2. DELAY IN POSSESSION. If Landlord, for any reason
whatsoever, cannot deliver possession of the Premises to Tenant on or before the
Estimated Commencement Date, this Lease shall not be void or voidable nor shall
Landlord be liable to Tenant for any resulting loss or damage. However, Tenant
shall not be liable for any rent and the Commencement Date shall not occur until
Landlord delivers possession of the Premises and the Premises are in fact
available for Tenant's occupancy with any Tenant Improvements that have been
approved as per Section 3.1(a) above, except that if Landlord's failure to so
deliver possession on the Estimated Commencement Date is attributable to any
action or inaction by Tenant (including without limitation any Tenant Delay
described in the Work Letter, if any, attached to this Lease), then the
Commencement Date shall not be delayed to the date on which possession of the
Premises is tendered to Tenant, and Landlord shall be entitled to full
performance by Tenant (including the payment of rent) from the date Landlord
would have been able to deliver the Premises to Tenant but for Tenant's
delay(s).
ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset, Basic Rent for the Premises
in the total amount shown (including subsequent adjustments, if any) in Item 6
of the Basic Lease Provisions. Any rental adjustment shown in Item 6 shall be
deemed to occur on the specified monthly anniversary of the Commencement Date,
whether or not that date occurs at the end of a calendar month. The rent shall
be due and payable in advance commencing on the Commencement Date (as prorated
for any partial month) and continuing thereafter on the first day of each
successive calendar month of the Term. No demand, notice or invoice shall be
required for the payment of Basic Rent. An installment of rent in the amount of
one (1) full month's Basic Rent at the initial rate specified in Item 6 of the
Basic Lease Provisions shall be delivered to Landlord concurrently with Tenant's
execution of this Lease and shall be applied against the Basic Rent first due
hereunder.
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SECTION 4.2. OPERATING EXPENSES.
(a) Tenant shall pay to Landlord, as additional rent,
"Building Costs" and "Property Taxes," as those terms are defined below,
incurred by Landlord in the operation of the Building. For convenience of
reference, Property Taxes and Building Costs shall be referred to collectively
as "Operating Expenses".
(b) Commencing prior to the start of the first full "Expense
Recovery Period" (as defined below) of the Lease, and prior to the start of each
full or partial Expense Recovery Period thereafter, Landlord shall give Tenant a
written estimate of the amount of Operating Expenses for the Expense Recovery
Period. Tenant shall pay the estimated amounts to Landlord in equal monthly
installments, in advance, with Basic Rent. If Landlord has not furnished its
written estimate for any Expense Recovery Period by the time set forth above,
Tenant shall continue to pay cost reimbursements at the rates established for
the prior Expense Recovery Period, if any; provided that when the new estimate
is delivered to Tenant, Tenant shall, at the next monthly payment date, pay any
accrued cost reimbursements based upon the new estimate. For purposes hereof,
"Expense Recovery Period" shall mean every twelve month period during the Term
(or portion thereof for the first and last lease years) commencing July 1 and
ending June 30.
(c) Within one hundred twenty (120) days after the end of each
Expense Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Operating Expenses incurred by Landlord
during the period, and the parties shall within thirty (30) days thereafter make
any payment or allowance necessary to adjust Tenant's estimated payments, if
any, to Tenant's actual owed amounts as shown by the annual statement. Any delay
by Landlord in delivering any statement hereunder for a period of less than
eighteen (18) months shall not constitute a waiver of Landlord's right to
require Tenant to pay Operating Expenses pursuant hereto. Any amount due Tenant
shall be credited against installments next coming due under this Section 4.2,
and any deficiency shall be paid by Tenant together with the next installment.
If Tenant has not made estimated payments during the Expense Recovery Period,
any amount owing by Tenant pursuant to subsection (a) above shall be paid to
Landlord in accordance with Article XVI. Should Tenant fail to object in writing
to Landlord's determination of actual Operating Expenses within sixty (60) days
following delivery of Landlord's expense statement, Landlord's determination of
actual Operating Expenses for the applicable Expense Recovery Period shall be
conclusive and binding on the parties and any future claims to the contrary
shall be barred.
(d) Even though the Lease has terminated and the Tenant has
vacated the Premises, when the final determination is made of Operating Expenses
for the Expense Recovery Period in which the Lease terminates, Tenant shall upon
notice pay the entire increase due over the estimated expenses paid. Conversely,
any overpayment made in the event expenses decrease shall be rebated by Landlord
to Tenant.
(e) If, at any time during any Expense Recovery Period, any
one or more of the Operating Expenses are increased to a rate(s) or amount(s) in
excess of the rate(s) or amount(s) used in calculating the estimated expenses
for the year, then the estimate of Operating Expenses shall be increased for the
month in which such rate(s) or amount(s) becomes effective and for all
succeeding months by an amount equal to the increase. Landlord shall give Tenant
written notice of the amount or estimated amount of the increase, the month in
which the increase will become effective, and the month for which the payments
are due. Tenant shall pay the increase to Landlord as a part of Tenant's monthly
payments of estimated expenses as provided in paragraph (b) above, commencing
with the month in which effective.
(f) The term "Building Costs" shall include all expenses of
operation and maintenance of the Building and all landscaping, walkways, parking
areas and lighting of the Site, to the extent such expenses are not billed to
and paid directly by Tenant, and shall include the following charges by way of
illustration but not limitation: water and sewer charges; insurance premiums or
reasonable premium equivalents should Landlord elect to self-insure any risk
that Landlord is authorized to insure hereunder (provided that a pro-rata share
of earthquake insurance premiums or premium equivalents shall only be Building
Costs if earthquake insurance coverage is obtained or a formal self-insurance
program for earthquake risks is established for all or a substantial portion of
Landlord's industrial property portfolio); license, permit, and inspection fees;
heat; light; power; air conditioning; supplies; materials; equipment; tools; the
cost of any environmental, insurance or other consultant utilized by
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Landlord in connection with the Building arising as a result of Tenant's
particular use of the Premises or subject to Tenant's approval of the same such
approval not to be unreasonably withheld; costs incurred in connection with
compliance of any laws or changes in laws applicable to the Building, provided
that the costs for any improvements to the Premises required for such compliance
shall be included to the extent of the amortized amount over the useful life of
the improvements calculated at a market cost of funds, all as determined by
Landlord, with Tenant paying only the portion of such amortized costs allocable
to the Term of the Lease; the cost of any capital investments (other than tenant
improvements for specific tenants) to the extent of the amortized amount thereof
over the useful life of such capital investments calculated at a market cost of
funds, all as determined by Landlord, with Tenant paying only the portion of
such amortized costs allocable to the Term of the Lease; labor; reasonably
allocated wages and salaries, fringe benefits, and payroll taxes for
administrative and other personnel directly applicable to the Building,
including both Landlord's personnel and outside personnel; any expense incurred
pursuant to Sections 6.1, 6.2, 7.2, and 10.2; and a reasonable
overhead/management fee (not to exceed 2.5% of Basic Rent) for the professional
operation of the Building. Notwithstanding anything to the contrary contained
herein, the amount of such overhead/management fee to be charged to Tenant shall
be determined by multiplying the actual fee charged (which from time to time may
be with respect to the Building only or the Building together with other
properties owned by Landlord and/or its affiliates) by a fraction, the numerator
of which is the floor area of the Premises (as set forth in Item No. 8 of the
Basic Lease Provisions) and the denominator of which is the total square footage
of space charged with such fee actually leased to tenants (including Tenant). It
is understood that Building Costs shall include competitive charges for direct
services provided by any subsidiary or division of Landlord, and may include the
Building's or the Site's proportionate share of the cost of maintenance or
repair contracts which cover the Building and/or the Site and other buildings
and/or projects in Landlord's portfolio, as reasonably allocated by Landlord.
(g) The term "Property Taxes" as used herein shall include the
following: (i) all real estate taxes or personal property taxes assessed against
the Building and/or the Site, as such property taxes may be reassessed from time
to time; and (ii) other taxes, charges and assessments which are levied with
respect to this Lease or to the Building, and any improvements, fixtures and
equipment and other property of Landlord located in the Building, except that
general net income and franchise taxes imposed against Landlord shall be
excluded; and (iii) all assessments and fees for public improvements, services,
and facilities and impacts thereon, including without limitation arising out of
any Community Facilities Districts, "Mello Roos" districts, similar assessment
districts, and any traffic impact mitigation assessments or fees; and (iv) any
tax, surcharge or assessment which shall be levied in addition to or in lieu of
real estate or personal property taxes, other than taxes covered by Article
VIII; and (v) costs and expenses incurred in contesting the amount or validity
of any Property Tax by appropriate proceedings.
SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of
this Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9
of the Basic Lease Provisions, to be held by Landlord as security for the full
and faithful performance of Tenant's obligations under this Lease (the "Security
Deposit"). Subject to the last sentence of this Section, the Security Deposit
shall be understood and agreed to be the property of Landlord upon Landlord's
receipt thereof, and may be utilized by Landlord in its discretion towards the
payment of all prepaid expenses by Landlord for which Tenant would be required
to reimburse Landlord under this Lease, including without limitation brokerage
commissions and Tenant Improvement costs. Upon any default by Tenant, including
specifically Tenant's failure to pay rent or to abide by its obligations under
Sections 7.1 and 15.3 below, whether or not Landlord is informed of or has
knowledge of the default, the Security Deposit shall be deemed to be
automatically and immediately applied, without waiver of any rights Landlord may
have under this Lease or at law or in equity as a result of the default, as a
setoff for full or partial compensation for that default. If any portion of the
Security Deposit is applied after a default by Tenant, Tenant shall within five
(5) days after written demand by Landlord deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its original amount.
Landlord shall not be required to keep this Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on the Security
Deposit. If Tenant fully performs its obligations under this Lease, the Security
Deposit or any balance thereof shall be returned to Tenant (or, at Landlord's
option, to the last assignee of Tenant's interest in this Lease) after the
expiration of the Term, provided that Landlord may retain the Security Deposit
to the extent and until such time as all amounts due from Tenant in accordance
with this Lease have been determined and paid in full.
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ARTICLE V. USES
SECTION 5.1. USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions, all in accordance with
applicable laws and restrictions and pursuant to approvals to be obtained by
Tenant from all relevant and required governmental agencies and authorities. The
parties agree that any contrary use shall be deemed to cause material and
irreparable harm to Landlord and shall entitle Landlord to injunctive relief in
addition to any other available remedy. Tenant, at its expense, shall procure,
maintain and make available for Landlord's inspection throughout the Term, all
governmental approvals, licenses and permits required for the proper and lawful
conduct of Tenant's permitted use of the Premises. Tenant shall not use or allow
the Premises to be used for any unlawful purpose, nor shall Tenant permit any
nuisance or commit any waste in the Premises. Tenant shall not do or permit to
be done anything which will invalidate or increase the cost of any insurance
policy(ies) covering the Building or its contents, and shall comply with all
applicable insurance underwriters rules and the requirements of the Pacific Fire
Rating Bureau or any other organization performing a similar function. Tenant
shall comply at its expense with all present and future laws, ordinances,
restrictions, regulations, orders, rules and requirements of all governmental
authorities that pertain to Tenant or its use of the Premises, including without
limitation all federal and state occupational health and safety requirements,
whether or not Tenant's compliance will necessitate expenditures or interfere
with its use and enjoyment of the Premises, provided that if such compliance
would apply to all similar buildings and requires improvements with a useful
life extending beyond the Term then Landlord shall construct such improvements
and include the costs thereof amortized over the useful life of such
improvements calculated at a market cost of funds as Building Costs. Tenant
shall comply at its expense with all present covenants, conditions, easements or
restrictions now or hereafter affecting or encumbering the Building, and any
amendments or modifications thereto, including without limitation the payment by
Tenant of any periodic or special dues or assessments charged against the
Premises or Tenant which may be allocated to the Premises or Tenant in
accordance with the provisions thereof. Tenant shall promptly upon demand
reimburse Landlord for any additional insurance premium charged by reason of
Tenant's failure to comply with the provisions of this Section, and shall
indemnify Landlord from any liability and/or expense resulting from Tenant's
noncompliance.
SECTION 5.2. SIGNS. Except as approved in writing by Landlord, in its
sole discretion, Tenant shall have no right to maintain identification signs in
any location in, on or about the Premises or the Building and shall not place or
erect any signs, displays or other advertising materials that are visible from
the exterior of the Building. The size, design, graphics, material, style, color
and other physical aspects of any permitted sign shall be subject to Landlord's
written approval prior to installation (which approval may be withheld in
Landlord's discretion), any covenants, conditions or restrictions encumbering
the Premises, Landlord's signage program, if any, as in effect from time to time
and approved by the City of Irvine ("Signage Criteria"), and any applicable
municipal or other governmental permits and approvals. Tenant acknowledges
having received and reviewed a copy of the current Signage Criteria, if
applicable. Tenant shall be responsible for the cost of any permitted sign,
including the fabrication, installation, maintenance and removal thereof. If
Tenant fails to maintain its sign, or if Tenant fails to remove same upon
termination of this Lease and repair any damage caused by such removal, Landlord
may do so at Tenant's expense.
SECTION 5.3. HAZARDOUS MATERIALS.
(a) For purposes of this Lease, the term "Hazardous Materials"
includes (i) any "hazardous materials" as defined in Section 25501(n) of the
California Health and Safety Code, (ii) any other substance or matter which
results in liability to any person or entity from exposure to such substance or
matter under any statutory or common law theory, and (iii) any substance or
matter which is in excess of permitted levels set forth in any federal,
California or local law or regulation pertaining to any hazardous or toxic
substance, material or waste.
(b) Tenant shall not cause or permit any Hazardous Materials
to be brought upon, stored, used, generated, released or disposed of on, under,
from or about the Premises or the Site (including without limitation the soil
and groundwater thereunder) without the prior written consent of Landlord,
except that Tenant
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may use and store on the Premises and shall properly dispose of reasonable
quantities of those Hazardous Materials identified on Schedule 5.3 attached
hereto. Notwithstanding the foregoing, Tenant shall have the right, without
obtaining prior written consent of Landlord, to utilize within the Premises
standard office products that may contain Hazardous Materials (such as photocopy
toner, "White Out", and the like), provided however, that (i) Tenant shall
maintain such products in their original retail packaging, shall follow all
instructions on such packaging with respect to the storage, use and disposal of
such products, and shall otherwise comply with all applicable laws with respect
to such products, and (ii) all of the other terms and provisions of this Section
5.3 shall apply with respect to Tenant's storage, use and disposal of all such
products. Landlord may, in its sole discretion, place such conditions as
Landlord deems appropriate with respect to any such Hazardous Materials, and may
further require that Tenant demonstrate that any such Hazardous Materials are
necessary or useful to Tenant's business and will be generated, stored, used and
disposed of in a manner that complies with all applicable laws and regulations
pertaining thereto and with good business practices. Tenant understands that
Landlord may utilize an environmental consultant to assist in determining
conditions of approval in connection with the storage, generation, release,
disposal or use of Hazardous Materials by Tenant on or about the Premises,
and/or to conduct periodic inspections of the storage, generation, use, release
and/or disposal of such Hazardous Materials by Tenant on and from the Premises,
and Tenant agrees that any costs incurred by Landlord to assure Tenant's
compliance with the requirements of this Lease or on account of Tenant's failure
to comply with the requirements of this Lease shall be reimbursed by Tenant to
Landlord as additional rent hereunder upon demand.
(c) Prior to the execution of this Lease, Tenant shall
complete, execute and deliver to Landlord an Environmental Questionnaire and
Disclosure Statement (the "Environmental Questionnaire") in the form of Exhibit
B attached hereto. The completed Environmental Questionnaire shall be deemed
incorporated into this Lease for all purposes, and Landlord shall be entitled to
rely fully on the information contained therein. On each anniversary of the
Commencement Date until the expiration or sooner termination of this Lease,
Tenant shall disclose to Landlord in writing the names and amounts of all
Hazardous Materials which were stored, generated, used, released and/or disposed
of on, under or about the Premises and/or the Site for the twelve-month period
prior thereto, and which Tenant desires to store, generate, use, release and/or
dispose of on, under or about the Premises for the succeeding twelve-month
period. In addition, to the extent Tenant is permitted to utilize Hazardous
Materials upon the Premises, Tenant shall promptly provide Landlord with
complete and legible copies of all the following environmental documents
relating thereto: reports filed pursuant to any self-reporting requirements;
permit applications, permits, monitoring reports, workplace exposure and
community exposure warnings or notices and all other reports, disclosures, plans
or documents (even those which may be characterized as confidential) relating to
water discharges, air pollution, waste generation or disposal, and underground
storage tanks for Hazardous Materials; orders, reports, notices, listings and
correspondence (even those which may be considered confidential) of or
concerning the release, investigation of, compliance, cleanup, remedial and
corrective actions, and abatement of Hazardous Materials; and all complaints,
pleadings and other legal documents filed by or against Tenant related to
Tenant's use, handling, storage, release and/or disposal of Hazardous Materials.
(d) Landlord and its agents shall have the right, but not the
obligation, to inspect, sample and/or monitor the Premises, the Site and/or the
soil or groundwater thereunder at any time to determine whether Tenant is
complying with the terms of this Section 5.3, and in connection therewith Tenant
shall provide Landlord with full access to all relevant facilities, records and
personnel. If Tenant is not in compliance with any of the provisions of this
Section 5.3, or in the event of a release of any Hazardous Material on, under or
about the Premises and/or the Site caused or permitted by Tenant, its agents,
employees, contractors, licensees or invitees, Landlord and its agents shall
have the right, but not the obligation, without limitation upon any of
Landlord's other rights and remedies under this Lease, to immediately enter upon
the Premises and/or the Site without notice and to discharge Tenant's
obligations under this Section 5.3 at Tenant's expense, including without
limitation the taking of emergency or long-term remedial action. Landlord and
its agents shall endeavor to minimize interference with Tenant's business in
connection therewith, but shall not be liable for any such interference. In
addition, Landlord, at Tenant's expense, shall have the right, but not the
obligation, to join and participate in any legal proceedings or actions
initiated in connection with any claims arising out of the storage, generation,
use, release and/or disposal by Tenant or its agents, employees, contractors,
licensees or invitees of Hazardous Materials on, under, from or about the
Premises and/or the Site.
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(e) If the presence of any Hazardous Materials on, under, from
or about the Premises and/or the Site caused or permitted by Tenant or its
agents, employees, contractors, licensees or invitees results in (i) injury to
any person, (ii) injury to or any contamination of the Premises and/or the Site,
or (iii) injury to or contamination of any real or personal property wherever
situated, Tenant, at its expense, shall promptly take all actions necessary to
return the Premises, the Site and any other affected real or personal property
owned by Landlord to the condition existing prior to the introduction of such
Hazardous Materials and to remedy or repair any such injury or contamination,
including without limitation, any cleanup, remediation, removal, disposal,
neutralization or other treatment of any such Hazardous Materials.
Notwithstanding the foregoing, Tenant shall not, without Landlord's prior
written consent, take any remedial action in response to the presence of any
Hazardous Materials on, under or about the Premises, the Site or any other
affected real or personal property owned by Landlord or enter into any similar
agreement, consent, decree or other compromise with any governmental agency with
respect to any Hazardous Materials claims; provided however, Landlord's prior
written consent shall not be necessary in the event that the presence of
Hazardous Materials on, under or about the Premises, the Site or any other
affected real or personal property owned by Landlord (i) imposes an immediate
threat to the health, safety or welfare of any individual or (ii) is of such a
nature that an immediate remedial response is necessary and it is not possible
to obtain Landlord's consent before taking such action. To the fullest extent
permitted by law, Tenant shall indemnify, hold harmless, protect and defend
(with attorneys acceptable to Landlord) Landlord and any successors to all or
any portion of Landlord's interest in the Premises, the Site and any other real
or personal property owned by Landlord from and against any and all liabilities,
losses, damages, diminution in value, judgments, fines, demands, claims,
recoveries, deficiencies, costs and expenses (including without limitation
attorneys' fees, court costs and other professional expenses), whether
foreseeable or unforeseeable, arising directly or indirectly out of the use,
generation, storage, treatment, release, on- or off-site disposal or
transportation of Hazardous Materials on, into, from, under or about the
Premises, the Site and any other real or personal property owned by Landlord
caused or permitted by Tenant, its agents, employees, contractors, licensees or
invitees, specifically including without limitation the cost of any required or
necessary repair, restoration, cleanup or detoxification of the Premises, the
Site and any other real or personal property owned by Landlord, and the
preparation of any closure or other required plans, whether or not such action
is required or necessary during the Term or after the expiration of this Lease.
If Landlord at any time discovers that Tenant or its agents, employees,
contractors, licensees or invitees may have caused or permitted the release of a
Hazardous Material on, under, from or about the Premises, the Site or any other
real or personal property owned by Landlord, Tenant shall, at Landlord's
request, immediately prepare and submit to Landlord a comprehensive plan,
subject to Landlord's approval, specifying the actions to be taken by Tenant to
return the Premises, the Site or any other real or personal property owned by
Landlord to the condition existing prior to the introduction of such Hazardous
Materials. Upon Landlord's approval of such cleanup plan, Tenant shall, at its
expense, and without limitation of any rights and remedies of Landlord under
this Lease or at law or in equity, immediately implement such plan and proceed
to cleanup such Hazardous Materials in accordance with all applicable laws and
as required by such plan and this Lease. The provisions of this subsection (e)
shall expressly survive the expiration or sooner termination of this Lease.
(f) Landlord hereby discloses to Tenant, and Tenant hereby
acknowledges, certain facts relating to Hazardous Materials at the Premises
and/or the Site known by Landlord to exist as of the date of this Lease, as more
particularly described in Exhibit C attached hereto. Tenant shall have no
liability or responsibility with respect to any Hazardous Materials affecting
the Premises and/or the Site prior to the Commencement Date, including, without
limitation the facts described in Exhibit C, nor with respect to any Hazardous
Materials which Tenant proves were not caused or permitted by Tenant, its
agents, employees, contractors, licensees or invitees and Landlord hereby
releases Tenant from any and all liability with regard to the same.
Notwithstanding the preceding two sentences, Tenant agrees to notify its agents,
employees, contractors, licensees, and invitees of any exposure or potential
exposure to Hazardous Materials at the Premises and/or the Site that Landlord
brings to Tenant's attention.
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ARTICLE VI. SERVICES
SECTION 6.1. UTILITIES AND SERVICES. Tenant shall be responsible for
and shall pay promptly, directly to the appropriate supplier, all charges for
water, gas, electricity, sewer, heat, light, power, telephone, refuse pickup,
janitorial service, interior landscape maintenance and all other utilities,
materials and services furnished directly to Tenant or the Premises or used by
Tenant in, on or about the Premises during the Term, together with any taxes
thereon. Landlord shall not be liable for damages or otherwise for any failure
or interruption of any utility or other service furnished to the Premises, and
no such failure or interruption shall be deemed an eviction or entitle Tenant to
terminate this Lease or withhold or abate any rent due hereunder. Landlord shall
at all reasonable times have free access to all electrical and mechanical
installations of Landlord.
SECTION 6.2. PARKING. Tenant shall be entitled to the number of vehicle
parking spaces on the Site set forth in Item 14 of the Basic Lease Provisions.
Tenant shall not use more parking spaces than such number. Tenant shall not
permit or allow any vehicles that belong to or are controlled by Tenant or
Tenant's employees, suppliers, shippers, customers or invitees to be loaded,
unloaded or parked in areas other than those designated by Landlord for such
activities. If Tenant permits or allows any of the prohibited activities
described above, then Landlord shall have the right, without notice, in addition
to such other rights and remedies that Landlord may have, to remove or tow away
the vehicle involved and charge the costs to Tenant. Parking shall be limited to
striped parking stalls, and no parking shall be permitted in any driveways,
access ways or in any similar area. Nothing contained in this Lease shall be
deemed to create liability upon Landlord for any damage to motor vehicles of
visitors or employees, for any loss of property from within those motor
vehicles, or for any injury to Tenant, its visitors or employees, unless
ultimately determined to be caused by the sole active negligence or willful
misconduct of Landlord, its agents, servants and employees. Landlord shall have
the right to establish, and from time to time amend, and to enforce against all
users all reasonable rules and regulations (including the designation of areas
for employee parking) that Landlord may deem necessary and advisable for the
proper and efficient operation and maintenance of parking. Landlord shall have
the right to construct, maintain and operate lighting facilities within the
parking areas; to change the area, level, location and arrangement of the
parking areas and improvements therein; and to do and perform such other acts in
and to the parking areas and improvements therein as, in the use of good
business judgment, Landlord shall determine to be advisable. Parking areas shall
be used only for parking vehicles. Washing, waxing, cleaning or servicing of
vehicles, or the storage of vehicles for 24-hour periods, is prohibited unless
otherwise authorized by Landlord. Tenant shall be liable for any damage to the
parking areas caused by Tenant or Tenant's employees, suppliers, shippers,
customers or invitees, including without limitation damage from excess oil
leakage. Tenant shall have no right to install any fixtures, equipment or
personal property in the parking areas.
ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole
expense shall comply with all applicable laws and governmental regulations
governing the Premises and make all repairs necessary to keep the Premises in
the condition as existed on the Commencement Date (or on any later date that the
improvements may have been installed), excepting ordinary wear and tear,
including without limitation the electrical and mechanical systems, any air
conditioning, ventilating or heating equipment which serves the Premises, all
walls, glass, windows, doors, door closures, hardware, fixtures, electrical,
plumbing, fire extinguisher equipment and other equipment. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Tenant. As part
of its maintenance obligations hereunder, Tenant shall, at Landlord's request,
provide Landlord with copies of all maintenance schedules, reports and notices
prepared by, for or on behalf of Tenant. Tenant shall obtain preventive
maintenance contracts from a licensed heating and air conditioning contractor to
provide for regular inspection and maintenance of the heating, ventilating and
air conditioning systems servicing the Premises, all subject to Landlord's
reasonable approval. All repairs shall be at least equal in quality to the
original work, shall be made only by a licensed contractor approved in writing
in advance by Landlord. Any contractor utilized by Tenant shall be subject to
Landlord's standard
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requirements for contractors, as modified from time to time. Landlord shall have
the right at all times to inspect Tenant's maintenance of all equipment
(including without limitation air conditioning, ventilating and heating
equipment), and may impose reasonable restrictions and requirements with respect
to repairs, as provided in Section 7.3, and the provisions of Section 7.4 shall
apply to all repairs. Alternatively, Landlord may elect after reasonable notice
to Tenant to make any repair or maintenance required hereunder on behalf of
Tenant and at Tenant's expense, and Tenant shall promptly reimburse Landlord for
all costs incurred upon submission of an invoice.
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR. Subject to Section 7.1
and Article XI, Landlord shall provide service, maintenance and repair with
respect to the roof, foundations, and footings of the Building, all landscaping,
walkways, parking areas, exterior lighting of the Site, and the exterior
surfaces of the exterior walls of the Building, except that Tenant at its
expense shall make all repairs which Landlord deems reasonably necessary as a
result of the act or negligence of Tenant, its agents, employees, invitees,
subtenants or contractors. In the event any maintenance or repair would be
covered by construction warranties obtained by Landlord in connection with the
construction of the Premises, Landlord shall use reasonable efforts to enforce
any such warranties, within a reasonable period of time after Landlord's receipt
of notice in writing from Tenant of the need for maintenance or repair. Landlord
shall have the right to employ or designate any reputable person or firm,
including any employee or agent of Landlord or any of Landlord's affiliates or
divisions, to perform any service, repair or maintenance function. Landlord need
not make any other improvements or repairs except as specifically required under
this Lease, and nothing contained in this Section shall limit Landlord's right
to reimbursement from Tenant for maintenance, repair costs and replacement costs
as provided elsewhere in this Lease. Tenant understands that it shall not make
repairs at Landlord's expense or by rental offset. Tenant further understands
that Landlord shall not be required to make any repairs to the roof, foundations
or footings unless and until Tenant has notified Landlord in writing of the need
for such repair and Landlord shall have a reasonable period of time thereafter
to commence and complete said repair, if warranted. All costs of any maintenance
and repairs on the part of Landlord provided hereunder shall be considered part
of Building Costs, except maintenance or repair costs incurred with regard to
the foundation, footings and structural elements of the Building (other than the
roof).
SECTION 7.3. ALTERATIONS. (a) Tenant shall make no alterations,
additions or improvements to the Premises without the prior written consent of
Landlord, which consent may be given or withheld in Landlord's sole discretion.
Notwithstanding the foregoing, Landlord shall not unreasonably withhold its
consent to any alterations, additions or improvements to the Premises which do
not (i) affect the exterior of the Building or outside areas (or be visible from
adjoining sites), or (ii) affect or penetrate any of the structural portions of
the Building, including but not limited to the roof, or (iii) require any change
to the basic floor plan of the Premises, any change to any structural or
mechanical systems of the Premises, or any governmental permit as a prerequisite
to the construction thereof, or (iv) interfere in any manner with the proper
functioning of or Landlord's access to any mechanical, electrical, plumbing or
HVAC systems, facilities or equipment located in or serving the Building, or (v)
diminish the value of the Premises. Landlord may impose, as a condition to its
consent, any requirements that Landlord in its discretion may deem reasonable or
desirable, including but not limited to a requirement that all work be covered
by a lien and completion bond satisfactory to Landlord and requirements as to
the manner, time, and contractor for performance of the work. Tenant shall
obtain all required permits for the work and shall perform the work in
compliance with all applicable laws, regulations and ordinances, all covenants,
conditions and restrictions affecting the Premises, and the Rules and
Regulations (hereafter defined). If any governmental entity requires, as a
condition to any proposed alterations, additions or improvements to the Premises
by Tenant, that improvements be made to the outside areas, and if Landlord
consents to such improvements to the outside areas, then Tenant shall, at
Tenant's sole expense, make such required improvements to the outside areas in
such manner, utilizing such materials, and with such contractors (including, if
required by Landlord, Landlord's contractors) as Landlord may require in its
sole discretion. Under no circumstances shall Tenant make any improvement which
incorporates any Hazardous Materials, including without limitation
asbestos-containing construction materials into the Premises. Any request for
Landlord's consent shall be made in writing and shall contain architectural
plans describing the work in detail reasonably satisfactory to Landlord. Unless
Landlord otherwise agrees in writing, all alterations, additions or improvements
affixed to the Premises (excluding moveable trade fixtures and furniture) shall
become the property of Landlord and shall be surrendered with the Premises at
the end of the Term, except that Landlord may, by notice to Tenant, require
Tenant to remove by the Expiration Date, or sooner termination date
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of this Lease, all or any alterations, decorations, fixtures, additions,
improvements and the like installed either by Tenant or by Landlord at Tenant's
request and to repair any damage to the Premises arising from that removal.
Except as otherwise provided in this Lease or in any Exhibit to this Lease,
should Landlord make any alteration or improvement to the Premises for Tenant at
Tenant's request, Landlord shall be entitled to prompt reimbursement from Tenant
for all costs incurred.
(b) Landlord agrees that it will consent to Tenant installing
and adding to the Building, a roof-top observatory structure of approximately
sixteen (16) feet in diameter. Landlord shall include, at Tenant's expense, as
part of the construction of the Building's Shell Improvements, an approximately
four (4) foot square support column to support the observatory structure, at a
mutually agreed upon location. Landlord hereby notifies Tenant that Landlord
will require the removal of the roof-top observatory structure at the Expiration
Date, or sooner termination date of the Lease and the repair of any damage to
the Premises arising from that removal, but Landlord will not require the
removal of the support column. Tenant's installation of the roof-top observatory
structure shall, in all other respects, be made in compliance with the
requirements of this Lease for alterations, additions or improvements to the
Premises, including without limitation, submittal of architectural plans for the
same to Landlord.
SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free from
any liens arising out of any work performed, materials furnished, or obligations
incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly cause
any such lien to be released by posting a bond in accordance with California
Civil Code Section 3143 or any successor statute. In the event that Tenant shall
not, within thirty (30) days following the imposition of any lien, cause the
lien to be released of record by payment or posting of a proper bond, Landlord
shall have, in addition to all other available remedies, the right to cause the
lien to be released by any means it deems proper, including payment of or
defense against the claim giving rise to the lien. All expenses so incurred by
Landlord, including Landlord's attorneys' fees, and any consequential or other
damages incurred by Landlord arising out of such lien, shall be reimbursed by
Tenant promptly following Landlord's demand, together with interest from the
date of payment by Landlord at the maximum rate permitted by law until paid.
Tenant shall give Landlord no less than twenty (20) days' prior notice in
writing before commencing construction of any kind on the Premises so that
Landlord may post and maintain notices of nonresponsibility on the Premises.
SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable
times, upon reasonable written or oral notice (except in emergencies, when no
notice shall be required) have the right to enter the Premises to inspect them,
to supply services in accordance with this Lease, to protect the interests of
Landlord in the Premises, and to submit the Premises to prospective or actual
purchasers or encumbrance holders (or, during the last one hundred and eighty
(180) days of the Term or when an uncured Tenant default exists, to prospective
tenants), all without being deemed to have caused an eviction of Tenant and
without abatement of rent except as provided elsewhere in this Lease, provided
that Tenant may restrict access of prospective purchasers or tenants who are
competitors of Tenant as to portions of the Premises as reasonably necessary to
protect Tenant from disclosure of its proprietary processes or operations.
Landlord shall have the right, if desired, to retain a key which unlocks all of
the doors in the Premises, excluding Tenant's vaults and safes, and Landlord
shall have the right to use any and all means which Landlord may deem proper to
open the doors in an emergency in order to obtain entry to the Premises, and any
entry to the Premises obtained by Landlord shall not under any circumstances be
deemed to be a forcible or unlawful entry into, or a detainer of, the Premises,
or any eviction of Tenant from the Premises.
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay, at least ten (10) days before
delinquency, all taxes and assessments levied against all personal property of
Tenant located in the Premises, and against any alterations, additions or like
improvements made to the Premises by or on behalf of Tenant. When possible
Tenant shall cause its personal property and alterations to be assessed and
billed separately from the real property of which the Premises form a part. If
any taxes on Tenant's personal property and/or alterations are levied against
Landlord or Landlord's property and if Landlord pays the same, or if the
assessed value of Landlord's property is increased by the inclusion
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of a value placed upon the personal property and/or alterations of Tenant and if
Landlord pays the taxes based upon the increased assessment, Tenant shall pay to
Landlord the taxes so levied against Landlord or the proportion of the taxes
resulting from the increase in the assessment.
ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1. RIGHTS OF PARTIES.
(a) Notwithstanding any provision of this Lease to the
contrary, Tenant will not, either voluntarily or by operation of law, assign,
sublet, encumber, or otherwise transfer all or any part of Tenant's interest in
this lease, or permit the Premises to be occupied by anyone other than Tenant,
without Landlord's prior written consent, which consent shall not unreasonably
be withheld in accordance with the provisions of Section 9.1.(b). No assignment
(whether voluntary, involuntary or by operation of law) and no subletting shall
be valid or effective without Landlord's prior written consent and, at
Landlord's election, any such assignment or subletting or attempted assignment
or subletting shall constitute a material default of this Lease. Landlord shall
not be deemed to have given its consent to any assignment or subletting by any
other course of action, including its acceptance of any name for listing in the
Building directory. To the extent not prohibited by provisions of the Bankruptcy
Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"), including Section
365(f)(1), Tenant on behalf of itself and its creditors, administrators and
assigns waives the applicability of Section 365(e) of the Bankruptcy Code unless
the proposed assignee of the Trustee for the estate of the bankrupt meets
Landlord's standard for consent as set forth in Section 9.1(b) of this Lease. If
this Lease is assigned to any person or entity pursuant to the provisions of the
Bankruptcy Code, any and all monies or other considerations to be delivered in
connection with the assignment shall be delivered to Landlord, shall be and
remain the exclusive property of Landlord and shall not constitute property of
Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any
person or entity to which this Lease is assigned pursuant to the provisions of
the Bankruptcy Code shall be deemed to have assumed all of the obligations
arising under this Lease on and after the date of the assignment, and shall upon
demand execute and deliver to Landlord an instrument confirming that assumption.
(b) If Tenant desires to transfer an interest in this Lease,
it shall first notify Landlord of its desire and shall submit in writing to
Landlord: (i) the name and address of the proposed transferee; (ii) the nature
of any proposed subtenant's or assignee's business to be carried on in the
Premises; (iii) the terms and provisions of any proposed sublease or assignment,
including a copy of the proposed assignment or sublease form; (iv) evidence of
insurance of the proposed assignee or subtenant complying with the requirements
of Exhibit D hereto; (v) a completed Environmental Questionnaire from the
proposed assignee or subtenant; and (vi) any other information requested by
Landlord and reasonably related to the transfer. Except as provided in
Subsection (e) of this Section, Landlord shall not unreasonably withhold its
consent, provided: (1) the use of the Premises will be consistent with the
provisions of this Lease or Landlord shall approve an alternate general office,
manufacturing, warehouse and/or distribution use by the proposed transferee,
which approval shall not be unreasonably withheld; (2) the proposed assignee or
subtenant has not failed to take or delayed taking remedial action in connection
with Hazardous Materials contaminating a property arising out of the proposed
assignee's or subtenant's actions or use of the property in question in
accordance with any enforcement order issued by any governmental authority in
connection with the use, disposal or storage of a Hazardous Material; (3) at
Landlord's election, insurance requirements shall be brought into conformity
with Landlord's then current leasing practice; (4) any proposed subtenant or
assignee demonstrates that it is financially responsible by submission to
Landlord of all reasonable information as Landlord may request concerning the
proposed subtenant or assignee, including, but not limited to, a balance sheet
of the proposed subtenant or assignee as of a date within ninety (90) days of
the request for Landlord's consent and statements of income or profit and loss
of the proposed subtenant or assignee for the most recent period preceding the
request for Landlord's consent; (5) any proposed subtenant of more than 20,000
rentable square feet of the Premises or any proposed assignee demonstrates to
Landlord's reasonable satisfaction a record of successful experience in
business; and (6) the proposed transfer will not impose additional burdens or
adverse tax effects on Landlord. If Tenant has any exterior sign rights under
this Lease, such rights are personal to Tenant and may not be assigned or
transferred to any assignee of this Lease or subtenant of the Premises without
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Landlord's prior written consent, which may be withheld in Landlord's reasonable
discretion. Reasonable grounds for Landlord to withhold its consent to the
transfer of exterior sign rights shall include, but not be limited to,
circumstances where the proposed assignee's or subtenant's signage would (A) not
comply with the Landlord's sign criteria; (B) could be considered offensive due
to the proposed assignee's or subtenant's name or logo, or the design,
materials, wording or color of the proposed signage; or (C) would violate rights
claimed by other tenants in the area in which the Building is located to
restrict signage in such area.
If Landlord consents to the proposed transfer, Tenant may within ninety (90)
days after the date of the consent effect the transfer upon the terms described
in the information furnished to Landlord; provided that any material change in
the terms shall be subject to Landlord's consent as set forth in this Section.
Landlord shall approve or disapprove any requested transfer within thirty (30)
days following receipt of Tenant's written request, the information set forth
above, and the fee set forth below.
(c) Notwithstanding the provisions of Subsection (b) above, in
lieu of consenting to a proposed assignment or subletting, Landlord may elect to
(i) sublease the Premises (or the portion proposed to be subleased), or take an
assignment of Tenant's interest in this Lease, upon the same terms as offered to
the proposed subtenant or assignee (excluding terms relating to the purchase of
personal property, the use of Tenant's name or the continuation of Tenant's
business), or (ii) terminate this Lease as to the portion of the Premises
proposed to be subleased (if such portion to be subleased is more than 25% of
the rentable square footage of the Premises) or assigned with a proportionate
abatement in the rent payable under this Lease, effective on the date that the
proposed sublease or assignment would have become effective. Landlord may
thereafter, at its option, assign or re-let any space so recaptured to any third
party, including without limitation the proposed transferee of Tenant.
(d) Tenant agrees that fifty percent (50%) of any amounts paid
by the assignee or subtenant, however described, in excess of (i) the Basic Rent
payable by Tenant hereunder, or in the case of a sublease of a portion of the
Premises, in excess of the Basic Rent reasonably allocable to such portion, plus
(ii) Tenant's direct out-of-pocket costs which Tenant certifies to Landlord have
been paid to provide occupancy related services to such assignee or subtenant of
a nature commonly provided by landlords of similar space, shall be the property
of Landlord and such amounts shall be payable directly to Landlord by the
assignee or subtenant or, at Landlord's option, by Tenant. At Landlord's
request, a written agreement shall be entered into by and among Tenant, Landlord
and the proposed assignee or subtenant confirming the requirements of this
subsection.
(e) Tenant shall pay to Landlord a fee of Five Hundred Dollars
($500.00) if and when any transfer hereunder is requested by Tenant. Such fee is
hereby acknowledged as a reasonable amount to reimburse Landlord for its costs
of review and evaluation of a proposed assignee/sublessee, and Landlord shall
not be obligated to commence such review and evaluation unless and until such
fee is paid.
SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant of its obligation to pay rent and
to perform all its other obligations under this Lease. Moreover, Tenant shall
indemnify and hold Landlord harmless, as provided in Section 10.3, for any act
or omission by an assignee or subtenant. Each assignee, other than Landlord,
shall be deemed to assume all obligations of Tenant under this Lease and shall
be liable jointly and severally with Tenant for the payment of all rent, and for
the due performance of all of Tenant's obligations, under this Lease. No
transfer shall be binding on Landlord unless any document memorializing the
transfer is delivered to Landlord and both the assignee/subtenant and Tenant
deliver to Landlord an executed consent to transfer instrument prepared by
Landlord and consistent with the requirements of this Article. The acceptance by
Landlord of any payment due under this Lease from any other person shall not be
deemed to be a waiver by Landlord of any provision of this Lease or to be a
consent to any transfer. Consent by Landlord to one or more transfers shall not
operate as a waiver or estoppel to the future enforcement by Landlord of its
rights under this Lease.
SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be deemed included in each sublease:
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(a) Each and every provision contained in this Lease (other
than with respect to the payment of rent hereunder) is incorporated by reference
into and made a part of such sublease, with "Landlord" hereunder meaning the
sublandlord therein and "Tenant" hereunder meaning the subtenant therein.
(b) Tenant hereby irrevocably assigns to Landlord all of
Tenant's interest in all rentals and income arising from any sublease of the
Premises, and Landlord may collect such rent and income and apply same toward
Tenant's obligations under this Lease; provided, however, that until a default
occurs in the performance of Tenant's obligations under this Lease, Tenant shall
have the right to receive and collect the sublease rentals. Landlord shall not,
by reason of this assignment or the collection of sublease rentals, be deemed
liable to the subtenant for the performance of any of Tenant's obligations under
the sublease. Tenant hereby irrevocably authorizes and directs any subtenant,
upon receipt of a written notice from Landlord stating that an uncured default
exists in the performance of Tenant's obligations under this Lease, to pay to
Landlord all sums then and thereafter due under the sublease. Tenant agrees that
the subtenant may rely on that notice without any duty of further inquiry and
notwithstanding any notice or claim by Tenant to the contrary. Tenant shall have
no right or claim against the subtenant or Landlord for any rentals so paid to
Landlord.
(c) In the event of the termination of this Lease, Landlord
may, at its sole option, take over Tenant's entire interest in any sublease and,
upon notice from Landlord, the subtenant shall attorn to Landlord. In no event,
however, shall Landlord be liable for any previous act or omission by Tenant
under the sublease or for the return of any advance rental payments or deposits
under the sublease that have not been actually delivered to Landlord, nor shall
Landlord be bound by any sublease modification executed without Landlord's
consent or for any advance rental payment by the subtenant in excess of one
month's rent. The general provisions of this Lease, including without limitation
those pertaining to insurance and indemnification, shall be deemed incorporated
by reference into the sublease despite the termination of this Lease.
SECTION 9.4. CERTAIN TRANSFERS. The sale of all or substantially all of
Tenant's assets (other than bulk sales in the ordinary course of business) or,
if Tenant is a corporation, a limited liability company, an unincorporated
association, or a partnership, the transfer, assignment or hypothecation of any
stock or interest in such corporation, limited liability company, association,
or partnership in the aggregate of fifty percent (50%) (except for publicly
traded shares of stock constituting a transfer of fifty percent (50%) or more in
the aggregate, so long as no change in the controlling interest of Tenant occurs
as a result thereof) shall be deemed an assignment within the meaning and
provisions of this Article. Notwithstanding the foregoing, Landlord's consent
shall not be required for the assignment of this Lease as a result of a merger
by Tenant with or into another entity, so long as (i) the net worth of the
successor entity after such merger or sale is at least equal to the greater of
the net worth of Tenant as of the execution of this Lease by Landlord or the net
worth of Tenant immediately prior to the date of such merger or sale, evidence
of which, satisfactory to Landlord, shall be presented to Landlord prior to such
merger or sale, (ii) Tenant shall provide to Landlord, prior to such merger or
sale, written notice of such merger or sale and such assignment documentation
and other information as Landlord may request in connection therewith, and (iii)
all of the other terms and requirements of this Article shall apply with respect
to such assignment. Landlord's consent shall also not be required for the
transfer or assignment of any stock or interest in Tenant made as a result of
the death or incapacity of the holder of such stock or interest, or made for
estate planning purposes where the initial holder of such stock or interest
continues to indirectly hold or control such stock or interest.
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.
SECTION 10.2. LANDLORD'S INSURANCE. Landlord shall provide the
following types of insurance, with or without deductible and in amounts and
coverages as may be determined by Landlord in its discretion: "all risk"
property insurance, subject to standard exclusions, covering the Building for
its full replacement cost, and
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may, at its election, provide insurance for such other risks as Landlord or its
mortgagees may from time to time deem appropriate, including leasehold
improvements made by Landlord, and commercial general liability coverage.
Landlord shall not be required to carry insurance of any kind on Tenant's
property, including leasehold improvements, trade fixtures, furnishings,
equipment, plate glass, signs and all other items of personal property, and
shall not be obligated to repair or replace that property should damage occur.
All proceeds of insurance maintained by Landlord upon the Building shall be the
property of Landlord, whether or not Landlord is obligated to or elects to make
any repairs. At Landlord's option, Landlord may self-insure all or any portion
of the risks for which Landlord is required or elects to provide insurance
hereunder or may provide the same through blanket policies.
SECTION 10.3. TENANT'S INDEMNITY. Except to the extent caused by
Landlord's sole active negligence or willful misconduct, to the fullest extent
permitted by law, Tenant shall defend, indemnify, protect, save and hold
harmless Landlord, its agents, and any and all affiliates of Landlord,
including, without limitation, any corporations or other entities controlling,
controlled by or under common control with Landlord, from and against any and
all claims, liabilities, costs or expenses arising either before or after the
Commencement Date from Tenant's use or occupancy of the Premises or the
Building, or from the conduct of its business, or from any activity, work, or
thing done, permitted or suffered by Tenant or its agents, employees, invitees
or licensees in or about the Premises or the Building, or from any default in
the performance of any obligation on Tenant's part to be performed under this
Lease, or from any act or negligence of Tenant or its agents, employees,
visitors, patrons, guests, invitees or licensees. Landlord may, at its option,
require Tenant to assume Landlord's defense in any action covered by this
Section through counsel satisfactory to Landlord. The provisions of this Section
shall expressly survive the expiration or sooner termination of this Lease.
SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable to
Tenant, its employees, agents and invitees, and Tenant hereby waives all claims
against Landlord for loss of or damage to any property, or any injury to any
person, or loss or interruption of business or income, or any other loss, cost,
damage, injury or liability whatsoever (including without limitation any
consequential damages and lost profit or opportunity costs) resulting from, but
not limited to, Acts of God, acts of civil disobedience or insurrection, fire,
explosion, falling plaster, steam, gas, electricity, water or rain which may
leak or flow from or into any part of the Building or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, electrical works or other fixtures in
the Building. It is understood that any such condition may require the temporary
evacuation or closure of all or a portion of the Building. Except as provided in
Sections 11.1 and 12.1 below, there shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with Tenant's
business (including without limitation consequential damages and lost profit or
opportunity costs) arising from the making of any repairs, alterations or
improvements to any portion of the Building, including repairs to the Premises,
nor shall any related activity by Landlord constitute an actual or constructive
eviction; provided, however, that in making repairs, alterations or
improvements, Landlord shall interfere as little as reasonably practicable with
the conduct of Tenant's business in the Premises. Neither Landlord nor its
agents shall be liable for interference with light or other similar intangible
interests. Tenant shall immediately notify Landlord in case of fire or accident
in the Premises or the Building and of defects in any improvements or equipment.
SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waives all rights of recovery against the other and the other's agents on
account of loss and damage occasioned to the property of such waiving party to
the extent only that such loss or damage is required to be insured against under
any "all risk" property insurance policies required by this Article X; provided
however, that (i) the foregoing waiver shall not apply to the extent of Tenant's
obligations to pay deductibles under any such policies and this Lease, and (ii)
if any loss is due to the act, omission or negligence or willful misconduct of
Tenant or its agents, employees, contractors, guests or invitees, Tenant's
liability insurance shall be primary and shall cover all losses and damages
prior to any other insurance hereunder. By this waiver it is the intent of the
parties that neither Landlord nor Tenant shall be liable to any insurance
company (by way of subrogation or otherwise) insuring the other party for any
loss or damage insured against under any "all-risk" property insurance policies
required by this Article, even though such loss or damage might be occasioned by
the negligence of such party, its agents, employees, contractors, guests or
invitees. The provisions of this Section shall not limit the indemnification
provisions elsewhere contained in this Lease.
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ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1. RESTORATION.
(a) If the Building is damaged, Landlord shall repair that
damage as soon as reasonably possible, at its expense, unless: (i) Landlord
reasonably determines that the cost of repair is not covered by Landlord's
"all-risk" fire and extended coverage insurance plus such additional amounts
Tenant elects, at its option, to contribute, excluding however the deductible
(for which Tenant shall be responsible for Tenant's proportionate share); (ii)
Landlord reasonably determines that the Premises cannot, with reasonable
diligence, be fully repaired by Landlord (or cannot be safely repaired because
of the presence of hazardous factors, including without limitation Hazardous
Materials, earthquake faults, and other similar dangers) within two hundred
seventy (270) days after the date of the damage; (iii) an event of default by
Tenant has occurred and is continuing at the time of such damage; or (iv) the
damage occurs during the final twelve (12) months of the Term and repair of the
same would cost in excess of thirty percent (30%) of the full replacement cost
of the Building. Should Landlord elect not to repair the damage for one of the
preceding reasons, Landlord shall so notify Tenant in writing within sixty (60)
days after the damage occurs and this Lease shall terminate as of the date of
that notice.
(b) Unless Landlord elects to terminate this Lease in
accordance with subsection (a) above, this Lease shall continue in effect for
the remainder of the Term; provided that so long as Tenant is not in default
under this Lease, if the damage is so extensive that Landlord reasonably
determines that the Premises cannot, with reasonable diligence, be repaired by
Landlord (or cannot be safely repaired because of the presence of hazardous
factors, earthquake faults, and other similar dangers) so as to allow Tenant's
substantial use and enjoyment of the Premises within two hundred seventy (270)
days after the date of damage, then Tenant may elect to terminate this Lease by
written notice to Landlord within the sixty (60) day period stated in subsection
(a).
(c) Commencing on the date of any damage to the Building, and
ending on the sooner of the date the damage is repaired or the date this Lease
is terminated, the rental to be paid under this Lease shall be abated in the
same proportion that the floor area of the Building that is rendered unusable by
the damage from time to time bears to the total floor area of the Building, but
only to the extent that any business interruption insurance coverage required to
be maintained by Tenant in accordance with Exhibit D has been properly
maintained in effect.
(d) Notwithstanding the provisions of subsections (a), (b) and
(c) of this Section, and subject to the provisions of Section 10.5 above, the
cost of any repairs shall be borne by Tenant, and Tenant shall not be entitled
to rental abatement or termination rights, if the damage is due to the fault or
neglect of Tenant or its employees, subtenants, invitees or representatives. In
addition, the provisions of this Section shall not be deemed to require Landlord
to repair any improvements or fixtures that Tenant is obligated to repair or
insure pursuant to any other provision of this Lease.
(e) Tenant shall fully cooperate with Landlord in removing
Tenant's personal property and any debris from the Premises to facilitate all
inspections of the Premises and the making of any repairs. Notwithstanding
anything to the contrary contained in this Lease, if Landlord in good faith
believes there is a risk of injury to persons or damage to property from entry
into the Building or Premises following any damage or destruction thereto,
Landlord may restrict entry into the Building or the Premises by Tenant, its
employees, agents and contractors in a non-discriminatory manner, without being
deemed to have violated Tenant's rights of quiet enjoyment to, or made an
unlawful detainer of, or evicted Tenant from, the Premises. Upon request,
Landlord shall consult with Tenant to determine if there are safe methods of
entry into the Building or the Premises solely in order to allow Tenant to
retrieve files, data in computers, and necessary inventory, subject however to
all indemnities and waivers of liability from Tenant to Landlord contained in
this Lease and any additional indemnities and waivers of liability which
Landlord may require.
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SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1, shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.
ARTICLE XII. EMINENT DOMAIN
SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of
the Premises is taken by any lawful authority by exercise of the right of
eminent domain, or sold to prevent a taking, either Tenant or Landlord may
terminate this Lease effective as of the date possession is required to be
surrendered to the authority. In the event title to a portion of the Premises is
taken or sold in lieu of taking, and if Landlord elects to restore the Premises
in such a way as to alter the Premises materially, either party may terminate
this Lease, by written notice to the other party, effective on the date of
vesting of title. In the event neither party has elected to terminate this Lease
as provided above, then Landlord shall promptly, after receipt of a sufficient
condemnation award, proceed to restore the Premises to substantially their
condition prior to the taking, and a proportionate allowance shall be made to
Tenant for the rent corresponding to the time during which, and to the part of
the Premises of which, Tenant is deprived on account of the taking and
restoration. In the event of a taking, Landlord shall be entitled to the entire
amount of the condemnation award without deduction for any estate or interest of
Tenant; provided that nothing in this Section shall be deemed to give Landlord
any interest in, or prevent Tenant from seeking any award against the taking
authority for, the taking of personal property and fixtures belonging to Tenant,
for Tenant's goodwill or for relocation or business interruption expenses
recoverable from the taking authority.
SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises
shall terminate this Lease or give Tenant any right to abatement of rent, and
any award specifically attributable to a temporary taking of the Premises shall
belong entirely to Tenant. A temporary taking shall be deemed to be a taking of
the use or occupancy of the Premises for a period of not to exceed one hundred
eighty (180) days.
SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a
taking of the parking area such that Landlord can no longer provide sufficient
parking to comply with this Lease, Landlord may substitute reasonably equivalent
parking in a location reasonably close to the Building; provided that if
Landlord fails to make that substitution within one hundred eighty (180) days
following the taking and if the taking materially impairs Tenant's use and
enjoyment of the Premises, Tenant may, at its option, terminate this Lease by
written notice to Landlord. If this Lease is not so terminated by Tenant, there
shall be no abatement of rent and this Lease shall continue in effect.
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS
SECTION 13.1. SUBORDINATION. At the option of Landlord, this Lease
shall be either superior or subordinate to all ground or underlying leases,
mortgages and deeds of trust, if any, which may hereafter affect the Premises,
and to all renewals, modifications, consolidations, replacements and extensions
thereof; provided, that so long as Tenant is not in default under this Lease,
this Lease shall not be terminated or Tenant's quiet enjoyment of the Premises
disturbed in the event of termination of any such ground or underlying lease, or
the foreclosure of any such mortgage or deed of trust, to which Tenant has
subordinated this Lease pursuant to this Section. In the event of a termination
or foreclosure, Tenant shall become a tenant of and attorn to the
successor-in-interest to Landlord upon the same terms and conditions as are
contained in this Lease, and shall execute any instrument reasonably required by
Landlord's successor for that purpose. Tenant shall also, within fifteen (15)
days after its receipt of written request from Landlord, execute and deliver all
instruments as may be reasonably required from time to time to subordinate the
rights of Tenant under this Lease to any ground or underlying lease or to the
lien of any mortgage or deed of trust (provided that such instruments include
the nondisturbance and attornment provisions set forth above), or, if requested
by Landlord, to subordinate, in whole or in part, any ground or underlying lease
or the lien of any mortgage or deed of trust to this Lease. Tenant further
agrees to subordinate
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its right under this Lease to covenants, conditions or restrictions which
Landlord expects to record after the date of this Lease and which would be
uniformly applicable to the area commonly referred to by Landlord as Spectrum 7.
SECTION 13.2. ESTOPPEL CERTIFICATE.
(a) Each party shall, at any time upon not less than ten (10)
days prior written notice from the other party, execute, acknowledge and deliver
to the requesting party, in any form that the requesting party may reasonably
require, a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of the
modification and certifying that this Lease, as modified, is in full force and
effect) and the dates to which the rental, additional rent and other charges
have been paid in advance, if any, and (ii) acknowledging that, to such party's
knowledge, there are no uncured defaults on the part of the requesting party, or
specifying each default if any are claimed, and (iii) setting forth all further
information that the requesting party may reasonably require. Such statement may
be relied upon by any prospective purchaser or encumbrancer of the Premises or
any assignee of or sublessee under this Lease.
(b) Notwithstanding any other rights and remedies of the
parties hereunder, any party's failure to deliver any estoppel statement within
the provided time shall be conclusive upon such party that (i) this Lease is in
full force and effect, without modification, (ii) there are no uncured defaults
in such party's performance, and (iii) not more than one month's rental has been
paid in advance.
SECTION 13.3 FINANCIALS.
(a) Tenant shall deliver to Landlord, prior to the execution
of this Lease and thereafter at any time upon Landlord's request (which request
shall not be made more frequently than once in any twelve month period),
Tenant's current tax returns and financial statements, certified true, accurate
and complete by the chief financial officer of Tenant, including a balance sheet
and profit and loss statement for the most recent prior year (collectively, the
"Statements"), which Statements shall accurately and completely reflect the
financial condition of Tenant. Landlord agrees that it will keep the Statements
confidential, except that Landlord shall have the right to deliver the same to
any proposed purchaser or encumbrancer of the Premises that, in Tenant's
reasonable judgment, is not a competitor of Tenant.
(b) Tenant acknowledges that Landlord is relying on the
Statements in its determination to enter into this Lease, and Tenant represents
to Landlord, which representation shall be deemed made on the date of this Lease
and again on the Commencement Date, that no material change in the financial
condition of Tenant, as reflected in the Statements, has occurred since the date
Tenant delivered the Statements to Landlord. The Statements are represented and
warranted by Tenant to be correct and to accurately and fully reflect Tenant's
true financial condition as of the date of submission by any Statements to
Landlord.
ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of
default set forth in this Lease, the occurrence of any one or more of the
following events shall constitute a default by Tenant:
(a) The failure by Tenant to make any payment of rent or
additional rent required to be made by Tenant, as and when due, where the
failure continues for a period of ten (10) days after written notice from
Landlord to Tenant; provided, however, that any such notice shall be in lieu of,
and not in addition to, any notice required under California Code of Civil
Procedure Section 1161 and 1161(a) as amended. For purposes of these default and
remedies provisions, the term "additional rent" shall be deemed to include all
amounts of any type whatsoever other than Basic Rent to be paid by Tenant
pursuant to the terms of this Lease.
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(b) Assignment, sublease, encumbrance or other transfer of the
Lease by Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means, without the prior
written consent of Landlord.
(c) The discovery by Landlord that any financial statement
provided by Tenant, or by any affiliate, successor or guarantor of Tenant, was
intentionally and materially false.
(d) The failure of Tenant to timely and fully provide any
subordination agreement, estoppel certificate or financial statements in
accordance with the requirements of Article XIII.
(e) The failure or inability by Tenant to observe or perform
any of the express or implied covenants or provisions of this Lease to be
observed or performed by Tenant, other than as specified in any other subsection
of this Section, where the failure continues for a period of thirty (30) days
after written notice from Landlord to Tenant or such shorter period as is
specified in any other provision of this Lease; provided, however, that any such
notice shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 and 1161(a) as amended. However,
if the nature of the failure is such that more than thirty (30) days are
reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commences the cure within thirty (30) days, and thereafter
diligently pursues the cure to completion.
(f) (i) The making by Tenant of any general assignment for the
benefit of creditors; (ii) the filing by or against Tenant of a petition to have
Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within thirty (30) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within thirty (30) days; or (v) Tenant's convening of a meeting of
its creditors for the purpose of effecting a moratorium upon or composition of
its debts. Landlord shall not be deemed to have knowledge of any event described
in this subsection unless notification in writing is received by Landlord, nor
shall there be any presumption attributable to Landlord of Tenant's insolvency.
In the event that any provision of this subsection is contrary to applicable
law, the provision shall be of no force or effect.
SECTION 14.2. LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant which remains
uncured after any applicable cure periods set forth in this Lease, if any, or in
the event of the abandonment of the Premises by Tenant following notice to
Tenant of Landlord's belief that such abandonment has occurred, then in addition
to any other remedies available to Landlord, Landlord may exercise the following
remedies:
(i) Landlord may terminate Tenant's right to
possession of the Premises by any lawful means, in which case this Lease shall
terminate and Tenant shall immediately surrender possession of the Premises to
Landlord. Such termination shall not affect any accrued obligations of Tenant
under this Lease. Upon termination, Landlord shall have the right to reenter the
Premises and remove all persons and property. Landlord shall also be entitled to
recover from Tenant:
(1) The worth at the time of award of the
unpaid rent and additional rent which had been earned at the time of
termination;
(2) The worth at the time of award of the
amount by which the unpaid rent and additional rent which would have been earned
after termination until the time of award exceeds the amount of such loss that
Tenant proves could have been reasonably avoided;
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(3) The worth at the time of award of the
amount by which the unpaid rent and additional rent for the balance of the Term
after the time of award exceeds the amount of such loss that Tenant proves could
be reasonably avoided;
(4) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course of things would
be likely to result from Tenant's default, including, but not limited to, the
cost of recovering possession of the Premises, refurbishment of the Premises,
marketing costs, commissions and other expenses of reletting, including
necessary repair, the unamortized portion of any tenant improvements and
brokerage commissions funded by Landlord in connection with this Lease,
reasonable attorneys' fees, and any other reasonable costs; and
(5) At Landlord's election, all other
amounts in addition to or in lieu of the foregoing as may be permitted by law.
The term "rent" as used in this Lease shall be deemed to mean the Basic Rent and
all other sums required to be paid by Tenant to Landlord pursuant to the terms
of this Lease. Any sum, other than Basic Rent, shall be computed on the basis of
the average monthly amount accruing during the twenty-four (24) month period
immediately prior to default, except that if it becomes necessary to compute
such rental before the twenty-four (24) month period has occurred, then the
computation shall be on the basis of the average monthly amount during the
shorter period. As used in subparagraphs (1) and (2) above, the "worth at the
time of award" shall be computed by allowing interest at the rate of ten percent
(10%) per annum. As used in subparagraph (3) above, the "worth at the time of
award" shall be computed by discounting the amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).
(ii) Landlord may elect not to terminate Tenant's
right to possession of the Premises, in which event Landlord may continue to
enforce all of its rights and remedies under this Lease, including the right to
collect all rent as it becomes due. Efforts by the Landlord to maintain,
preserve or relet the Premises, or the appointment of a receiver to protect the
Landlord's interests under this Lease, shall not constitute a termination of the
Tenant's right to possession of the Premises. In the event that Landlord elects
to avail itself of the remedy provided by this subsection (ii), Landlord shall
not unreasonably withhold its consent to an assignment or subletting of the
Premises subject to the reasonable standards for Landlord's consent as are
contained in this Lease.
(b) The various rights and remedies reserved to Landlord in
this Lease or otherwise shall be cumulative and, except as otherwise provided by
California law, Landlord may pursue any or all of its rights and remedies at the
same time.
(c) No delay or omission of Landlord to exercise any right or
remedy shall be construed as a waiver of the right or remedy or of any default
by Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any
preceding breach or default by Tenant of any provision of this Lease, other than
the failure of Tenant to pay the particular rent accepted, regardless of
Landlord's knowledge of the preceding breach or default at the time of
acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy
available to Landlord by virtue of the breach or default. The acceptance of any
payment from a debtor in possession, a trustee, a receiver or any other person
acting on behalf of Tenant or Tenant's estate shall not waive or cure a default
under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser
amount than the rent required by this Lease shall be deemed to be other than a
partial payment on account of the earliest due stipulated rent, nor shall any
endorsement or statement on any check or letter be deemed an accord and
satisfaction and Landlord shall accept the check or payment without prejudice to
Landlord's right to recover the balance of the rent or pursue any other remedy
available to it. No act or thing done by Landlord or Landlord's agents during
the Term shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept a surrender shall be valid unless in writing and signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys to the Premises prior to the termination of this Lease, and
the delivery of the keys to any employee shall not operate as a termination of
the Lease or a surrender of the Premises.
SECTION 14.3. LATE PAYMENTS.
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(a) Any rent due under this Lease that is not received by
Landlord within five (5) days of the date when due shall bear interest at the
maximum rate permitted by law from the date due until fully paid. The payment of
interest shall not cure any default by Tenant under this Lease. In addition,
Tenant acknowledges that the late payment by Tenant to Landlord of rent will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult and impracticable to ascertain. Those costs
may include, but are not limited to, administrative, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any
ground lease, mortgage or trust deed covering the Premises. Accordingly, if any
rent due from Tenant shall not be received by Landlord or Landlord's designee
within five (5) days after the date due, then Tenant shall pay to Landlord, in
addition to the interest provided above, a late charge in a sum equal to the
greater of five percent (5%) of the amount overdue or Two Hundred Fifty Dollars
($250.00) for each delinquent payment. Notwithstanding the foregoing sentence,
Landlord shall not charge Tenant a late charge until five (5) days after notice
from Landlord to Tenant that rent remains unpaid for the first two (2) times
that rent is more than five days late during any five (5) year period during the
Term. Acceptance of a late charge by Landlord shall not constitute a waiver of
Tenant's default with respect to the overdue amount, nor shall it prevent
Landlord from exercising any of its other rights and remedies.
(b) Following each second consecutive installment of rent that
is not paid within five (5) days following notice of nonpayment from Landlord,
Landlord shall have the option (i) to require that beginning with the first
payment of rent next due, rent shall no longer be paid in monthly installments
but shall be payable quarterly three (3) months in advance and/or (ii) to
require that Tenant increase the amount, if any, of the Security Deposit by one
hundred percent (100%). Should Tenant deliver to Landlord, at any time during
the Term, two (2) or more insufficient checks, the Landlord may require that all
monies then and thereafter due from Tenant be paid to Landlord by cashier's
check.
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and
agreements to be performed by Tenant under this Lease shall be performed at
Tenant's sole cost and expense and without any abatement of rent or right of
set-off. If Tenant fails to pay any sum of money, other than rent, or fails to
perform any other act on its part to be performed under this Lease, and the
failure continues beyond any applicable grace period set forth in Section 14.1,
then in addition to any other available remedies, Landlord may, at its election
make the payment or perform the other act on Tenant's part. Landlord's election
to make the payment or perform the act on Tenant's part shall not give rise to
any responsibility of Landlord to continue making the same or similar payments
or performing the same or similar acts. Tenant shall, promptly upon demand by
Landlord, reimburse Landlord for all sums paid by Landlord and all necessary
incidental costs, together with interest at the maximum rate permitted by law
from the date of the payment by Landlord. Landlord shall have the same rights
and remedies if Tenant fails to pay those amounts as Landlord would have in the
event of a default by Tenant in the payment of rent.
SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be
in default in the performance of any obligation under this Lease unless and
until it has failed to perform the obligation within thirty (30) days after
written notice by Tenant to Landlord specifying in reasonable detail the nature
and extent of the failure; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default if it commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion.
SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred by
Landlord in connection with any event of default by Tenant under this Lease or
holding over of possession by Tenant after the expiration or earlier termination
of this Lease, including without limitation all costs, expenses and actual
accountants, appraisers, attorneys and other professional fees, and any
collection agency or other collection charges, shall be due and payable by
Tenant to Landlord on demand, and shall bear interest at the rate of ten percent
(10%) per annum. Should either Landlord or Tenant bring any action in connection
with this Lease, the prevailing party shall be entitled to recover as a part of
the action its reasonable attorneys' fees, and all other costs. The prevailing
party for the purpose of this paragraph shall be determined by the trier of the
facts.
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SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH
ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE
WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY
EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST
THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR
SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR
IN ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES,
AND/OR ANY CLAIM OF INJURY OR DAMAGE.
SECTION 14.8. SATISFACTION OF JUDGMENT. The obligations of Landlord do
not constitute the personal obligations of the individual partners, trustees,
directors, officers or shareholders of Landlord or its constituent partners. The
obligations of Tenant do not constitute the personal obligations of the
individual partners, trustees, directors, officers or shareholders of Tenant or
its constituent partners. Should Tenant recover a money judgment against
Landlord, such judgment shall be satisfied only to the extent of the fair market
value of the Building and/or the Site or out of the rent or other income from
such property receivable by Landlord or out of consideration received by
Landlord from the sale or other disposition of all or any part of the Building
and/or the Site, and no action may be sought or obtained by Tenant beyond such
value.
SECTION 14.9. LIMITATION OF ACTIONS AGAINST LANDLORD. Any claim, demand
or right of any kind by Tenant which is based upon or arises in connection with
this Lease shall be barred unless Tenant commences an action thereon within six
(6) months after the date that the act, omission, event or default upon which
the claim, demand or right arises, has occurred.
ARTICLE XV. END OF TERM
SECTION 15.1. HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. If Tenant holds over for any period after the expiration (or earlier
termination) of the Term without the prior written consent of Landlord, such
possession shall constitute a tenancy at sufferance only; such holding over with
the prior written consent of Landlord shall constitute a month-to-month tenancy
commencing on the first (1st) day following the termination of this Lease. In
either of such events, possession shall be subject to all of the terms of this
Lease, except that the monthly Basic Rent shall be the greater of (a) one
hundred fifty percent (150%) for the first two months of any holdover period,
and thereafter one hundred seventy-five percent (175%), of the Basic Rent for
the month immediately preceding the date of termination or (b) the then
currently scheduled Basic Rent for comparable space in the Building. If Tenant
fails to surrender the Premises upon the expiration of this Lease despite demand
to do so by Landlord, Tenant shall indemnify and hold Landlord harmless from all
loss or liability, including without limitation, any claims made by any
succeeding tenant relating to such failure to surrender. Acceptance by Landlord
of rent after the termination shall not constitute a consent to a holdover or
result in a renewal of this Lease. The foregoing provisions of this Section are
in addition to and do not affect Landlord's right of re-entry or any other
rights of Landlord under this Lease or at law.
SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender
of this Lease by Tenant, or a mutual termination of this Lease, shall terminate
any or all existing subleases unless Landlord, at its option, elects in writing
to treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.
SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall quit
and surrender possession of the Premises to Landlord in as good order, condition
and repair as when received or as hereafter may be improved by Landlord or
Tenant, reasonable wear and tear and repairs which are Landlord's obligation
excepted, and shall, without
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expense to Landlord, remove or cause to be removed from the Premises all
personal property and debris, except for any items that Landlord may by written
authorization allow to remain. Tenant shall repair all damage to the Premises
resulting from the removal, which repair shall include the patching and filling
of holes and repair of structural damage, provided that Landlord may instead
elect to repair any structural damage at Tenant's expense. If Tenant shall fail
to comply with the provisions of this Section, Landlord may effect the removal
and/or make any repairs, and the cost to Landlord shall be additional rent
payable by Tenant upon demand. If Tenant fails to remove Tenant's personal
property from the Premises upon the expiration of the Term, Landlord may remove,
store, dispose of and/or retain such personal property, at Landlord's option, in
accordance with then applicable laws, all at the expense of Tenant. If requested
by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an
instrument in writing releasing and quitclaiming to Landlord all right, title
and interest of Tenant in the Premises.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid, without deduction
or offset, in lawful money of the United States to Landlord at its address set
forth in Item 12 of the Basic Lease Provisions, or at any other place as
Landlord may designate in writing. Unless this Lease expressly provides
otherwise, as for example in the payment of rent pursuant to Section 4.1, all
payments shall be due and payable within five (5) days after demand. All
payments requiring proration shall be prorated on the basis of a thirty (30) day
month and a three hundred sixty (360) day year. Any notice, election, demand,
consent, approval or other communication to be given or other document to be
delivered by either party to the other may be delivered in person or by courier
or overnight delivery service to the other party, or may be deposited in the
United States mail, duly registered or certified, postage prepaid, return
receipt requested, and addressed to the other party at the address set forth in
Item 12 of the Basic Lease Provisions, or if to Tenant, at that address or, from
and after the Commencement Date, at the Premises (whether or not Tenant has
departed from, abandoned or vacated the Premises), or may be delivered by
telegram, telex or telecopy, provided that receipt thereof is telephonically
confirmed. Either party may, by written notice to the other, served in the
manner provided in this Article, designate a different address. If any notice or
other document is sent by mail, it shall be deemed served or delivered three (3)
days after mailing. If more than one person or entity is named as Tenant under
this Lease, service of any notice upon any one of them shall be deemed as
service upon all of them.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to observe faithfully and comply strictly with the Rules
and Regulations, attached as Exhibit E, and any reasonable and nondiscriminatory
amendments, modifications and/or additions as may be adopted and published by
written notice to tenants by Landlord for the safety, care, security, good
order, or cleanliness of the Premises. Landlord shall not be liable to Tenant
for any violation of the Rules and Regulations or the breach of any covenant or
condition in any lease by any other tenant or such tenant's agents, employees,
contractors, quests or invitees. One or more waivers by Landlord of any breach
of the Rules and Regulations by Tenant or by any other tenant(s) shall not be a
waiver of any subsequent breach of that rule or any other. Tenant's failure to
keep and observe the Rules and Regulations shall constitute a default under this
Lease. In the case of any conflict between the Rules and Regulations and this
Lease, this Lease shall be controlling.
ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Each party warrants that it has had no dealings with any other real
estate broker or agent in connection with the negotiation of this Lease, and
each
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party agrees to indemnify and hold the other harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker or agent employed
or claiming to represent or to have been employed by the indemnifying party in
connection with the negotiation of this Lease. The foregoing agreement shall
survive the termination of this Lease. If Tenant fails to take possession of the
Premises or if this Lease otherwise terminates prior to the Expiration Date as
the result of failure of performance by Tenant, Landlord shall be entitled to
recover from Tenant the unamortized portion of any brokerage commission funded
by Landlord in addition to any other damages to which Landlord may be entitled.
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's interest in the Premises,
the transferor shall be automatically relieved of all obligations on the part of
Landlord accruing under this Lease from and after the date of the transfer,
provided that any funds held by the transferor in which Tenant has an interest
shall be turned over, subject to that interest, to the transferee and Tenant is
notified of the transfer as required by law. No holder of a mortgage and/or deed
of trust to which this Lease is or may be subordinate, and no landlord under a
so-called sale-leaseback, shall be responsible in connection with the Security
Deposit, unless the mortgagee or holder of the deed of trust or the landlord
actually receives the Security Deposit. It is intended that the covenants and
obligations contained in this Lease on the part of Landlord shall, subject to
the foregoing, be binding on Landlord, its successors and assigns, only during
and in respect to their respective successive periods of ownership.
ARTICLE XX. INTERPRETATION
SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.
SECTION 20.2. HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.
SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint and
several and the act of or notice from, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.
SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights
and liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.
SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to
the performance of every provision of this Lease.
SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.
SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party or the deletion of which is consented to by the party adversely
affected, shall be held invalid or unenforceable to any extent, the remainder of
this Lease shall not be affected and each term and provision of this Lease shall
be valid and enforceable to the fullest extent permitted by law.
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SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by
Landlord or Tenant of any breach of any term, covenant or condition contained in
this Lease shall not be a waiver of any subsequent breach of the same or any
other term, covenant or condition. Consent to any act by one of the parties
shall not be deemed to render unnecessary the obtaining of that party's consent
to any subsequent act. No breach by Tenant of this Lease shall be deemed to have
been waived by Landlord unless the waiver is in a writing signed by Landlord.
The rights and remedies of Landlord under this Lease shall be cumulative and in
addition to any and all other rights and remedies which Landlord may have.
SECTION 20.9. INABILITY TO PERFORM. In the event that either party
shall be delayed or hindered in or prevented from the performance of any work or
in performing any act required under this Lease by reason of any cause beyond
the reasonable control of that party, then the performance of the work or the
doing of the act shall be excused for the period of the delay and the time for
performance shall be extended for a period equivalent to the period of the
delay. The provisions of this Section shall not operate to excuse Tenant from
the prompt payment of rent or from the timely performance of any other
obligation under this Lease within Tenant's reasonable control.
SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises and the Building, and all preliminary
negotiations, oral agreements, understandings and/or practices, except those
contained in this Lease, are superseded and of no further effect. Tenant waives
its rights to rely on any representations or promises made by Landlord or others
which are not contained in this Lease. No verbal agreement or implied covenant
shall be held to modify the provisions of this Lease, any statute, law, or
custom to the contrary notwithstanding.
SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of
all the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without hindrance
or interruption by Landlord or any other person claiming by or through Landlord.
SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of the
respective parties and their successors and assigns.
ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.
SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a
corporation or partnership, each individual executing this Lease on behalf of
the corporation or partnership represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation or
partnership, and that this Lease is binding upon the corporation or partnership
in accordance with its terms. Tenant shall, at Landlord's request, deliver a
certified copy of its board of directors' resolution or partnership agreement or
certificate authorizing or evidencing the execution of this Lease.
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.
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SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.
SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease
shall be effective unless in writing signed by authorized signatories of Tenant
and Landlord, or by their respective successors in interest. No actions,
policies, oral or informal arrangements, business dealings or other course of
conduct by or between the parties shall be deemed to modify this Lease in any
respect.
SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or similar
reproduction of this Lease shall be deemed an original for all purposes.
SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and addenda
attached to this Lease are hereby incorporated into and made a part of this
Lease.
ARTICLE XXII. MISCELLANEOUS
SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and
agrees that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's relationship
with other tenants. Accordingly, Tenant agrees that it, and its partners,
officers, directors, employees and attorneys, shall not intentionally and
voluntarily disclose the terms and conditions of this Lease to any other tenant
or apparent prospective tenant of the Landlord, either directly or indirectly,
without the prior written consent of Landlord, provided, however, that Tenant
may disclose the terms to prospective subtenants or assignees under this Lease
or to any entity contemplating a merger with Tenant or the acquisition of all or
substantially all of Tenant's assets, stock or membership interests.
SECTION 22.2. GUARANTY. As a condition to the execution of this Lease
by Landlord, the obligations, covenants and performance of the Tenant as herein
provided shall be guaranteed in writing by the Guarantor(s) listed in Item 7 of
the Basic Lease Provisions, if any, on a form of guaranty provided by Landlord.
SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Building, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent, provided that the modifications do
not materially increase the obligations of Tenant or materially and adversely
affect the leasehold interest created by this Lease.
SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the
part of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a release
or termination unless (a) Tenant has given notice by registered or certified
mail to any beneficiary of a deed of trust or mortgage covering the Premises
whose address has been furnished to Tenant and (b) such beneficiary is afforded
a reasonable opportunity to cure the default by Landlord (which in no event
shall be less than sixty (60) days), including, if necessary to effect the cure,
time to obtain possession of the Premises by power of sale or judicial
foreclosure provided that such foreclosure remedy is diligently pursued. Tenant
agrees that each beneficiary of a deed of trust or mortgage covering the
Premises is an express third party beneficiary hereof, Tenant shall have no
right or claim for the collection of any deposit from such beneficiary or from
any purchaser at a foreclosure sale unless such beneficiary or purchaser shall
have actually received and not refunded the deposit, and Tenant shall comply
with any written directions by any beneficiary to pay rent due hereunder
directly to such beneficiary without determining whether an event of default
exists under such beneficiary's deed of trust.
SECTION 22.5. COVENANTS AND CONDITIONS. All of the provisions of this
Lease shall be construed to be conditions as well as covenants as though the
words specifically expressing or imparting covenants and conditions were used in
each separate provision.
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SECTION 22.6. SECURITY MEASURES. Tenant hereby acknowledges that
Landlord shall have no obligation whatsoever to provide guard service or other
security measures for the benefit of the Premises. Tenant assumes all
responsibility for the protection of Tenant, its agents, invitees and property
from acts of third parties. Nothing herein contained shall prevent Landlord, at
its sole option, after written notice to Tenant from providing security
protection for the Premises or any part thereof, in which event the cost thereof
shall be included within the definition of Building Costs.
SECTION 22.7. OFF-SITE OBLIGATIONS. Tenant understands and acknowledges
that the parcel located easterly of the Premises is utilized in a manner which
may create dust and noise from time to time and that the current occupant of
such parcel is obligated by law and under contract with Landlord to not operate
its business upon such parcel so as to create a public or private nuisance.
During the Term, Landlord shall use its good faith efforts to enforce its rights
to prohibit operation of the parcel located easterly of the Site in a manner
which would constitute a public or private nuisance. Such efforts shall include,
if necessary, legal action(s) against the subject parcel owner, if and to the
extent such action(s) are warranted and have a reasonable likelihood of success
as determined in the sole and absolute discretion of Landlord. The foregoing
obligation is personal to Landlord, and shall not be binding on or enforceable
against any successor-in-interest to Landlord in the event of a transfer of the
Premises, including without limitation, the holder of the beneficial interest
under any mortgage or deed of trust taking title by way of foreclosure or
deed-in-lieu of foreclosure.
LANDLORD: TENANT:
THE IRVINE COMPANY, MEADE INSTRUMENTS CORP.,
a Michigan corporation a California corporation
By: /s/ CLARENCE W. BARKER By: /s/ STEVEN MURDOCK
------------------------------------- ----------------------------
Clarence W. Barker, Steven Murdock,
President, Irvine Industrial Company, President and Chief
a division of The Irvine Company Operating Officer
By: /s/ RICHARD G. SIM By: /s/ BRENT CHRISTENSEN
------------------------------------- ----------------------------
Richard G. Sim, Brent Christensen,
Executive Vice President Chief Financial Officer
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EXHIBIT A
[GRAPHIC]
A-1
<PAGE> 34
EXHIBIT B
IRVINE INDUSTRIAL COMPANY
HAZARDOUS MATERIALS SURVEY FORM
The purpose of this form is to obtain information regarding the use of
hazardous substances on Irvine Industrial Company property. Prospective tenants
and contractors should answer the questions in light of their proposed
operations on the premises. Existing tenants and contractors should answer the
questions as they relate to ongoing operations on the premises and should update
any information previously submitted.
If additional space is needed to answer the questions, you may attach
separate sheets of paper to this form. When completed, the form should be sent
to the following address:
___________________________________
___________________________________
___________________________________
___________________________________
(insert address of Property
Management Company)
Your cooperation in this matter is appreciated. If you have any questions,
please do not hesitate to call [insert name of Property Manager] at [insert
phone number] for assistance.
1. GENERAL INFORMATION
Name of Responding Company:____________________________________________
________________
Check all that apply: Tenant ( ) Contractor ( ) Prospective ( )
Existing ( )
Mailing Address:_______________________________________________________
________________
Contact Person & Title:________________________________________________
________________
Telephone Number: ( )_______ - _______________________
Address of Leased Premises:____________________________________________
________________
Length of Lease or Contract Term:______________________________________
________________
Describe the proposed operations to take place on the property,
including principal products manufactured or services to be conducted.
Existing tenants and contractors should describe any proposed changes
to ongoing operations.
________________________________________________________________________________
________________
________________________________________________________________________________
________________
B-1
<PAGE> 35
2. STORAGE OF HAZARDOUS MATERIALS
2.1 Will any hazardous materials be used or stored on-site?
Wastes Yes ( ) No ( )
Chemical Products Yes ( ) No ( )
Biological Hazards/ Yes ( ) No ( )
Infectious Wastes Yes ( ) No ( )
Radioactive Materials Yes ( ) No ( )
2.2 List any hazardous materials to be used or stored, the
quantities that will be on-site at any given time, and the
location and method of storage (e.g., bottles in storage
closet on the premises).
Location and Method
Waste/Products of Storage Quantity
__________________ _________________ _____________
__________________ _________________ _____________
__________________ _________________ _____________
__________________ _________________ _____________
2.3 Is any underground storage of hazardous substances proposed or
currently conducted on the premises? Yes ( ) No ( )
If yes, describe the materials to be stored, and the size and
construction of the tank. Attach copies of any permits
obtained for the underground storage of such substances.______
______________________________________________________________
__________________
3. SPILLS
3.1 During the past year, have any spills occurred on the
premises? Yes ( ) No ( )
If so, please describe the spill and attach the results of any
testing conducted to determine the extent of such spills.
3.2 Were any agencies notified in connection with such spills?
Yes ( ) No ( )
If so, attach copies of any spill reports or other
correspondence with regulatory agencies.
3.3 Were any clean-up actions undertaken in connection with the
spills? Yes ( ) No ( )
If so, briefly describe the actions taken. Attach copies of
any clearance letters obtained from any regulatory agencies
involved and the results of any final soil or groundwater
sampling done upon completion of the clean-up work.
4. WASTE MANAGEMENT
4.1 List the waste, if any, generated or to be generated at the
premises, whether it is as hazardous waste, biological or
radioactive hazard, its hazard class and the quantity
generated on a monthly basis.
Waste Hazard Class Quantity/Month
__________________ ___________________ _________________
__________________ ___________________ _________________
__________________ ___________________ _________________
B-2
<PAGE> 36
__________________ ___________________ _________________
4.2 Describe the method(s) of disposal for each waste. Indicate
where and how often disposal will take place._________________
______________________________________________________________
__________________
4.3 Is any treatment or processing of hazardous, infectious or
radioactive wastes currently conducted or proposed to be
conducted at the premises? Yes ( ) No ( )
If yes, please describe any existing or proposed treatment
methods.______________________________________________________
______________________________________________________________
__________________
4.4 Attach copies of any hazardous waste permits or licenses
issued to your company with respect to its operations on the
premises.
5. WASTEWATER TREATMENT/DISCHARGE
5.1 Do you discharge industrial wastewater to:
___ storm drain? ___ sewer?
___ surface water? ___ no industrial discharge
5.2 Is your industrial wastewater treated before discharge?
Yes ( ) No ( )
If yes, describe the type of treatment conducted.
5.3 Attach copies of any wastewater discharge permits issued to
your company with respect to its operations on the premises.
6. AIR DISCHARGES
6.1 Do you have any air filtration systems or stacks that
discharge into the air? Yes ( ) No ( )
6.2 Do you operate any equipment that require air emissions
permits? Yes ( ) No ( )
6.3 Attach copies of any air discharge permits pertaining to these
operations.
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Does your company handle an aggregate of at least 500 pounds,
55 gallons or 200 cubic feet of hazardous material at any
given time? If so, state law requires that you prepare a
hazardous materials management plan. Yes ( ) No ( )
7.2 Has your company prepared a hazardous materials management
plan ('business plan') pursuant to state and Orange County
Fire Department requirements? Yes ( ) No ( )
If so, attach a copy of the business plan.
7.3 Are any of the chemicals used in your operations regulated
under Proposition 65? Yes ( ) No ( )
If so, describe the actions taken, or proposed actions to be
taken, to comply with Proposition 65 requirements.
7.4 Is your company subject to OSHA Hazard Communication Standard
Requirements? Yes ( ) No ( )
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<PAGE> 37
If so, describe the procedures followed to comply with these
requirements.
8. ENFORCEMENT ACTIONS, COMPLAINTS
8.1 Has your company ever been subject to any agency enforcement
actions, administrative orders, or consent decrees? Yes ( )
No ( )
If so, describe the actions and any continuing compliance
obligations imposed as a result of these actions.
8.2 Has your company ever received requests for information,
notice or demand letters, or any other inquiries regarding its
operations? Yes ( ) No ( )
8.3 Have there ever been, or are there now pending, any lawsuits
against your company regarding any environmental or health and
safety concerns? Yes ( ) No ( )
8.4 Has an environmental audit ever been conducted at your
company's current facility? Yes ( ) No ( )
If so, discuss the results of the audit.
8.5 Have there been any problems or complaints from neighbors at
your company's current facility? Yes ( ) No ( )
________________________________________
________________________________________
By:_____________________________________
Name: _____________________________
Title:_____________________________
Date: _____________________________
B-4
<PAGE> 38
EXHIBIT C
LANDLORD'S DISCLOSURES
The capitalized terms used and not otherwise defined in this Exhibit
shall have the same definitions as set forth in the Lease. The provisions of
this Exhibit shall supersede any inconsistent or conflicting provisions of the
Lease.
1. Landlord has been informed that the El Toro Marine Corps Air Station
(MCAS) has been listed as a Federal Superfund site as a result of chemical
releases occurring over many years of occupancy. Various chemicals including jet
fuel, motor oil and solvents have been discharged in several areas throughout
the MCAS site. A regional study conducted by the Orange County Water District
has estimated that groundwaters beneath more than 2,900 acres have been impacted
by Trichloroethlene (TCE), an industrial solvent. There is a potential that this
substance may have migrated into the ground water underlying the Premises. The
U.S. Environmental Protection Agency, the Santa Ana Region Quality Control
Board, and the Orange County Health Care Agency are overseeing the
investigation/cleanup of this contamination. To the Landlord's current actual
knowledge, the ground water in this area is used for irrigation purposes only,
and there is no practical impediment to the use or occupancy of the Premises due
to the El Toro discharges.
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<PAGE> 39
EXHIBIT D
TENANT'S INSURANCE
The following standards for Tenant's insurance shall be in effect at
the Premises. Landlord reserves the right to adopt reasonable nondiscriminatory
modifications and additions to those standards. Tenant agrees to obtain and
present evidence to Landlord that it has fully complied with the insurance
requirements.
1. Tenant shall, at its sole cost and expense, commencing on the date
Tenant is given access to the Premises for any purpose and during the entire
Term, procure, pay for and keep in full force and effect: (i) commercial general
liability insurance with respect to the Premises and the operations of or on
behalf of Tenant in, on or about the Premises, including but not limited to
personal injury, owned and nonowned automobile, blanket contractual, independent
contractors, broad form property damage (with an exception to any pollution
exclusion with respect to damage arising out of heat, smoke or fumes from a
hostile fire), fire and water legal liability, products liability (if a product
is sold from the Premises), liquor law liability (if alcoholic beverages are
sold, served or consumed within the Premises), and severability of interest,
which policy(ies) shall be written on an "occurrence" basis and for not less
than the amount set forth in Item 13 of the Basic Lease Provisions, with a
combined single limit (with a $50,000 minimum limit on fire legal liability) per
occurrence for bodily injury, death, and property damage liability, or the
current limit of liability carried by Tenant, whichever is greater, and subject
to such increases in amounts as Landlord may determine from time to time; (ii)
workers' compensation insurance coverage as required by law, together with
employers' liability insurance; (iii) with respect to improvements, alterations,
and the like required or permitted to be made by Tenant under this Lease,
builder's all-risk insurance, in an amount equal to the replacement cost of the
work; (iv) insurance against fire, vandalism, malicious mischief and such other
additional perils as may be included in a standard "all risk" form in general
use in Orange County, California, insuring Tenant's leasehold improvements,
trade fixtures, furnishings, equipment and items of personal property of Tenant
located in the Premises, in an amount equal to not less than ninety percent
(90%) of their actual replacement cost (with replacement cost endorsement); and
(v) business interruption insurance in amounts satisfactory to cover one (1)
year of loss. In no event shall the limits of any policy be considered as
limiting the liability of Tenant under this Lease.
2. In the event Landlord consents to Tenant's use, generation or
storage of Hazardous Materials on, under or about the Premises pursuant to
Section 5.3 of this Lease, Landlord shall have the continuing right to require
Tenant, at Tenant's sole cost and expense (provided the same is available for
purchase upon commercially reasonable terms), to purchase insurance specified
and approved by Landlord, with coverage not less than Five Million Dollars
($5,000,000.00), insuring (i) any Hazardous Materials shall be removed from the
Premises, (ii) the Premises shall be restored to a clean, healthy, safe and
sanitary condition, and (iii) any liability of Tenant, Landlord and Landlord's
officers, directors, shareholders, agents, employees and representatives,
arising from such Hazardous Materials.
3. All policies of insurance required to be carried by Tenant pursuant
to this Exhibit D containing a deductible exceeding Ten Thousand Dollars
($10,000.00) per occurrence must be approved in writing by Landlord prior to the
issuance of such policy. Tenant shall be solely responsible for the payment of
all deductibles.
4. All policies of insurance required to be carried by Tenant pursuant
to this Exhibit D shall be written by responsible insurance companies authorized
to do business in the State of California and with a Best's rating of not less
than "A" subject to final acceptance and approval by Landlord. Any insurance
required of Tenant may be furnished by Tenant under any blanket policy carried
by it or under a separate policy, so long as (i) the Premises are specifically
covered (by rider, endorsement or otherwise), (ii) the limits of the policy are
applicable on a "per location" basis to the Premises and provide for restoration
of the aggregate limits, and (iii) the policy otherwise complies with the
provisions of this Exhibit D. A true and exact copy of each paid up policy
evidencing the insurance (appropriately authenticated by the insurer) or a
certificate of insurance, certifying that the policy has been issued, provides
the coverage required by this Exhibit D and contains the required provisions,
shall be delivered to Landlord prior to the date Tenant is given the right of
possession of the Premises. Proper evidence of the renewal of any insurance
coverage shall also be delivered to Landlord not less than thirty (30) days
prior to
D-1
<PAGE> 40
the expiration of the coverage. Landlord may at any time, and from time to time,
inspect and/or copy any and all insurance policies required by this Lease.
5. Each policy evidencing insurance required to be carried by Tenant
pursuant to this Exhibit D shall contain the following provisions and/or clauses
satisfactory to Landlord: (i) a provision that the policy and the coverage
provided shall be primary and that any coverage carried by Landlord shall be
noncontributory with respect to any policies carried by Tenant except as to
workers' compensation insurance; (ii) a provision including Landlord, the
Additional Insureds identified in Item 11 of the Basic Lease Provisions, and any
other parties in interest designated by Landlord as an additional insured,
except as to workers' compensation insurance; (iii) a waiver by the insurer of
any right to subrogation against Landlord, its agents, employees, contractors
and representatives which arises or might arise by reason of any payment under
the policy or by reason of any act or omission of Landlord, its agents,
employees, contractors or representatives; and (iv) a provision that the insurer
will not cancel or change the coverage provided by the policy without first
giving Landlord thirty (30) days prior written notice.
6. In the event that Tenant fails to procure, maintain and/or pay for,
at the times and for the durations specified in this Exhibit D, any insurance
required by this Exhibit D, or fails to carry insurance required by any
governmental authority, Landlord may at its election procure that insurance and
pay the premiums, in which event Tenant shall repay Landlord all sums paid by
Landlord, together with interest at the maximum rate permitted by law and any
related costs or expenses incurred by Landlord, within ten (10) days following
Landlord's written demand to Tenant.
D-2
<PAGE> 41
EXHIBIT E
RULES AND REGULATIONS
This Exhibit sets forth the rules and regulations governing
Tenant's use of the Premises leased to Tenant pursuant to the terms, covenants
and conditions of the Lease to which this Exhibit is attached and therein made
part thereof. In the event of any conflict or inconsistency between this Exhibit
and the Lease, the Lease shall control.
1. Tenant shall not place anything or allow anything to be
placed near the glass of any window, door, partition or wall which may appear
unsightly from outside the Premises.
2. The walls, walkways, sidewalks, entrance passages, courts
and vestibules shall not be obstructed or used for any purpose other than
ingress and egress of pedestrian travel to and from the Premises, and shall not
be used for loitering or gathering, or to display, store or place any
merchandise, equipment or devices, or for any other purpose. The walkways,
entrance passageways, courts, vestibules and roof are not for the use of the
general public and Landlord shall in all cases retain the right to control and
prevent access thereto by all persons whose presence in the judgment of the
Landlord shall be prejudicial to the safety, character, reputation and interests
of the Building and its tenants, provided that nothing herein contained shall be
construed to prevent such access to persons with whom Tenant normally deals in
the ordinary course of Tenant's business unless such persons are engaged in
illegal activities. No tenant or employee or invitee of any tenant shall be
permitted upon the roof of the Building except as may be reasonably necessary to
maintain an observatory which Tenant contemplates constructing at the Premises.
3. No awnings or other projection shall be attached to the
outside walls of the Building. No security bars or gates, curtains, blinds,
shades or screens shall be attached to or hung in, or used in connection with,
any window or door of the Premises without the prior written consent of
Landlord, which consent shall not be unreasonably withheld. Neither the interior
nor exterior of any windows shall be coated or otherwise sunscreened without the
express written consent of Landlord.
4. Tenant shall not mark, nail, paint, drill into, or in any
way deface any exterior part of the Premises or the Building. Tenant shall not
lay linoleum, tile, carpet or other similar floor covering so that the same
shall be affixed to the floor of the Premises in any manner except as approved
by Landlord in writing. The expense of repairing any damage resulting from a
violation of this rule or removal of any floor covering shall be borne by
Tenant.
5. The toilet rooms, urinals, wash bowls and other plumbing
apparatus shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, caused it.
6. Landlord shall direct electricians as to the manner and
location of any future telephone wiring. No boring or cutting for wires will be
allowed without the prior consent of Landlord. The locations of the telephones,
call boxes and other office equipment affixed to the Premises shall be subject
to the prior written approval of Landlord.
7. The Premises shall not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the permitted
use of the Premises. No exterior storage shall be allowed at any time without
the prior written approval of Landlord except as permitted in the fenced
exterior trucking area. Tenant shall be permitted to stage pallets, shipping
containers, and similar items in such area for a period not to exceed seven (7)
days. The Premises shall not be used for cooking or washing clothes without the
prior written consent of Landlord, or for lodging or sleeping or for any immoral
or illegal purposes.
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<PAGE> 42
8. Tenant shall not make, or permit to be made, any unseemly
or disturbing noises or disturb or interfere with occupants of this or
neighboring buildings or premises or those having business with them, whether by
the use of any musical instrument, radio, phonograph, noise, or otherwise.
Tenant shall not use, keep or permit to be used, or kept, any foul or obnoxious
gas or substance in the Premises or permit or suffer the Premises to be used or
occupied in any manner offensive or objectionable to Landlord or other occupants
of this or neighboring buildings or premises by reason of any odors, fumes or
gases.
9. No animals shall be permitted at any time within the
Premises.
10. Tenant shall not use the name of the Building or the
Project in connection with or in promoting or advertising the business of
Tenant, except as Tenant's address, without the written consent of Landlord.
Landlord shall have the right to prohibit any advertising by any Tenant which,
in Landlord's reasonable opinion, tends to impair the reputation of the Project
or its desirability for its intended uses, and upon written notice from Landlord
any Tenant shall refrain from or discontinue such advertising.
11. Canvassing, soliciting, peddling, parading, picketing,
demonstrating or otherwise engaging in any conduct that unreasonably impairs the
value or use of the Premises or the Project are prohibited and each Tenant shall
cooperate to prevent the same.
12. No equipment of any type shall be placed on the Premises
which in Landlord's opinion exceeds the load limits of the floor or otherwise
threatens the soundness of the structure or improvements of the Building.
13. No air conditioning unit or other similar apparatus shall
be installed or used by any Tenant without the prior written consent of
Landlord.
14. No aerial antenna shall be erected on the roof or exterior
walls of the Premises, or on the grounds, without in each instance, the prior
written consent of Landlord. Any aerial or antenna so installed without such
written consent shall be subject to removal by Landlord at any time without
prior notice at the expense of the Tenant, and Tenant shall upon Landlord's
demand pay a removal fee to Landlord of not less than $200.00.
15. The entire Premises, including vestibules, entrances,
doors, fixtures, windows and plate glass, shall at all times be maintained in a
safe, neat and clean condition by Tenant. All trash, refuse and waste materials
shall be regularly removed from the Premises by Tenant and placed in the
containers at the locations designated by Landlord for refuse collection. All
cardboard boxes must be "broken down" prior to being placed in the trash
container. All styrofoam chips must be bagged or otherwise contained prior to
placement in the trash container, so as not to constitute a nuisance. Pallets
may not be disposed of in the trash container or enclosures. The burning of
trash, refuse or waste materials is prohibited.
16. Tenant shall use at Tenant's cost such pest extermination
contractor as Landlord may direct and at such intervals as Landlord may require.
17. All keys for the Premises shall be provided to Tenant by
Landlord and Tenant shall return to Landlord any of such keys so provided upon
the termination of the Lease. Tenant shall not change locks or install other
locks on doors of the Premises, without the prior written consent of Landlord.
In the event of loss of any keys furnished by Landlord for Tenant, Tenant shall
pay to Landlord the costs thereof.
18. No person shall enter or remain within the Project while
intoxicated or under the influence of liquor or drugs. Landlord shall have the
right to exclude or expel from the Project any person who, in the absolute
discretion of Landlord, is under the influence of liquor or drugs.
Landlord reserves the right to amend or supplement the
foregoing Rules and Regulations and to adopt and promulgate additional rules and
regulations applicable to the Premises. Notice of such rules and regulations and
amendments and supplements thereto, if any, shall be given to the Tenant.
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<PAGE> 43
EXHIBIT X
INDUSTRIAL WORK LETTER
DOLLAR ALLOWANCE
(SHELL BUILDING AND TI)
As used herein, the terms "Tenant Improvements" shall mean and consist
of any and all work required to complete the construction of the improvements in
accordance with the approved "TI Working Drawings" (as hereinafter defined), and
"Shell Improvements" shall mean and consist of any and all work required in
accordance with the approved "Shell Working Drawings" (as hereinafter defined).
All of the Tenant Improvement and Shell Improvement work shall be performed by a
general contractor or contractors selected by Landlord in accordance with the
procedures and requirements set forth below.
I. ARCHITECTURAL AND CONSTRUCTION PROCEDURES.
A. Landlord and Tenant have approved the following plans and
elevations dated November 15, 1996 prepared by Ware & Malcomb Architects, Inc.,
which together shall constitute the approved "Site Plan and Elevations": Site
Plan (Sheet A-1.1), Partial Floor Plan (Sheet A-2.1), Partial Floor Plan (Sheet
A-2.2), Mezzanine Plan, Stair Plans/Section & Canopy Plan (Sheet A-2.3), Partial
Roof Plan (Sheet A-3.1), Partial Roof Plan (Sheet 3.2), Exterior Elevations
(Sheet A-4), Wall Sections (Sheet A-5.1) and Wall Section and Enlarged Stair
Plans (Sheet A-5.2). Landlord and Tenant have also approved that certain Outline
Specification and Project Description Warehouse/Midtech Buildings dated 10/1/96
attached hereto as EXHIBIT X-1 (the "Outline Specification"), and certain
Proposed Oak Canyon Streetscape Plan attached hereto as EXHIBIT X-2 for the
off-site improvement of Oak Canyon Road (the "Oak Canyon Streetscape Plan"). The
Outline Specification is hereby modified to replace the requirement for an
Elevator in the "Tenant Office and Building Lobby/Core Improvements" section
with a requirement for an area within the lobby of the Building for future
installation of an elevator, shaft and related equipment and devices.
B. On or before ninety (90) days from and after the execution
of this Lease, Landlord shall submit to Tenant for Tenant's approval each of the
following: (i) preliminary plans (the "Preliminary Shell Plans") for the
construction of the shell Building and the landscaping, walkways, parking areas
and lighting of the Site, prepared by Landlord's architect and based on the Site
Plan and Elevations, which plans shall incorporate the specifications for the
Building shell and site work set forth in the Sections entitled "Site Work" and
"Building Shell" of the Outline Specification and fencing to enclose the truck
loading area on the east side of the Site (the "Loading Fence"), (ii) space
plans for the interior improvements of the Premises prepared by Landlord's
architect, which space plans shall include interior partitions, ceilings,
interior finishes, interior doors, suite entrance, floor coverings, window
coverings, lighting, electrical and telephone outlets and plumbing connections,
and which space plans shall incorporate the specifications set forth in the
Section entitled "Tenant Office and Building Lobby/Core Improvements" of the
Outline Specification together with plans (the "Lunch Area Plans") for an
outdoor employee lunch area (the "Lunch Area") on the Site consisting of a
concrete slab of sufficient size to permit two picnic tables (collectively, the
"Preliminary TI Plans"), and (iii) an estimate, prepared by Landlord's
contractor, of the cost for completion of the work shown on the Preliminary TI
Plans, including separate cost estimates for the completion of the office space
portion, the manufacturing space portion, the warehouse space portion of the
Premises and the Lunch Area (the "Preliminary TI Cost Estimate"). The
Preliminary Shell Plans, Preliminary TI Plans and the Preliminary TI Cost
Estimate may be submitted at different times within said ninety (90) day period.
Tenant shall approve or disapprove each of the Preliminary Shell Plans, the
Preliminary TI Plans and the Preliminary TI Cost Estimate by signing copies of
the appropriate instrument and delivering same to Landlord within fifteen (15)
business days of its receipt by Tenant. The expiration of said fifteen (15)
business day period (or the expiration of the last of said fifteen (15) day
periods if the Preliminary Shell Plans, the Preliminary TI Plans or the
Preliminary TI Cost Estimate are submitted to Tenant for Tenant's approval at
different times within the said ninety (90) day period) is herein referred to as
the "Plan Approval Date". To the extent of any inconsistency, Tenant's approval
of the
X-1
<PAGE> 44
Preliminary Shell Plans and the Preliminary TI Plans shall supersede the
specifications contained in the Site Plan and Elevations and/or the Outline
Specification. If Tenant disapproves any matter, Tenant shall specify in detail
the reasons for disapproval. Landlord shall attempt to modify the Preliminary
Shell Plans, the Preliminary TI Plans and the Preliminary TI Cost Estimate to
incorporate Tenant's suggested revisions in a mutually satisfactory manner,
provided that Landlord may reject any suggested revision(s) by Tenant to either
the Preliminary Shell Plans or to the Preliminary TI Plans for the reasons set
forth in the last sentence of Section I(D) of this Work Letter, and, in
addition, may reject any suggested revisions to the Preliminary Shell Plans if
the suggested revisions would increase the cost of the Shell Improvements.
Tenant shall approve in all respects the Preliminary Shell Plans, the
Preliminary TI Plans and Preliminary TI Cost Estimate not later than the Plan
Approval Date, it being understood that Tenant's failure to do so shall
constitute a "Tenant Delay" for purposes of this Lease. The size, location,
configuration and materials for the Lunch Area shall be determined by Landlord
based upon governmental requirements, cost, design and the aesthetic impact of
the same on the Site and adjacent properties. The Lunch Area shall be considered
part of the Tenant Improvements, but shall be constructed solely at Tenant's
cost.
C. On or before the Plan Approval Date, Tenant shall also
provide in writing to Landlord or Landlord's architect all specifications and
information requested by Landlord for the preparation of final construction
documents and costing for the Tenant Improvement work, including without
limitation Tenant's final selection of wall and floor finishes, complete
specifications and locations (including load and HVAC requirements) of Tenant's
equipment, and details of all "Non-Standard Improvements" (as defined below) to
be installed in the Premises (collectively, "Programming Information"). Tenant's
failure to provide the Programming Information by the Plan Approval Date shall
constitute a Tenant Delay for purposes of this Lease. Tenant understands that
final construction documents for the Tenant Improvements shall be predicated on
the Programming Information, and accordingly that such information must be
accurate and complete.
D. Except as otherwise specified by Tenant and authorized
herein, the Tenant Improvements shall incorporate the specifications set forth
in the Section entitled "Tenant Office and Building Lobby/Core Improvements" of
the Outline Specification, and shall also incorporate Landlord's standard finish
specifications for tiles, colors and doors (collectively, the "Building
Standards"). The cost of the Building Standards portion of the Tenant
Improvement work shall be eligible for inclusion as part of the "Landlord's
Contribution" (as defined below). Any deviations from the Building Standards
("Non-Standard Improvements") proposed by Tenant shall be subject to the prior
approval of Landlord, and shall be part of the "Tenant's Contribution" (as
defined below). If Landlord approves any Non-Standard Improvements, such
approval shall be accompanied by Landlord's election as to whether such
Non-Standard Improvements, or any portion thereof, should be removed or remain
as Landlord's property at the expiration or earlier termination of the Lease. If
Landlord so elects that such Non-Standard Improvements be removed, Tenant shall
be solely responsible for the cost of removing same upon the expiration or
earlier termination of this Lease. Landlord shall in no event be required to
approve any Non-Standard Improvement if Landlord determines that such
improvement (i) is of a lesser quality than the corresponding Building Standard,
(ii) fails to conform to applicable governmental requirements, (iii) requires
building services beyond the level normally provided to other tenants, (iv)
would delay construction of the Shell Improvements and/or the Tenant
Improvements beyond the Estimated Commencement Date and Tenant declines to
accept such delay in writing as a Tenant Delay, or (v) would have an adverse
aesthetic impact from the exterior of the Premises.
E. Upon Tenant's approval of the Preliminary TI Plan, the
Preliminary TI Cost Estimate and the Preliminary Shell Plans, Landlord's
architect and engineers shall prepare and deliver to Tenant: (i) working
drawings and specifications ("TI Working Drawings") based on the approved
Preliminary TI Plans for the construction of Tenant Improvements, (ii) a final
construction cost estimate (the "Final TI Cost Estimate") for the construction
of the Tenant Improvements, and (iii) working drawings and specifications (the
"Shell Working Drawings") based on the approved Preliminary Shell Plans for the
construction of the Shell Improvements. Subject to Tenant Delays, the Shell
Working Drawings shall be delivered to Tenant on or before sixty (60) days from
and after the execution of this Lease, and the TI Working Drawings and Final TI
Cost Estimate shall be delivered to Tenant on or before one hundred thirty-five
(135) days from and after the execution of this Lease. Tenant shall have ten
(10) business days from the receipt thereof to approve or disapprove the TI
Working Drawings, the Final TI Cost Estimate and the Shell Working Drawings.
Tenant shall not unreasonably withhold or delay its approval, and any
disapproval or requested modification shall be limited to items not contained in
the approved Preliminary TI Plan, approved Preliminary Shell Plan, or
Preliminary TI Cost Estimate. In no event shall Tenant disapprove
X-2
<PAGE> 45
the Final TI Cost Estimate if it does not exceed the approved Preliminary TI
Cost Estimate. Should Tenant disapprove the TI Working Drawings, the Shell
Working Drawings and/or the Final TI Cost Estimate, such disapproval shall be
accompanied by a detailed list of revisions. Landlord may reject any suggested
revision(s) to either the TI Working Drawings or to the Shell Working Drawings
for the reasons set forth in the last sentence of Section I(D) of this Work
Letter, and, in addition, may reject any suggested revision(s) to the Shell
Working Drawings if the suggested revision(s) would increase the cost of the
Shell Improvements. Any revision requested by Tenant and accepted by Landlord
shall be incorporated into a revised set of TI Working Drawings, Shell Working
Drawings and Final TI Cost Estimate, and Tenant shall approve same in writing
within five (5) business days of receipt without further revision. Tenant's
failure to comply in a timely manner with any of the requirements of this
paragraph shall constitute a Tenant Delay. Without limiting the rights of
Landlord for Tenant Delays as set forth herein, in the event Tenant has not
approved the TI Working Drawings, the Shell Working Drawings and the Final TI
Cost Estimate on or before May 1, 1997, and such failure to so approve is due to
Tenant Delays and/or Tenant's default(s) of its obligation under this Lease,
then Landlord may, at its option, elect to terminate this Lease by written
notice to Tenant. In the event Landlord elects to effect such a termination,
Tenant shall, within ten (10) business days following demand by Landlord, pay to
Landlord any costs incurred by Landlord in connection with the preparation or
review of all plans, construction estimates, price quotations, drawings or
specifications under this Work Letter, the cost of on-site work, if any,
constructed in reliance on the provisions of this Work Letter, and for all costs
incurred in the preparation and execution of this Lease, including any leasing
commissions.
F. Set forth below is a schedule which summarizes the
provisions for submittal by Landlord and approval of submittals by Tenant, for
the convenience of the parties, The provisions for submittal and approval are
more particularly provided in Sections I(A) through I(E) of this Work Letter:
<TABLE>
<CAPTION>
Reference Date Due
--------- --------
<S> <C>
Approval of Site Plan and Elevations Upon Lease execution
and Outline Specifications
Landlord's submittal of Preliminary Shell Plans, Within 90 days following
Preliminary TI Plans and Preliminary TI Cost Lease execution
Estimate
Tenant's approval of Preliminary Shell Plans, Within 15 business days
TI Plans and Preliminary TI Cost Estimate following submittal
Landlord's submittal of Shell Working Drawings Within 60 days following
Lease execution
Tenant's approval of Shell Working Drawings Within 10 business days
following submittal
Landlord's submittal of TI Working Drawings Within 135 days following
and Final TI Cost Estimate Lease execution
Tenant's approval of TI Working Drawings Within 10 business days
and Final Cost Estimate following submittal
Tenant's approval of revisions to Shell Working Within 5 business days
Drawings, TI Working Drawings and Final TI following submittal
Cost Estimates
</TABLE>
G. Upon Tenant's approval of the TI Working Drawings and the
TI Final Cost Estimate, Landlord shall competitively bid the Tenant Improvement
work with at least three (3) qualified bidders. Landlord, however, may elect to
competitively bid the entire general contract for such work, or select a general
contractor and competitively bid the major subcontract trades. Landlord shall
select the lowest of such qualified bidders to
X-3
<PAGE> 46
construct the Tenant Improvements on a guaranteed maximum price basis. In the
event that the competitive bid(s) for the Tenant Improvement work is/are greater
than the Final TI Cost Estimate, then Landlord, Landlord's general contractor
and Tenant shall work in good faith, within ten (10) business days thereafter,
to attempt to reduce such costs to bring them in line with the Final TI Cost
Estimate.
H. In the event that Tenant requests in writing a revision in
the approved TI Working Drawings ("Change"), Landlord shall advise Tenant by
written change order as soon as is practical of any increase in the TI
Completion Cost and/or any Tenant Delay such Change would cause. Tenant shall
approve or disapprove such change order in writing within two (2) days following
its receipt from Landlord. Landlord shall have the right to decline Tenant's
request for a Change for any of the reasons set forth in Article I(D) above for
Landlord's disapproval of a Non-Standard Improvement. It is understood that
Landlord shall have no obligation to interrupt or modify the Tenant Improvement
work pending Tenant's approval of a Change.
I. Each of the following shall be referred to as a "Tenant
Delay" under this Lease: Tenant fails to comply with any of the time periods
specified in this Work Letter, fails otherwise to approve or reasonably
disapprove any submittal within five (5) days, fails to approve in writing the
TI Preliminary Plans, Preliminary TI Cost Estimate and the Preliminary Shell
Plans by the Plan Approval Date, fails to provide all of the Programming
Information requested by Landlord by the Plan Approval Date, fails to approve in
writing the TI Working Drawings, the Shell Working Drawings and the Final TI
Cost Estimate within the time provided herein, requests any Changes, furnishes
inaccurate or erroneous specifications or other information, or otherwise delays
in any manner the completion of the Tenant Improvements (including without
limitation by specifying materials that are not readily available) or the
issuance of an occupancy certificate. Tenant shall bear any resulting additional
construction cost or other expenses, and the Commencement Date of this Lease
shall be deemed to have occurred for all purposes, including Tenant's obligation
to pay rent, as of the date Landlord would have been able to deliver the
Premises to Tenant but for the collective Tenant Delays. In no event, however,
shall such date be earlier than the Estimated Commencement Date set forth in the
Basic Lease Provisions. Should Landlord determine that the Commencement Date
should be advanced in accordance with the foregoing, it shall so notify Tenant
in writing. Landlord's determination shall be conclusive unless Tenant notifies
Landlord in writing, within ten (10) business days thereafter, of Tenant's
election to contest same by arbitration with JAMS/ENDISPUTE, or its successor,
in Orange County, California. Pending the outcome of such arbitration
proceedings, Tenant shall make timely payment of all rent due under this Lease
based upon the Commencement Date set forth in the aforesaid notice from
Landlord.
J. Landlord shall permit Tenant and its agents to enter the
Premises not less than thirty (30) days prior to the Commencement Date of the
Lease in order that Tenant may perform any work to be performed by Tenant
hereunder through its own contractors, subject to Landlord's prior written
approval, and in a manner and upon terms and conditions and at times
satisfactory to Landlord's representative. The foregoing license to enter the
Premises is, however, conditioned upon Tenant's contractors and their
subcontractors and employees working in harmony and not interfering with the
work being performed by Landlord. If at any time that entry shall cause
disharmony or interfere with the work being performed by Landlord, this license
may be withdrawn by Landlord upon twenty-four (24) hours written notice to
Tenant. That license is further conditioned upon the compliance by Tenant's
contractors with all requirements imposed by Landlord on third party
contractors, including without limitation the maintenance by Tenant and its
contractors and subcontractors of workers' compensation and public liability and
property damage insurance in amounts and with companies and on forms
satisfactory to Landlord, with certificates of such insurance being furnished to
Landlord prior to proceeding with any such entry. The entry shall be deemed to
be under all of the provisions of the Lease except as to the covenants to pay
rent. Landlord shall not be liable in any way for any injury, loss or damage
which may occur to any such work being performed by Tenant, the same being
solely at Tenant's risk. In no event shall the failure of Tenant's contractors
to complete any work in the Premises extend the Commencement Date of this Lease
beyond the date that Landlord has completed its Tenant Improvement work and
tendered the Premises to Tenant.
K. Tenant hereby designates John C. Diebel, Telephone No.
(714) 756-2291, as its representative, agent and attorney-in-fact for the
purpose of receiving notices, approving submittals and issuing requests for
Changes, and Landlord shall be entitled to rely upon authorizations and
directives of such person(s) as if given directly by Tenant. Tenant may amend
the designation of its construction representative(s) at any time upon delivery
of written notice to Landlord.
X-4
<PAGE> 47
II. COST/COMPLETION OF TENANT IMPROVEMENTS
A. Landlord shall complete, or cause to be completed, the
Tenant Improvements substantially in accord with the approved TI Working
Drawings approved by both Landlord and Tenant, in accordance with all applicable
laws and building codes in effect on or before the Commencement Date. Landlord,
however, shall have the right to make any changes to the TI Working Drawings in
the course of construction in its sole discretion, but Tenant shall have the
right to reasonably approve any material changes which materially affect the
functioning of Tenant's business on the Premises within five (5) business days
following receipt of notice from Landlord. Notwithstanding the foregoing,
Landlord shall have the right to make those changes required by code or
otherwise required by any governmental agency having jurisdiction without
Tenant's approval. Landlord shall pay towards the "TI Completion Cost" (defined
below) as incurred a maximum of Twenty-Five Dollars ($25.00) per usable square
foot of the office space portion of the Premises (which portion shall not exceed
Twenty-Five Thousand (25,000) usable square feet in the aggregate), (ii) Fifteen
Dollars ($15.00) per usable square foot of the manufacturing space portion of
the Premises (which portion shall not exceed Fifteen Thousand (15,000) usable
square feet in the aggregate), and (iii) One Dollar ($1.00) per usable square
foot of the warehouse space portion of the Premises (collectively, the
"Landlord's Contribution"). To the extent not used, up to but not exceeding One
Dollar ($1.00) of the Landlord's Contribution applicable to the office space
portion of the Premises may be applied instead towards the manufacturing space
portion of the Premises, and, to the extent not used, up to but not exceeding
One Dollar ($1.00) of the Landlord's Contribution applicable to the
manufacturing space portion of the Premises may be applied instead towards the
office space portion of the Premises. Except as provided in the immediately
preceding sentence, the Landlord's Contribution shall be applied solely towards
the cost of completing the office space portion, the manufacturing space portion
and the warehousing space portion of the Premises, in the amounts indicated.
Tenant shall be fully responsible for the remainder of the TI Completion Cost
("Tenant's Contribution"), including, without limitation, TI Completion Costs
for the Lunch Area.
B. The "TI Completion Cost" shall mean all direct costs of
Landlord in completing the Tenant Improvements, including but not limited to the
following: (i) payments made to architects, engineers, contractors,
subcontractors and other third party consultants in the performance of the
Tenant Improvement work, (ii) permit fees and other sums paid to governmental
agencies for the Tenant Improvement work, (iii) costs of all materials
incorporated into the work or used in connection with the Tenant Improvement
work, and (iv) keying and signage costs. The TI Completion Cost shall also
include Landlord's administrative/supervision fee in the amount of three percent
(3%) of the TI Completion Cost.
C. Prior to start of construction of the Tenant Improvements,
Tenant shall pay to Landlord in full the amount of the Tenant's Contribution set
forth in the approved Final TI Cost Estimate. If the actual TI Completion Cost
of the Tenant Improvements following completion is greater than the Final TI
Cost Estimate, then Tenant shall be responsible for all such additional costs,
including any additional architectural fee. The balance of any sums not
otherwise paid by Tenant shall be due and payable on or before the Commencement
Date of this Lease. If Tenant defaults in the payment of any sums due under this
Work Letter, Landlord shall (in addition to all other remedies) have the same
rights as in the case of Tenant's failure to pay rent under the Lease.
D. Notwithstanding any contrary provision of the Lease or this
Work Letter, in addition to Landlord's Contribution, Landlord shall pay up to
$150,000 of Tenant's Contribution ("Landlord's Excess Allowance") to the extent
utilized for TI Completion Costs attributable to: (i) the Building Standards
portion of the Tenant Improvements in the office space portion of the Premises
and in the manufacturing space portion of the Premises, and (ii) up to three (3)
dock load levelers in the warehouse portion of the Premises. Any Landlord's
Excess Allowance utilized by Tenant shall be repaid by the addition to Basic
Rent under the Lease of an amount equal to the monthly payment necessary to
fully amortize the portion of Landlord's Excess Allowance utilized for such TI
Completion Costs together with interest at the rate of twelve percent (12%) per
annum in equal payments over the initial Term of the Lease. Any such additional
Basic Rent shall be memorialized on a form provided by Landlord within ten (10)
days after possession of the Premises is tendered to Tenant. Tenant's failure to
execute such form shall not affect Landlord's right to increase the Basic Rent
pursuant to this Section II(D).
X-5
<PAGE> 48
III. COST OF SHELL IMPROVEMENTS.
A. Except as set forth in Section II(D) of this Work Letter,
Landlord shall complete, or cause to be completed, the Shell Improvements
substantially in accord with the final Shell Working Drawings approved by both
Landlord and Tenant and in compliance with all applicable laws and building
codes in effect on or before the Commencement Date. Landlord shall have the
right to make any changes to the Shell Working Drawings in the course of
construction in its sole discretion, but Tenant shall have the right to
reasonably approve any material changes which materially affect the functioning
of Tenant's business on the Premises within five (5) business days following
receipt from Landlord. Notwithstanding the foregoing, Landlord shall have the
right to make those changes required by code or otherwise required by any
governmental agency having jurisdiction without Tenant's approval. The
completion of the Shell Improvements shall be at Landlord's sole cost and
expense, provided that Landlord shall have the right to reduce the number of
truck doors by no more than three (3) doors to offset any additional cost for
the Loading Fence.
IV. COST/COMPLETION OF OAK CANYON ROAD IMPROVEMENTS.
A. Landlord shall complete, or cause to be completed, the
streetscape improvements to Oak Canyon Road substantially in accord with the Oak
Canyon Streetscape Plan, and in compliance with all applicable laws and building
codes in effect on or before the Commencement Date (the "Oak Canyon Road
Improvements"). Landlord shall have the right to make any changes to the Oak
Canyon Streetscape Plan required by the City of Irvine in connection with the
City's approval thereof, or as otherwise required by code, without Tenant's
approval. Landlord shall use its reasonable diligence to cause the Oak Canyon
Road Improvements to be substantially completed concurrently with the completion
of the on-site Shell Improvements, subject, however, to matters beyond
Landlord's reasonable control (including, without limitation, governmental
restrictions and delays and/or delays caused by the other owners of affected
parcels on Oak Canyon Road) and shall use its reasonable diligence to complete
the Oak Canyon Road Improvements without unreasonably interfering with
reasonable continuous access to the Premises. In no event, however, shall the
completion of the Oak Canyon Road Improvements delay or otherwise affect the
Commencement Date of the Lease. The completion of the Oak Canyon Road
Improvements shall be at Landlord's sole cost and expense.
X-6
<PAGE> 49
EXHIBIT X-1
OUTLINE SPECIFICATION AND PROJECT DESCRIPTION
WAREHOUSE / MID TECH BUILDINGS
THE IRVINE COMPANY
October 1, 1996
In addition to the Project Data and information provided on the attached
drawings sheets, the following should be considered:
Site Work
Utilities
a) Underground storm drain system including catch basins, man
holes, and connections.
b) Interior roof drains at front of building, sheet metal
downspouts at rear of building.
c) Connect sewer from building to street. Include clean outs.
d) Install transformer on pad and connect underground conduits to
building.
e) Provide for telephone connection to the street with
underground conduits between buildings.
f) Provide for underground natural gas to face of building.
g) Provide metered domestic building water connection to the
street. Include separate metered water connection for on-site
landscape irrigation.
h) Provide underground fire line/fire sprinkler water system
including detector check assembly, fire hose connections, post
indicator valves, fire hydrants, and main service into the
site per local fire authority requirements.
Site Concrete
a) Provide standard concrete curbs, gutters and swales.
b) Provide handicapped access curb ramps with 12" wide grooved
warning strips, non slip surface and side slopes per code.
c) Construct new driveway entrances per city standards including
off site work to patch as required.
d) Construct 6" reinforced concrete trucking pad as shown with
sealed expansion joints at approximately 24' on center and
intermediate sawcut control joints. Broom finish.
Reinforcement as recommended by Geotechnical report.
e) Construct 6" reinforced truck ramps and ramp walls. Ramp walls
may be tilt-up construction. Provide expansion joints, control
joints, broom finish. Paint walls to match building.
f) Construct exit stairs as shown of tilt-up construction and
reinforced concrete steps. Paint walls.
Site Lighting
a) Provide HPS wall pack cut-off light fixtures mounted on the
building per Irvine Spectrum Lighting Design Guidelines.
b) Provide additional pole mounted HPS cut-off light fixtures
around the site to achieve minimum lighting levels per city
security ordinance throughout site. Mount on 2' height
concrete footing base.
X-1-1
<PAGE> 50
Hardscape
a) Construct building entry plaza and lunch patio with textured
concrete finish on 4" concrete slab. Provide 1/2" sealed
expansion joints spaced apart as recommended by Geotechnical
report.
b) Construct 4" concrete walks over sand base with score line and
expansion joints spaced apart as recommended by Geotechnical
report, slab to be finished with medium salt or accent finish.
AC Paving
a) Provide standard paving over base at parking stalls and drive
aisles to be used only by cars as recommended by Geotechnical
report.
b) Provide heavier duty paving over base at drive aisles which
will be used by trucks as recommended by Geotechnical report.
c) Paving to be finished smooth with no sealer.
Striping & Signage
a) Provide city standard parking lot striping double striped with
compact and carpool stall identification.
b) Stripe handicapped stalls with loading zone stripes and
handicapped symbol per code.
c) Provide other site signage for handicapped and accessibility
directions as required, as well as other required surface
markings and curb painting.
Building Shell
Concrete Slab
a) Warehouse slab shall be 6" thick reinforced with wire mesh or
re-bars over gravel base for 4,000 psi strength. Reinforcement
and base as recommended by Geotechnical report. Provide
control joints throughout.
b) Office area slab shall be 6" thick reinforced over base with
visqueen vapor barrier. Reinforcement and base as recommended
by Geotechnical report.
Columns/Structural Frames
a) Standard section tube, pipe, or H steel roof and mezzanine
columns full height with welded plates and connectors to
accept floor and/or roof framing structure.
b) Standard section tube or H steel braced "K" frames as needed
for lateral resistance.
Roof Structure
a) Steel carrying girders with continuous connectors and shear
straps as needed. 26' clear height at Warehouse Buildings (30'
clear height at Oak Canyon), 24' clear height at Mid Tech.
Buildings.
b) Steel trusses at 8' o.c. with steel connectors, straps and
bracing.
c) Panelized roof with 2 x 4 sub purlins at 24" o.c. and 1/2"
structural grade OSB sheathing over Warehouse areas and 2 x 6
purlins over office areas.
d) Provide double 2x or 4x supports and blackouts for roof
mounted equipment, skylights, roof access hatch and roof
drains.
X-1-2
<PAGE> 51
Roof Finish
a) 4-ply built up fiberglass roof system (10 year warranty)
complete with fiber cants, cap sheet, walking pads, and base
flashing.
Smokehatch Skylights
a) Provide 4' x 8' vented skylight smoke hatches with integral
curb by Bristolite or equal, 2% coverage of warehouse area.
Walls
a) 7 1/2" thick concrete tilt-up full height and extended 18"
below finish floor. Walls to be 5' below finished floor at
trucking pad and elsewhere as indicated on grading and
structural plans. Walls may be thicker at panels with openings
and at shear wall panels.
b) Add reinforcing steel for future expansion knock-outs as
indicated.
c) Include 3/4" deep reveals, feature recessed areas at exterior
side.
d) Sack finish and paint at exterior side.
e) Interior shell walls to be 3 5/8" wide light gauge steel studs
at 24" o.c. or 2 x wood studs at 16" o.c. where indicated.
Fire Sprinkler
a) Provide separate zoned system as best suited for this size and
type of building.
b) Provide .45 density system throughout entire warehouse area.
(ESFR ready at Warehouse Buildings).
Footings
a) Perimeter walls and interior shear walls to be continuous type
footings. Step as necessary to conform with exterior finish
grades.
b) Interior columns to be spread footings.
c) Dry pack under all walls and base plates.
Misc. Steel
a) Provide channel or double angle truck door jambs to 4' height
and angle sill edge at all truck doors.
Windows
a) Provide 2" x 4 1/2" store front window system. Front glazed.
b) Glazing to be 1/4" High Performance Reflective Glass by
Spectrum, Guardian, PPG or equal.
c) All first floor glass to be tempered. Tempered elsewhere per
code. Provide Spandrel glazing at shear wall and between floor
space, where occurs.
Man Doors
a) Provide 3' x 7' 18g. Hollow Metal doors and frames at all
warehouse perimeter doors. Provide drip at top exterior. Paint
finish.
b) Hardware to include 3 ball bearing hinges, lever action exit
from interior, key only from exterior, door stop, self closure
threshold and seals.
X-1-3
<PAGE> 52
Truck doors
a) Truck doors to be vertical lift type with painted finish.
Designed for 20 lb. wind load. Manually operated. Provide
minimum air infiltration seals and locks.
Entry doors
a) Pair 3' x 9' thin-style aluminum store front door with 1/4"
clear tempered glass.
b) Provide recessed floor closer, panic hardware, key entry,
threshold, and pulls
Glass Exit
a) 3' x 9' thin style aluminum store front door with 1/4"
tempered reflective glass.
b) Provide overhead closer, panic hardware, threshold, seals, and
key entry.
Mezzanine Floor
a) Steel wide flange support beams with 3x wood plates.
b) Wood TJI solid web trusses maximum 20" deep with end hangers
and cross bracing.
c) 3/4" structural plywood subfloor.
d) 1" thick gypsum concrete floor fill.
e) Provide all anchors, ties, straps, and block outs for ducts as
needed.
f) Design load of floor to be 80 lb. reduced live load plus
20 lb. partition load.
Soffits
a) 2 x 4 wood at 24" o.c. Use metal connectors on wood ledgers.
b) All soffits to be 7/8" plaster on metal lath, smooth finish to
match concrete and painted to match walls.
Dock Equipment
a) Provide a pair of rubber dock bumpers 10" x 11" x 6" thick at
each dock high door.
Stairs
a) Wood frame stair construction with 2 x 16 cut stringers at 12"
o.c. and 3/4" plywood over treads and risers. Platform framed
landings.
b) Enclosure walls to be either wood or metal studs of 1-hour
rated construction to roof with Type "X" gyp. board finish
each side.
Electrical
a) Service to building will be 277/480 volt, three phase, four
wire.
b) 1200 amp 480 volt 3 phase 4 wire future service provided for
at Warehouse building, 800 amp, 480 volt 3 Phase 4 wire future
service provided for at Mid Tech building with additional
conduit stubs for future upgrades. [Switchgear and tenant
panels installed as part of the tenant improvement scope of
work).
c) Transformer on grade with bus duct per electric utility
purveyor.
d) House meter installed to separately meter common interior and
exterior electrical usage.
X-1-4
<PAGE> 53
TENANT OFFICE AND BUILDING LOBBY/CORE IMPROVEMENTS
(Covered by Tenant or Tenant Allowance)
Wall Framing
a) Light gauge steel studs at 24" o.c. with top and bottom tracks
and screw connections. 3-5/8" throughout except 6" at some
plumbing walls. Provide wood studs at stairwell walls.
b) Use 2 1/2" furring at all office area concrete exterior walls
and all office area columns to 6" above finish ceiling height.
c) Provide R-11 Fiberglass Batt insulation at exterior concrete
walls within furring space; full height in office areas where
required.
Ceiling
a) Use light gauge steel studs or steel channels at solid
ceilings in lobby/core and restrooms, etc., 6" deep at 24"
o.c. or as needed per span. Provide bracing. Gypsum board
ceilings at lobby/core and restrooms to be painted per finish
schedule.
b) 2' x 4' suspended ceiling grid system in standard white finish
by Donn or equal. Include all seismic anchors, compression
struts and diagonal wires per code.
c) 2' x 4' "Second Look" mineral fiber lay-in tile in 15/16"
T-bar grid.
Drywall
a) 5/8" drywall throughout all interior walls and over furring at
office area exterior walls.
b) Type "X" drywall all corridor walls, lobby walls, columns at
lobby and corridors, lunch room walls, and conference room
walls.
c) Type "X" drywall at 1-hour rated roof/ceiling at lobby, stair
wells and conference room, and 1-hour rated floor/ceiling at
conference room and lobby balconies.
d) Use 5/8" greenboard at restrooms, kitchen and janitor rooms.
Carpet
a) Provide Design Weave - 32 oz., New Tempest glu-down carpet at
standard office areas, and corridors as indicated on the
finish schedule
Tile
a) Provide thin set quarry or similar tile paver at main entry
lobby floor and at upper lobby/landing floor areas.
b) Provide 2" x 2" ceramic tile on thin set at all office area
rest room floors; slope to floor drain.
c) Provide 4" x 4" full height glazed ceramic tile at all wet
walls in restroom at Mid Tech. Buildings, 4' high wainscot at
Warehouse Buildings.
Vinyl Flooring & Base
a) Provide 12 x 12 Armstrong VCT flooring, or Armstrong Sandoval
Sheet Vinyl where indicated in the finish schedule. Include
carpet edge trim.
b) Provide rubber stair treads at stair well stairs.
c) Provide 4" rubber base in standard color at all walls. Provide
rubber stair base at all stairs.
X-1-5
<PAGE> 54
Doors/Sidelites
a) Provide solid core 1-3/4", 3' x 9' plain sliced oak with
Western Integrated clear anodized aluminum frame.
b) Provide 20 minute rating for all corridor doors.
c) Provide 16" wide x 9' high tempered glass divided sidelite
adjacent to each individual office door with anodized aluminum
framed to match door frame.
Finish Hardware
a) Schlage "D" series "Sparta", dull chrome finish hardware
throughout. Provide 3 ball bearing hinges, hardware stops,
silencers.
b) Provide panic hardware at all rated doors to corridors, etc.
c) Provide kick plates and push pulls at restrooms
Toilet Partition
a) Standard height floor mounted overhead braced metal toilet
partitions throughout all restrooms. Baked enamel color to be
standard selection.
Toilet
a) Standard accessories for toilet paper, trash, seat covers,
feminine napkins, soap, mirrors, etc. by Bobrick or equal
accessories for all restrooms.
b) Warehouse toilet to have sheet vinyl flooring and Marlite or
equal wainscot, 4' high.
Cabinets
a) All office area cabinets to be laminated plastic finish, all
surfaces and doors. Provide bull nose top at leading edge.
b) All restrooms to have lavatory counters/splashes with angle
supports and laminated plastic finish.
Miniblinds
a) All exterior windows to have standard Meriak Industries PVC
vertical miniblinds throughout, and all interior glass
sidelites to have standard Bali Classic 1" horizontal
miniblinds.
Paint
a) All surfaces shall be painted unless noted to be finished
otherwise.
b) A standard spec. for paint such as by Dunn Edwards shall be
followed for all types of surfaces and conditions.
c) Flat wall paint at standard offices.
d) Semi-gloss at lunch room, restrooms, storage rooms or as
otherwise noted.
Fire Sprinkler
a) Provide standard office type system at Mid Tech and Warehouse
office areas (both floors).
X-1-6
<PAGE> 55
Warehouse Curtains
a) 6' deep measured from underside of roof sheathing. Smoke
curtains made of 1/2" gyp. board on drywall frame or
corrugated sheet metal with top and bottom angle stiffener.
Seal all penetrations.
HVAC
a) Rooftop package units as required for improved tenant areas
and building lobby/core areas.
b) Thermostats set points 55(degree)F, control heating no more
than 70(degree)F and cooling not less than 78(degree)F.
c) Ceiling supply and return diffusers, perforated face in 2x4
ceiling grid.
d) Exhaust fans provided at all toilet rooms and mechanical
rooms.
Tenant Office and Building Lobby/Core Lighting
a) Double switch per Title 24, paired in double gang box, white
plastic cover, 42" AFF. to switch centerline. 2x4 fluorescent
fixture. Provide parabolic lens at lobby/core fixtures.
b) Exit signs and internally illuminated, brushed stainless steel
face.
Warehouse Lights
a) 400 w. high pressure sodium aluminum high bay fixtures for 20
fc general warehouse lighting.
Outlets
a) Power: 15 amps 125 volt specification grade duplex receptacle
mounted vertically, 15" AFF. to centerline, white plastic
coverplate.
b) Telephone: Single gang box with mud ring and pull string,
mounted vertically, 15" AFF. to centerline, coverplate by
telephone company.
Elevator
a) Two stop 2,500 lb. Capacity hydraulic passenger elevator with
standard finished cab, finished elevator shaft, elevator
equipment and necessary mechanical/electrical devices
associated with the installation
Insulation
a) Provide R-19 fiberglass batt insulation at the underside of
roof structure directly over improved tenant office areas, and
as required per acoustical analysis recommendations.
X-1-7
<PAGE> 56
EXHIBIT X-2
[GRAPHIC]
X-1-8
<PAGE> 1
EXHIBIT 10.8
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT made and entered into as of the 23rd day of
April, 1996 made by John Diebel, a resident of the State of California
("Diebel"), Steve Murdock, a resident of the State of California ("Murdock"),
Ron Ezra, a resident of the State of California ("Ezra"), Joseph A. Gordon, Jr.,
a resident of the State of California ("Gordon"; and together with Diebel,
Murdock and Ezra being sometimes hereinafter referred to individually as a
"Shareholder" and collectively as the "Shareholders") in favor of Churchill ESOP
Capital Partners, A Minnesota Limited Partnership ("CECP").
WITNESSETH
WHEREAS, prior to giving effect to the Transactions (each capitalized
term not otherwise defined herein being used herein as defined in the Purchase
Agreement hereinafter described), the Shareholders own beneficially and of
record all of the issued and outstanding shares of the existing common stock of
Meade Instruments Corp. (the "Company");
WHEREAS, the Shareholders desire to consummate the Managing Group Stock
Sale and to cause the Company to consummate the other Transactions;
WHEREAS, in connection with the consummation of the Transactions, the
Company and CECP have entered into a Securities Purchase Agreement dated as of
the date hereof (the "Purchase Agreement") pursuant to which CECP will purchase
1,000 shares of the Company's Series A Preferred Stock, no par value (the
"Preferred Stock") and Warrants permitting CECP to acquire 1,000,000 shares of
the Series A Common Stock;
WHEREAS, CECP has required that the Shareholders enter into this
Agreement as a condition precedent to CECP's obligation to purchase the
Preferred Stock and the Warrants:
WHEREAS, each Shareholder deems it in his best interest to enter into
this Agreement in order to induce CECP to purchase the Preferred Stock and the
Warrants.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Shareholders,
intending to be legally bound unto CECP, agree with CECP as follows:
1. Personal Representations and Warranties. In order to induce CECP to purchase
the Preferred Stock and the Warrants, each Shareholder severally (and not
jointly and severally) represents and warrants (such representations and
warranties being such Shareholder's "Personal Representations and Warranties")
to CECP that:
<PAGE> 2
a. Residency; etc. Such Shareholder is a resident of
California and has all requisite power and authority and full legal
capacity to execute and deliver the Transaction Documents to which such
Shareholder is a party.
b. Authorization; Approvals. The execution, delivery and
performance by such Shareholder of the Transaction Documents to which
such Shareholder is party do not conflict with or result in any breach
of any provision of, or the creation of any Lien upon any of such
Shareholder's property or require any consent, approval or filing
pursuant to any law, regulation, order, judgment, writ, injunction,
license, permit, agreement or instrument.
c. Enforceability. The execution and delivery by such
Shareholder of the Transaction Documents to which such Shareholder is a
party will result in legally binding obligations of such Shareholder
enforceable against such Shareholder in accordance with the respective
terms and provisions thereof, except to the extent that: (i) such
enforceability is limited by applicable law, including bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights; or (ii) the
availability of the remedy of specific performance or injunctive or
other equitable relief is subject to the discretion of the court before
which any proceeding therefor may be brought.
d. Capital Structure. On the Closing Date, after giving effect
to the Transactions and the exercise of the Warrants, the Company will
have no outstanding capital stock other than 3,500,000 shares of Series
A Common Stock, 1,500,000 shares of Series B Common Stock and 1,000
shares of Preferred Stock, all of which will be owned as set forth in
Schedule 4.4(a) to the Purchase Agreement and will be duly authorized,
validly issued, fully paid and nonassessable. Except for the Warrants
and the Series B Common Stock, the Company has no outstanding rights
(either pre-emptive or other) or options to subscribe for or purchase
from the Company and no warrants or other agreements providing for or
requiring the issuance by the Company of, any capital stock or any
securities convertible into or exchangeable for its capital stock.
e. Stock Ownership. On the Closing Date, after giving effect
to the Transactions, such Shareholder (and, in the case of Diebel or
Murdock, the Diebel Trust or the Murdock Trust, as the case may be)
owns good title to the shares of Series A Common Stock of the Company
described on Exhibit A to the Shareholder Agreement free and clear of
all liens, proxies, encumbrances, security interests, contractual
rights or any other known claims of any kind whatsoever except for
those imposed by the Shareholder Agreement.
f. Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the
Transactions based on any arrangement or agreement made by or on behalf
of such Shareholder.
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<PAGE> 3
g. Incorporation of Shareholder's Representations and
Warranties in Related Agreements. The representations and warranties
made by such Shareholder in Section 3(a)(i) and Section 3(a)(ii) of the
ESOP Purchase Agreement to which such Shareholder is a party are true
and correct in all material respects as of the date hereof with the
same force and effect as though made on and as of the date hereof, and
such representations and warranties are hereby confirmed to CECP and
made as part of the Personal Representations and Warranties of such
Shareholder hereunder as fully as if set forth herein.
h. Potential Conflicts of Interest. Except as set forth on
Schedule 4.23 to the Purchase Agreement, neither such Shareholder nor
any Affiliate of such Shareholder: (i) owns, directly or indirectly,
any interest in (excepting not more than 1% stock holdings for
investment purposes in securities of publicly held and traded
companies) or is an officer, director, employee or consultant of any
Person which is a competitor, lessor, lessee, customer or supplier of
the Company; (ii) owns, directly or indirectly, in whole or in part,
any tangible or intangible property which the Company is using or the
use of which is necessary for the business of the Company; or (iii) has
any cause of action or other claim whatsoever against, or owes any
amount to, the Company, except for claims in the ordinary course of
business, such as for accrued vacation pay, accrued benefits under
employee benefit plans and similar matters and agreements.
i. Survival. The Personal Representations and Warranties shall
survive the Closing Date and the consummation of the Transactions,
subject to the limitations set forth in Section 3 hereof.
2. Joint and Several Representations and Warranties. In order to induce
CECP to purchase the Preferred Stock and the Warrants, the Shareholders jointly
and severally represent and warrant (such representations and warranties being
the "Joint and Several Representations and Warranties") to CECP that:
a. Incorporation of the Company's Representations and
Warranties in Purchase Agreement. All representations and warranties
made by the Company in the Purchase Agreement are true and correct in
all material respects as of the date hereof with the same force and
effect as though made on and as of the date hereof, and such
representations and warranties are hereby confirmed to CECP and made
the Joint and Several Representations and Warranties of the
Shareholders hereunder as fully as if set forth herein as being made by
the Shareholders; provided, however, that the Joint and Several
Representations and Warranties, other than those constituting Major
Joint and Several Representations and Warranties described in
subsection b. below, are, in and every case, qualified as being made
only to the best of the Shareholders' Knowledge thereof.
b. Major Joint and Several Representations and Warranties. The
Joint and
3
<PAGE> 4
Several Representations and Warranties made by the Company in Section
4.6(a)(i) and (ii), Section 4.6(b), Section 4.6(c), Section 4.13,
Section 4.14, Section 4.19, Section 4.22(a) and/or Section 4.28(b) of
the Purchase Agreement are sometimes hereinafter referred to as the
"Major Joint and Several Representations and Warranties") and are not
qualified as being made only to the best of the Shareholders' Knowledge
thereof.
c. Knowledge. For purposes of this Agreement, "Shareholders'
Knowledge" shall mean only the present actual knowledge of any
Shareholder.
d. Survival. The Joint and Several Representations and
Warranties shall survive the Closing Date and the consummation of the
Transactions, subject to the limitations set forth in Section 3 hereof.
3. Indemnification.
a. Several Shareholder Indemnity. Subject to the limitation on
the time period during which CECP must assert a claim for
indemnification set forth in subsection c. below and to the limitation
on a Shareholder's Maximum Liability for claims for indemnification set
forth in subsection g. below, each Shareholder shall severally (and not
jointly and severally) indemnify CECP and hold it harmless against any
Loss which CECP suffers, sustains or becomes subject to as a result of
any breach by such Shareholder of his Personal Representations and
Warranties or any breach by such Shareholder of his duties,
obligations, covenants and agreements under the Shareholder Agreement
(any such Losses collectively being the "Individual Losses" and any
such Loss individually being an "Individual Loss"); provided, however,
that CECP shall not be entitled to seek indemnification from any
Shareholder until the aggregate amount of the Individual Losses
sustained by CECP as a result of any breach by such Shareholder of his
Personal Representations and Warranties or any breach by such
Shareholder of his duties, obligations, covenants and agreements under
the Shareholder Agreement exceeds $125,000, in which case CECP shall be
entitled to indemnification against all such Losses relating back to
the first dollar for: (A) 50% of the first $62,500 of all Individual
Losses; and (B) 100% of all Individual Losses in excess of $62,500.
b. Joint and Several Shareholder Indemnity. Subject to the
limitation on the time period during which CECP must assert a claim for
indemnification set forth in subsection c. below and to the limitation
on a Shareholder's Maximum Liability for claims for indemnification set
forth in subsection g. below, the Shareholders shall jointly and
severally indemnify CECP and hold it harmless against any Losses which
CECP suffers, sustains or becomes subject to as a result of any breach
of the Joint and Several Representations and Warranties including,
without limitation, the Major Joint and Several Representations and
Warranties (any such Losses collectively being the "Joint and Several
Losses" or any such Loss individually being a "Joint and Several
Loss"); provided, however, that:
4
<PAGE> 5
i. except for those Joint and Several Losses which
result from a breach of a Major Representation and Warranty
where no Shareholder had Knowledge of such breach on the
Closing Date as to which CECP may only seek indemnification if
the threshold specified in subsection ii. is satisfied, CECP
shall not be entitled to seek indemnification for any Joint
and Several Loss until the aggregate amount of Joint and
Several Losses is at least $500,000 in which case CECP shall
be entitled to indemnification relating back to the first
dollar for: (A) 50% of the first $500,000 of all Joint and
Several Losses; and (B) 100% of all Joint and Several Losses
in excess of $500,000; or
ii. with respect to any Joint and Several Loss
resulting from a breach of a Major Representation and Warranty
where no Shareholder had Knowledge of such breach on the
Closing Date, CECP shall not be entitled to seek
indemnification for any such Joint and Several Loss described
in this subsection ii. until the aggregate amount of such
Joint and Several Losses is at least $2,000,000 in which case
CECP shall be entitled to indemnification relating back to the
first dollar for: (A) 50% of the first $2,000,000 of such
Joint and Several Losses; and (B) 100% of all such Joint and
Several Losses in excess of $2,000,000.
c. Notice of Claim. No Shareholder shall be liable for
any claim for indemnification under subsections a. or b. above unless
written notice specifying in reasonable detail the nature of the claim
for indemnification is delivered by CECP to the applicable Shareholder
prior to:
i. the second anniversary of the Closing Date with
respect to claims for indemnification arising from a breach of
either a Personal Representation and Warranty or a Joint and
Several Representation and Warranty (other than a Major Joint
and Several Representation and Warranty);
ii. the third anniversary of the Closing Date with
respect to claims for indemnification arising from a breach of
a Major Joint and Several Representation and Warranty; or
iii. the expiration of the applicable statute of
limitations with respect to claims for indemnification arising
from any breach by any Shareholder of any of his duties,
obligations, covenants and agreements under the Shareholder
Agreement.
d. Third Party Claims.
i. Promptly after the assertion by any third party
of any claim (a "Third Party Claim") against CECP that results
or may result in the incurrence
5
<PAGE> 6
by CECP of any Loss for which CECP would be entitled to
indemnification pursuant to this Agreement, CECP shall
promptly notify each Shareholder of such Third Party Claim;
provided, however, that the failure of CECP to give such
notice promptly shall not relieve the non-notified Shareholder
of any liability under this Agreement unless such failure
prevents such Shareholder from effectively defending CECP
against such Third Party Claim.
ii. If, within 30 days after CECP has given
notice of the Third Party Claim in accordance with subsection
i. above, one or more of the Shareholders obligated to
indemnify CECP against any Loss from such Third Party Claim
notifies CECP in writing that such Shareholder (the
"Indemnifying Shareholder(s)") will indemnify CECP from and
against the Loss which CECP may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third
Party Claim to the extent required by this Agreement, then
such Indemnifying Shareholders will have the right to defend
CECP against the Third Party Claim with counsel (which is
reasonably satisfactory to CECP) selected by the relevant
Indemnifying Shareholder with respect to any claim for
indemnification against any Individual Loss or jointly by the
Indemnifying Shareholders with respect to any claim for
indemnification against any Joint and Several Loss and, in
either case, so long as:
A. the Third Party Claim involves only money
damages and does not seek an injunction or other
equitable relief;
B. settlement of, or an adverse judgment
with respect to, the Third Party Claim is not, in the
good faith judgment of CECP, likely to establish a
precedential custom or practice materially adverse to
the continuing business interests of CECP;
C. the Indemnifying Shareholders conduct the
defense of the Third Party Claim actively and
diligently;
D. counsel employed by the Indemnifying
Shareholders on behalf of CECP is reasonably
satisfactory to CECP and no conflict of interest has
arisen which would prevent counsel for the
Indemnifying Shareholders from also representing CECP
because the defendants in any action include both
CECP and any Indemnifying Shareholder;
E. no conflict of interest or other conflict
or disagreement has arisen between or among the
Shareholders which CECP determines, in its reasonable
business judgment, could impair CECP's defense of
such Third Party Claim;
6
<PAGE> 7
F. the Indemnifying Shareholders have posted
any bond reasonably requested by CECP to secure the
Shareholders' indemnification obligations hereunder
with respect to such Loss; and/or
G. no Shareholder will consent to the entry
of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior
written consent of CECP (not to be withheld
unreasonably).
In the event any of the conditions of this subsection ii. is
or becomes unsatisfied, CECP may defend against, and consent
to the entry of any judgment or enter into any settlement with
respect to, the Third Party claim in any manner it may
reasonably deem appropriate (and CECP need not consult with,
or obtain any consent from, any Shareholder in connection
therewith) and the Shareholders obligated to indemnify CECP
under this Agreement will reimburse CECP promptly and
periodically for the costs of defending against the Third
Party Claim (including reasonable attorneys' fees and
expenses); and (xvii) such Shareholders will remain
responsible for any Loss which CECP may suffer resulting from,
arising out of, relating to, in the nature of, or caused by
the Third Party Claim to the fullest extent provided for and
required by this Agreement.
iii. So long as the Indemnifying Shareholders are
conducting the defense of the Third Party Claim in accordance
with subsection ii. above, CECP: A. may retain separate
co-counsel at its sole cost and expense and participate in the
defense of the Third Party Claim; B. will not consent to the
entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written
consent of the relevant Indemnifying Shareholder with respect
to any claim for indemnification against any Individual Loss
or of all of the Indemnifying Shareholders with respect to any
claim for indemnification against any Joint and Several Loss
(in either case, not to be withheld unreasonably).
e. Co-operation. From time to time, as and when
requested by any party hereto and at such party's expense, any other
party shall execute and deliver, or cause to be executed and delivered,
all such documents and instruments and shall take, or cause to be
taken, all such further or other actions as such other party may
reasonably deem necessary or desirable to evidence and effectuate the
transactions contemplated by this Agreement.
f. Certain Company Settlements. During any period when
CECP is exercising its rights under the Charter and the Purchase
Agreement to designate the majority of the Company's directors after
the occurrence of a Specified Event of Non-Compliance, then CECP and
the Shareholders agree to the following with respect to any claim
then or thereafter asserted by or against the Company (a "Company
Claim") that
7
<PAGE> 8
may give rise to a Loss:
i. CECP shall promptly notify each Shareholder of
any Company Claim first arising after CECP's designated
directors constitute a majority of the Company's board of
directors (such date being the "CECP Control Date"); provided,
however, that the failure of CECP to give such notice promptly
shall not relieve the Shareholders of any liability under this
Agreement; and
ii. CECP agrees that it will not consent to the entry
of any judgment or enter into any settlement on behalf of the
Company with respect to any Company Claim (regardless of
whether first asserted before or after the CECP Control Date)
that may give rise to a Loss without the prior written consent
of the "Majority Shareholders" (as defined in the Shareholder
Agreement), which consent is not to be withheld unreasonably;
provided, however, that the Shareholders' rights to withhold
consent are expressly conditioned upon each of the
Shareholders, within 10 days after CECP has notified the
Shareholders of CECP's intent to consent to the entry of a
judgment or to enter into such settlement: A. delivering an
agreement in writing to indemnify CECP against the Loss to the
extent required by this Agreement; and B. posting security
reasonably acceptable to CECP to secure the Shareholder's
indemnification obligations hereunder with respect to such
Loss; provided further, however, that the failure of any one
or more of the Shareholders to agree to indemnify CECP and/or
post security shall not affect the other Shareholders' rights
to consent to a settlement hereunder if the other Shareholders
agree to increase their respective indemnification obligations
and provide additional security by the amount necessary to
satisfy the conditions of subsections A. and B. above as if
all of the Shareholders had complied with such conditions. If
the Shareholders fail to satisfy the conditions to withholding
consent set forth in this subsection, then CECP may consent to
the entry of the relevant judgment or enter into the relevant
settlement without affecting any Shareholder's obligations
under this Agreement. Each Shareholder hereby agrees to be
bound by the acts of the Majority Shareholders with respect to
the granting or the withholding of the consent permitted by
this Section; provided, however, that nothing in this Section
affects the rights of the Shareholders among themselves.
8
<PAGE> 9
g. Limitation of Liability. Notwithstanding anything to the
contrary set forth in this Agreement, no Shareholder shall be liable
for Losses that exceed the aggregate amount set forth in the following
table for such Shareholder (such amount being such Shareholder's
"Maximum Liability"):
<TABLE>
<CAPTION>
Shareholder Maximum Liability
----------- -----------------
<S> <C>
Diebel $4,589,979.00
Murdock $2,744,987.00
Ezra $1,061,996.00
Gordon $ 602,997.00.
</TABLE>
h. Settlements. CECP and each Shareholder reserve the right to
settle any claim for indemnification against such Shareholder for any
Joint and Several Loss without affecting CECP's rights against any
other Shareholder so long as CECP agrees to indemnify such settling
Shareholder against any claim made by any other Shareholder for
contribution or indemnity for damages claimed by CECP against the
non-settling Shareholders, whether such claim for contribution or
indemnification by the non-settling Shareholders is alleged by reason
of judgment, settlement or otherwise, but specifically excluding any
claim by the non-settling Shareholders arising out of an express
written indemnification or contribution agreement between the settling
Shareholder and the non-settling Shareholder.
i. Loss. For purpose of this Agreement, "Loss(es)" shall mean
any loss, liability, damage or expense (including reasonable legal and
accounting fees and expenses) which CECP suffers, sustains or becomes
subject to as a result of the described event.
5. Miscellaneous
a. Amendments and Waivers. The provisions of this Agreement,
including the provisions of this subsection, may not be amended,
modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless such amendment,
modification, supplement, waiver or consent is approved in writing by
CECP and the Indemnifying Shareholder with respect to any matter
relating to such Shareholder's liability for CECP's Individual Losses
or each Shareholder with respect to any matter relating to the
Shareholders' liability for CECP's Joint and Several Losses
b. Notices. Any notice provided for in this Agreement will be
in writing and will be deemed properly delivered if either personally
delivered or sent by overnight courier or telecopier or mailed
certified or registered mail, return receipt requested, postage
prepaid, to the recipient at the address specified below:
9
<PAGE> 10
i. If to CECP, at CECP's address for notices
under the Shareholder Agreement; and
ii. If to any Shareholder, at:
16542 Millikan Avenue
Irvine, CA 92714
and thereafter at such other address, notice of which is given in
accordance with the provisions of this subsection b. Any such notice
shall be effective (A) if delivered personally or by telecopy, when
received, (B) if sent by overnight courier, when receipted for, and (C)
if mailed, three (3) days after being mailed as described above.
c. Successors and Assigns. This Agreement shall bind and
inure to the benefit of the parties hereto and their respective
successors, assigns, heirs and personal representatives.
d. Counterparts. This Agreement may be executed in two
or more counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the
same instrument.
e. Headings. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this
Agreement, nor shall they affect their meaning, construction or effect.
f. Governing Law. The validity, performance,
construction and effect of this Agreement shall be governed by and
construed in accordance with the internal laws of the State of
Minnesota, without giving effect to any choice or conflict of law
provision or rule that would cause the application of the domestic
substantive laws of any other state.
g. Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity,
legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be
affected or impaired thereby.
h. Effect of Third Party Awards or Tax Benefits. Without
any party agreeing or admitting what the basis will be for calculating
CECP's damages arising from any Loss, CECP and the Shareholders agree
that, if the calculation of CECP's damages as based on a reduction in
the value of the Company, then CECP's claim shall be adjusted pro rata
based on CECP's interest in the Company for all Third Party Awards
actually
10
<PAGE> 11
recovered by the Company and all Tax Benefits. As used herein, "Third
Party Awards" shall mean any actual net recoveries by the Company from
third parties (including, without limitation, from insurance and third
party indemnifications) arising in connection with the any claim for a
Loss for which Shareholder is also potentially liable. As used herein,
"Tax Benefits" shall mean the then net present value to the Company of
any permanent tax related loss, deduction or credits actually used by
the Company or any of its subsidiaries (computed after taking into
account any indemnification payment made, including taxes thereon) in
connection with a Loss for which a Shareholder is also potentially
liable.
i. Entire Agreement. This Agreement contains the entire
agreement between the parties relating to the subject matter hereof and
supersede all prior agreements and understandings with respect to such
subject matter, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this
Agreement which are not set forth herein.
j. CONSENT TO JURISDICTION. AT THE OPTION OF CECP, THIS
AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT
SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA; AND EACH SHAREHOLDER
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY
ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THAT
ANY SHAREHOLDER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE
UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM
THE RELATIONSHIP CREATED BY THIS AGREEMENT, THEN CECP, AT ITS OPTION,
SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE. EACH SHAREHOLDER CONSENTS THAT SERVICE OF PROCESS WITH
RESPECT TO ANY SUCH COURTS IN AND OF THE STATE OF MINNESOTA MAY BE MADE
BY REGISTERED MAIL TO HIM AT HIS ADDRESS FOR NOTICES HEREUNDER.
k. WAIVER OF JURY TRIAL. EACH SHAREHOLDER AND CECP HEREBY
EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A JURY TRIAL IN ANY SUIT,
ACTION OR PROCEEDING EXISTING UNDER OR RELATING TO THIS AGREEMENT.
11
<PAGE> 12
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have duly executed this
Indemnity Agreement as of the date set forth in the first paragraph hereof.
/s/ JOHN DIEBEL
-----------------------------------
John Diebel
/s/ STEVE MURDOCK
-----------------------------------
Steve Murdock
/s/ RON EZRA
-----------------------------------
Ron Ezra
/s/ JOSEPH A. GORDON, JR.
-----------------------------------
Joseph A. Gordon, Jr.
Accepted as of this 23rd day of April, 1996.
Churchill ESOP Capital Partners,
A Minnesota Limited Partnership
By: Churchill Capital Investment Partners,
A Minnesota Limited Partnership
Its: General Partner
By: Churchill Capital, Inc.
Its: General Partner
By: /s/ ROBERT L. DAVIS
-----------------------------
Its: Vice President
---------------------------
12
<PAGE> 1
Exhibit 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of April
23, 1996, between Meade Instruments Corp., a California corporation ("Company"),
and John C. Diebel ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, including the Company's agreement to pay severance
benefits in certain events, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
The Company hereby employs Executive and Executive accepts
employment with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and
Executive agrees to serve as the Company's Chairman and Chief Executive Officer
during the term of this Agreement, and shall perform the duties commensurate
with such position. Executive agrees to devote substantially his full business
time and attention and best efforts to the affairs of the Company during the
term of this Agreement.
1.2 Term. The employment of Executive by the Company under the
terms and conditions of this Agreement will commence as of the date hereof and
will continue for a period of one (1) year unless terminated earlier under
Article IV. The term of the Agreement shall be extended on a daily basis such
that the remaining term of this Agreement shall at all times be one (1) full
year.
ARTICLE II
COMPENSATION
2.1 Annual Salary. During the employment of Executive, the
Company shall pay to Executive a base salary at the annual rate of $400,000 (the
"Base Salary"). The Base Salary shall be payable in substantially equal
semi-monthly installments. The Base Salary shall be reviewed annually by the
Company's Board of Directors.
2.2 Reimbursement of Expenses. Executive shall be entitled to
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or in
the service of, the Company, provided that such expenses are submitted to the
Company within a reasonable period of time after incurrence and are accounted
for in accordance with the policies and procedures established by the Company.
1
<PAGE> 2
2.3 Benefits. Executive shall be entitled to participate in
and be covered by all health, insurance, pension and other employee plans and
benefits currently established for the employees of the Company (collectively
referred to as the "Company Benefit Plans") on at least the same terms as other
employees of the Company, subject to meeting applicable eligibility
requirements.
2.4 Vacations and Holidays. During Executive's employment with
the Company, Executive shall be entitled to an annual vacation leave of three
(3) weeks at full pay, or such greater vacation benefits as may be provided for
by the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. Executive will not during Executive's
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
3.2 Return of Confidential Material. Executive shall promptly
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company. Upon the request of
the Company, Executive shall certify, in writing to the Company, his compliance
with the provisions of this Section 3.2.
3.3 Prohibition on Solicitation of Customers. During the term
of Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's
2
<PAGE> 3
or entity's contractual and/or business relationship with the Company, nor shall
Executive interfere with or disrupt or attempt to interfere with or disrupt any
such relationship. None of the foregoing shall be deemed a waiver of any and all
rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or
Independent Contractors After Termination. During the term of Executive's
employment with the Company and for a period of one (l) year following the
termination of Executive's employment with the Company, Executive will not
solicit any of the employees, agents, or independent contractors of the Company
to leave the employ of the Company for a competitive company or business.
However, Executive may solicit any employee, agent or independent contractor who
voluntarily terminates his or her employment with the Company after a period of
120 days has elapsed since the termination date of such employee, agent or
independent contractor. None of the foregoing shall be deemed a waiver of any
and all rights and remedies the Company may have under applicable law.
3.5 Agreement Not to Compete. During the term of Executive's
employment with the Company and for so long as Executive receives any severance
benefits provided under Section 4.5(b), the Executive agrees not to engage,
directly or indirectly, in any business which is in competition with that of the
Company or any of its affiliates in any jurisdiction in which the Company or any
of its affiliates are doing business. For purposes of this Section 3.5, the
Executive will be deemed to engage in any business by being a shareholder (other
than holding less than one percent (1%) of the shares of any publicly-held
corporation), director, officer, partner, member, governor, manager, employee,
consultant, independent contractor or serving in any capacity similar to the
foregoing on behalf of said business. A business in competition with the Company
is a business which distributes products which are competitive with those
products distributed or sold by the Company or its affiliates.
3.6 Right to Injunctive and Equitable Relief. Executive's
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably or
adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law.
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3.7 Survival of Obligations. Executive agrees that the terms
of this Article III shall survive the term of this Agreement and the termination
of Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 For purposes of this Article IV, the following definitions
shall apply to the terms set forth below:
(a) Board Change. "Board Change" shall mean the
designation of the members of a majority of the Company's Board of
Directors by Churchill ESOP Capital Partners, A Minnesota Limited
Partnership ("CECP"), pursuant to Section 1(b)(ii) of that certain
Shareholder Agreement dated as of the date hereof, by and among the
Company, CECP, Joseph A. Gordon, Jr., Ron Ezra, John Diebel,
individually and also acting as the trustee of the Diebel Living Trust,
and Steven Murdock, individually and also acting as trustee of the
Murdock 1986 Trust.
(b) Cause. "Cause" shall include the following:
(i) the Executive's personal dishonesty or
willful misconduct;
(ii) the Executive's breach of his fiduciary
duties to the Company;
(iii) the Executive's willful violation and
conviction of any law, rule or regulation (other than traffic
violations or similar offenses) or of any final cease and
desist order issued by any financial institution regulatory
authority against the Company; or
(iv) the Executive's material breach of this
Agreement;
(v) the Executive's willful and continuous
failure to devote substantially his full business time and
attention and best efforts to the affairs of the Company; or
(vi) the Executive's refusal after seven (7)
business days from a written request by the Board of Directors
to take any action consistent with his position reasonably
requested by the Board of Directors.
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(c) Good Reason. "Good Reason" shall mean voluntary
termination as a result of:
(i) the assignment to Executive of duties
substantially inconsistent with the position and status of
Executive as set forth in this Agreement without Executive's
prior written consent;
(ii) a substantial alteration in the nature,
status or prestige of Executive's responsibilities or a change
in Executive's title or reporting level from that set forth in
this Agreement;
(iii) the relocation of the Company's
executive offices or principal business location to a point
more than fifty (50) miles from the location of such offices
or businesses as of the date of this Agreement; or
(iv) a reduction by the Company of Executive's
Base Salary.
(d) Disability. "Disability" shall mean a physical or
mental incapacity as a result of which Executive becomes unable to
continue the proper performance of his duties hereunder (reasonable
absences because of sickness for up to three (3) consecutive months
excepted); provided, however, that any new period of incapacity or
absence shall be deemed to be part of a prior period of incapacity or
absence if the prior period terminated within ninety (90) days of the
beginning of the new period of incapacity or absence and the incapacity
or absence is determined by the Company's Board of Directors, in good
faith, to be related to the prior incapacity or absence. A
determination of Disability shall be subject to the certification of a
qualified medical doctor agreed to by the Company and Executive or in
the event of Executive's incapacity to designate a doctor, Executive's
legal representative. In the absence of agreement between the Company
and Executive, each party shall nominate a qualified medical doctor and
the two (2) doctors so nominated shall select a third doctor, who shall
make the determination as to Disability. The effective date ("Effective
Date") of Disability shall be the first date of Executive's incapacity
or absence.
4.2 Termination by Company. The Company may terminate
Executive's employment hereunder immediately for Cause, and the effective date
("Effective Date") of such termination shall be the date Executive receives
written notice of termination for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination other than for Cause ("Effective Date") shall be
considered to be thirty (30) days subsequent to written notice of termination;
however, the
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Company may elect to have Executive leave the Company immediately.
4.3 Termination by Executive. Executive may terminate his
employment hereunder upon thirty (30) days' written notice to the Company. The
effective date of termination by the Executive ("Effective Date") shall be
considered to be thirty (30) days subsequent to written notice of termination;
however, the Company may elect to have Executive leave the Company immediately.
4.4 Death or Disability of Executive. Executive's employment
hereunder shall terminate immediately upon the death or Disability of Executive.
4.5 Severance Benefits Received Upon Termination.
(a) If Executive's employment is terminated by the
Company for Cause, Executive terminates this Agreement pursuant to
Section 4.3 other than for Good Reason after a Board Change or the
Executive dies, then the Company shall pay Executive his Base Salary
through the Effective Date of such termination or the date of death, as
applicable, plus credit for any vacation earned but not taken, and the
Company shall thereafter have no further obligations to Executive under
this Agreement.
(b) If Executive's employment is terminated by the
Company without Cause, Executive terminates this Agreement for Good
Reason after a Board Change or Executive's employment is terminated by
the Company as a result of Disability, and provided Executive is not in
breach of the provisions of Article III, then the Company shall provide
Executive:
(i) salary continuation in an amount equal
to Executive's then Base Salary for a period equal to the
remainder of the term of this Agreement measured from the
Effective Date of termination or Disability, as applicable,
said sum to be paid semi-monthly in equal installments at the
times salary payments are usually made; and
(ii) health insurance coverage as then in
effect for Executive, his spouse and dependent children for a
period equal to the remainder of the term of this Agreement,
subject to any employee contribution provisions as defined in
the Company Benefit Plans. Subsequent health insurance
benefits will be in accordance with COBRA.
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ARTICLE V
GENERAL PROVISIONS
5.1 Notice. For purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: Meade Instruments Corp.
16542 Millikan Avenue
Irvine, CA 92714
Attn: Chief Executive Officer
If to Executive: 9 Lochmoor Lane
Newport Beach, CA 92660
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5.2 No Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
5.3 Beneficial Interests. This Agreement shall inure to the
benefit of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
5.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
5.5 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect. The parties intend that the covenants and
agreements, contained herein shall be deemed to be a series of separate
covenants and agreements, one for each and every state of the United States and
political subdivision outside of the
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United States where the business described is conducted. If, in any judicial
proceeding, a court shall refuse to enforce any of the separate covenants deemed
included in such action, then such unenforceable covenants shall be deemed
eliminated from the provisions of this Agreement for the purpose of such
proceeding to the extent necessary to permit the remaining covenants to be
enforced in such proceeding. Further, in the event that any provision is held to
be overbroad as written, such provision shall be deemed amended to narrow its
application to the extent necessary to make the provision enforceable according
to applicable law and enforced as amended.
5.6 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
5.7 Legal Fees and Expenses. Should any party institute any
action or proceeding to enforce this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or of any provision
hereof, or for a declaration of rights hereunder, the prevailing party in any
such action or proceeding shall be entitled to receive from the other party all
costs and expenses, including reasonable attorneys' fees, incurred by the
prevailing party in connection with such action or proceeding.
5.8 Entire Agreement. This Agreement constitutes the entire
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended by
the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.9 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
5.10 Arbitration. Any controversy, dispute, claim or other
matter in question arising out of or relating to this
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Agreement shall be settled, at the request of either party, by binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof, subject to
the following terms, conditions and exceptions:
(a) Notice of the demand for arbitration shall be
filed in writing with the other party and with the AAA. There shall be a panel
of three (3) arbitrators whose selection shall be made in accordance with the
procedures then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in
arbitration.
(c) Except as otherwise provided in Section 5.7
hereof, the costs and fees of the arbitration shall be allocated by the
arbitrators.
(d) The arbitrator shall not be authorized to award
punitive damages with respect to any claim, dispute or controversy.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Company"
Meade Instruments Corp.
a California corporation
By: /s/ STEVEN G. MURDOCK
--------------------------------------------
Steven G. Murdock, President and
Chief Operating Officer
"Executive"
/s/ JOHN C. DIEBEL
-----------------------------------------------
John C. Diebel
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<PAGE> 1
Exhibit 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of April
23, 1996, between Meade Instruments Corp., a California corporation ("Company"),
and Steven G. Murdock ("Executive"). In consideration of the mutual covenants
and agreements set forth herein, including the Company's agreement to pay
severance benefits in certain events, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
The Company hereby employs Executive and Executive accepts
employment with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and
Executive agrees to serve as the Company's President and Chief Operating Officer
during the term of this Agreement, and shall perform the duties commensurate
with such position. Executive agrees to devote substantially his full business
time and attention and best efforts to the affairs of the Company during the
term of this Agreement.
1.2 Term. The employment of Executive by the Company under the
terms and conditions of this Agreement will commence as of the date hereof and
will continue for a period of one (1) year unless terminated earlier under
Article IV. The term of the Agreement shall be extended on a daily basis such
that the remaining term of this Agreement shall at all times be one (1) full
year.
ARTICLE II
COMPENSATION
2.1 Annual Salary. During the employment of Executive, the
Company shall pay to Executive a base salary at the annual rate of $225,000 (the
"Base Salary"). The Base Salary shall be payable in substantially equal
semi-monthly installments. The Base Salary shall be reviewed annually by the
Company's Board of Directors.
2.2 Reimbursement of Expenses. Executive shall be entitled to
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or in
the service of, the Company, provided that such expenses are submitted to the
Company within a reasonable period of time after incurrence and are accounted
for in accordance with the policies and procedures established by the Company.
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2.3 Benefits. Executive shall be entitled to participate in
and be covered by all health, insurance, pension and other employee plans and
benefits currently established for the employees of the Company (collectively
referred to as the "Company Benefit Plans") on at least the same terms as other
employees of the Company, subject to meeting applicable eligibility
requirements.
2.4 Vacations and Holidays. During Executive's employment with
the Company, Executive shall be entitled to an annual vacation leave of three
(3) weeks at full pay, or such greater vacation benefits as may be provided for
by the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. Executive will not during Executive's
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
3.2 Return of Confidential Material. Executive shall promptly
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company. Upon the request of
the Company, Executive shall certify, in writing to the Company, his compliance
with the provisions of this Section 3.2.
3.3 Prohibition on Solicitation of Customers. During the term
of Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's
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or entity's contractual and/or business relationship with the Company, nor shall
Executive interfere with or disrupt or attempt to interfere with or disrupt any
such relationship. None of the foregoing shall be deemed a waiver of any and all
rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or
Independent Contractors After Termination. During the term of Executive's
employment with the Company and for a period of one (l) year following the
termination of Executive's employment with the Company, Executive will not
solicit any of the employees, agents, or independent contractors of the Company
to leave the employ of the Company for a competitive company or business.
However, Executive may solicit any employee, agent or independent contractor who
voluntarily terminates his or her employment with the Company after a period of
120 days has elapsed since the termination date of such employee, agent or
independent contractor. None of the foregoing shall be deemed a waiver of any
and all rights and remedies the Company may have under applicable law.
3.5 Agreement Not to Compete. During the term of Executive's
employment with the Company and for so long as Executive receives any severance
benefits provided under Section 4.5(b), the Executive agrees not to engage,
directly or indirectly, in any business which is in competition with that of the
Company or any of its affiliates in any jurisdiction in which the Company or any
of its affiliates are doing business. For purposes of this Section 3.5, the
Executive will be deemed to engage in any business by being a shareholder (other
than holding less than one percent (1%) of the shares of any publicly-held
corporation), director, officer, partner, member, governor, manager, employee,
consultant, independent contractor or serving in any capacity similar to the
foregoing on behalf of said business. A business in competition with the Company
is a business which distributes products which are competitive with those
products distributed or sold by the Company or its affiliates.
3.6 Right to Injunctive and Equitable Relief. Executive's
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably or
adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law.
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3.7 Survival of Obligations. Executive agrees that the terms
of this Article III shall survive the term of this Agreement and the termination
of Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 For purposes of this Article IV, the following definitions
shall apply to the terms set forth below:
(a) Board Change. "Board Change" shall mean the
designation of the members of a majority of the Company's Board of
Directors by Churchill ESOP Capital Partners , A Minnesota Limited
Partnership ("CECP"), pursuant to Section 1(b)(ii) of that certain
Shareholder Agreement dated as of the date hereof, by and among the
Company, CECP, Joseph A. Gordon, Jr., Ron Ezra, John Diebel,
individually and also acting as the trustee of the Diebel Living Trust,
and Steven Murdock, individually and also acting as trustee of the
Murdock 1986 Trust.
(b) Cause. "Cause" shall include the following:
(i) the Executive's personal dishonesty or
willful misconduct;
(ii) the Executive's breach of his fiduciary
duties to the Company;
(iii) the Executive's willful violation and
conviction of any law, rule or regulation (other than traffic
violations or similar offenses) or of any final cease and
desist order issued by any financial institution regulatory
authority against the Company; or
(iv) the Executive's material breach of this
Agreement;
(v) the Executive's willful and continuous
failure to devote substantially his full business time and
attention and best efforts to the affairs of the Company; or
(vi) the Executive's refusal after seven (7)
business days from a written request by the Board of Directors
to take any action consistent with his position reasonably
requested by the Board of Directors.
(c) Good Reason. "Good Reason" shall mean voluntary
termination as a result of:
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(i) the assignment to Executive of duties
substantially inconsistent with the position and status of
Executive as set forth in this Agreement without Executive's
prior written consent;
(ii) a substantial alteration in the nature,
status or prestige of Executive's responsibilities or a change
in Executive's title or reporting level from that set forth in
this Agreement;
(iii) the relocation of the Company's executive
offices or principal business location to a point more than
fifty (50) miles from the location of such offices or
businesses as of the date of this Agreement; or
(iv) a reduction by the Company of Executive's
Base Salary.
(d) Disability. "Disability" shall mean a physical or
mental incapacity as a result of which Executive becomes unable to
continue the proper performance of his duties hereunder (reasonable
absences because of sickness for up to three (3) consecutive months
excepted); provided, however, that any new period of incapacity or
absence shall be deemed to be part of a prior period of incapacity or
absence if the prior period terminated within ninety (90) days of the
beginning of the new period of incapacity or absence and the incapacity
or absence is determined by the Company's Board of Directors, in good
faith, to be related to the prior incapacity or absence. A
determination of Disability shall be subject to the certification of a
qualified medical doctor agreed to by the Company and Executive or in
the event of Executive's incapacity to designate a doctor, Executive's
legal representative. In the absence of agreement between the Company
and Executive, each party shall nominate a qualified medical doctor and
the two (2) doctors so nominated shall select a third doctor, who shall
make the determination as to Disability. The effective date ("Effective
Date") of Disability shall be the first date of Executive's incapacity
or absence.
4.2 Termination by Company. The Company may terminate
Executive's employment hereunder immediately for Cause, and the effective date
("Effective Date") of such termination shall be the date Executive receives
written notice of termination for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination other than for Cause ("Effective Date") shall be
considered to be thirty (30) days subsequent to written notice of termination;
however, the Company may elect to have Executive leave the Company immediately.
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4.3 Termination by Executive. Executive may terminate his
employment hereunder upon thirty (30) days' written notice to the Company. The
effective date of termination by the Executive ("Effective Date") shall be
considered to be thirty (30) days subsequent to written notice of termination;
however, the Company may elect to have Executive leave the Company immediately.
4.4 Death or Disability of Executive. Executive's
employment hereunder shall terminate immediately upon the death
or Disability of Executive.
4.5 Severance Benefits Received Upon Termination.
(a) If Executive's employment is terminated by the
Company for Cause, Executive terminates this Agreement pursuant to
Section 4.3 other than for Good Reason after a Board Change or the
Executive dies, then the Company shall pay Executive his Base Salary
through the Effective Date of such termination or the date of death, as
applicable, plus credit for any vacation earned but not taken, and the
Company shall thereafter have no further obligations to Executive under
this Agreement.
(b) If Executive's employment is terminated by the
Company without Cause, Executive terminates this Agreement for Good
Reason after a Board Change or Executive's employment is terminated by
the Company as a result of Disability, and provided Executive is not in
breach of the provisions of Article III, then the Company shall provide
Executive:
(i) salary continuation in an amount equal
to Executive's then Base Salary for a period equal to the
remainder of the term of this Agreement measured from the
Effective Date of termination or Disability, as applicable,
said sum to be paid semi-monthly in equal installments at the
times salary payments are usually made; and
(ii) health insurance coverage as then in
effect for Executive, his spouse and dependent children for a
period equal to the remainder of the term of this Agreement,
subject to any employee contribution provisions as defined in
the Company Benefit Plans. Subsequent health insurance
benefits will be in accordance with COBRA.
ARTICLE V
GENERAL PROVISIONS
5.1 Notice. For purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when
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delivered or mailed by United States registered mail, return receipt requested,
postage prepaid, as follows:
If to the Company: Meade Instruments Corp.
16542 Millikan Avenue
Irvine, CA 92714
Attn: Chief Executive Officer
If to Executive: 28081 Tefir
Mission Viejo, CA 92692
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5.2 No Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
5.3 Beneficial Interests. This Agreement shall inure to the
benefit of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
5.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
5.5 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect. The parties intend that the covenants and
agreements, contained herein shall be deemed to be a series of separate
covenants and agreements, one for each and every state of the United States and
political subdivision outside of the United States where the business described
is conducted. If, in any judicial proceeding, a court shall refuse to enforce
any of the separate covenants deemed included in such action, then such
unenforceable covenants shall be deemed eliminated from the provisions of this
Agreement for the purpose of such proceeding to the extent necessary to permit
the remaining covenants to be enforced in such proceeding. Further, in the event
that any provision is held to be overbroad as written, such provision
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shall be deemed amended to narrow its application to the extent necessary to
make the provision enforceable according to applicable law and enforced as
amended.
5.6 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
5.7 Legal Fees and Expenses. Should any party institute any
action or proceeding to enforce this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or of any provision
hereof, or for a declaration of rights hereunder, the prevailing party in any
such action or proceeding shall be entitled to receive from the other party all
costs and expenses, including reasonable attorneys' fees, incurred by the
prevailing party in connection with such action or proceeding.
5.8 Entire Agreement. This Agreement constitutes the entire
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended by
the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.9 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
5.10 Arbitration. Any controversy, dispute, claim or other
matter in question arising out of or relating to this Agreement shall be
settled, at the request of either party, by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
("AAA"), and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof, subject to the following terms,
conditions and exceptions:
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(a) Notice of the demand for arbitration shall be
filed in writing with the other party and with the AAA. There shall be a panel
of three (3) arbitrators whose selection shall be made in accordance with the
procedures then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in
arbitration.
(c) Except as otherwise provided in Section 5.7
hereof, the costs and fees of the arbitration shall be allocated by the
arbitrators.
(d) The arbitrator shall not be authorized to award
punitive damages with respect to any claim, dispute or controversy.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Company"
Meade Instruments Corp.
a California corporation
By: /s/ JOHN DIEBEL
--------------------------------
John Diebel, Chairman and
Chief Executive Officer
"Executive"
/s/ STEVEN G. MURDOCK
-----------------------------------
Steven G. Murdock
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Exhibit 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of April
23, 1996, between Meade Instruments Corp., a California corporation ("Company"),
and Ronald Ezra ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, including the Company's agreement to pay severance
benefits in certain events, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
The Company hereby employs Executive and Executive accepts
employment with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and
Executive agrees to serve as the Company's Chief Engineer during the term of
this Agreement, and shall perform the duties commensurate with such position.
Executive agrees to devote substantially his full business time and attention
and best efforts to the affairs of the Company during the term of this
Agreement.
1.2 Term. The employment of Executive by the Company under the
terms and conditions of this Agreement will commence as of the date hereof and
will continue for a period of one (1) year unless terminated earlier under
Article IV. The term of the Agreement shall be extended on a daily basis such
that the remaining term of this Agreement shall at all times be one (1) full
year.
ARTICLE II
COMPENSATION
2.1 Annual Salary. During the employment of Executive, the
Company shall pay to Executive a base salary at the annual rate of $100,000 (the
"Base Salary"). The Base Salary shall be payable in substantially equal
semi-monthly installments. The Base Salary shall be reviewed annually by the
Company's Board of Directors.
2.2 Reimbursement of Expenses. Executive shall be entitled to
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or in
the service of, the Company, provided that such expenses are submitted to the
Company within a reasonable period of time after incurrence and are accounted
for in accordance with the policies and procedures established by the Company.
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2.3 Benefits. Executive shall be entitled to participate in
and be covered by all health, insurance, pension and other employee plans and
benefits currently established for the employees of the Company (collectively
referred to as the "Company Benefit Plans") on at least the same terms as other
employees of the Company, subject to meeting applicable eligibility
requirements.
2.4 Vacations and Holidays. During Executive's employment with
the Company, Executive shall be entitled to an annual vacation leave of three
(3) weeks at full pay, or such greater vacation benefits as may be provided for
by the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. Executive will not during Executive's
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
3.2 Return of Confidential Material. Executive shall promptly
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company. Upon the request of
the Company, Executive shall certify, in writing to the Company, his compliance
with the provisions of this Section 3.2.
3.3 Prohibition on Solicitation of Customers. During the term
of Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's
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or entity's contractual and/or business relationship with the Company, nor shall
Executive interfere with or disrupt or attempt to interfere with or disrupt any
such relationship. None of the foregoing shall be deemed a waiver of any and all
rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or
Independent Contractors After Termination. During the term of Executive's
employment with the Company and for a period of one (l) year following the
termination of Executive's employment with the Company, Executive will not
solicit any of the employees, agents, or independent contractors of the Company
to leave the employ of the Company for a competitive company or business.
However, Executive may solicit any employee, agent or independent contractor who
voluntarily terminates his or her employment with the Company after a period of
120 days has elapsed since the termination date of such employee, agent or
independent contractor. None of the foregoing shall be deemed a waiver of any
and all rights and remedies the Company may have under applicable law.
3.5 Agreement Not to Compete. During the term of Executive's
employment with the Company and for so long as Executive receives any severance
benefits provided under Section 4.5(b), the Executive agrees not to engage,
directly or indirectly, in any business which is in competition with that of the
Company or any of its affiliates in any jurisdiction in which the Company or any
of its affiliates are doing business. For purposes of this Section 3.5, the
Executive will be deemed to engage in any business by being a shareholder (other
than holding less than one percent (1%) of the shares of any publicly-held
corporation), director, officer, partner, member, governor, manager, employee,
consultant, independent contractor or serving in any capacity similar to the
foregoing on behalf of said business. A business in competition with the Company
is a business which distributes products which are competitive with those
products distributed or sold by the Company or its affiliates.
3.6 Right to Injunctive and Equitable Relief. Executive's
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably or
adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law.
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3.7 Survival of Obligations. Executive agrees that the terms
of this Article III shall survive the term of this Agreement and the termination
of Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 For purposes of this Article IV, the following definitions
shall apply to the terms set forth below:
(a) Board Change. "Board Change" shall mean the
designation of the members of a majority of the Company's Board of
Directors by Churchill ESOP Capital Partners , A Minnesota Limited
Partnership ("CECP"), pursuant to Section 1(b)(ii) of that certain
Shareholder Agreement dated as of the date hereof, by and among the
Company, CECP, Joseph A. Gordon, Jr., Ron Ezra, John Diebel,
individually and also acting as the trustee of the Diebel Living Trust,
and Steven Murdock, individually and also acting as trustee of the
Murdock 1986 Trust.
(b) Cause. "Cause" shall include the following:
(i) the Executive's personal dishonesty or
willful misconduct;
(ii) the Executive's breach of his fiduciary
duties to the Company;
(iii) the Executive's willful violation and
conviction of any law, rule or regulation (other than traffic
violations or similar offenses) or of any final cease and
desist order issued by any financial institution regulatory
authority against the Company; or
(iv) the Executive's material breach of this
Agreement;
(v) the Executive's willful and continuous
failure to devote substantially his full business time and
attention and best efforts to the affairs of the Company; or
(vi) the Executive's refusal after seven (7)
business days from a written request by the Board of Directors
to take any action consistent with his position reasonably
requested by the Board of Directors.
(c) Good Reason. "Good Reason" shall mean voluntary
termination as a result of:
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(i) the assignment to Executive of duties
substantially inconsistent with the position and status of
Executive as set forth in this Agreement without Executive's
prior written consent;
(ii) a substantial alteration in the nature,
status or prestige of Executive's responsibilities or a change
in Executive's title or reporting level from that set forth in
this Agreement;
(iii) the relocation of the Company's executive
offices or principal business location to a point more than
fifty (50) miles from the location of such offices or
businesses as of the date of this Agreement; or
(iv) a reduction by the Company of Executive's
Base Salary.
(d) Disability. "Disability" shall mean a physical or
mental incapacity as a result of which Executive becomes unable to
continue the proper performance of his duties hereunder (reasonable
absences because of sickness for up to three (3) consecutive months
excepted); provided, however, that any new period of incapacity or
absence shall be deemed to be part of a prior period of incapacity or
absence if the prior period terminated within ninety (90) days of the
beginning of the new period of incapacity or absence and the incapacity
or absence is determined by the Company's Board of Directors, in good
faith, to be related to the prior incapacity or absence. A
determination of Disability shall be subject to the certification of a
qualified medical doctor agreed to by the Company and Executive or in
the event of Executive's incapacity to designate a doctor, Executive's
legal representative. In the absence of agreement between the Company
and Executive, each party shall nominate a qualified medical doctor and
the two (2) doctors so nominated shall select a third doctor, who shall
make the determination as to Disability. The effective date ("Effective
Date") of Disability shall be the first date of Executive's incapacity
or absence.
4.2 Termination by Company. The Company may terminate
Executive's employment hereunder immediately for Cause, and the effective date
("Effective Date") of such termination shall be the date Executive receives
written notice of termination for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination other than for Cause ("Effective Date") shall be
considered to be thirty (30) days subsequent to written notice of termination;
however, the Company may elect to have Executive leave the Company immediately.
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4.3 Termination by Executive. Executive may terminate his
employment hereunder upon thirty (30) days' written notice to the Company. The
effective date of termination by the Executive ("Effective Date") shall be
considered to be thirty (30) days subsequent to written notice of termination;
however, the Company may elect to have Executive leave the Company immediately.
4.4 Death or Disability of Executive. Executive's employment
hereunder shall terminate immediately upon the death or Disability of Executive.
4.5 Severance Benefits Received Upon Termination.
(a) If Executive's employment is terminated by the
Company for Cause, Executive terminates this Agreement pursuant to
Section 4.3 other than for Good Reason after a Board Change or the
Executive dies, then the Company shall pay Executive his Base Salary
through the Effective Date of such termination or the date of death, as
applicable, plus credit for any vacation earned but not taken, and the
Company shall thereafter have no further obligations to Executive under
this Agreement.
(b) If Executive's employment is terminated by the
Company without Cause, Executive terminates this Agreement for Good
Reason after a Board Change or Executive's employment is terminated by
the Company as a result of Disability, and provided Executive is not in
breach of the provisions of Article III, then the Company shall provide
Executive:
(i) salary continuation in an amount equal
to Executive's then Base Salary for a period equal to the
remainder of the term of this Agreement measured from the
Effective Date of termination or Disability, as applicable,
said sum to be paid semi-monthly in equal installments at the
times salary payments are usually made; and
(ii) health insurance coverage as then in
effect for Executive, his spouse and dependent children for a
period equal to the remainder of the term of this Agreement,
subject to any employee contribution provisions as defined in
the Company Benefit Plans. Subsequent health insurance
benefits will be in accordance with COBRA.
ARTICLE V
GENERAL PROVISIONS
5.1 Notice. For purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when
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delivered or mailed by United States registered mail, return receipt requested,
postage prepaid, as follows:
If to the Company: Meade Instruments Corp.
16542 Millikan Avenue
Irvine, CA 92714
Attn: Chief Executive Officer
If to Executive: 101 Willowood
Laguna Hills, CA 92656
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5.2 No Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
5.3 Beneficial Interests. This Agreement shall inure to the
benefit of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
5.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
5.5 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect. The parties intend that the covenants and
agreements, contained herein shall be deemed to be a series of separate
covenants and agreements, one for each and every state of the United States and
political subdivision outside of the United States where the business described
is conducted. If, in any judicial proceeding, a court shall refuse to enforce
any of the separate covenants deemed included in such action, then such
unenforceable covenants shall be deemed eliminated from the provisions of this
Agreement for the purpose of such proceeding to the extent necessary to permit
the remaining covenants to be enforced in such proceeding. Further, in the event
that any
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provision is held to be overbroad as written, such provision shall be deemed
amended to narrow its application to the extent necessary to make the provision
enforceable according to applicable law and enforced as amended.
5.6 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
5.7 Legal Fees and Expenses. Should any party institute any
action or proceeding to enforce this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or of any provision
hereof, or for a declaration of rights hereunder, the prevailing party in any
such action or proceeding shall be entitled to receive from the other party all
costs and expenses, including reasonable attorneys' fees, incurred by the
prevailing party in connection with such action or proceeding.
5.8 Entire Agreement. This Agreement constitutes the entire
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended by
the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.9 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
5.10 Arbitration. Any controversy, dispute, claim or other
matter in question arising out of or relating to this Agreement shall be
settled, at the request of either party, by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
("AAA"), and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof, subject to the following terms,
conditions and exceptions:
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(a) Notice of the demand for arbitration shall be
filed in writing with the other party and with the AAA. There shall be a panel
of three (3) arbitrators whose selection shall be made in accordance with the
procedures then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in
arbitration.
(c) Except as otherwise provided in Section 5.7
hereof, the costs and fees of the arbitration shall be allocated by the
arbitrators.
(d) The arbitrator shall not be authorized to award
punitive damages with respect to any claim, dispute or controversy.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Company"
Meade Instruments Corp.
a California corporation
By: /s/ JOHN DIEBEL
-------------------------------
John Diebel
Chief Executive Officer
"Executive"
/s/ RONALD EZRA
----------------------------------
Ronald Ezra
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Exhibit 10.12
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of
April 23, 1996, between Meade Instruments Corp., a California
corporation ("Company"), and Joseph A. Gordon, Jr. ("Executive").
In consideration of the mutual covenants and agreements set forth
herein, including the Company's agreement to pay severance
benefits in certain events, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
The Company hereby employs Executive and Executive accepts
employment with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and
Executive agrees to serve as the Company's Vice President of North American
Sales during the term of this Agreement, and shall perform the duties
commensurate with such position. Executive agrees to devote substantially his
full business time and attention and best efforts to the affairs of the Company
during the term of this Agreement.
1.2 Term. The employment of Executive by the Company under the
terms and conditions of this Agreement will commence as of the date hereof and
will continue for a period of one (1) year unless terminated earlier under
Article IV. The term of the Agreement shall be extended on a daily basis such
that the remaining term of this Agreement shall at all times be one (1) full
year.
ARTICLE II
COMPENSATION
2.1 Annual Salary. During the employment of Executive, the
Company shall pay to Executive a base salary at the annual rate of $125,000 (the
"Base Salary"). The Base Salary shall be payable in substantially equal
semi-monthly installments. The Base Salary shall be reviewed annually by the
Company's Board of Directors.
2.2 Reimbursement of Expenses. Executive shall be entitled to
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or in
the service of, the Company, provided that such expenses are submitted to the
Company within a reasonable period of time after incurrence and are accounted
for in accordance with the policies and procedures established by the Company.
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2.3 Benefits. Executive shall be entitled to participate in
and be covered by all health, insurance, pension and other employee plans and
benefits currently established for the employees of the Company (collectively
referred to as the "Company Benefit Plans") on at least the same terms as other
employees of the Company, subject to meeting applicable eligibility
requirements.
2.4 Vacations and Holidays. During Executive's employment with
the Company, Executive shall be entitled to an annual vacation leave of three
(3) weeks at full pay, or such greater vacation benefits as may be provided for
by the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. Executive will not during Executive's
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
3.2 Return of Confidential Material. Executive shall promptly
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company. Upon the request of
the Company, Executive shall certify, in writing to the Company, his compliance
with the provisions of this Section 3.2.
3.3 Prohibition on Solicitation of Customers. During the term
of Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's
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or entity's contractual and/or business relationship with the Company, nor shall
Executive interfere with or disrupt or attempt to interfere with or disrupt any
such relationship. None of the foregoing shall be deemed a waiver of any and all
rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or
Independent Contractors After Termination. During the term of Executive's
employment with the Company and for a period of one (l) year following the
termination of Executive's employment with the Company, Executive will not
solicit any of the employees, agents, or independent contractors of the Company
to leave the employ of the Company for a competitive company or business.
However, Executive may solicit any employee, agent or independent contractor who
voluntarily terminates his or her employment with the Company after a period of
120 days has elapsed since the termination date of such employee, agent or
independent contractor. None of the foregoing shall be deemed a waiver of any
and all rights and remedies the Company may have under applicable law.
3.5 Agreement Not to Compete. During the term of Executive's
employment with the Company and for so long as Executive receives any severance
benefits provided under Section 4.5(b), the Executive agrees not to engage,
directly or indirectly, in any business which is in competition with that of the
Company or any of its affiliates in any jurisdiction in which the Company or any
of its affiliates are doing business. For purposes of this Section 3.5, the
Executive will be deemed to engage in any business by being a shareholder (other
than holding less than one percent (1%) of the shares of any publicly-held
corporation), director, officer, partner, member, governor, manager, employee,
consultant, independent contractor or serving in any capacity similar to the
foregoing on behalf of said business. A business in competition with the Company
is a business which distributes products which are competitive with those
products distributed or sold by the Company or its affiliates.
3.6 Right to Injunctive and Equitable Relief. Executive's
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably or
adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law.
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3.7 Survival of Obligations. Executive agrees that the terms
of this Article III shall survive the term of this Agreement and the termination
of Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 For purposes of this Article IV, the following definitions
shall apply to the terms set forth below:
(a) Board Change. "Board Change" shall mean the
designation of the members of a majority of the Company's Board of
Directors by Churchill ESOP Capital Partners , A Minnesota Limited
Partnership ("CECP"), pursuant to Section 1(b)(ii) of that certain
Shareholder Agreement dated as of the date hereof, by and among the
Company, CECP, Joseph A. Gordon, Jr., Ron Ezra, John Diebel,
individually and also acting as the trustee of the Diebel Living Trust,
and Steven Murdock, individually and also acting as trustee of the
Murdock 1986 Trust.
(b) Cause. "Cause" shall include the following:
(i) the Executive's personal dishonesty or
willful misconduct;
(ii) the Executive's breach of his fiduciary
duties to the Company;
(iii) the Executive's willful violation and
conviction of any law, rule or regulation (other than traffic
violations or similar offenses) or of any final cease and
desist order issued by any financial institution regulatory
authority against the Company; or
(iv) the Executive's material breach of this
Agreement;
(v) the Executive's willful and continuous
failure to devote substantially his full business time and
attention and best efforts to the affairs of the Company; or
(vi) the Executive's refusal after seven (7)
business days from a written request by the Board of Directors
to take any action consistent with his position reasonably
requested by the Board of Directors.
(c) Good Reason. "Good Reason" shall mean voluntary
termination as a result of:
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(i) the assignment to Executive of duties
substantially inconsistent with the position and status of
Executive as set forth in this Agreement without Executive's
prior written consent;
(ii) a substantial alteration in the nature,
status or prestige of Executive's responsibilities or a change
in Executive's title or reporting level from that set forth in
this Agreement;
(iii) the relocation of the Company's executive
offices or principal business location to a point more than
fifty (50) miles from the location of such offices or
businesses as of the date of this Agreement; or
(iv) a reduction by the Company of Executive's
Base Salary.
(d) Disability. "Disability" shall mean a physical or
mental incapacity as a result of which Executive becomes unable to
continue the proper performance of his duties hereunder (reasonable
absences because of sickness for up to three (3) consecutive months
excepted); provided, however, that any new period of incapacity or
absence shall be deemed to be part of a prior period of incapacity or
absence if the prior period terminated within ninety (90) days of the
beginning of the new period of incapacity or absence and the incapacity
or absence is determined by the Company's Board of Directors, in good
faith, to be related to the prior incapacity or absence. A
determination of Disability shall be subject to the certification of a
qualified medical doctor agreed to by the Company and Executive or in
the event of Executive's incapacity to designate a doctor, Executive's
legal representative. In the absence of agreement between the Company
and Executive, each party shall nominate a qualified medical doctor and
the two (2) doctors so nominated shall select a third doctor, who shall
make the determination as to Disability. The effective date ("Effective
Date") of Disability shall be the first date of Executive's incapacity
or absence.
4.2 Termination by Company. The Company may terminate
Executive's employment hereunder immediately for Cause, and the effective date
("Effective Date") of such termination shall be the date Executive receives
written notice of termination for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination other than for Cause ("Effective Date") shall be
considered to be thirty (30) days subsequent to written notice of termination;
however, the Company may elect to have Executive leave the Company immediately.
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4.3 Termination by Executive. Executive may terminate his
employment hereunder upon thirty (30) days' written notice to the Company. The
effective date of termination by the Executive ("Effective Date") shall be
considered to be thirty (30) days subsequent to written notice of termination;
however, the Company may elect to have Executive leave the Company immediately.
4.4 Death or Disability of Executive. Executive's employment
hereunder shall terminate immediately upon the death or Disability of Executive.
4.5 Severance Benefits Received Upon Termination.
(a) If Executive's employment is terminated by the
Company for Cause, Executive terminates this Agreement pursuant to
Section 4.3 other than for Good Reason after a Board Change or the
Executive dies, then the Company shall pay Executive his Base Salary
through the Effective Date of such termination or the date of death, as
applicable, plus credit for any vacation earned but not taken, and the
Company shall thereafter have no further obligations to Executive under
this Agreement.
(b) If Executive's employment is terminated by the
Company without Cause, Executive terminates this Agreement for Good
Reason after a Board Change or Executive's employment is terminated by
the Company as a result of Disability, and provided Executive is not in
breach of the provisions of Article III, then the Company shall provide
Executive:
(i) salary continuation in an amount equal
to Executive's then Base Salary for a period equal to the
remainder of the term of this Agreement measured from the
Effective Date of termination or Disability, as applicable,
said sum to be paid semi-monthly in equal installments at the
times salary payments are usually made; and
(ii) health insurance coverage as then in
effect for Executive, his spouse and dependent children for a
period equal to the remainder of the term of this Agreement,
subject to any employee contribution provisions as defined in
the Company Benefit Plans. Subsequent health insurance
benefits will be in accordance with COBRA.
ARTICLE V
GENERAL PROVISIONS
5.1 Notice. For purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when
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<PAGE> 7
delivered or mailed by United States registered mail, return receipt requested,
postage prepaid, as follows:
If to the Company: Meade Instruments Corp.
16542 Millikan Avenue
Irvine, CA 92714
Attn: Chief Executive Officer
If to Executive: 1 Fair Elm
Laguna Niguel, CA 92677
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5.2 No Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
5.3 Beneficial Interests. This Agreement shall inure to the
benefit of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
5.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
5.5 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect. The parties intend that the covenants and
agreements, contained herein shall be deemed to be a series of separate
covenants and agreements, one for each and every state of the United States and
political subdivision outside of the United States where the business described
is conducted. If, in any judicial proceeding, a court shall refuse to enforce
any of the separate covenants deemed included in such action, then such
unenforceable covenants shall be deemed eliminated from the provisions of this
Agreement for the purpose of such proceeding to the extent necessary to permit
the remaining covenants to be enforced in such proceeding. Further, in the event
that any
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<PAGE> 8
provision is held to be overbroad as written, such provision shall be deemed
amended to narrow its application to the extent necessary to make the provision
enforceable according to applicable law and enforced as amended.
5.6 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
5.7 Legal Fees and Expenses. Should any party institute any
action or proceeding to enforce this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or of any provision
hereof, or for a declaration of rights hereunder, the prevailing party in any
such action or proceeding shall be entitled to receive from the other party all
costs and expenses, including reasonable attorneys' fees, incurred by the
prevailing party in connection with such action or proceeding.
5.8 Entire Agreement. This Agreement constitutes the entire
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended by
the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.9 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
5.10 Arbitration. Any controversy, dispute, claim or other
matter in question arising out of or relating to this Agreement shall be
settled, at the request of either party, by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
("AAA"), and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof, subject to the following terms,
conditions and exceptions:
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<PAGE> 9
(a) Notice of the demand for arbitration shall be
filed in writing with the other party and with the AAA. There shall be a panel
of three (3) arbitrators whose selection shall be made in accordance with the
procedures then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in
arbitration.
(c) Except as otherwise provided in Section 5.7
hereof, the costs and fees of the arbitration shall be allocated by the
arbitrators.
(d) The arbitrator shall not be authorized to award
punitive damages with respect to any claim, dispute or controversy.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Company"
Meade Instruments Corp.
a California corporation
By: /s/ JOHN DIEBEL
--------------------------------
John Diebel
Chief Executive Officer
"Executive"
/s/ JOSEPH A. GORDON, JR.
-----------------------------------
Joseph A. Gordon, Jr.
9
<PAGE> 1
EXHIBIT 10.13
MEADE INSTRUMENTS CORP.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective March 1, 1996
<PAGE> 2
TABLE OF CONTENTS
SECTION PAGE
1. Nature of the Plan ............................................. 1
2. Definitions .................................................... 2
3. Eligibility and Participation .................................. 7
4. Employer Contributions ......................................... 9
5. Investment of Trust Assets ..................................... 12
6. Allocations to Participants' Accounts .......................... 15
7. Allocation Limitations ......................................... 20
8. Voting Company Stock ........................................... 23
9. Vesting and Forfeitures ........................................ 24
10. Credited Service and Break in Service .......................... 24
11. When Capital Accumulation Will Be Distributed .................. 25
12. Diversification Election ....................................... 28
13. How Capital Accumulation Will Be Distributed ................... 29
14. Rights, Options and Restrictions on Company Stock .............. 32
15. No Assignment of Benefits ...................................... 34
16. Administration ................................................. 35
17. Claims Procedure ............................................... 39
18. Limitation on Participants' Rights ............................. 40
19. Future of the Plan ............................................. 41
20. "Top-Heavy" Contingency Provisions ............................. 43
21. Governing Law .................................................. 45
22. Execution ...................................................... 45
<PAGE> 3
MEADE INSTRUMENTS CORP.
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. Nature of the Plan.
The purpose of this Plan is to enable participating Employees to share
in the growth and prosperity of Meade Instruments Corp. (the "Company") and to
provide Participants with an opportunity to accumulate capital for their future
economic security. The Plan is intended to do this without any deductions from
Participants' paychecks and without requiring them to invest their personal
savings. The primary purpose of the Plan is to enable Participants to acquire
stock ownership interests in the Company. Therefore, the Trust established under
the Plan is designed to invest primarily in Company Stock.
The Plan is also designed to be available as a technique of corporate
finance to the Company. Accordingly, it may be used to accomplish the following
objectives:
(a) To meet general financing requirements of the Company,
including capital growth and transfers in the ownership of
Company Stock;
(b) To provide Participants with beneficial ownership of Company
Stock substantially in proportion to their relative
Compensation, without requiring any cash outlay, any reduction
in pay or other personal investment on the part of
Participants; and
(c) To receive loans (or other extensions of credit) to finance
the acquisition of Company Stock, with such loans to be repaid
by Employer Contributions to the Trust and dividends received
on such Company Stock.
<PAGE> 4
The Plan is hereby adopted effective as of March 1, 1996, and is a
stock bonus plan under Section 401(a) of the Internal Revenue Code (the "Code")
and an employee stock ownership plan under Section 4975(e)(7) of the Code.
All Trust Assets held under the Plan will be administered, distributed,
forfeited and otherwise governed by the provisions of this Plan and the related
Trust Agreement. The Plan is administered by an Administrative Committee for the
exclusive benefit of Participants (and their Beneficiaries).
Section 2. Definitions.
In this Plan, whenever the context so indicates, the singular or
plural number and the masculine, feminine or neuter gender shall be deemed to
include the other, the terms "he," "his" and "him" shall refer to a Participant,
and the capitalized terms shall have the following meanings:
Account.................. One of two accounts maintained to record the
interest of a Participant under the Plan. See
Section 6.
Acquisition Loan......... A loan (or other extension of credit) used by the
Trust to finance the acquisition of Company Stock,
which loan may constitute an extension of credit
to the Trust from a party in interest (as defined
in ERISA). See Section 5(b).
Affiliate................ Any corporation which is a member of a controlled
group of corporations (within the meaning of
Section 414(b) of the Code) of which the Company
is also a member or any
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<PAGE> 5
trade or business (whether or not incorporated)
which is under common control with the Company
(within the meaning of Section 414(c) of the Code).
Allocation Date.......... The December 31st of each year.
Allocation Year.......... The 12-month period ending on each Allocation Date
(and coinciding with each calendar year), which
period shall be the "limitation year" for purposes
of Section 415 of the Code.
Approved Absence......... A leave of absence from work granted to an Employee
by the Company under its established leave
policy, including unpaid leave under the Family and
Medical Leave Act of 1993. See Section 3(c).
Beneficiary.............. The person (or persons) entitled to receive any
benefit under the Plan in the event of a
Participant's death. See Section 13(c).
Board of Directors....... The Board of Directors of the Company.
Break in Service......... A period of time commencing with the date on which
an Employee's Service terminates and ending on the
date he resumes service. See Section 10(b).
Capital Accumulation..... A Participant's vested, nonforfeitable interest
in his Accounts under the Plan. Each Participant's
Capital Accumulation shall be determined in
accordance with the provisions of Section 9 and
distributed as provided in Sections 11, 12 and
13.
Code..................... The Internal Revenue Code of 1986, as amended.
Committee................ The Administrative Committee appointed by the
Board of Directors
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<PAGE> 6
to administer the Plan. See Section 16.
Company.................. Meade Instruments Corp., a California corporation.
Company Stock............ Shares of capital stock issued by the Company,
which shares must be common stock (or preferred
stock convertible into common stock) and must
constitute "employer securities" under Section
409(l) of the Code.
Company Stock Account.... The Account which reflects each Participant's
interest in Company Stock held under the Plan. See
Section 6.
Compensation............. The total wages and other compensation paid to an
Employee by the Company during each Allocation
Year, as reported on the Employee's Tax and Wage
Statement (Form W-2), plus any Elective Deferrals
made on his behalf to the 401(k) Plan and any
amounts withheld pursuant to the Company's
Cafeteria Plan (under Section 125 of the Code), but
excluding any amount in excess of $150,000 (as
adjusted for increases in the cost of living
pursuant to Section 401(a)(17) of the Code). For
purposes of applying the $150,000 dollar
limitation, the Compensation of a 5% owner or of a
Highly Compensated Employee who is one of the ten
most highly compensated Highly Compensated
Employees shall be aggregated with the Compensation
of his spouse and his lineal descendants who are
under age 19.
Credited Service......... The elapsed period of an Employee's Service,
including Service prior to March 1, 1996. See
Section 10.
Disability............... A physical or mental impairment which constitutes a
total and permanent disability entitling the
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<PAGE> 7
Participant to disability benefits under the Social
Security Act.
Discretionary Contri-
butions.................. Employer Contributions made in amounts determined
by the Board of Directors. See Section 4(a).
Elective Deferrals....... Contributions made to the 401(k) Plan at the
election of an Employee.
Employee................. Any common-law employee of the Company. A leased
employee, as described in Section 414(n) of the
Code, is not an Employee for purposes of this
Plan.
Employer Contributions... Payments made to the Trust by an Employer. See
Section 4.
ERISA.................... The Employee Retirement Income Security Act of
1974, as amended.
Fair Market Value........ The fair market value of Company Stock, as
determined for all purposes under the Plan based
upon a valuation by an independent appraiser
(within the meaning of Section 401(a)(28)(C) of the
Code) so long as Company Stock is not readily
tradable on an established market.
Financed Shares.......... Shares of Company Stock acquired by the Trust with
the proceeds of an Acquisition Loan.
Forfeiture............... A Participant's Accounts which are not vested and
which are forfeited under Section 9(b) following
his termination of Service.
401(k) Plan.............. The Meade Instruments Corporation 401(k) Plan, a
profit sharing plan qualified under Section 401(a)
of the Code that includes a "cash or deferred
arrangement" under Section 401(k) of the Code.
Highly Compensated
5
<PAGE> 8
Employee................. An Employee who (1) is a 5% owner, (2) has
Compensation in excess of $100,000, (3) has
Compensation in excess of $66,000 and is in the
top-paid 20% group of Employees, or (4) is an
officer of the Company or an Affiliate and has
Compensation in excess of $60,000, as determined
in accordance with Section 414(q) of the Code. The
$100,000, $66,000 and $60,000 amounts shall be
adjusted after 1996 for increases in the cost of
living, pursuant to Section 414(q)(1) of the Code.
Hour of Service.......... Each hour of Service for which an Employee is
credited under the Plan, as described in Section
3(d).
Matching Contributions... Employer Contributions made in amounts related to
Participants' Elective Deferrals. See Section
4(b).
Other Investments
Account.................. The Account which reflects each Participant's
interest under the Plan attributable to any Trust
Assets other than Company Stock. See Section 6.
Participant.............. Any Employee or former Employee who has met the
applicable eligibility requirements of Section 3(a)
and who has not yet received a complete
distribution of his Capital Accumulation.
Plan..................... The Meade Instruments Corp. Employee Stock
Ownership Plan, which includes this Plan and the
related Trust Agreement.
Plan Year................ The 12-month period ending on the last day of
February and coinciding with each fiscal year of
the Company.
Retirement............... Termination of Service on or after attaining age
65.
6
<PAGE> 9
Service.................. Employment with the Company or with any Affiliate;
provided, however, that periods of employment with
an employer during which the employer was not an
Affiliate shall not be included as Service.
Statutory Compensation... The total remuneration paid to an Employee by the
Company during the Allocation Year for personal
services rendered to the Company, excluding
employer contributions to a plan of deferred
compensation, amounts realized in connection with
stock options and amounts which receive special tax
benefits.
Trust.................... The Meade Instruments Corp. Employee Stock
Ownership Trust, established pursuant to the
Trust Agreement entered into between the Com-
pany and the Trustee.
Trust Agreement.......... The Agreement between the Company and the Trustee
establishing the Trust and specifying the duties of
the Trustee.
Trust Assets............. The Company Stock and any other assets held in the
Trust for the benefit of Participants. See
Section 5.
Trustee................... The Trustee (and any successor Trustee) appointed
by the Board of Directors to hold the Trust Assets.
Section 3. Eligibility and Participation.
(a) Each Employee on March 1, 1996, who has then attained age 21 and
completed at least one year of Service in which he is credited with at least
1000 Hours of Service shall become a Participant on March 1, 1996. Each other
Employee shall become a Participant in the Plan on the December 31st or June
30th co-
7
<PAGE> 10
inciding with or next following the date on which he has attained age 21 and
completed at least one year of Service in which he is credited with at least
1000 Hours of Service. The eligibility computation period for determining one
year of Service under this Section 3(a) shall initially be the period of 12
consecutive months beginning on the Employee's initial date of Service and
thereafter shall be each Allocation Year beginning after his initial date of
Service.
In the event that the terms of Service of any Employee are covered by a
collective bargaining agreement, the Employee shall not be eligible to
participate in the Plan unless the terms of such agreement specifically provide
for participation in this Plan.
(b) A Participant is entitled to share in the allocations of Employer
Contributions and Forfeitures under Section 6(a) and (b) for each Allocation
Year in which he is credited with at least 1000 Hours of Service and is an
Employee (or on Approved Absence) on the Allocation Date. A Participant is also
entitled to share in the allocations of Employer Contributions and Forfeitures
for the Allocation Year of his Retirement, Disability or death.
(c) A former Participant who is reemployed by the Company shall become
a Participant as of the date of his reemployment. An Employee who is on an
Approved Absence shall not become a Participant until the end of his Approved
Absence, but a Partici-
8
<PAGE> 11
pant who is on an Approved Absence shall continue as a Participant during the
period of his Approved Absence.
(d) Hours of Service - For purposes of determining the Hours of Service
to be credited to an Employee under the Plan, the following rules shall be
applied:
(1) Hours of Service shall include each hour of Service for which
an Employee is paid (or entitled to payment) for the
performance of duties; each hour of Service for which an
Employee is paid (or entitled to payment) for a period during
which no duties are performed due to vacation, holiday,
illness, incapacity (including disability), lay-off, jury
duty, military duty or paid leave of absence; and each
additional hour of Service for which back pay is either
awarded or agreed to (irrespective of mitigation of damages);
provided, however, that not more than 501 Hours of Service
shall be credited for a single continuous period during which
an Employee does not perform any duties.
(2) The crediting of Hours of Service shall be determined in
accordance with the rules set forth in paragraphs (b) and (c)
of Section 2530.200b-2 of the regulations prescribed by the
Department of Labor, which rules shall be consistently
applied with respect to all Employees within the same job
classification.
(3) Hours of Service shall not be credited to an Employee for a
period during which no duties are performed if payment is
made or due under a plan maintained solely for the purpose of
complying with applicable worker's compensation, unemploy-
ment compensation or disability insurance laws, and Hours of
Service shall not be credited on account of any payment made
or due an Employee solely in reimbursement of medical or
medically-related expenses.
(4) Each Employee for whom the Company does not maintain records
of actual Hours of Service shall be credited with 45 Hours of
Service for each weekly payroll period in which he completes
at least one Hour of Service.
9
<PAGE> 12
Section 4. Employer Contributions.
(a) Discretionary Contributions - Discretionary Contributions shall be
paid to the Trustee in such amounts (or under such formula) as may be determined
by the Board of Directors. The Company shall specify the Allocation Year for
which Discretionary Contributions are made.
(b) Matching Contributions - Beginning July 1, 1996, Matching
Contributions shall be paid by the Company to the Trustee for each Participant
who is entitled to share in the allocation of Matching Contributions under
Section 3(b) for each Allocation Year in an amount equal to 100% of the Elective
Deferrals made to the 401(k) Plan (after June 30, 1996) on his behalf for the
Allocation Year, but only to the extent such Elective Deferrals do not exceed 4%
of his Compensation. The allocations of Financed Shares made as a result of
Matching Contributions shall be based upon the purchase price paid by the
Trustee to acquire such Company Stock.
Matching Contributions for Highly Compensated Employees shall be
limited for any Allocation Year to the extent necessary to satisfy one of the
contribution percentage requirements described in Section 401(m)(2) of the Code
and Section 1.401(m)-1(b) of the regulations thereunder, as computed separately
(if necessary) for the Plan and the 401(k) Plan. For this purpose, any reduction
in the Matching Contributions made on behalf of Highly Compensated Employees
will be determined in order of the
10
<PAGE> 13
contribution percentages beginning with the highest of such percentages.
Matching Contributions shall not be payable with respect to any Elective
Deferrals under the 401(k) Plan which are distributed to Participants pursuant
to the provisions of the 401(k) Plan in order to satisfy Sections
401(k)(3)(A)(ii) or 402(g) of the Code.
(c) Payment of Employer Contributions - Employer Contributions shall be
paid to the Trustee not later than the due date (including extensions) for
filing the Company's Federal income tax return for the applicable taxable year
of the Company. Employer Contributions may be paid in cash and/or in shares of
Company Stock, as determined by the Board of Directors; provided, however, that
the Board of Directors may determine that Employer Contributions made for the
purpose of enabling the Trustee to make Acquisition Loan payments may be paid as
provided in Section 5(d) with written notice to the Committee and the Trustee.
Employer Contributions paid in shares of Company Stock shall be valued based
upon the Fair Market Value on the date the shares are issued to the Trustee.
(d) Additional Provisions - Employer Contributions shall not be made in
amounts which can be allocated to no Participant's Accounts by reason of the
allocation limitations described in Section 7(a) or in amounts which are not
deductible under Section 404(a) of the Code. Any Employer Contributions which
are not deductible under Section 404(a) of the Code may be returned to the
Company by the Trustee (upon the direction of the Company)
11
<PAGE> 14
within one year after the deduction is disallowed or after it is determined that
the deduction is not available. In the event that Employer Contributions are
paid to the Trust by reason of a mistake of fact, such Employer Contributions
may be returned to the Company by the Trustee (upon the direction of the
Company) within one year after the payment to the Trust.
(e) No Participant Contributions - No Participant shall be required or
permitted to make contributions to the Trust.
Section 5. Investment of Trust Assets.
(a) In General - Trust Assets will be invested by the Trustee primarily
(or exclusively) in Company Stock in accordance with directions from the
Committee, except as otherwise provided in Section 5(c) and (e). Employer
Contributions (and other Trust Assets) may be used to acquire shares of Company
Stock from any Company shareholder or from the Company. All purchases of Company
Stock by the Trustee shall be made only as directed by the Committee and only at
prices which do not exceed Fair Market Value as of the date of the purchase. The
Committee may direct the Trustee to invest and hold up to 100% of the Trust
Assets in Company Stock. Pending the investment of Trust Assets in Company
Stock, the Trustee may also invest Trust Assets in such other prudent
investments as the Committee deems to be desirable for the Trust, or Trust
Assets may be held temporarily in cash.
(b) Acquisition Loans - With the approval of the Board of Directors,
the Committee may direct the Trustee to incur Acquisi-
12
<PAGE> 15
tion Loans from time to time to finance the acquisition of Company Stock
(Financed Shares) or to repay a prior Acquisition Loan. An installment
obligation incurred in connection with the purchase of Company Stock shall be
treated as an Acquisition Loan, and all indebtedness incurred to acquire Company
Stock in a single transaction shall be treated as one Acquisition Loan for
purposes of the Plan. An Acquisition Loan shall be for a specific term, shall
bear a reasonable rate of interest and shall not be payable on demand except in
the event of default. An Acquisition Loan may be secured by a pledge of the
Financed Shares so acquired (or acquired with the proceeds of a prior
Acquisition Loan which is being refinanced). No other Trust Assets may be
pledged as collateral for an Acquisition Loan, and no lender shall have recourse
against Trust Assets except as provided in Section 54.4975-7(b)(5) of the
Regulations under the Code. Any pledge of Financed Shares must provide for the
release of the shares so pledged as payments on the Acquisition Loan are made by
the Trustee and such Financed Shares are allocated to Participants' Company
Stock Accounts under Section 6(c). If the lender is a party in interest (as
defined in ERISA), the Acquisition Loan must provide for a transfer of Trust
Assets to the lender on default only upon and to the extent of the failure of
the Trust to meet the payment schedule of the Acquisition Loan.
(c) Initial Purchase - Notwithstanding the provisions of Section 5(a)
and (b), the initial purchase of Company Stock in April 1996 (using the proceeds
of an Acquisition Loan) and the
13
<PAGE> 16
incurring of the initial Acquisition Loan shall be effected by the Trustee
(without directions from the Committee) at a price not exceeding Fair Market
Value on the purchase date based on the Trustee's determination (in the exercise
of its reasonable judgment) that such transaction is in the best interests of
the Plan and the Participants and is in compliance with all applicable
requirements of the Code and ERISA.
(d) Acquisition Loan Payments - Payments of principal and/or interest
on any Acquisition Loan shall be made by the Trustee (as directed by the
Committee) only from Employer Contributions paid to enable the Trust to repay
such Acquisition Loan, from earnings attributable to such Employer Contributions
and from any cash dividends received by the Trust on the Financed Shares
(whether allocated or unallocated) purchased with the proceeds of such
Acquisition Loan; and the payments made with respect to an Acquisition Loan for
a Plan Year must not exceed the sum of such Employer Contributions, earnings and
dividends for that Plan Year (and prior Plan Years), less the amount of such
payments for prior Plan Years. If an Employer is the lender with respect to an
Acquisition Loan, Employer Contributions may be paid in the form of cancellation
of indebtedness under the Acquisition Loan. If an Employer is not the lender
with respect to an Acquisition Loan, payments on the Acquisition Loan may be
made by the Company directly to the lender, with such payments treated as
Employer Contributions.
14
<PAGE> 17
(e) Sales of Company Stock - The Committee may direct the Trustee to
sell shares of Company Stock to any person (including the Company); provided
that any such sale shall be effected by the Trustee at a price not less than
Fair Market Value on the sale date. Notwithstanding the provisions of Section
5(d), the Committee may direct the Trustee to apply the proceeds from the sale
of unallocated Financed Shares to repay the Acquisition Loan (incurred to
finance the purchase of such Financed Shares) in the event of the sale of the
Company or the termination of the Plan or if the Plan ceases to be an employee
stock ownership plan under Section 4975(e)(7) of the Code. If the Trustee is
unable to make payments of principal and/or interest on an Acquisition Loan when
due, the Committee may direct the Trustee either to sell (with the approval of
the Board of Directors) any Financed Shares that have not yet been allocated to
Participants' Company Stock Accounts or to obtain a new Acquisition Loan in an
amount sufficient to make such payments. Any sale of Company Stock under this
Section 5(e) must comply with the fiduciary requirements applicable under
Section 404(a)(1) of ERISA.
Section 6. Allocations to Participants' Accounts.
A Company Stock Account and an Other Investments Account shall be
maintained to reflect the interest of each Participant under the Plan.
Company Stock Account - The Company Stock Account maintained for each
Participant will be credited annually with his allocable
15
<PAGE> 18
share of Company Stock (including fractional shares) purchased and paid for by
the Trust or contributed in kind to the Trust as a Discretionary Contribution or
Matching Contribution, with any Forfeitures from Company Stock Accounts and with
any stock dividends on Company Stock allocated to his Company Stock Account.
Other Investments Account - The Other Investments Account maintained
for each Participant will be credited annually with his allocable share of
Discretionary Contributions and Matching Contributions that are not in the form
of Company Stock, with any Forfeitures from Other Investments Accounts, with any
cash dividends on Company Stock allocated to his Company Stock Account (other
than currently distributed dividends) and any net income (or loss) of the Trust.
Such Account will be debited for the Participant's share of any cash payments
made by the Trustee for the acquisition of Company Stock or for the payment of
any principal and/or interest on an Acquisition Loan.
The allocations to Participants' Accounts for each Allocation Year will
be made as follows:
(a) Discretionary Contributions and Forfeitures - Discretionary
Contributions under Section 4(a) and Forfeitures under Section 9(b) for each
Allocation Year will be allocated as of the Allocation Date among the Accounts
of Participants so entitled under Section 3(b) in the ratio that the
Compensation of each such Participant bears to the total Compensation of all
such
16
<PAGE> 19
Participants, subject to the allocation limitations described in Section 7.
(b) Matching Contributions - Matching Contributions for each
Allocation Year will be allocated as of the Allocation Date to the Accounts of
the Participants in accordance with the rules outlined in Section 4(b).
(c) Financed Shares - Any Financed Shares acquired by the Trust shall
initially be credited to a "Loan Suspense Account" and will be allocated to
Company Stock Accounts of Participants only as payments on the Acquisition Loan
are made by the Trustee. The number of Financed Shares to be released from the
Loan Suspense Account for allocation to Participants' Company Stock Accounts
shall be determined by the Committee as follows:
(1) Principal/Interest Method - The number of Financed Shares held
in the Loan Suspense Account immediately before the current release shall be
multiplied by a fraction. The numerator of the fraction shall be the current
payments of principal and/or interest on the Acquisition Loan. The denominator
of the fraction shall be the sum of the numerator plus the total payments of
principal and interest on that Acquisition Loan projected to be paid in the
future years. For this purpose, the interest to be paid in future years is to be
computed by using the interest rate in effect as of the current release date.
(2) Principal Only Method - The Committee may elect (as to each
Acquisition Loan) or the provisions of the Acquisition Loan may provide for the
release of Financed Shares from the
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Loan Suspense Account based solely on the ratio that the current payments of
principal bear to the total principal amount of the Acquisition Loan. This
method may be used only to the extent that: (A) the Acquisition Loan provides
for annual payments of principal and interest at a cumulative rate that is not
less rapid at any time than level annual payments of such amounts for ten years;
(B) interest included in any payment on the Acquisition Loan is disregarded only
to the extent that it would be determined to be interest under standard loan
amortization tables; and (C) the entire duration of the Acquisition Loan
repayment period does not exceed ten years, even in the event of a renewal,
extension or refinancing of the Acquisition Loan.
(3) Allocation of Released Shares - When Trust Assets are applied
to make payments on an Acquisition Loan, the Financed Shares released from the
Loan Suspense Account in accordance with the provisions of this Section 6(c)
shall be allocated among Company Stock Accounts of Participants in the manner
determined by the Committee based upon the source of funds (Discretionary
Contributions, Matching Contributions, earnings attributable to such Employer
Contributions and cash dividends on Financed Shares) used to make the payments
on the Acquisition Loan. If cash dividends on Financed Shares allocated to a
Participant's Company Stock Account are used to make payments on an Acquisition
Loan, Financed Shares (representing that portion of such payments and whose Fair
Market Value is at least equal to the amount of
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such dividends) released from the Loan Suspense Account shall be allocated to
that Participant's Company Stock Account.
(d) Net Income (or Loss) of the Trust - The net income (or loss) of the
Trust for each Allocation Year will be determined as of the Allocation Date.
Prior to the allocation of Employer Contributions and Forfeitures for the
Allocation Year, each Participant's share of any net income (or loss) will be
allocated to his Other Investments Account in the ratio that the total balances
of both his Accounts on the preceding Allocation Date (reduced by any
distribution of Capital Accumulation from such Account during the Allocation
Year) bears to the sum of such Account balances for all Participants as of that
date. The net income (or loss) of the Trust includes the increase (or decrease)
in the fair market value of Trust Assets (other than Company Stock), interest
income, dividends and other income and gains (or losses) attributable to Trust
Assets (other than any dividends on allocated Company Stock) since the preceding
Allocation Date, reduced by any expenses charged to the Trust Assets for that
Allocation Year. The determination of the net income (or loss) of the Trust
shall not take into account any interest paid by the Trust under an Acquisition
Loan.
(e) Dividends on Company Stock - Any cash dividends received on shares
of Company Stock allocated to Participants' Company Stock Accounts will be
allocated to the respective Other Investments Accounts of such Participants. Any
cash dividends received on unallocated shares of Company Stock (including any
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Financed Shares credited to the Loan Suspense Account) shall be included in the
computation of the net income (or loss) of the Trust. Any stock dividends
received on Company Stock shall be credited to the Accounts (including the Loan
Suspense Account) to which such Company Stock was allocated.
(f) Accounting for Allocations - The Committee shall establish
accounting procedures for the purpose of making the allocations to Participants'
Accounts provided for in this Section 6. The Committee shall maintain adequate
records of the aggregate cost basis of Company Stock allocated to each
Participant's Company Stock Account. The Committee shall also keep separate
records of Financed Shares and of Employer Contributions (and any earnings
thereon) made for the purpose of enabling the Trust to repay any Acquisition
Loan. From time to time, the Committee may modify the accounting procedures for
the purposes of achieving equitable and nondiscriminatory allocations among the
Accounts of Participants in accordance with the general concepts of the Plan,
the provisions of this Section 6 and the requirements of the Code and ERISA.
Section 7. Allocation Limitations.
(a) Limitations on Annual Additions - The Annual Additions for each
Allocation Year with respect to any Participant may not exceed the lesser of:
(1) 25% of his Statutory Compensation; or
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(2) $30,000, as may be increased pursuant to Section 415(c)(1)(A)
of the Code.
For this purpose, "Annual Additions" shall be the total of the Employer
Contributions and Forfeitures (including any income attributable to Forfeitures)
allocated to the Accounts of a Participant for the Allocation Year, except as
provided in Section 7(b), plus any contributions (including Elective Deferrals)
or forfeitures allocated to his accounts under the 401(k) Plan. In determining
such Annual Additions, Forfeitures of Company Stock shall be included at Fair
Market Value.
If the aggregate amount that would be allocated to the Accounts of a
Participant in the absence of these limitations would exceed the amount set
forth in these limitations, his Annual Additions under the 401(k) Plan shall be
reduced prior to reducing the allocations to his Accounts under this Plan. Any
Forfeitures which can be allocated to no Participant's Accounts by reason of
these limitations shall be credited to a "Forfeiture Suspense Account" and
allocated as Forfeitures under Section 6(a) for the next succeeding Allocation
Year (prior to the allocation of Employer Contributions for such succeeding
Allocation Year).
(b) Special Acquisition Loan Rules - Any Employer Contributions which
are used by the Trust (not later than the due date, including extensions, for
filing the Company's Federal income tax return for the applicable taxable year)
to pay interest on an Acquisition Loan, and any Financed Shares which are
allocated as Forfeitures, shall not be included as Annual Additions under Sec-
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tion 7(a); provided, however, that the provisions of this Section 7(b) shall be
applicable only if not more than one-third of any Employer Contributions applied
to pay principal and/or interest on an Acquisition Loan are allocated to
Participants who are Highly Compensated Employees; and the Committee shall
reallocate such Employer Contributions to the extent it deems it to be
appropriate to satisfy this special rule.
The Annual Additions under Section 7(a) with respect to Financed Shares
released from the Loan Suspense Account (by reason of Employer Contributions
used for payments on an Acquisition Loan) and allocated to Participants' Company
Stock Accounts shall be the lesser of (A) the amount of such Employer
Contributions (as determined after application of the preceding paragraph); or
(B) the Fair Market Value of Company Stock. Annual Additions shall not include
any allocation attributable to any proceeds from the sale of Financed Shares by
the Trust or to appreciation (realized or unrealized) in the Fair Market Value
of Company Stock.
(c) Limitation on Electing Shareholder - If a Company shareholder sells
Company Stock to the Trust and elects (with the consent of the Company)
nonrecognition of gain under Section 1042 of the Code, no portion of Company
Stock purchased in any such transaction (or any dividends or other income
attributable thereto) may be allocated prior to the later of the tenth
anniversary of the purchase or the Allocation Year following the Allocation Year
for which shares are released from the Loan Suspense Account
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as a result of the final payment on any Acquisition Loan incurred in connection
with such purchase to the Accounts of:
(1) any Participant who has made an election under Section 1042
of the Code; or
(2) any Participant who is such selling shareholder's spouse,
brothers or sisters (whether by the whole or half blood),
ancestors or lineal descendants (except as to certain lineal
descendants, to the extent provided in Section 409(n)(3)(A)
of the Code), or any other person who bears a relationship to
him that is described in Section 267(b) of the Code.
In addition, no portion of Company Stock purchased in any such
transaction (or any dividends or other income attributable thereto) may
thereafter be allocated to the Accounts of any Participant owning (as determined
under Section 318(a) of the Code, without regard to Section 318(a)(2)(B)(i) of
the Code), during the entire one-year period preceding the purchase or on any
Allocation Date, more than 25% of any class of outstanding stock of the Company
or of the total value of any class of outstanding stock of the Company.
To the extent that a Participant is subject to the allocation
limitation described in this Section 7(c) for an Allocation Year, he shall not
share in the allocation of Employer Contributions and Forfeitures.
Section 8. Voting Company Stock.
Except as otherwise provided in this Section 8, shares of Company Stock
in the Trust shall be voted by the Trustee only as
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directed by the Committee. In order to facilitate the voting of shares under
this Section 8, the Trustee may give a proxy to the Committee.
With respect to any corporate matter which involves the voting of such
shares at a shareholder meeting and which constitutes a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business or a similar transaction
specified in regulations under Section 409(e)(3) of the Code, however, each
Participant (or Beneficiary) will be entitled to give directions to the Trustee
as to the voting of shares of Company Stock then allocated to his Company Stock
Account. In that event, each Participant (or Beneficiary) shall be provided with
the information statement and other materials provided to Company shareholders
in connection with the shareholder meeting, together with a form upon which
confidential voting directions may be given to the Trustee. The Trustee shall
not disclose the voting directions of any individual Participant (or
Beneficiary) to the Committee or the Company. Any allocated Company Stock with
respect to which voting directions are not received from Participants (or
Beneficiaries) and any shares of Company Stock which are not then allocated to
Participants' Company Stock Accounts shall be voted by the Trustee in the manner
directed by the Committee.
Section 9. Vesting and Forfeitures.
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(a) Vesting - A Participant's interest in his Accounts shall become
100% vested and nonforfeitable if he (1) is employed by the Company or an
Affiliate on or after his 65th birthday, (2) incurs a Disability while employed
by the Company or an Affiliate, (3) dies while employed by the Company or an
Affiliate, or (4) completes at least five years of Credited Service.
(b) Forfeitures - If a Participant who is not vested terminates
Service, the final balances in his Accounts will become a Forfeiture when he
incurs a five-consecutive-year Break in Service. All Forfeitures will be
reallocated to the Accounts of remaining Participants, as provided in Section
6(a), as of the Allocation Date coinciding with or next following the date on
which the Forfeiture occurs.
Section 10. Credited Service and Break in Service.
(a) Credited Service - An Employee's Credited Service shall include
each period of his Service computed (in full years and days) from the date he is
first credited with an Hour of Service (including Service prior to March 1,
1996) until the date on which his Service terminates. A Break in Service that
does not exceed one year shall be included in an Employee's Credited Service.
Credited Service shall also include periods of Service with an Affiliate.
(b) Break in Service - A one-year Break in Service shall occur one year
after the date of an Employee's termination of Service. A five-consecutive-year
Break in Service shall occur
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five years after the date of an Employee's termination of Service (if he has not
been reemployed). For purposes of determining the period of an Employee's Break
in Service, the period of a maternity/paternity absence, described in Section
411(a)(6)(E)(i) of the Code, or any unpaid leave covered under the Family and
Medical Leave Act of 1993, not exceeding one year shall not be treated as a
Break in Service.
(c) Reemployment - If a former Employee is reemployed after a
five-consecutive-year Break in Service and had not attained a vested interest
under the Plan, Service prior to the Break in Service shall not be included in
determining his Credited Service. If a Participant is reemployed after a
one-year Break in Service but prior to the occurrence of a five-consecutive-year
Break in Service, his Credited Service shall not include Service prior to the
one-year Break in Service until he completes one year of Credited Service
following reemployment.
Section 11. When Capital Accumulation Will Be Distributed.
(a) Except as otherwise provided in Sections 11(c) and 12, a
Participant's Capital Accumulation will be distributed following his termination
of Service, but only at the time and in the manner determined by the Committee.
The Committee shall establish a benefit distribution policy and may modify such
policy from time to time; provided, however, that the distribution policy shall
be applied to Participants in a nondiscriminatory manner.
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(b) In the event of a Participant's Retirement, Disability or death,
distribution of his Capital Accumulation shall commence not later than the Plan
Year following the Plan Year in which his Retirement, Disability or death
occurs. If a Participant's Service terminates for any other reason, distribution
of his Capital Accumulation shall commence not later than the sixth Plan Year
following the Plan Year in which his Service terminates (unless he is reemployed
by the Company or an Affiliate). Except as otherwise provided in Section 11(c),
if a Participant's Capital Accumulation includes Financed Shares, the Committee
may elect to defer the distribution of that portion of his Capital Accumulation
(attributable to such Financed Shares) until the Plan Year following the Plan
Year in which the Acquisition Loan (incurred to acquire such Financed Shares)
has been fully repaid. For this purpose, all indebtedness incurred by the
Trustee to acquire Company Stock in a single transaction shall be treated as one
Acquisition Loan.
The following alternative modes of distribution may be selected by the
Committee (after considering the available liquid assets of the Company and the
Trust):
(1) Distribution of a Participant's Capital Accumulation in a
single lump sum; or
(2) Distribution of a Participant's Capital Accumulation in
substantially equal, annual installments over a period not
exceeding five years (provided that the period over which
installments may be distributed may be extended an additional
year (up to an additional five years) for each $135,000 or
fraction thereof by which his Capital Accumulation
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exceeds $690,000 (as adjusted after 1996 for increases in
the cost of living pursuant to Section 409(o)(2) of the
Code)); or
(3) Any combination of the foregoing.
If the value of a Participant's Capital Accumulation at the time a distribution
would otherwise commence under this Section 11 exceeds $3,500, no portion of his
Capital Accumulation may be distributed to him without his written consent
before he attains age 65.
(c) Distribution of a Participant's Capital Accumulation shall commence
not later than 60 days after the end of the Plan Year in which occurs the latest
of (1) his 65th birthday, (2) the tenth anniversary of the date he became a
Participant, or (3) his termination of Service. The distribution of the Capital
Accumulation of any Participant who attains age 70 1/2 in an Allocation Year
must commence not later than April 1st of the next Allocation Year (even if he
has not terminated Service) and must be made in accordance with the regulations
under Section 401(a)(9) of the Code, including Section 1.401(a)(9)-2. If the
amount of a Participant's Capital Accumulation cannot be determined (by the
Committee) by the date on which a distribution is to commence, or if the
Participant cannot be located, distribution of his Capital Accumulation shall
commence within 60 days after the date on which his Capital Accumulation can be
determined or after the date on which the Committee locates the Participant.
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(d) If any part of a Participant's Capital Accumulation is retained in
the Trust after his Service ends, his Accounts will continue to be treated as
described in Section 6. However, except as provided in Section 3(b), such
Accounts shall not be credited with any additional Employer Contributions and
Forfeitures. If a Participant whose Capital Accumulation exceeds $3,500 fails to
consent to a distribution offered before he attains age 65, or if a Participant
cannot be located, his entire Capital Accumulation may be segregated and
invested in Trust Assets other than Company Stock (as determined by the
Committee).
Section 12. Diversification Election
Effective March 1, 2006, a Participant who has attained age 55 and
completed at least ten Years of Participation shall be notified of his right to
elect to "diversify" a portion of the balance in his Company Stock Account, as
provided in Section 401(a)(28)(B) of the Code. An election to "diversify" must
be made on the prescribed form and filed with the Committee within the 90-day
period immediately following the last day of a Plan Year in the Election Period.
For purposes of this Section 12, "Years of Participation" is the number of
Allocation Years in which the Participant is entitled to receive an allocation
of Employer Contributions or Forfeitures under Section 3(b), and the "Election
Period" means the period of six consecutive Plan Years beginning with the Plan
Year in which the Participant first becomes eligible to make an election.
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For each of the first five Plan Years in the Election Period, the
Participant may elect to "diversify" an amount which does not exceed 25% of the
number of shares of Company Stock allocated to his Company Stock Account since
the inception of the Plan, less all shares with respect to which an election
under this Section 12 was previously made. In the case of the sixth Plan Year in
the Election Period, the Participant may elect to "diversify" an amount which
does not exceed 50% of the number of shares of Company Stock allocated to his
Company Stock Account since the inception of the Plan, less all shares with
respect to which an election under this Section 12 was previously made. No
"diversification" shall be permitted if the balance in a Participant's Company
Stock Account as of the last day of the first Plan Year in the Election Period
has a Fair Market Value of $500 or less, unless and until the balance in his
Company Stock Account as of a subsequent Plan Year in the Election Period
exceeds $500.
So long as the 401(k) Plan then provides at least three investment
funds (other than Company Stock) among which Participants may select,
"diversification" will be effected by transferring to the 401(k) Plan funds
representing that portion of Participants' Company Stock Accounts with respect
to which a "diversification" election is made. Any transfer to the 401(k) Plan
under this Section 12 shall occur no earlier than 30 days after any required
Forms 5310-A with respect to such transfer have been filed with the Internal
Revenue Service.
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Section 13. How Capital Accumulation Will Be Distributed.
(a) The Trustee will make distributions from the Trust only as directed
by the Committee. Distribution of a Participant's Capital Accumulation will be
made in whole shares of Company Stock, cash or a combination of both, as
determined by the Committee; provided, however, that the Committee shall notify
the Participant of his right to demand distribution of his Capital Accumulation
entirely in whole shares of Company Stock (with only the value of any fractional
share paid in cash). Any distribution in cash shall be based upon the Fair
Market Value of Company Stock as of the last day of the Plan Year coinciding
with or immediately preceding the date of distribution.
(b) If the charter or by-laws of the Company restrict the ownership of
substantially all outstanding shares of Company Stock to current Employees and
the Trust, the distribution of a Participant's Capital Accumulation may be made
entirely in cash without granting the Participant the right to demand
distribution in Company Stock. Alternatively, Company Stock may be distributed
subject to the requirement that it be immediately resold to the Company under
payment terms that comply with Section 14(b).
(c) Distribution of a Participant's Capital Accumulation will be made
to the Participant if he is living, and if not, to his Beneficiary. In the event
of a Participant's death, his Beneficiary shall be his surviving spouse, or if
none, his estate. A Participant (with the written consent of his spouse, if any,
acknowledging the effect of the consent and witnessed by a
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<PAGE> 34
notary public or Plan representative) may designate a different Beneficiary or
Beneficiaries from time to time by filing a written designation with the
Committee. A deceased Participant's entire Capital Accumulation shall be
distributed to his Beneficiary within five years after his death, except to the
extent that distribution has previously commenced in accordance with Section
11(b)(2).
(d) The Company shall furnish the recipient of a distribution with the
tax consequences explanation required by Section 402(f) of the Code and shall
comply with the withholding requirements of Section 3405 of the Code and of any
applicable state law with respect to distributions from the Trust. If the
Committee so elects for a Plan Year, distributions to Participants may commence
less than 30 days after the notice required under Section 1.411(a)-11(c) of the
regulations under the Code is given; provided that no such distribution to a
Participant shall be made unless (1) the Participant is informed that he has the
right to a period of at least 30 days after receiving the notice to consider
whether or not to consent to a distribution (or a particular distribution
option) and (2) the Participant affirmatively elects to receive a distribution
after receiving the notice.
(e) If a distribution of a Participant's Capital Accumulation is
neither one of a series of annual installments over a period of ten years (or
more) nor the minimum amount required to be distributed pursuant to the second
sentence of Section 11(c)
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(an "eligible rollover distribution"), the Committee shall notify the
Participant (or any spouse or former spouse who is his alternate payee under a
"qualified domestic relations order" (as defined in Section 414(p) of the Code))
of his right to elect to have the "eligible rollover distribution" paid directly
to an "eligible retirement plan" (within the meaning of Section 401(a)(31) of
the Code) that is an individual retirement account described in Section 408(a)
of the Code, an individual retirement annuity described in Section 408(b) of the
Code, a qualified trust described in Section 401(a) of the Code or a qualified
annuity plan described in Section 403(a) of the Code that accepts "eligible
rollover distributions." If such an "eligible rollover distribution" is to be
made to the Participant's surviving spouse, the Committee shall notify the
surviving spouse of his right to elect to have the distribution paid directly to
an "eligible retirement plan" that is either an individual retirement account
described in Section 408(a) of the Code or an individual retirement annuity
described in Section 408(b) of the Code. Any election under this Section 13(e)
shall be made and effected in accordance with such rules and procedures as may
be established from time to time by the Committee in order to comply with
Section 401(a)(31) of the Code.
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Section 14. Rights, Options and Restrictions on Company Stock.
(a) Any shares of Company Stock held or distributed by the Trust shall
be subject to a "right of first refusal," unless Company Stock is readily
tradable on an established market. The right of first refusal shall provide
that, prior to any subsequent transfer, the shares must first be offered for
purchase in writing to the Company, and then to the Trust, at the then Fair
Market Value. A bona fide written offer from an independent prospective buyer
shall be deemed to be the Fair Market Value for this purpose. The Company and
the Committee (on behalf of the Trust) shall have a total of 14 days to exercise
the right of first refusal on the same terms offered by a prospective buyer. The
Company may require that a Participant entitled to a distribution of Company
Stock execute an appropriate stock transfer agreement (evidencing the right of
first refusal) prior to receiving a certificate for Company Stock.
(b) The Company shall provide a "put option" to any Participant (or
Beneficiary) who receives a distribution of Company Stock, unless Company Stock
is readily tradable on an established market. The put option shall permit the
Participant (or Beneficiary) to sell such Company Stock to the Company at any
time during two option periods, at the then Fair Market Value. The first put
option period shall be for at least 60 days beginning on the date of
distribution. The second put option period shall be for at least 60 days
beginning after the new determination of Fair Market Value (and notice to the
Participant thereof) in the
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following Plan Year. The Company may allow the Committee to direct the Trustee
to purchase shares of Company Stock tendered to the Company under a put option.
The payment for any Company Stock sold under a put option shall be made within
30 days if the shares were distributed as part of an installment distribution.
If the shares were distributed in a lump sum distribution, payment shall
commence within 30 days and may be made in a lump sum or in substantially equal,
annual installments over a period not exceeding five years, with adequate
security provided and interest payable at a reasonable rate pursuant to the
promissory note which is issued to evidence the unpaid installment balance (as
determined by the Company or the Committee).
(c) Shares of Company Stock held or distributed by the Trustee may
include such legend restrictions on transferability as the Company may
reasonably require in order to assure compliance with applicable Federal and
state securities laws. Except as otherwise provided in Section 13(b) and this
Section 14, no shares of Company Stock held or distributed by the Trustee may be
subject to a put, call or other option, or buy-sell or similar arrangement. The
provisions of this Section 14 shall continue to be applicable to Company Stock
even if the Plan ceases to be an employee stock ownership plan under Section
4975(e)(7) of the Code.
Section 15. No Assignment of Benefits.
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A Participant's Capital Accumulation may not be anticipated, assigned
(either at law or in equity), alienated or subject to attachment, garnishment,
levy, execution or other legal or equitable process, except in accordance with a
"qualified domestic relations order" (as defined in Section 414(p) of the Code).
Distributions made to an alternate payee in accordance with a qualified domestic
relations order may commence no earlier than the date on which the Participant
attains his "earliest retirement age" (as defined in Section 414(p)(4)(B) of the
Code).
Section 16. Administration.
(a) Administrative Committee - The Plan will be administered by an
Administrative Committee composed of one or more individuals appointed by the
Board of Directors to serve at its pleasure and without compensation. The
members of the Committee shall be the named fiduciaries with authority to
control and manage the operation and administration of the Plan. Members of the
Committee need not be Employees or Participants. Any Committee member may resign
by giving notice, in writing, to the Board of Directors.
(b) Committee Action - Committee action will be by vote of a majority
of the members at a meeting or in writing without a meeting. A Committee member
shall not vote on any question relating specifically to himself.
The Committee shall choose from its members a Chairman and a Secretary.
The Chairman or the Secretary of the Committee shall
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be authorized to execute any certificate or other written direction on behalf of
the Committee. The Secretary shall keep a record of the Committee's proceedings
and of all dates, records and documents pertaining to the administration of the
Plan.
(c) Powers and Duties of the Committee - The Committee shall have all
powers necessary to enable it to administer the Plan and the Trust Agreement in
accordance with their provisions, including without limitation the following:
(1) resolving all questions relating to the eligibility of
Employees to become Participants;
(2) determining the appropriate allocations to Participants'
Accounts pursuant to Section 6;
(3) determining the amount of benefits payable to a Participant
(or Beneficiary), and the time and manner in which such
benefits are to be paid;
(4) authorizing and directing all disbursements of Trust Assets
by the Trustee;
(5) establishing procedures in accordance with Section 414(p) of
the Code to determine the qualified status of domestic
relations orders and to administer distributions under such
qualified orders;
(6) engaging any administrative, legal, accounting, clerical or
other services that it may deem appropriate;
(7) construing and interpreting the Plan and the Trust Agreement
and adopting rules for administration of the Plan that are
consistent with the terms of the Plan documents and of ERISA
and the Code;
(8) compiling and maintaining all records it determines to be
necessary, appropriate or convenient in connection with the
administration of the Plan;
(9) reviewing the performance of the Trustee with respect to the
Trustee's administrative duties,
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responsibilities and obligations under the Plan and Trust
Agreement;
(10) selecting an independent appraiser and determining the Fair
Market Value of Company Stock as of the last day of each Plan
Year and such other dates as it determines, in its
discretion, to be necessary or appropriate; and
(11) executing agreements and other documents on behalf of the
Plan and Trust.
Except as otherwise provided in Section 5(c) and (e), the Committee
shall be responsible for directing the Trustee as to the investment of Trust
Assets. The Committee may delegate to the Trustee the responsibility for
investing all or any portion of the Trust Assets. The Committee shall establish
a funding policy and method for directing the Trustee to acquire Company Stock
(and for otherwise investing the Trust Assets) in a manner that is consistent
with the objectives of the Plan and the requirements of ERISA.
The Committee shall perform its duties under the Plan and the Trust
Agreement solely in the interests of the Participants (and their Beneficiaries).
Any discretion granted to the Committee under any of the provisions of the Plan
or the Trust Agreement shall be exercised only in accordance with rules and
policies established by the Committee which shall be applicable on a
nondiscriminatory basis. The Committee shall have sole and exclusive
discretionary authority to construe, interpret and apply the terms of the Plan.
The Committee shall be given the
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greatest possible deference permitted by law in the exercise of
such discretionary authority.
(d) Expenses - All reasonable expenses of administering the Plan and
Trust shall be charged to and paid out of the Trust Assets. The Company may,
however, pay all or any portion of such expenses directly, and payment of
expenses by the Company shall not be deemed to be Employer Contributions.
(e) Information to be Submitted to the Committee - To enable the
Committee to perform its functions, the Company shall supply full and timely
information to the Committee on all matters as the Committee may require, and
shall maintain such other records as the Committee may determine are necessary
or appropriate in order to determine the benefits due or which may become due to
Participants (or Beneficiaries) under the Plan.
(f) Delegation of Fiduciary Responsibility - The Committee from time to
time may allocate to one or more of its members and/or may delegate to any other
persons or organizations any of its rights, powers, duties and responsibilities
with respect to the operation and administration of the Plan that are permitted
to be so delegated under ERISA; provided, however, that responsibility for
investment of the Trust Assets may not be allocated or delegated except as
provided in Section 16(c). Any such allocation or delegation shall be made in
writing, shall be reviewed periodically by the Committee and shall be terminable
upon such notice as the Committee in its discretion deems reasonable and proper
under the circumstances.
39
<PAGE> 42
(g) Bonding, Insurance and Indemnity - To the extent required under
Section 412 of ERISA, the Company shall secure fidelity bonding for the
fiduciaries of the Plan.
The Company (in its discretion) or the Trustee (as directed by the
Committee) may obtain a policy or policies of insurance for the Committee (and
other fiduciaries of the Plan) to cover liability or loss occurring by reason of
the act or omission of a fiduciary. If such insurance is purchased with Trust
Assets, the policy must permit recourse by the insurer against the fiduciary in
the case of a breach of a fiduciary obligation by such fiduciary. The Company
hereby agrees to indemnify each member of the Committee (to the extent permitted
by law) against any personal liability or expense resulting from his service on
the Committee, except such liability or expense as may result from his own
willful misconduct.
(h) Notices, Statements and Reports - The Company shall be the "Plan
Administrator" (as defined in Section 3(16)(A) of ERISA and Section 414(g) of
the Code) for purposes of the reporting and disclosure requirements of ERISA and
the Code. The Committee shall assist the Company, as requested, in complying
with such reporting and disclosure requirements. The Committee shall be the
designated agent of the Plan for the service of legal process.
40
<PAGE> 43
Section 17. Claims Procedure.
A Participant (or Beneficiary) who does not receive a distribution of
benefits to which he believes he is entitled may present a claim to the
Committee. The claim for benefits must be in writing and addressed to the
Committee or to the Company. If the claim for benefits is denied, the Committee
shall notify the Participant (or Beneficiary) in writing within 90 days after
the Committee initially received the benefit claim, unless special circumstances
require an extension of time for processing the claim, in which case such period
may be extended for an additional 90 days; provided, that the Committee must
provide the Participant (or Beneficiary) with written notice of such extension
prior to the expiration of the initial 90-day period. Any notice of a denial of
benefits shall advise the Participant (or Beneficiary) of the basis for the
denial, any additional material or information necessary for the Participant (or
Beneficiary) to perfect his claim and the steps which the Participant (or
Beneficiary) must take to have his claim for benefits reviewed.
Each Participant (or Beneficiary) whose claim for benefits has been
denied may file a written request for a review of his claim by the Committee.
The request for review must be filed by the Participant (or Beneficiary) within
60 days after he receives the written notice denying his claim. The decision of
the Committee will be made within 60 days after receipt of a request for review
and shall be communicated in writing to the claimant. Such written notice shall
set forth the basis for the Committee's
41
<PAGE> 44
decision. If there are special circumstances (such as the need to hold a
hearing) which require an extension of time for completing the review, the
Committee's decision shall be rendered not later than 120 days after receipt of
a request for review. Nothing contained in the Plan shall be deemed to give an
Employee the right to be retained in the Service of the Company or to interfere
with the right of the Company to discharge, with or without cause, any Employee
at any time. All decisions and interpretations of the Committee under this
Section 17 shall be conclusive and binding upon all persons with an interest in
the Plan and shall be given the greatest deference permitted by law.
Section 18. Limitation on Participants' Rights.
A Participant's Capital Accumulation will be based solely upon his
vested interest in his Accounts and will be paid only from the Trust Assets. The
Company, the Committee or the Trustee shall not have any duty or liability to
furnish the Trust with any funds, securities or other assets, except as
expressly provided in the Plan.
The adoption and maintenance of the Plan shall not be deemed to
constitute a contract of employment or otherwise between the Company and any
Employee, or to be a consideration for, or an inducement or condition of, any
employment. Nothing contained in this Plan shall be deemed to give an Employee
the right to be retained in the Service of the Company or to interfere with the
42
<PAGE> 45
right of the Company to discharge, with or without cause, any Employee at any
time.
Section 19. Future of the Plan.
The Company reserves the right to amend or terminate the Plan (in whole
or in part) and the Trust Agreement at any time, by action of the Board of
Directors. Neither amendment nor termination of the Plan shall retroactively
reduce the vested rights of Participants or permit any part of the Trust Assets
to be diverted to or used for any purpose other than for the exclusive benefit
of the Participants (and their Beneficiaries).
The Company specifically reserves the right to amend the Plan and the
Trust Agreement retroactively in order to satisfy any applicable requirements of
the Code and ERISA.
The Company further reserves the right to terminate the Plan in the
event of a determination by the Internal Revenue Service (after a timely
Application for Determination is filed by the Company) that the Plan initially
fails to satisfy the applicable requirements of Sections 401(a) and 4975(e)(7)
of the Code. If such a determination is made, all Trust Assets shall (upon
written direction of the Company) be returned to the Company and the Plan shall
terminate.
If the Plan is terminated (or partially terminated), participation of
Participants affected by the termination will end. If Employer Contributions are
not replaced by contributions to a comparable plan which satisfies the
requirements of Sec-
43
<PAGE> 46
tion 401(a) of the Code, the Accounts of only those Participants who are
Employees on the effective date of the termination will become nonforfeitable as
of that date. A complete discontinuance of Employer Contributions shall be
deemed to be a termination of the Plan for this purpose. The Capital
Accumulations of those Participants whose Service terminated prior to the
effective date of Plan termination will continue to be determined pursuant to
Section 9(a); and, to the extent that such Participants are not vested, their
Accounts will become Forfeitures to be reallocated as of the effective date of
Plan termination (even if they have not incurred a five-consecutive-year Break
in Service).
After termination of the Plan, the Trust will be maintained until the
Capital Accumulations of all Participants have been distributed. Capital
Accumulations may be distributed following termination of the Plan or
distributions may be deferred as provided in Section 11, as the Company shall
determine. In the event that Company Stock is sold in connection with the
termination of the Plan or the amendment of the Plan to become a qualified
employee plan that is not a stock bonus plan, all Capital Accumulations may be
distributed in cash.
In the event of the merger or consolidation of this Plan with another
plan, or the transfer of Trust Assets (or liabilities) to another plan, the
Account balances of each Participant immediately after such merger,
consolidation or transfer must be at least as great as immediately before such
merger, consolidation or transfer (as if the Plan had then terminated).
44
<PAGE> 47
Section 20. "Top-Heavy" Contingency Provisions.
(a) The provisions of this Section 20 are included in the Plan
pursuant to Section 401(a)(10)(B)(ii) of the Code and shall become applicable
only if the Plan becomes a "top-heavy plan" under Section 416(g) of the Code for
any Allocation Year.
(b) The determination as to whether the Plan becomes "top-heavy" for
any Allocation Year shall be made as of the Allocation Date of the immediately
preceding Allocation Year (or as of December 31, 1996, for the Allocation Year
ending on that date) by considering the Plan together with the 401(k) Plan. The
Plan shall be "top-heavy" only if the total of the account balances under the
Plan and the 401(k) Plan for "key employees" as of the determination date
exceeds 60% of the total of the account balances for all Participants. For such
purpose, account balances shall be computed and adjusted pursuant to Section
416(g) of the Code. "Key employees" shall be certain Participants (who are
officers or shareholders of the Company) and Beneficiaries described in Section
416(i)(1) or (5) of the Code.
(c) For any Allocation Year in which the Plan is "top-heavy," each
Participant who is an Employee on the Allocation Date (and who is not a "key
employee") shall receive a minimum allocation of Employer Contributions and
Forfeitures which is equal to the lesser of:
(1) 3% of his Statutory Compensation; or
(2) the same percentage of his Statutory Compensation as the
allocation to the "key employee" for whom
45
<PAGE> 48
the percentage is the highest for that Plan Year. For this
purpose, the allocation to a "key employee" shall include any
Elective Deferrals made on his behalf for the Allocation Year
to the 401(k) Plan.
(d) As of the first day of any Allocation Year in which the Plan has
become "top-heavy," the five-year vesting provision in Section 9(a)(4) shall be
applied (with respect to any Employee who is credited with at least one Hour of
Service after the Plan has become "top-heavy") by providing for vesting after
three years of Credited Service.
If the Plan ceases to be "top-heavy," the Capital Accumulation of a
Participant who, at that time, has less than three years of Service shall
thereafter be determined under the vesting provision in Section 9(a)(4), instead
of the vesting provision of this Section 20(d). If the Plan ceases to be
"top-heavy," the Capital Accumulation of a Participant who, at that time, has
three or more years of Service shall continue to be determined using the
three-year vesting schedule in this Section 20(d).
(e) For any Allocation Year in which the Plan is "top-heavy," Statutory
Compensation of each Employee for purposes of the Plan shall not take into
account any amount in excess of $150,000 (as adjusted for increases in the cost
of living).
Section 21. Governing Law.
The provisions of this Plan and the Trust Agreement shall be construed,
administered and enforced in accordance with the laws
46
<PAGE> 49
of the State of California, to the extent such laws are not superseded by ERISA.
Section 22. Execution.
To record the adoption of the Plan, the Company has caused it to be
executed on this 23rd day of April, 1996.
MEADE INSTRUMENTS CORP.
By /s/ JOHN C. DIEBEL
--------------------------------------
Chairman & CEO
By /s/ STEVE MURDOCK
--------------------------------------
President
<PAGE> 1
EXHIBIT 10.14
MEADE INSTRUMENTS CORP.
EMPLOYEE STOCK OWNERSHIP TRUST AGREEMENT
THIS AGREEMENT, by and between MEADE INSTRUMENTS CORP. (a California
corporation), hereinafter referred to as the "Company," and WELLS FARGO BANK,
N.A., hereinafter referred to as the "Trustee," to be effective as of March 1,
1996.
WITNESSETH:
WHEREAS, it is the policy of the Company to so finance and conduct its
operations as to enable its Employees to acquire stock ownership interests in
the Company; and
WHEREAS, the Company has adopted the MEADE INSTRUMENTS CORP. EMPLOYEE
STOCK OWNERSHIP PLAN, hereinafter referred to as the "Plan," as a qualified
employee plan under Sections 401(a) and 4975(e)(7) of the Internal Revenue Code
of 1986, effective as of March 1, 1996; and
WHEREAS, the Trustee has been designated by the Company to serve as
trustee under the Plan and has agreed to so serve;
NOW, THEREFORE, the parties hereto do hereby establish the MEADE
INSTRUMENTS CORP. EMPLOYEE STOCK OWNERSHIP TRUST and agree that the following
shall constitute the Trust Agreement:
<PAGE> 2
A. The Trust Assets. Employer Contributions shall be paid to the
Trustee from time to time in accordance with the provisions of the Plan. All
Employer Contributions and all investments thereof, together with all
accumulations, accruals, earnings and income with respect thereto, shall be held
by the Trustee in trust hereunder as the Trust Assets. Except as otherwise
provided in Paragraph B(6) of this Agreement, the Trust Assets shall be invested
by the Trustee as directed by the Committee (appointed by the Company to
administer the Plan) pursuant to the terms of the Plan and this Trust Agreement.
The Trustee shall not be responsible for the maintaining of the records of
Participants' Accounts under the Plan, for the administration of the Plan or for
the computation of, or collection of, Employer Contributions. The Trustee shall
hold, invest, reinvest, manage, administer and distribute the Trust Assets, as
directed by the Committee and as provided herein and under the Plan, for the
exclusive benefit of Participants (and their Beneficiaries).
B. Investment of Trust Assets.
(1) As directed by the Committee (except as otherwise provided
in Paragraph B(6) of this Agreement), the Trustee shall invest and reinvest the
Trust Assets primarily (or exclusively) in Company Stock, in accordance with the
terms of the Plan and this Agreement. The Trustee may invest and hold up to 100%
of the Trust Assets in Company Stock, if so directed by the Committee.
2
<PAGE> 3
(2) As directed by the Committee, the Trustee may also place Trust
Assets in various deposit accounts offered by any bank (including the Trustee)
or savings and loan association, invest in other securities or investments
desirable for the Trust, or in any kind of investment fund (including any common
trust fund maintained by the Trustee), or Trust Assets may be held temporarily
in cash.
(3) The Committee shall have the responsibility and liability for
the prudence of investments directed by it under this Paragraph B. The Committee
may delegate to the Trustee the responsibility for investing Trust Assets other
than Company Stock.
(4) The Trustee may invest and reinvest the Trust Assets, or any
part thereof, in any one or more investment trust funds regularly maintained by
the Trustee for common investment of trust funds, the Declaration of Trust
therefore being made hereby a part of this Trust Agreement, and notwithstanding
any other provisions hereof, the Trustee may commingle said investment with
assets similarly invested by trusts similar hereto, by investing the same as a
part of one or more of such investment trust funds, all according to said
Declarations of Trust as now constituted and as amended from time to time.
(5) In the event that the Committee directs the Trustee to dispose
of any Company Stock held as Trust Assets, under circumstances which require
registration and/or qualification of the securities under applicable Federal or
state securities laws, then the Company, at its own expense, will take, or cause
to be
3
<PAGE> 4
taken, any and all such actions as may be necessary or appropriate to effect
such registration and/or qualification.
(6) Notwithstanding the foregoing provisions of this Paragraph B
and the provisions of Paragraph C, the initial acquisition of Company Stock by
the Trust (using the proceeds of an Acquisition Loan from the Company) and the
incurring of the initial Acquisition Loan shall be effected by the Trustee
(without directions from the Committee) based upon the Trustee's determination
(in the exercise of its reasonable judgment) that such transaction is in the
best interests of Participants and is in compliance with all applicable
provisions of the Code and ERISA.
C. Trustee's Powers. As directed by the Committee, the Trustee shall
have the authority and power to:
(1) contract or otherwise enter into transactions for the purpose
of acquiring or selling Company Stock, including transactions with the Company
or any Company shareholder, subject to the provisions of Section 5(a) and (e) of
the Plan;
(2) borrow from any lender (including the Company and affiliates
of the Trustee) to finance the acquisition of Company Stock, giving its note as
Trustee with such reasonable interest and security for the loan as may be
appropriate or necessary; provided that any such borrowing shall comply with the
provisions of Section 5(b) of the Plan;
(3) vote any stocks (including Company Stock as provided in
Section 8 of the Plan), bonds or other securities held
4
<PAGE> 5
in the Trust, or otherwise consent to or request any action on the part of the
issuer in person or by proxy;
(4) sell, transfer, mortgage, pledge, lease or otherwise dispose
of, or grant options with respect to, any Trust Assets at public or private
sale;
(5) give general or specific proxies or powers of attorney with or
without powers of substitution;
(6) participate in reorganizations, recapitalizations,
consolidations, mergers and similar transactions with respect to Company Stock
or any other securities;
(7) exercise any options, subscription rights and conversion
privileges with respect to any Trust Assets;
(8) sue, defend, compromise, arbitrate or settle any suit or legal
proceeding or any claim due it or on which it may be liable;
(9) exercise any of the powers of an owner with respect to the
Trust Assets;
(10) perform all acts which the Trustee shall deem necessary or
appropriate and exercise any and all powers and authority of the Trustee under
this Agreement.
The Committee may authorize the Trustee in writing to act on any matter
(or class of matters) with respect to which directions or instructions from the
Committee are called for hereunder without specific directions or other
instructions from the Committee.
D. Nominees. The Trustee may register any Company Stock or other
property held by it as Trust Assets hereunder in its own
5
<PAGE> 6
name or in the name of its nominees, with or without the addition of words
indicating that such securities are held in a fiduciary capacity, and may hold
any securities in bearer form; but the books and records of the Trustee shall at
all times reflect that all such investments are part of the Trust.
E. Records. The Trustee shall keep accurate and detailed accounts of
all investments, receipts and disbursements and other transactions of the Trust,
and all accounts, books and records relating thereto shall be open to inspection
by any person designated by the Committee or the Company at all reasonable
times. The Trustee shall maintain such records, make such computations and
perform such ministerial acts as the Committee may from time to time reasonably
request.
F. Reports. Within a reasonable period of time after the last day of
February of each Plan Year, or following the removal or resignation of the
Trustee, and as of any other date specified by the Committee, the Trustee shall
file a report with the Committee. This report shall show all purchases, sales,
receipts, disbursements and other transactions effected by the Trustee during
the year or period for which the report is filed, and shall contain an exact
description, the cost as shown on the Trustee's books, and the fair market value
as of the end of such period, of every asset held in the Trust and the amount
and nature of each liability of the Trust. The Trustee may rely without
liability upon the Fair Market Value of Company Stock determined by the
Committee based upon a valuation by an independent appraiser.
6
<PAGE> 7
G. Distributions. The Trustee shall make distributions from the Trust,
at such times and in such amounts of Company Stock and/or cash, to the person
entitled thereto under the Plan, as the Committee directs in writing. Any
undistributed portion of a Participant's Capital Accumulation under the Plan
shall be retained in the Trust until the Committee directs its distribution. If
distribution is directed in Company Stock, the Trustee or the Committee shall
cause the Company to issue an appropriate stock certificate to the person
entitled thereto, to be delivered to such person by the Committee; provided that
the Trustee and the Company shall comply with the provisions of the Plan
relating to the repurchase of Company Stock by the Trust or by the Company. Any
cash distribution shall be made by the Trustee's furnishing its check to the
Committee for delivery to the Participant (or Beneficiary).
H. Signatures. All communications required hereunder from the Company
or the Committee to the Trustee shall be in writing signed by an officer of the
Company or a member of the Committee authorized to sign on its behalf. The
Committee shall authorize one or more of its members to sign on its behalf all
communications required hereunder between the Committee and the Trustee. The
Company shall at all times keep the Trustee advised of the names and specimen
signatures of all members of the Committee and the individuals authorized to
sign communications on behalf of the Committee. The Trustee shall be fully
protected in relying on any such communication and shall not be required to
verify the accuracy or validity thereof unless it has reasonable grounds to
7
<PAGE> 8
doubt the authenticity of any signature. If, after request, the Trustee does not
receive instructions from the Committee on any matter in which instructions are
required hereunder, the Trustee shall act or refrain from acting as it may
determine. Except as otherwise specifically required by applicable law, the
Committee may sign any and all documents on behalf of the Plan and the Trust.
I. Expenses. The reasonable expenses incurred by the Trustee in the
performance of its duties, and all other proper administrative costs of the Plan
and Trust (including Trustee's fees), shall be charged to and paid out of the
Trust Assets. However, the Company may pay all or any portion of such expenses.
The Trustee shall be entitled to such reasonable compensation for its services
as may be agreed upon in writing from time to time between the Company and the
Trustee.
J. Liability of Trustee. The Trustee shall not be liable for any action
it takes or refrains from taking in accordance with proper directions of the
Committee. The Trustee shall not be required to pay interest on any portion of
the Trust Assets which is held uninvested at the direction of the Committee. The
Company shall fully indemnify the Trustee and hold it harmless from loss or
liability, including reasonable legal fees, which the Trustee sustains in
discharging its duties and responsibilities under this Agreement, unless such
loss or liability results from the Trustee's breach of fiduciary responsibility
under ERISA. This would include any nonrecoverable consideration paid to acquire
Company Stock from, or not received in selling Company
8
<PAGE> 9
Stock to, a "party in interest" or "disqualified person," which amount was later
determined part of "adequate consideration" or in excess thereof by the Internal
Revenue Service or other governmental authority.
K. Amendment and Termination. The Company (through its Board of
Directors) shall have the right at any time, by an instrument in writing, duly
executed and delivered to the Trustee, to modify, alter or amend this Agreement,
in whole or in part, and to terminate the Plan and Trust, in accordance with the
express provisions of Section 19 of the Plan. In no event, however, shall any
such amendment increase the duties, powers or liabilities of the Trustee
hereunder without its prior written consent.
L. Non-Reversion. Subject to the provisions of Paragraph K above and
Sections 4(d) and 19 of the Plan, this Trust is declared to be irrevocable, and
at no time shall any part of the Trust Assets revert to the Company or be used
for, or be diverted to, purposes other than for the exclusive benefit of
Participants (and their Beneficiaries). However, the Company may, by notice in
writing to the Trustee, direct that all or part of the Trust Assets be
transferred to a successor trustee under a trust which is for the exclusive
benefit of such Participants (and their Beneficiaries) and which satisfies the
requirements of Section 401(a) of the Code; and thereupon the Trust Assets, or
any part thereof, shall be paid over, transferred or assigned to said successor
trustee, free from the Trust created hereunder; provided, however, that no part
of the Trust Assets may be used to
9
<PAGE> 10
pay contributions of the Company under any other plan maintained
for the benefit of its Employees.
M. Resignation or Removal of Trustee. The Trustee may resign at any
time upon 60 days' written notice to the Company. The Trustee may be removed at
any time by the Company upon 30 days' written notice to the Trustee. The person
to whom notice is to be given may agree to waive the requirement of written
notice or to a shorter period of notice. Upon receipt of instructions or
directions from the Company or the Committee with which the Trustee is unable or
unwilling to comply, the Trustee may resign, upon notice in writing to the
Company given within a reasonable time under the circumstances then prevailing
after the receipt of such instructions or directions; and notwithstanding any
other provisions hereof, in that event the Trustee shall have no liability to
the Company, or to any Participant (or Beneficiary), for failure to comply with
such instructions or directions.
Upon resignation or removal of the Trustee, the Company's Board of
Directors shall appoint a successor trustee or trustees. The successor trustee
shall have the same powers and duties as are conferred upon the Trustee
hereunder, and the Trustee shall assign, transfer and pay over to the successor
trustee all the Trust Assets, together with such records or copies thereof as
may be necessary to the successor trustee.
N. Definition. The definition of certain terms in the Plan shall apply
to this Agreement wherever applicable. Each gender includes the other, and the
singular includes the plural.
10
<PAGE> 11
O. Acceptance. The Trustee hereby accepts this Trust and agrees to hold
the initial Trust Assets, and all additions and accretions thereto, subject to
all the terms and conditions of the Plan and this Agreement. In the event that
any provision of this Agreement shall be held illegal or invalid for any reason,
the illegality or invalidity thereof shall not affect the remaining provisions
of this Agreement, but shall be fully severable, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had never been
inserted herein.
P. Conflict Between Plan and Trust Agreement. If there is a conflict
between the terms of the Plan and this Agreement, the terms of this Agreement
shall be controlling with respect to the Trustee's powers, rights, duties and
liabilities.
IN WITNESS WHEREOF, the Company and the Trustee have caused this Trust
Agreement to be executed on this 23rd day of April, 1996.
MEADE INSTRUMENTS CORP. WELLS FARGO BANK, N.A.
By /s/ JOHN C. DIEBEL By /s/
-------------------------------- --------------------------------
Chairman & CEO
By /s/ STEVE MURDOCK By /s/
-------------------------------- --------------------------------
President
11
<PAGE> 1
Exhibit 10.15
ESOP LOAN AND PLEDGE AGREEMENT
by and between
MEADE INSTRUMENTS CORP.
and the
MEADE INSTRUMENTS CORP.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
Dated April 23, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE 1......................................................... 3
The ESOP Loan..................................................... 3
1.1 Loan to ESOP........................................ 3
1.2 Use of Proceeds..................................... 3
1.3 Promissory Note..................................... 3
1.4 Interest............................................ 3
ARTICLE 2......................................................... 3
Loan Payments..................................................... 3
2.1 Payments of Principal and Interest.................. 3
2.2 Company Contributions............................... 4
2.3 Not Payable on Demand; Default...................... 4
2.4 Limitation on Payments.............................. 5
2.5 Due on Sale or Liquidation.......................... 6
ARTICLE 3......................................................... 6
Representations and Warranties of the ESOP........................ 6
3.1 Authorizations...................................... 6
3.2 Compliance with Obligations and Laws................ 7
ARTICLE 4......................................................... 7
Representations and Warranties of the Company..................... 7
4.1 Corporate Authority................................. 7
4.2 ESOP Adoption....................................... 8
4.3 Compliance with Laws and Obligations................ 8
4.4 Representations and Warranties under Fleet Loan
Agreement and Churchill Agreement................... 8
4.5 Governmental Consent................................ 9
ARTICLE 5......................................................... 9
Pledge of Shares.................................................. 9
5.1 Pledge.............................................. 9
5.2 Release of Shares from Pledge....................... 9
5.3 Default.............................................10
ARTICLE 6
Special Put Option Price..........................................11
6.1 Duration............................................11
6.2 Put Option Under The ESOP...........................11
ARTICLE 7.........................................................11
Miscellaneous.....................................................11
7.1 Amendments, Waivers and Modifications..............11
7.2 No Waiver..........................................12
7.3 Survival of Covenants, Etc.; Successors and
Assigns............................................12
<PAGE> 3
7.4 Communications.............................. 12
7.5 Capacity.................................... 13
7.6 Entire Agreement ........................... 13
7.7 Governing Law............................... 13
7.8 Compliance with Applicable Law.............. 13
7.9 Headings.................................... 14
7.10 Counterparts................................ 14
7.11 Severability................................ 15
<PAGE> 4
ESOP LOAN AND PLEDGE AGREEMENT
THIS AGREEMENT, effective as of April 23, 1996, by and between MEADE
INSTRUMENTS CORP., a California corporation (the "Company"), and the MEADE
INSTRUMENTS CORP. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST (the "ESOP").
W I T N E S S E T H:
WHEREAS, the Company has adopted the ESOP to provide stock ownership
interests in the Company to eligible employees, and the ESOP is designed to be
an employee stock ownership plan under Section 4975(e)(7) of the Internal
Revenue Code of 1986, as amended (the "Code"), and Section 407(d)(6) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA");
WHEREAS, the Diebel Living Trust u/d/t dated January 12, 1995, the
Murdock 1986 Trust u/d/t dated October 23, 1986, Ronald Ezra and Joseph A.
Gordon, Jr. (the "Sellers"), shareholders of the Company, have offered to sell
all of the 1,500,000 shares of Series B Common Stock of the Company (the
"Shares") to the ESOP for a total purchase price of $10,999,950;
WHEREAS, the Company is willing to make a loan to the ESOP in the
amount of $10,999,950 (the "Loan") in order to enable the ESOP to finance its
purchase of the Shares, subject to the condi-
1
<PAGE> 5
tion that the ESOP pledge the Shares to the Company as security for the Loan;
WHEREAS, the Company will obtain funds needed to make the Loan and for
other corporate purposes through the combination of a term loan ("Fleet Loan")
in the amount of $9,500,000 from Fleet Capital Corporation ("Fleet") pursuant to
the terms of the Loan and Security Agreement by and between Fleet and the
Company ("Fleet Loan Agreement") and the sale of $6 million of newly-issued
preferred stock to Churchill ESOP Capital Partners ("Churchill") pursuant to the
terms of the Securities Purchase Agreement by and between the Company and
Churchill ("Churchill Agreement");
WHEREAS, the ESOP desires to incur the Loan in order to finance its
purchase of the Shares; and
WHEREAS, Wells Fargo Bank, N.A., as Trustee of the ESOP (the "Trustee")
has determined that the proposed purchase of the Shares and the borrowing of the
Loan are in the best interests of the ESOP and its participants and comply with
the applicable requirements of the Code and ERISA;
NOW, THEREFORE, the parties hereto agree as follows:
2
<PAGE> 6
ARTICLE 1
The ESOP Loan
1.1 Loan to ESOP. Subject to the terms and conditions herein
set forth, the Company agrees to lend $10,999,950 to the ESOP.
1.2 Use of Proceeds. The ESOP hereby agrees that it will use
the entire proceeds of the Loan to purchase the Shares and for no other purpose.
1.3 Promissory Note. The Loan is evidenced by a secured
promissory note in the original principal amount of $10,999,950 (the "Note") to
be delivered by the ESOP to the Company, in the form attached hereto.
1.4 Interest. Interest shall accrue on the unpaid principal
amount of the Note at the rate of 6% per annum.
ARTICLE 2
Loan Payments
2.1 Payments of Principal and Interest.
(a) Interest - The ESOP shall pay interest (including
interest on overdue payments) on the unpaid portion of the ESOP Loan
semi-annually on each August 31st and March 1st, commencing August 31, 1996, at
an annual rate equal to 6%.
(b) Principal - Principal on the Note shall be due
and payable in 20 consecutive semi-annual installments on each August 31st and
March 1st, beginning August 31, 1996, in the
3
<PAGE> 7
amount of $550,000.00. Any remaining principal balance (including the final
installment of $549,950) and accrued interest shall be due and payable on March
1, 2006.
(c) Optional Prepayment - The ESOP may prepay amounts
due hereunder in whole or in part at any time, and from time to time, without
premium or penalty. Any prepayment under this Section 2.1(c) shall be applied
first to accrued interest and then to payments of principal in the order of
maturity.
(d) Form of Payment - Payments of principal and/or
interest on the ESOP Loan may be made to the Company by the ESOP in cash or by
cancellation of indebtedness by the Company evidenced by written notice to the
ESOP.
2.2 Company Contributions. The Company hereby agrees to make
contributions to the ESOP in cash or by cancellation of indebtedness from time
to time in amounts sufficient to permit the ESOP to make timely payments of the
principal and interest due under Section 2.1(a) and (b), after taking into
account the amount of any cash dividends on the Shares received by the ESOP;
provided, however, that the Company shall not be required to make contributions
to the ESOP in amounts in excess of the limitations under Sections 404(a) and
415(c) of the Code. The ESOP agrees that so long as any interest or principal
amount remains payable on the Loan, the ESOP will use all cash contributions and
cash dividends on the Shares received by the ESOP to make payments on the Loan.
2.3 Not Payable on Demand; Default. Under no circumstances
will the outstanding balance of the Loan be payable on
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<PAGE> 8
demand, except in the case of an Event of Default. For this purpose, the only
Event of Default hereunder shall be the ESOP's failure to make the payments
required under Section 2.1(a) and (b), but only if the ESOP has received
sufficient cash contributions and dividends from the Company to make such
payments.
2.4 Limitation on Payments. Subject to the provisions of
Section 5.3, payments of principal and interest on the ESOP Loan shall not
exceed the sum of all Company contributions (excluding any contributions of
Company Stock) that are made to the ESOP by Company to enable the ESOP to meet
its obligations under this Agreement, any earnings on such Company contributions
and any cash dividends on the Shares (whether or not such Shares have been
released from pledge under Section 5.2 at the time the dividend is paid), less
payments made in prior years. The Company shall have no recourse against the
assets of the ESOP other than (a) cash contributions that are made to the ESOP
by the Company to enable the ESOP to meet its obligations hereunder, (b) any
earnings attributable to the investment of such cash contributions, (c) any cash
dividends on the Shares, and (d) the Shares remaining subject to pledge under
Article 5, but only to the extent permitted under Section 5.3. Notwithstanding
the foregoing provisions, the ESOP may elect to apply the proceeds from the sale
of any Shares remaining subject to pledge under Article 5 to pay principal and
accrued interest due on the ESOP Loan in the event of the sale of the Company
(including a transaction subject to Section 2.5) or the termination of the ESOP
or
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<PAGE> 9
if the ESOP ceases to be an employee stock ownership plan under Section
4975(e)(7) of the Code.
2.5 Due on Sale or Liquidation.
(a) Due on Sale - In the event the ESOP agrees to
sell all of the Shares it owns in connection with the acquisition of the
Company, the ESOP shall apply the proceeds from the sale of any Shares then
remaining subject to pledge under Article 5 to the extent necessary to repay the
Loan. The mandatory repayment of the Loan provided for in this Section 2.5 shall
apply only if the sale of Shares by the ESOP has been approved by a fiduciary
who is "independent," within the meaning of Department of Labor Prop. Reg. Sec.
2510.3-18(b)(3)(ii)(B)(1).
(b) Due on Liquidation - In the event of a
liquidation, dissolution or winding up of the Company, either voluntary or
involuntary, the ESOP shall apply the proceeds attributable to any Shares then
remaining subject to pledge under Article 5 to the extent necessary to repay the
Loan.
ARTICLE 3
Representations and Warranties of the ESOP
The ESOP, as of the date hereof, represents and warrants as
follows:
3.1 Authorizations. This Agreement has been duly authorized by
all necessary action on the part of the ESOP. This Agreement has been duly
executed and delivered by the ESOP and
6
<PAGE> 10
constitutes a legal, valid and binding obligation of the ESOP, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, reorganization and
other similar laws affecting creditors' rights generally and subject, as to
enforceability, to general equitable principles (regardless of whether
enforcement is sought in a proceeding in equity or at law).
3.2 Compliance with Obligations and Laws. Neither the
execution and delivery by the ESOP of this Agreement, nor the consummation of
the transactions contemplated hereby, nor compliance by the ESOP with its
obligations hereunder, will conflict with, or result in a breach or violation
of, or constitute a default under, any provision of the ESOP or any law, rule,
regulation, order, injunction or decree of any court, administrative authority
or arbitrator applicable to the ESOP.
ARTICLE 4
Representations and Warranties of the Company
The Company, as of the date hereof, hereby represents and
warrants as follows:
4.1 Corporate Authority. It has all requisite corporate power
and authority to execute, deliver and perform its obligations under this
Agreement. The Company has taken all corporate action to authorize the Loan and
the execution of this Agreement by the Company. This Agreement has been duly
executed and delivered by the Company.
7
<PAGE> 11
4.2 ESOP Adoption. The ESOP is an "employee stock ownership
plan" (as such term is defined in Section 4975(e)(7) of the Code) duly
established by the Company, and the Trustee has been duly appointed by the
Company and has all requisite power and authority to execute, deliver and
perform its obligations under this Agreement.
4.3 Compliance with Laws and Obligations. Neither the
execution of this Agreement by the Company nor the fulfillment of any of the
Company's obligations under this Agreement will, to the Company's knowledge,
conflict with, or result in a breach or violation of, or constitute a default
under any law, rule, regulation, order or injunction binding on the Company, or
any other obligation, loan, contract or agreement of the Company.
4.4 Representations and Warranties under Fleet Loan Agreement
and Churchill Agreement. Each of the representations and warranties in Section
7.1 of the Fleet Loan Agreement with respect to the Company, and each of the
representations and warranties in Section 4 of the Churchill Agreement with
respect to the Company, is hereby incorporated mutatis mutandis (without regard
to any waiver or amendment thereto from the form of the Fleet Loan Agreement and
the Churchill Agreement in the form existing on the date most recently delivered
to the ESOP (whether or not executed or delivered), other than those waivers and
amendments of which the ESOP has been advised a reasonable time prior to the
closing of the purchase of the Shares and that are subsequently confirmed to the
ESOP in writing).
8
<PAGE> 12
4.5 Governmental Consent. No approval, consent or withholding
of objection on the part of any regulatory body, state, Federal or local, is
necessary in connection with the execution and delivery by the Company of this
Agreement or the issuance, sale or delivery of the Shares or compliance by the
Company with any of the provisions of this Agreement.
ARTICLE 5
Pledge of Shares
5.1 Pledge. The Shares are hereby pledged by the ESOP to the
Company as collateral for the Loan, and the ESOP hereby grants to the Company a
security interest in the Shares, all free and clear of any other pledge,
security interest, lien or encumbrance. So long as there is no Event of Default,
the ESOP shall receive all dividends paid with respect to the Shares and
exercise all voting rights with respect to the Shares, subject to the applicable
provisions of the ESOP.
5.2 Release of Shares from Pledge. As of each date that a
payment of principal is made under the Loan, a number of the Shares shall be
released from pledge hereunder. The number of Shares to be so released shall be
calculated by multiplying the number of Shares held by the Company under the
pledge (immediately before the release) by a fraction. The numerator of the
fraction shall be the amount of the principal payment being made on that date.
The denominator of the fraction shall be the sum of the numerator plus the
remaining outstanding principal balance
9
<PAGE> 13
under the Loan. If at any time the ESOP fails to meet the requirements of
Treasury Regulation Section 54.4975-7(b)(8)(ii), thereafter, the number of
Shares released from pledge hereunder and delivered by the Company to the ESOP
shall be calculated in accordance with the Principal/Interest Method set forth
in Section 6(c)(1) of the ESOP.
5.3 Default. In the event of a failure of the ESOP to make any
payment of principal or interest due under the Loan after receipt by the ESOP
from the Company of cash contributions and cash dividends sufficient to make
such payment, the Company may notify the ESOP that an Event of Default has
occurred. If such an Event of Default shall occur and be continuing for a period
of thirty days following receipt of such notice, the Company shall then have the
right to transfer ownership of the Shares that remain subject to the pledge
under Section 5.1 out of the name of the ESOP and may apply the value thereof
toward the payment of the ESOP's obligations hereunder; provided, however, that
(a) the fair market value of the Shares to be so applied in satisfaction of the
Loan shall not exceed the amount (of principal and interest) then in default
(without acceleration), and (b) such Shares shall be so transferred only upon
and to the extent of the failure of the ESOP to make timely payments as required
under Article 2.
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<PAGE> 14
ARTICLE 6
Special Put Option Price
6.1 Duration. If an ESOP participant or beneficiary is
entitled to receive a distribution from the ESOP prior to the date the Shares
convert into Series A Common Stock under the terms of the Amended and Restated
Articles of Incorporation of the Company (as in effect on the date of this
Agreement), such distribution must be made in the form of Shares (and not in
cash) if the then Fair Market Value (as defined in the ESOP) of the Shares is
less than the Liquidation Preference, as defined in Section 3.1(b) of the
Amended and Restated Articles of Incorporation of the Company (as in effect on
the date of this Agreement).
6.2 Put Option Under The ESOP. If an ESOP participant or
beneficiary exercises the put option granted to him under Section 14(b) of the
ESOP with respect to Shares distributed under the circumstances described in
Section 6.1, the Company will purchase such Shares at a per share price equal to
the Liquidation Preference.
ARTICLE 7
Miscellaneous
7.1 Amendments, Waivers and Modifications. No amendment,
waiver, or modification of any provision of this Agreement
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<PAGE> 15
shall be effective unless set forth in an instrument in writing signed by both
parties to this Agreement.
7.2 No Waiver. No delay or failure of the Company or the ESOP
in exercising any right, power or privilege hereunder shall affect such right,
power or privilege; nor shall any single or partial exercise thereof nor any
abandonment or discontinuance of steps to enforce such a right, power or
privilege preclude any further exercise thereof or any other right, power or
privilege of the Company or the ESOP. The rights and remedies of the Company and
the ESOP hereunder are cumulative and not exclusive. Any waiver, permit, consent
or approval of any kind by the Company or the ESOP of any breach or default
hereunder, or any such waiver of any provisions or conditions hereof, must be in
writing and shall be effective only to the extent set forth in such writing.
7.3 Survival of Covenants, Etc.; Successors and Assigns. So
long as any amount shall be outstanding under the Loan, all covenants,
agreements, representations and warranties made by the Company and the ESOP in
this Agreement and in any certificate or other document delivered pursuant
hereto shall inure to the benefit of the Company or the ESOP, as the case may
be, and shall be binding upon any successors and assigns of the Company or the
ESOP, as the case may be.
7.4 Communications. All notices and other communications
which are required or may be given hereunder shall be in writing, shall be
effective upon receipt and shall be deemed to have been duly given if delivered
personally or sent by cable,
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<PAGE> 16
telegram, telex or facsimile or by registered or certified mail, postage
prepaid, sent to the following addresses:
If to the Company: Meade Instruments Corp.
16542 Millikan Avenue
Irvine, California 92714
Attn: Chief Financial Officer
If to the ESOP: Wells Fargo Bank, N.A.,
As Trustee of the
Meade Instruments Corp. Employee
Stock Ownership Plan and Trust
707 Wilshire Boulevard
Los Angeles, California 90017
Attn: Ms. Elyse Weise
Vice President and Manager
with a copy to: Administrative Committee of the
Meade Instruments Corp.
Employee Stock Ownership Plan
16542 Millikan Avenue
Irvine, California 92714
Attn: Committee Chairman
Such addresses may be changed from time to time by notice to the ESOP, in the
case of the Company, and by notice to the Company, in the case of the ESOP.
7.5 Capacity. The Trustee is executing this Agreement solely
in its capacity as trustee of the ESOP, and not in either its corporate or
individual capacity.
7.6 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the
Loan.
7.7 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the substantive laws of the State of California,
except as preempted by ERISA.
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<PAGE> 17
7.8 Compliance with Applicable Law. It is intended that the
loan and the pledge of the Shares contemplated hereunder, including all terms
and provisions of this Agreement and the Secured Promissory Note, shall qualify
for exemption under Section 4975(d)(3) of the Code from being a prohibited
transaction under Section 4975(c) of the Code, and shall qualify for exemption
under Section 408(b)(3) of ERISA from being a prohibited transaction under
Section 406 of ERISA. Notwithstanding anything herein or in any of the
aforementioned documents to the contrary, (i) neither the Company nor the ESOP
shall take any action or fail to take any action the result of which would cause
any portion or all of the transaction contemplated hereby to be a prohibited
transaction under Section 4975(c) of the Code or Section 406 of ERISA, (ii) any
action in contravention of this provision shall be null and void and
unenforceable, and (iii) in the event that any portion of the transaction
contemplated hereby is determined to be or it appears reasonably certain to be
such a prohibited transaction, the parties shall take such action as shall be
reasonably necessary and appropriate to correct any such prohibited transaction.
7.9 Headings. The Table of Contents and headings of the
Articles and Sections of this Agreement are inserted for convenience only and
shall not be deemed to constitute a part hereof.
7.10 Counterparts. This Agreement may be executed in one or
more counterparts each of which shall be deemed to constitute an original and
shall become effective when one or more
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<PAGE> 18
counterparts have been signed by each party hereto and delivered to the other
party.
7.11 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision hereunder.
IN WITNESS WHEREOF, the Company and the ESOP have executed this ESOP
Loan and Pledge Agreement as of this 23rd day of April, 1996.
MEADE INSTRUMENTS CORP.
By /s/ STEVEN MURDOCK
-------------------------------------
President
MEADE INSTRUMENTS CORP. EMPLOYEE
STOCK OWNERSHIP PLAN AND TRUST
By: Wells Fargo Bank,
N.A., not in an individual
or corporate capacity, but
solely in its capacity
as Trustee
By /s/ ELYSE WEISE
--------------------------------
<PAGE> 1
EXHIBIT 10.16
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--------------------------
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MEADE INSTRUMENTS CORP.
---------------------------------------
---------------------------------------
LOAN AND SECURITY AGREEMENT
Dated: as of April 23, 1996
$19,500,000
---------------------------------------
---------------------------------------
---------------------------------------
FLEET CAPITAL CORPORATION
---------------------------------------
<PAGE> 2
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 23rd day of April,
1996, by and between FLEET CAPITAL CORPORATION ("Lender"), a Connecticut
corporation with an office at 15260 Ventura Boulevard, Suite 1200, Sherman Oaks,
California 91403 and MEADE INSTRUMENTS CORP. ("Borrower"), a California
corporation with its chief executive office and principal place of business at
16542 Millikan Avenue, Irvine, California 92714. Capitalized terms used in this
Agreement have the meanings assigned to them in Appendix A, General Definitions.
Accounting terms not otherwise specifically defined herein shall be construed in
accordance with GAAP consistently applied.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Total Credit Facility of up to Nineteen
Million Five Hundred Thousand Dollars ($19,500,000) available upon Borrower's
request therefor, as follows:
1.1 Revolving Credit Loans.
1.1.1 Loans and Reserves. Lender agrees, for so long as no Default
or Event of Default exists and subject to the satisfaction of the applicable
conditions precedent set forth in Sections 9 and 9A, to make Revolving Credit
Loans to Borrower from time to time, as requested by Borrower in the manner set
forth in subsection 3.1.1 hereof, up to a maximum principal amount at any time
outstanding equal to the Borrowing Base at such time minus the LC Amount and
reserves, if any. Lender shall have the right to establish reserves in such
amounts, and with respect to such matters, as Lender in good faith shall deem
reasonably necessary or appropriate, against the amount of Revolving Credit
Loans which Borrower may otherwise request under this subsection 1.1.1,
including, without limitation, with respect to (a) price adjustments, damages,
unearned discounts, returned products or other matters for which credit
memoranda are issued in the ordinary course of Borrower's business; (b)
shrinkage, spoilage, and obsolescence of Inventory; (c) slow moving Inventory;
(d) amounts owing by Borrower to any Person to the extent secured by a Lien on,
or trust over, any Property of Borrower; and (e) such other matters, events,
conditions, or contingencies as to which Lender, in its sole credit judgment,
determines reserves should be established from time to time hereunder.
1.1.2 Use of Proceeds. The Loans shall be used solely for: (1) the
payment in full of the principal of, and interest accrued under, the Shareholder
Notes, (2) the payment in full of the Indebtedness owed by Borrower to the
Existing Lender, (3) the consummation of the Recapitalization Transactions in an
amount up to but not in excess of
<PAGE> 3
Five Million Three Hundred Seventy Thousand Dollars ($5,370,000), and (4)
Borrower's general operating capital needs, in a manner consistent with the
provisions of this Agreement and all applicable laws.
1.2 Term Loan.
1.2.1 Term Loan. Lender agrees to make a term loan to Borrower on the
Closing Date in the principal amount of Nine Million Five Hundred Thousand
Dollars ($9,500,000) which shall be repayable in accordance with the terms of
the Term Note and shall be secured by all of the Collateral. The proceeds of the
Term Loan shall be used solely for the purposes set forth in subsection 1.1.2
above.
1.2.2 [Intentionally omitted]
1.3 Letters of Credit; LC Guaranties. Lender agrees, for so long as
no Default or Event of Default exists and subject to the satisfaction of the
applicable conditions precedent set forth in Sections 9 and 9A, and if requested
by Borrower, to (a) issue its, or cause to be issued its Affiliate's,
documentary Letters of Credit for the account of Borrower or (b) execute LC
Guaranties by which Lender shall guaranty the payment or performance by Borrower
of its reimbursement obligations with respect to documentary letters of credit
issued for Borrower's account by other Persons, provided that the LC Amount at
any time shall not exceed the lesser of (a) Two Million Dollars ($2,000,000),
and (b) the Borrowing Base at such time minus the then aggregate outstanding
principal amount of Revolving Credit Loans. No Letter of Credit or LC Guarantee
may have an expiration date that is after the last day of the Original Term or
the then applicable Renewal Term. Any amounts paid by Lender under any LC
Guaranty or in connection with any Letter of Credit shall be treated as
Revolving Credit Loans, shall be secured by all of the Collateral, and shall
bear interest and be payable at the same rate and in the same manner as
Revolving Credit Loans.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Rates of Interest.
(a) Term Loan. Interest shall accrue on the Term Loan
in accordance with the terms of the Term Note.
(b) Revolving Loans. During all times that a Base
Rate Election is in effect, interest shall accrue on the
principal amount of the Revolving Credit Loans outstanding at
the end of each day at a fluctuating rate per annum equal to
one-half of one percent (0.50%) plus the Base Rate. The rate
of interest shall increase or decrease by
2
<PAGE> 4
an amount equal to any increase or decrease in the Base Rate, effective
as of the opening of business on the day that any such change in the
Base Rate occurs. During all times that a LIBOR Rate Election is in
effect, interest shall accrue on the principal amount of the Revolving
Credit Loans outstanding at the end of each day at a fluctuating rate
per annum equal to three percent (3%) plus the LIBOR Rate. The rate of
interest shall increase or decrease by an amount equal to any increase
or decrease in the LIBOR Rate, effective as of the opening of business
on the day that any such change in the LIBOR Rate occurs.
2.1.2 Default Rate of Interest. Upon and after the occurrence of an
Event of Default, and during the continuation thereof, the principal amount of
all Loans shall bear interest at a rate per annum equal to two percent (2%)
above the interest rate otherwise applicable thereto (the "Default Rate").
2.1.3 Maximum Interest. In no event whatsoever shall the aggregate of
all amounts deemed interest hereunder or under the Term Note and charged or
collected pursuant to the terms of this Agreement or pursuant to the Term Note
exceed the highest rate permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto. If any
provisions of this Agreement or the Term Note are in contravention of any such
law, such provisions shall be deemed amended to conform thereto.
2.2 Computation of Interest and Fees. Interest, Letter of Credit and
LC Guaranty fees, unused line fees, and collection charges hereunder shall be
calculated daily and shall be computed on the actual number of days elapsed over
a year of three hundred sixty (360) days. For the purpose of computing interest
hereunder, all items of payment received by Lender shall be deemed applied by
Lender on account of the Obligations (subject to final payment of such items) on
the first Business Day after receipt by Lender of such items in Lender's account
located at Harris Bank in Chicago, Illinois or such other account as Lender may
designate by written notice to Borrower.
2.3 Rate Elections. Unless a LIBOR Rate Election is in effect,
Borrower shall be deemed to have made an effective Base Rate Election. Upon the
conditions that: (a) Lender shall have received a LIBOR Rate Request from
Borrower at least one (1) Business Day prior to the effective date of the LIBOR
Rate Election, (b) as of the date of the LIBOR Rate Request and the effective
date of the LIBOR Rate Election, there shall exist no Default or Event of
Default, and (c) if Borrower previously has made any Rate Election hereunder by
sending to Lender a Rate Request, as of the effective date of the LIBOR Rate
Election, not less than thirty (30) days have elapsed since the effective date
of the last such Rate Election made by Borrower hereunder, the LIBOR Rate
Election shall become effective on the effective date specified in the related
LIBOR Rate Request and shall continue in effect until otherwise provided herein.
Upon the conditions that: (a) Lender shall have received a Base Rate Request
from Borrower at least one (1) Business
3
<PAGE> 5
Day prior to the effective date of the Base Rate Election, and (b) if Borrower
previously has made any Rate Election hereunder by sending to Lender a Rate
Request, as of the effective date of the Base Rate Election, not less than
thirty (30) days have elapsed since the effective date of the last such Rate
Election made by Borrower hereunder, the Base Rate Election shall become
effective on the effective date specified in the related Base Rate Request and
shall continue in effect until otherwise provided herein. The foregoing
notwithstanding, should a Default or Event of Default occur and be continuing
during any time that a LIBOR Rate Election is in effect, Lender may in its sole
and absolute discretion terminate the effectiveness of the LIBOR Rate Election
without notice to Borrower, and from and after the time of such termination by
Lender a Base Rate Election shall be deemed to be in effect unless and until a
future LIBOR Rate Election is made in accordance with the terms hereof.
2.4 Closing Fee. Borrower shall pay to Lender a closing fee of One
Hundred Forty-Six Thousand Two Hundred Fifty Dollars ($146,250) which shall be
fully earned and nonrefundable on the Closing Date and shall be paid
concurrently with the initial Loan hereunder; provided, however, that the amount
of such fee shall be reduced by the amount of any unexpended portion of the good
faith deposit and commitment fee previously paid to Lender, after deduction
therefrom for the payment of Lender's costs, fees, and expenses.
2.5 Letter of Credit and LC Guaranty Fees. Borrower shall pay to
Lender:
(a) [Intentionally omitted]
(b) for documentary Letters of Credit and LC Guaranties of
documentary Letters of Credit, a fee equal to three-quarters of one
percent (0.75%) per annum of the face amount of each such Letter of
Credit or LC Guaranty, payable in arrears on the first day of each
month based on the amount available for drawing under such Letter of
Credit or LC Guaranty plus the normal and customary charges associated
with the issuance and administration of each such Letter of Credit or
LC Guaranty (which charges shall be fully earned upon issuance, renewal
or extension (as the case may be) of each such Letter of Credit or LC
Guaranty).
2.6 Unused Line Fee. Borrower shall pay to Lender a fee equal to
one-half of one percent (0.50%) per annum of the average monthly amount by which
Ten Million Dollars ($10,000,000) exceeds the sum of the outstanding principal
balance of the Revolving Credit Loans plus the LC Amount, in each case, during
the preceding month. The unused line fee shall be payable monthly in arrears on
the first day of each month hereafter.
4
<PAGE> 6
2.7 Collection Charges. If items of payment are received by Lender at
a time when there are no Revolving Credit Loans outstanding, such items of
payment shall be subject to a collection charge equal to one (1) Business Days'
interest on the amount thereof at the rate then applicable to Revolving Credit
Loans, which collection charges shall be payable on the first day of each month.
2.8 Audit and Appraisal Fees. Borrower shall pay to Lender all
reasonable out-of-pocket costs and expenses incurred by Lender in connection
with audits and appraisals of Borrower's books and records or the Collateral,
plus all fees and expenses incurred by Lender in connection with any appraisals
of the Collateral commissioned by Lender and performed by third party
appraisers. All such fees, costs, and expenses shall be payable on the first day
of the month following the date of issuance by Lender of a request for payment
thereof to Borrower.
2.9 Reimbursement of Expenses. If, at any time or times regardless of
whether or not an Event of Default then exists, Lender incurs legal or
accounting expenses or any other costs or out-of-pocket expenses in connection
with (a) the negotiation and preparation of this Agreement or any of the other
Loan Documents, any amendment of or modification of this Agreement or any of the
other Loan Documents; (b) the administration of this Agreement or any of the
other Loan Documents and the transactions contemplated hereby and thereby; (c)
any litigation, contest, dispute, suit, proceeding or action (whether instituted
by Lender, Borrower or any other Person) in any way relating to the Collateral,
this Agreement or any of the other Loan Documents or Borrower's affairs; (d) any
attempt to enforce any rights of Lender against Borrower or any other Person
which may be obligated to Lender by virtue of this Agreement or any of the other
Loan Documents, including, without limitation, the Account Debtors; or (e) any
attempt to inspect, verify, protect, preserve, restore, collect, sell, liquidate
or otherwise dispose of or realize upon the Collateral; then all such legal and
accounting expenses, other costs and out of pocket expenses of Lender shall be
charged to Borrower. All amounts chargeable to Borrower under this Section 2.9
shall be Obligations secured by all of the Collateral, shall be payable on
demand to Lender, and shall bear interest from the date such demand is made
until paid in full at the rate applicable to Revolving Credit Loans from time to
time. Borrower also shall reimburse Lender for expenses incurred by Lender in
its administration of the Collateral to the extent and in the manner provided in
Section 6 hereof.
2.10 Bank Charges. Borrower shall pay to Lender, on demand, any and all
fees, costs or expenses which Lender pays to a bank or other similar institution
arising out of or in connection with (a) the forwarding by Lender to Borrower or
any other Person on behalf of Borrower of proceeds of loans made by Lender to
Borrower pursuant to this Agreement and (b) the depositing by Lender for
collection of any check or item of payment received by or delivered to Lender on
account of the Obligations.
5
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SECTION 3. LOAN ADMINISTRATION
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under
the credit facility established pursuant to Section 1 hereof shall be as
follows:
3.1.1 Loan Requests. A request for a Revolving Credit Loan shall be
made, or shall be deemed to be made, in the following manner: (a) Borrower may
give Lender notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date, no
later than 11:00 a.m. (Los Angeles time) on the proposed borrowing date,
provided, however, that no such request may be made at a time when the
conditions precedent set forth in Section 9A are not satisfied: and (b) the
becoming due of any amount required to be paid under this Agreement or the Term
Note, whether as interest or for any other Obligation, shall be deemed
irrevocably to be a request for a Revolving Credit Loan on the due date in the
amount required to pay such interest or other Obligation. As an accommodation to
Borrower, Lender may permit telephonic requests for loans and electronic
transmittal of instructions, authorizations, agreements or reports to Lender by
Borrower. Unless Borrower specifically directs Lender in writing not to accept
or act upon telephonic or electronic communications from Borrower, Lender shall
have no liability to Borrower for any loss or damage suffered by Borrower as a
result of Lender's honoring of any requests, execution of any instructions,
authorizations or agreements, or reliance on any reports communicated to it
telephonically or electronically and believed in good faith by Lender to have
been sent to Lender by Borrower, and Lender shall have no duty to verify the
origin of any such communication or the authority of the person sending it.
3.1.2 Disbursement. Borrower hereby irrevocably authorizes Lender to
disburse the proceeds of each Revolving Credit Loan requested, or deemed to be
requested, pursuant to this Section 3.1 as follows: (a) the proceeds of each
Revolving Credit Loan requested under subsection 3.1.1(a) shall be disbursed by
Lender in lawful money of the United States of America in immediately available
funds, in the case of the initial borrowing, in accordance with the terms of the
written disbursement letter from Borrower, and in the case of each subsequent
borrowing, by wire transfer to such bank account as may be agreed upon by
Borrower and Lender from time to time or elsewhere if pursuant to a written
direction from Borrower; and (b) the proceeds of each Revolving Credit Loan
requested under subsection 3.1.1(b) shall be disbursed by Lender by way of
direct payment of the relevant interest or other Obligation.
3.1.3 Authorization. Borrower hereby irrevocably authorizes Lender, in
Lender's sole discretion, to advance to Borrower, and to charge to Borrower's
Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay all
interest accrued on the Obligations during the immediately preceding month and
to pay all costs, fees, and expenses at any time owed by Borrower to Lender
hereunder.
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3.2 Payments. Except where evidenced by notes or other instruments
issued or made by Borrower to Lender (and accepted by Lender) specifically
containing payment provisions which are in conflict with this Section 3.2 (in
which event the conflicting provisions of said notes or other instruments shall
govern and control), the Obligations shall be payable as follows:
3.2.1 Principal. Principal payable on account of Revolving Credit
Loans shall be payable by Borrower to Lender immediately upon the earliest of:
(a) the receipt by Lender or Borrower of any proceeds of any of the Collateral
other than Equipment, to the extent of said proceeds; (b) the occurrence of an
Event of Default in consequence of which Lender elects to accelerate the
maturity and payment of the Obligations; and (c) termination of this Agreement
pursuant to Section 4 hereof; provided, however, that if an Overadvance shall
exist at any time, Borrower shall, on demand, repay the Overadvance.
3.2.2 Interest. Interest accrued on Revolving Credit Loans shall be
due on the earliest of: (a) the first calendar day of each month (for the
immediately preceding month), computed through the last calendar day of the
preceding month, (b) the occurrence of an Event of Default in consequence of
which Lender elects to accelerate the maturity and payment of the Obligations,
and (c) termination of this Agreement pursuant to Section 4 hereof.
3.2.3 Costs, Fees and Charges. Costs, fees and charges payable
pursuant to this Agreement shall be payable by Borrower as and when provided in
Section 2 hereof, to Lender or to any other Person designated by Lender in
writing.
3.2.4 Other Obligations. The balance of the Obligations requiring the
payment of money, if any, shall be payable by Borrower to Lender as and when
provided in this Agreement, the Other Agreements or the Security Documents, or
on demand, whichever is earlier.
3.3 Mandatory Prepayments.
3.3.1 Proceeds of Sale, Loss, Destruction, or Condemnation of
Collateral. Except as provided in subsection 6.4.2 hereof, if Borrower sells any
of the Equipment, or if any of the Collateral is lost or destroyed or taken by
condemnation, Borrower shall pay to Lender, unless otherwise agreed by Lender,
as and when received by Borrower and as a mandatory prepayment of the Term Loan,
a sum equal to the proceeds (including insurance payments) received by Borrower
from such sale, loss, destruction, or condemnation.
3.3.2 Excess Cash Flow Recapture. Borrower shall prepay the Term Note
and the Revolving Credit Loans by the amount of Borrower's Excess Cash Flow with
respect to each fiscal year of Borrower during the Original Term hereof, such
prepayments
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to be made within thirty (30) Business Days following the due date for delivery
by Borrower to Lender of the annual financial statements required by subsection
8.1.3(a) hereof and each such prepayment shall be applied as follows: (a) first,
to the installments of principal due under the Term Note in the inverse order of
their maturities up to Five Hundred Thousand Dollars ($500,000); (b) then, to
amounts due under the Revolving Credit Loans up to Five Hundred Thousand Dollars
($500,000); and (c) thereafter, no further mandatory prepayments of Excess Cash
Flow shall be required.
3.4 Application of Payments and Collections. For purposes of
calculating Availability, all items of payment received by Lender on any
Business Day shall be deemed received on the following Business Day. Borrower
irrevocably waives the right to direct the application of any and all payments
and collections at any time or times hereafter received by Lender from or on
behalf of Borrower, and Borrower does hereby irrevocably agree that, subject to
subsection 3.2.1(a), after the occurrence and during the continuation of an
Event of Default, Lender shall have the continuing exclusive right to apply and
reapply any and all such payments and collections received at any time or times
hereafter by Lender or its agent against the Obligations, in such manner as
Lender may deem advisable, notwithstanding any entry by Lender upon any of its
books and records. If, as the result of collections of Accounts as authorized by
subsection 6.2.6 hereof, a credit balance exists in the Loan Account, such
credit balance shall not accrue interest in favor of Borrower, but shall be
available to Borrower at any time or times for so long as no Default or Event of
Default exists. Such credit balance shall not be applied or be deemed to have
been applied as a prepayment of the Term Loan, except that Lender may, at its
option, offset such credit balance against any of the Obligations upon and after
the occurrence of an Event of Default.
3.5 All Loans to Constitute One Obligation. The Loans shall
constitute one general Obligation of Borrower, and shall be secured by Lender's
Lien upon all of the Collateral.
3.6 Loan Account. Lender shall enter all Loans as debits to the Loan
Account and also shall record in the Loan Account all payments made by Borrower
on any Obligations and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practices, other debits and credits, including interest and all charges and
expenses properly chargeable to Borrower.
3.7 Statements of Account. Lender will account to Borrower monthly
with a statement of Loans, charges, and payments made pursuant to this
Agreement, and such account rendered by Lender shall be deemed final, binding
and conclusive upon Borrower unless Lender is notified by Borrower in writing to
the contrary within thirty (30) days of the date each accounting is mailed to
Borrower. Such notice only shall be deemed an objection to those items
specifically objected to therein.
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SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Lender's right to cease making
Loans to Borrower upon or after the occurrence of any Default or Event of
Default, this Agreement shall be in effect for a period of five (5) years from
the date hereof, through and including April 23, 2001 (the "Original Term"), and
this Agreement automatically shall renew itself for one-year periods thereafter
(the "Renewal Terms"), unless terminated as provided in Section 4.2 hereof.
4.2 Termination.
4.2.1 Termination by Lender. Upon at least sixty (60) days prior
written notice to Borrower, Lender may terminate this Agreement as of the last
day of the Original Term or the then current Renewal Term, and Lender may
terminate this Agreement without notice upon or after the occurrence of an Event
of Default.
4.2.2 Termination by Borrower. Upon at least sixty (60) days prior
written notice to Lender, Borrower may, at its option, terminate this Agreement;
provided, however, no such termination shall be effective until Borrower has
paid all of the Obligations in immediately available funds and all Letters of
Credit and LC Guaranties have expired or have been cash collateralized to
Lender's satisfaction. Any notice of termination given by Borrower shall be
irrevocable unless Lender otherwise agrees in writing, and Lender shall have no
obligation to make any Loans or issue or procure any Letters of Credit or LC
Guaranties on or after the termination date stated in such notice. Borrower may
elect to terminate this Agreement in its entirety only. No section of this
Agreement or type of Loan available hereunder may be terminated singly.
4.2.3 Termination Charges. At the effective date of termination of
this Agreement for any reason, Borrower shall pay to Lender (in addition to the
then outstanding principal, accrued interest, and other charges owing under the
terms of this Agreement and any of the other Loan Documents) as liquidated
damages for the loss of the bargain and not as a penalty, an amount ("Early
Termination Charge") equal to: (a) two percent (2%) of the Total Credit Facility
if termination occurs during the first twelve-month period of the Original Term
(April 23, 1996 up to and including April 23, 1997); (b) one percent (1%) of the
Total Credit Facility if termination occurs during the second twelve-month
period of the Original Term (April 24, 1997 up to and including April 23, 1998);
and (c) one-half of one percent (0.50%) of the Total Credit Facility if
termination occurs during the third, fourth, or fifth twelve-month period of the
Original Term (April 24, 1998 up to and including April 23, 2001); provided,
however, that, if such termination occurs as a proximate result of: (a) the
application of the proceeds from an initial public offering of equity securities
by Borrower, so long as thereafter Lender continues to be the primary senior
secured lender to Borrower, or (b) a prepayment required under subsection 3.3.2
hereof, the Early Termination Charge shall be zero (-0-). If termination occurs
on the last
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day of the Original Term or thereafter during any Renewal Term upon sixty (60)
days prior written notice to Lender, no termination charge shall be payable.
4.2.4 Effect of Termination. All of the Obligations shall be
immediately due and payable upon the termination date stated in any notice of
termination of this Agreement. All undertakings, agreements, covenants,
warranties and representations of Borrower contained in the Loan Documents shall
survive any such termination and Lender shall retain its Liens in the Collateral
and all of its rights and remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in full, in
immediately available funds, together with the applicable Early Termination
Charge, if any. Notwithstanding the payment in full of the Obligations, Lender
shall not be required to terminate its security interests in the Collateral
unless, with respect to any loss or damage Lender may incur as a result of
dishonored checks or other items of payment received by Lender from Borrower or
any Account Debtor and applied to the Obligations, Lender shall, at its option,
(a) have received a written agreement, executed by Borrower and by any Person
whose loans or other advances to Borrower are used in whole or in part to
satisfy the Obligations, indemnifying Lender from any such loss or damage; or
(b) have retained such monetary reserves and Liens on the Collateral for such
period of time as Lender, in its reasonable discretion, may deem necessary to
protect Lender from any such loss or damage.
SECTION 5. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment and
performance to Lender of the Obligations, Borrower hereby grants to Lender a
continuing Lien upon all of Borrower's assets, including all of the following
Property and interests in Property of Borrower, whether now owned or existing or
hereafter created, acquired or arising and wheresoever located:
(a) Accounts;
(b) Inventory;
(c) Equipment;
(d) General Intangibles;
(e) All monies and other Property of any kind now or at any
time or times hereafter in the possession or under the control of
Lender or a bailee or Affiliate of Lender;
(f) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (a) through
(e) above,
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including, without limitation, proceeds of and unearned premiums with
respect to insurance policies insuring any of the Collateral; and
(g) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and
other computer materials and records) of Borrower pertaining to any
of (a) through (f) above.
5.2 Lien Perfection; Further Assurances. Borrower shall execute
such UCC-1 financing statements as are required by the Code and such other
instruments, assignments or documents as are necessary to perfect Lender's Lien
upon any of the Collateral and shall take such other action as may be required
to perfect or to continue the perfection of Lender's Lien upon the Collateral.
Unless prohibited by applicable law, Borrower hereby authorizes Lender to
execute and file any such financing statement on Borrower's behalf. The parties
agree that a carbon, photographic, or other reproduction of this Agreement shall
be sufficient as a financing statement and may be filed in any appropriate
office in lieu thereof. At Lender's request, Borrower also shall promptly
execute or cause to be executed and shall deliver to Lender any and all
documents, instruments, and agreements deemed necessary by Lender to give effect
to or carry out the terms or intent of the Loan Documents.
5.3 [Intentionally omitted]
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General.
6.1.1 Location of Collateral. All Collateral, other than Inventory in
transit and motor vehicles, will at all times be kept by Borrower at one or more
of the business locations set forth in Exhibit 6.1.1 hereto and shall not,
without the prior written approval of Lender, be moved therefrom except, prior
to an Event of Default and Lender's acceleration of the maturity of the
Obligations in consequence thereof, for (a) sales of Inventory in the ordinary
course of business; and (b) removals in connection with dispositions of
Equipment that are authorized by subsection 6.4.2 hereof.
6.1.2 Insurance of Collateral. Borrower shall maintain and pay for
insurance upon all Collateral wherever located and with respect to Borrower's
business, covering casualty, hazard, public liability, and such other risks in
such amounts and with such insurance companies as are reasonably satisfactory to
Lender. Borrower shall deliver the originals of such policies to Lender with 438
BFU lender's loss payable endorsements or other satisfactory lender's loss
payable endorsements, naming Lender as sole loss payee and additional insured,
as appropriate. Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than thirty (30) days prior written
notice to Lender in the event of cancellation of the policy for any reason
whatsoever and
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a clause specifying that the interest of Lender shall not be impaired or
invalidated by any act or neglect of Borrower or the owner of the Property or by
the occupation of the premises for purposes more hazardous than are permitted by
said policy. If Borrower fails to provide and pay for such insurance, Lender
may, at its option, but shall not be required to, procure the same and charge
Borrower therefor. Borrower agrees to deliver to Lender, promptly as rendered,
true copies of all reports made in any reporting forms to insurance companies.
6.1.3 Protection of Collateral. All expenses of protecting, storing,
warehousing, insuring, handling, maintaining, and shipping the Collateral, any
and all excise, property, sales, and use taxes imposed by any state, federal, or
local authority on any of the Collateral or in respect of the sale thereof shall
be borne and paid by Borrower. If Borrower fails to promptly pay any portion
thereof when due, Lender may, at its option, but shall not be required to, pay
the same and charge Borrower therefor. Lender shall not be liable or responsible
in any way for the safekeeping of any of the Collateral or for any loss or
damage thereto (except for reasonable care in the custody thereof while any
Collateral is in Lender's actual possession) or for any diminution in the value
thereof, or for any act or default of any warehouseman, carrier, forwarding
agency, or other person whomsoever, but the same shall be at Borrower's sole
risk.
6.2 Administration of Accounts.
6.2.1 Records, Schedules and Assignments of Accounts. Borrower shall
keep accurate and complete records of its Accounts and all payments and
collections thereon and shall submit to Lender on such periodic basis as Lender
shall request, but no less frequently than once per week, a sales and
collections report for the preceding period, in form satisfactory to Lender. On
or before the twentieth day of each month from and after the date hereof,
Borrower shall deliver to Lender, in form acceptable to Lender, a detailed, aged
trial balance of all Accounts existing as of the last day of the preceding
month, specifying the names, addresses, face value, and due dates for each
Account Debtor obligated on an Account so listed ("Schedule of Accounts"), and,
upon Lender's reasonable request therefor, copies of proof of delivery and the
original copy of all documents, including, without limitation, repayment
histories and present status reports relating to the Accounts so scheduled and
such other matters and information relating to the status of then existing
Accounts as Lender shall reasonably request. In addition, in the event that,
during the period between the submission of Schedules of Accounts, Eligible
Accounts in an aggregate face amount equal to ten percent (10%) of all Eligible
Accounts become ineligible because they fall within one of the specified
categories of ineligibility set forth in the definition of Eligible Accounts or
otherwise established by Lender, Borrower shall notify Lender of such occurrence
on the first Business Day following such occurrence, and the Borrowing Base
thereupon shall be adjusted to reflect such occurrence.
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6.2.2 Discounts, Allowances, Disputes. If Borrower grants any
discounts, allowances, or credits that are not shown on the face of the invoice
for the Account involved, Borrower shall report such discounts, allowances, or
credits, as the case may be, to Lender as part of the next required Schedule of
Accounts. If any amounts due and owing in excess of Two Hundred Fifty Thousand
($250,000) are in dispute between Borrower and any Account Debtor, Borrower
shall provide Lender with written notice thereof at the time of submission of
the next Schedule of Accounts, explaining in detail the reason for the dispute,
all claims related thereto, and the amount in controversy. Upon and after the
occurrence of an Event of Default, Lender shall have the right to settle or
adjust all disputes and claims directly with the Account Debtors and to
compromise the amount or extend the time for payment of the Accounts upon such
terms and conditions as Lender may deem advisable, and to charge the
deficiencies, costs, and expenses thereof, including attorneys fees, to
Borrower.
6.2.3 Taxes. If an Account includes a charge for any tax payable to
any governmental taxing authority, Lender is authorized, in its sole discretion,
to pay the amount thereof to the proper taxing authority for the account of
Borrower and to charge Borrower therefor; provided, however, that Lender shall
not be liable for any taxes to any governmental taxing authority that may be due
by Borrower.
6.2.4 Account Verification. Whether or not a Default or an Event of
Default has occurred, any of Lender's officers, employees, or agents shall have
the right, at any time or times hereafter, in the name of Lender, any designee
of Lender or Borrower, to verify the validity, amount, or any other matter
relating to any Accounts by mail, telephone, telegraph, or otherwise. Borrower
shall cooperate fully with Lender in an effort to facilitate and conclude
promptly any such verification process.
6.2.5 Maintenance of Dominion Account. Borrower shall maintain a
Dominion Account pursuant to one or more dominion account agreements (each, a
"Dominion Account Agreement") in form and substance acceptable to Lender with
such banks as may be selected by Borrower and be acceptable to Lender. Borrower
shall issue to any such bank an irrevocable letter of instruction directing such
bank to deposit all payments or other remittances received in Borrower's deposit
account to the Dominion Account for application on account of the Obligations.
All funds deposited in the Dominion Account shall immediately become the
property of Lender and Borrower shall obtain the agreement by such banks in
favor of Lender to waive any offset rights against the funds so deposited.
Lender assumes no responsibility for such Dominion Account arrangement,
including, without limitation, any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder.
6.2.6 Collection of Accounts, Proceeds of Collateral. To expedite
collection, Borrower shall endeavor in the first instance to make collection of
its Accounts for Lender. All remittances received by Borrower on account of
Accounts, together with the proceeds of any other Collateral, shall be held as
Lender's property by Borrower as
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trustee of an express trust for Lender's benefit, and Borrower shall immediately
deposit same in kind in the Dominion Account. Lender retains the right at all
times after the occurrence of a Default or an Event of Default to notify Account
Debtors that Accounts have been assigned to Lender and to collect Accounts
directly in its own name and to charge the collection costs and expenses,
including attorneys' fees, to Borrower.
6.3 Administration of Inventory.
6.3.1 Records and Reports of Inventory. Borrower shall keep accurate
and complete records of its Inventory. Borrower shall furnish to Lender
Inventory reports in form and detail satisfactory to Lender at such times as
Lender may request, but at least once each month, not later than the twentieth
day of such month. Borrower shall conduct either (a) cycle-counts of its
Inventory in accordance with its customary and historical practices and shall
provide to Lender promptly thereafter a report setting forth any readjustments
of its Inventory records resulting from such cycle-counts, together with such
supporting information as Lender shall request, or (b) a physical inventory no
less frequently than annually and shall provide to Lender a report based upon
each such physical inventory promptly thereafter, together with such supporting
information as Lender shall request.
6.3.2 Returns of Inventory. If at any time or times hereafter any
Account Debtor returns any Inventory to Borrower the shipment of which generated
an Account on which such Account Debtor is obligated in excess of One Hundred
Fifty Thousand Dollars ($150,000), Borrower immediately shall notify Lender of
the same, specifying the reason for such return and the location, condition, and
intended disposition of the returned Inventory.
6.4 Administration of Equipment.
6.4.1 Records and Schedules of Equipment. Borrower shall keep
accurate records itemizing and describing the kind, type, quality, quantity, and
value of its Equipment and all dispositions made in accordance with subsection
6.4.2 hereof, and shall furnish Lender with a current schedule containing the
foregoing information on at least an annual basis and more often if requested by
Lender. Immediately on request therefor by Lender, Borrower shall deliver to
Lender any and all certificates of title with respect to that portion of the
Equipment that is subject to certificates of title.
6.4.2 Dispositions of Equipment. Borrower will not sell, lease, or
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Lender; provided, however, that the
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (a) dispositions of Equipment which, in the aggregate during
any consecutive twelve-month period, has a fair market value or book value,
whichever is less, of One Hundred Thousand Dollars ($100,000) or less, provided
that all proceeds thereof are remitted to Lender for application to the Loans,
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or (b) dispositions of Equipment that is substantially worn, damaged, or
obsolete and that is replaced with Equipment of like kind, function, and value,
provided that the replacement Equipment shall be acquired within thirty (30)
days of any disposition of the Equipment that is to be replaced, the replacement
Equipment shall be free and clear of Liens other than Permitted Liens that are
not Purchase Money Liens, and Borrower shall have given Lender prior written
notice of such disposition.
6.5 Payment of Charges. All amounts chargeable to Borrower under
Section 6 hereof shall be Obligations secured by all of the Collateral, shall be
payable on demand, and shall bear interest from the date such advance was made
until paid in full at the rate applicable to Revolving Credit Loans from time to
time.
6.6 Key Man Life Insurance. From and after the date which is thirty
(30) days after the Closing Date, Borrower shall maintain a key man life
insurance policy with respect to Mr. John C. Diebel in an amount of not less
than Two Million Dollars ($2,000,000). Borrower shall furnish Lender with an
"Absolute Assignment" of such life insurance policy, shall record such "Absolute
Assignment" with the issuer of the policy, and shall furnish proof of such
issuer's acceptance of such assignment. All proceeds payable under such life
insurance policy shall be payable to Lender to be applied on account of the
Obligations in such order as Lender shall determine.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Lender to
enter into this Agreement and to make Loans or issue Letters of Credit or LC
Guaranties hereunder, Borrower warrants and represents to Lender that:
7.1.1 Organization and Qualification. Borrower is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. Borrower is duly qualified and is authorized
to do business and is in good standing as a foreign corporation in each state or
jurisdiction listed on Exhibit 7.1.1 hereto and in all other states and
jurisdictions in which the failure of Borrower to be so qualified would have a
material adverse effect on the financial condition, business or Properties of
Borrower.
7.1.2 Corporate Power and Authority. Borrower is duly authorized and
empowered to enter into, execute, deliver, and perform this Agreement and each
of the other Loan Documents to which it is a party. The execution, delivery, and
performance of this Agreement and each of the other Loan Documents and the ESOP
Transaction Documents have been duly authorized by all necessary corporate
action and do not and will not (a) require any consent or approval of the
shareholders of Borrower; (b) contravene Borrower's charter, articles, or
certificate of incorporation or by-laws; (c) violate, or cause Borrower to be in
default under, any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination, or award in effect
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having applicability to Borrower; (d) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other material
agreement, lease, or instrument to which Borrower is a party or by which it or
its Properties may be bound or affected; or (e) result in, or require, the
creation or imposition of any Lien (other than Permitted Liens) upon or with
respect to any of the Properties now owned or hereafter acquired by Borrower.
7.1.3 Legally Enforceable Agreement. This Agreement is, and each of
the other Loan Documents when delivered under this Agreement will be, a legal,
valid, and binding obligation of Borrower enforceable against it in accordance
with its respective terms, except to the extent that (a) such enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium, or other laws
relating to or affecting generally the enforcement of creditors' rights and (b)
the availability of the remedy of specific performance or injunctive or other
equitable relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
7.1.4 Capital Structure. Exhibit 7.1.4 hereto states (a) the correct
name of each of the Subsidiaries of Borrower (if any), its jurisdiction of
incorporation, and the percentage of its Voting Stock owned by Borrower, (b) the
name of each of Borrower's corporate or joint venture Affiliates and the nature
of the affiliation, (c) the number, nature, and holder of all outstanding
Securities of Borrower and of each Subsidiary of Borrower (if any), and (d) the
number of authorized, issued, and treasury shares of Borrower and of each
Subsidiary of Borrower (if any). Borrower has good title to all of the shares it
purports to own of the stock of each of its Subsidiaries (if any), free and
clear in each case of any Lien other than Permitted Liens. All such shares have
been duly issued and are fully paid and non-assessable. Except as identified on
Exhibit 7.1.4, there are no outstanding options to purchase, or any rights or
warrants to subscribe for, or any commitments or agreements to issue or sell, or
any Securities or obligations convertible into, or any powers of attorney
relating to, shares of the capital stock of Borrower or any of its Subsidiaries
(if any). Except as identified on Exhibit 7.1.4, there are no outstanding
agreements or instruments binding upon any of Borrower's shareholders relating
to the ownership of its shares of capital stock.
7.1.5 Corporate Names. Borrower has not been known as or used any
corporate, fictitious, or trade names except those listed on Exhibit 7.1.5
hereto. Except as set forth on Exhibit 7.1.5, Borrower has not been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person.
7.1.6 Business Locations; Agent for Process. Borrower's chief
executive office and other places of business are as listed on Exhibit 6.1.1
hereto. During the preceding one-year period, Borrower has not had an office,
place of business, or agent for service of process other than as listed on
Exhibit 6.1.1. Except as shown on Exhibit 6.1.1, no inventory is stored with a
bailee, warehouseman, or similar party that has not
16
<PAGE> 18
entered into a Collateral Access Agreement with Lender, nor is any Inventory
consigned to any Person.
7.1.7 Title to Properties; Priority of Liens. Borrower has good title
to all of the Collateral and all of its other Property, in each case, free and
clear of all Liens except Permitted Liens. Borrower has paid or discharged all
lawful claims which, if unpaid, might become a Lien against any of Borrower's
Properties that is not a Permitted Lien. The Liens granted to Lender under
Section 5 hereof are first priority Liens, subject only to Permitted Liens.
7.1.8 Accounts. Lender may rely, in determining which Accounts are
Eligible Accounts, on all statements and representations made by Borrower with
respect to any Account or Accounts. Unless otherwise indicated in writing to
Lender, with respect to each Account:
(a) It is genuine and in all respects what it purports to be,
and it is not evidenced by a judgment;
(b) It arises out of a completed, bona fide sale and delivery
of goods or rendition of services by Borrower in the ordinary course of
its business and in accordance with the terms and conditions of all
purchase orders, contracts, or other documents relating thereto and
forming a part of the contract between Borrower and the Account Debtor;
(c) It is for a liquidated amount maturing as stated in the
duplicate invoice covering such sale or rendition of services, a copy
of which has been furnished or is available to Lender;
(d) Such Account, and Lender's security interest therein, is
not, and will not (by voluntary act or omission of Borrower) be in the
future, subject to any offset, Lien, deduction, defense, dispute,
counterclaim, or any other adverse condition except for disputes
resulting in returned goods where the amount in controversy is deemed
by Lender to be immaterial, and each such Account is absolutely owing
to Borrower and is not contingent in any respect or for any reason;
(e) At the time of creation, Borrower made no agreement with
any Account Debtor thereunder for any extension, compromise,
settlement, or modification of any such Account or any deduction
therefrom, except discounts or allowances which are granted by Borrower
in the ordinary course of its business for prompt payment and which are
reflected in the calculation of the net amount of each
17
<PAGE> 19
respective invoice related thereto and are reflected in the Schedule of
Accounts submitted to Lender pursuant to subsection 6.2.1 hereof;
(f) At the time of creation and as of the date of each
inclusion on a Schedule of Accounts, there are no known and unreported
facts, events or occurrences which in any way impair the validity or
enforceability of any Accounts or tend to reduce the amount payable
thereunder from the face amount of the invoice and statements delivered
to Lender with respect thereto;
(g) To the best of Borrower's knowledge, the Account Debtor
thereunder (i) had the capacity to contract at the time any contract or
other document giving rise to the Account was executed and (ii) at the
time of creation and as of the date of each inclusion on a Schedule of
Accounts, such Account Debtor was Solvent; and
(h) To the best of Borrower's knowledge, at the time of
creation and as of the date of each inclusion on a Schedule of
Accounts, there were no proceedings or actions which were threatened or
pending against any Account Debtor thereunder which might result in any
material adverse change in such Account Debtor's financial condition or
the collectibility of such Account.
7.1.9 Equipment. The Equipment is in good operating condition and
repair, and all necessary replacements of and repairs thereto shall be made so
that the value and operating efficiency of the Equipment shall be maintained and
preserved, reasonable wear and tear excepted. Borrower will not permit any of
the Equipment to become affixed to any real property leased to Borrower so that
an interest arises therein under the real estate laws of the applicable
jurisdiction unless the landlord of such real property has executed a Collateral
Access Agreement in favor of and in form acceptable to Lender, and Borrower will
not permit any of the Equipment to become an accession to any personal Property
other than Equipment that is subject to first priority (except for Permitted
Liens) Liens in favor of Lender.
7.1.10 Financial Statements; Fiscal Year. The balance sheets of
Borrower as of February 29, 1996, and the related statements of income, changes
in stockholder's equity, and changes in financial position for the periods ended
on such dates, have been prepared in accordance with GAAP, and present fairly
the financial position of Borrower at such dates and the results of Borrower's
operations for such periods. Since February 29, 1996, there has been no material
change in the condition, financial or otherwise, of Borrower and no change in
the aggregate value of Equipment owned by Borrower, except changes in the
ordinary course of business, none of which individually or in the aggregate has
been materially adverse. The fiscal year of Borrower ends on the last day of
February of each year.
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<PAGE> 20
7.1.11 Full Disclosure. The financial statements referred to in
subsection 7.1.10 hereof do not, nor does this Agreement or any other written
statement of Borrower to Lender, contain any untrue statement of a material fact
or omit a material fact necessary to make the statements contained therein or
herein not misleading. There is no fact (other than facts of a general economic
nature) which Borrower has failed to disclose to Lender in writing which
materially affects adversely or, so far as Borrower can now foresee, reasonably
could be expected to materially affect adversely the Properties, business,
prospects, profits, or condition (financial or otherwise) of Borrower or the
ability of Borrower to perform this Agreement or the other Loan Documents.
7.1.12 Solvent Financial Condition. Borrower is now and, after giving
effect to the Loans to be made and the Letters of Credit and LC Guaranties to be
issued hereunder and the application of the proceeds thereof, will be, Solvent.
7.1.13 Surety Obligations. Except as shown on Exhibit 7.1.13 hereto,
Borrower is not obligated as surety or indemnitor under any surety or similar
bond or other contract issued or entered into any agreement to assure payment,
performance, or completion of performance of any undertaking or obligation of
any Person.
7.1.14 Taxes. Borrower's federal tax identification number is
95-2988062. Borrower has filed all federal, state, and local tax returns and
other reports it is required by law to file and has paid, or made provision for
the payment of, all taxes, assessments, fees, levies, and other governmental
charges shown thereon to be due upon it, its income and Properties as and when
such taxes, assessments, fees, levies, and charges that are due and payable,
unless and to the extent any thereof are being actively contested in good faith
and by appropriate proceedings, and Borrower maintains reasonable reserves on
its books therefor. The provision for taxes on the books of Borrower are
adequate for all years not closed by applicable statutes, and for its current
fiscal year.
7.1.15 Brokers. Except as disclosed in writing to Lender prior to the
date hereof, there are no claims for brokerage commissions, finder's fees, or
investment banking fees in connection with the transactions contemplated by this
Agreement.
7.1.16 Patents, Trademarks, Copyrights, and Licenses. Borrower owns
or possesses all the patents, trademarks, service marks, trade names,
copyrights, and licenses necessary for the conduct of its business. Borrower is
in compliance with the foregoing without any known conflict with the rights of
others. All such patents, trademarks, service marks, tradenames, copyrights,
licenses, and other similar rights are listed on Exhibit 7.1.16 hereto.
7.1.17 Governmental Consents. Borrower has, and is in good standing
with respect to, all governmental consents, approvals, licenses, authorizations,
permits, certificates, inspections, and franchises necessary to continue to
conduct its
19
<PAGE> 21
business as heretofore or proposed to be conducted by it and to own or lease and
operate its Properties as now owned or leased by it.
7.1.18 Compliance with Laws. Borrower has duly complied in all
material respects with, and its Properties, business operations, and leaseholds
are in compliance in all material respects with, the provisions of all federal,
state, and local laws, rules, and regulations applicable to Borrower, its
Properties or the conduct of its business, and there have been no citations,
notices, or orders of noncompliance issued to Borrower under any such law, rule,
or regulation. Borrower has established and maintains an adequate monitoring
system to insure that it remains in compliance with all federal, state, and
local laws, rules and regulations applicable to it. No Inventory has been
produced in violation of the Fair Labor Standards Act (29 U.S.C. Sections 201 et
seq.), as amended.
7.1.19 Restrictions. Borrower is not a party or subject to any
contract, agreement, or charter or other corporate restriction, which materially
and adversely affects its business or the use or ownership of any of its
Properties. Borrower is not a party or subject to any contract or agreement
which restricts its right or ability to incur Indebtedness, other than as set
forth on Exhibit 7.1.19 hereto, none of which prohibit the execution of or
compliance with this Agreement or the other Loan Documents by Borrower.
7.1.20 Litigation. Except as set forth on Exhibit 7.1.20 hereto,
there are no actions, suits, proceedings, or investigations pending, or to the
knowledge of Borrower, threatened against or affecting Borrower, or the
business, operations, Properties, prospects, profits, or condition of Borrower
that reasonably could be expected to have a material adverse effect on Borrower,
its properties, assets, financial condition, business, or prospects. Borrower is
not in default with respect to any order, writ, injunction, judgment, decree, or
rule of any court, governmental authority or arbitration board or tribunal.
7.1.21 No Defaults. No event has occurred and no condition exists
which would, upon or after the execution and delivery of this Agreement or
Borrower's performance hereunder, constitute a Default or an Event of Default.
Borrower is not in default, and no event has occurred and no condition exists
which constitutes, or which with the passage of time or the giving of notice or
both would constitute, a default in the payment of any Indebtedness to any
Person for Money Borrowed in excess of Fifty Thousand Dollars ($50,000).
7.1.22 Leases. Exhibit 7.1.22(A) hereto is a complete listing of all
capitalized leases of Borrower and Exhibit 7.1.22(B) hereto is a complete
listing of all operating leases of Borrower. Borrower is in compliance in all
material respects with all of the terms of each of its respective capitalized
and operating leases.
20
<PAGE> 22
7.1.23 Pension Plans. Except as disclosed on Exhibit 7.1.23 hereto,
Borrower does not have any Plan. Borrower is in full compliance with the
requirements of ERISA and the regulations promulgated thereunder with respect to
each Plan. No fact or situation that could result in a material adverse change
in the financial condition of Borrower exists in connection with any Plan.
Borrower does not have any withdrawal liability in connection with a
Multiemployer Plan.
7.1.24 Trade Relations. There exists no actual or, to the best
knowledge of Borrower, threatened termination, cancellation or limitation of, or
any modification or change in, the business relationship between Borrower and
any customer or any group of customers whose purchases individually or in the
aggregate are material to the business of Borrower, or with any material
supplier, and there exists no present condition or state of facts or
circumstances that reasonably could be expected to materially adversely affect
Borrower or prevent Borrower from conducting such business after the
consummation of the transactions contemplated by this Agreement in substantially
the same manner in which it has heretofore been conducted.
7.1.25 Labor Relations. Except as described on Exhibit 7.1.25 hereto,
Borrower is not a party to any collective bargaining agreement. There are no
material grievances, disputes, or controversies with any union or any other
organization of Borrower's employees, or threats of strikes, work stoppages, or
any asserted pending demands for collective bargaining by any union or
organization.
7.1.26 Eligible Inventory. All Eligible Inventory is now and shall be
at all times hereafter of good and merchantable quality, free from defects.
7.1.27 ESOP Qualification. The provisions of the ESOP in all material
respects in form satisfy the requirements applicable to a qualified plan under
Section 401(a) of the IRC, and the provisions of the ESOP Trust Agreement in all
material respects in form satisfy the requirements of an exempt trust under
Section 501(a) of the IRC. The provisions of the ESOP in all material respects
in form satisfy the requirements applicable to an "employee stock ownership
plan" under Section 4975(e)(7) of the IRC and Section 407(d)(6) of ERISA.
7.1.28 ESOP Loan. Assuming the purchase of Series B Common Stock of
the Borrower by the ESOP from the Principal Shareholders is for no more than
"adequate consideration," as that term is defined in Section 3(18) of ERISA, and
is in the best interests of participants and beneficiaries of the ESOP, neither
the Recapitalization Transactions nor the transactions contemplated by the Loan
Documents will constitute or result in a non-exempt prohibited transaction under
Section 4975(c)(1) of the IRC or Section 406(a) of ERISA, and the ESOP Loan is
an "exempt loan" within the meaning of Treas. Reg. Sections 54-4975-7(b).
21
<PAGE> 23
7.1.29 ESOP Trustee and Independent Financial Advisor. Both the ESOP
Trustee and the Independent Financial Advisor are independent of Borrower and
its Affiliates as defined in Prop. DOL Reg. Sections 2510.3-18(b)(3)(iii).
7.2 Continuous Nature of Representations and Warranties. Each
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall remain accurate, complete, and
not misleading at all times during the term of this Agreement, except for
changes in the nature of Borrower's business or operations that would render the
information in any exhibit attached hereto either inaccurate, incomplete, or
misleading, so long as Lender has consented to such changes or such changes are
expressly permitted by this Agreement.
7.3 Survival of Representations and Warranties. All
representations and warranties of Borrower to Lender contained in this Agreement
or any of the other Loan Documents shall survive the execution, delivery, and
acceptance thereof by Lender and the parties thereto and the closing of the
transactions described therein or related thereto.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.1.1 Visits and Inspections. Permit representatives of Lender, from
time to time, as often as may be reasonably requested, but only during normal
business hours, to visit and inspect the Properties of Borrower, inspect, audit,
and make extracts from its books and records, and discuss with its officers, its
employees, and its independent accountants, Borrower's business, assets,
liabilities, financial condition, business prospects, and results of operations.
8.1.2 Notices. Promptly notify Lender in writing of the occurrence
of any event or the existence of any fact which renders any representation or
warranty in this Agreement or any of the other Loan Documents inaccurate,
incomplete, or misleading in any material respect.
8.1.3 Financial Statements. Keep adequate records and books of
account with respect to its business activities in which proper entries are made
in accordance with GAAP reflecting all its financial transactions, and cause to
be prepared and furnished to Lender the following (all to be prepared in
accordance with GAAP applied on a consistent basis, unless Borrower's certified
public accountants concur in any change therein and such change is disclosed to
Lender and is consistent with GAAP):
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<PAGE> 24
(a) not later than ninety (90) days after the close of each
fiscal year of Borrower, unqualified audited financial statements of
Borrower as of the end of such year, certified by a firm of independent
certified public accountants of recognized standing selected by
Borrower but acceptable to Lender (except for a qualification for a
change in accounting principles with which the accountant concurs, but
expressly not to include any qualification as a result of the failure
of Borrower to conduct a physical inventory);
(b) not later than thirty-five (35) days after the end of each
month hereafter, including the last month of Borrower' s fiscal year,
unaudited interim financial statements of Borrower as of the end of
such month and of the portion of Borrower's financial year then
elapsed, certified by the principal financial officer of Borrower as
prepared in accordance with GAAP and fairly presenting in all material
respects the financial position and results of operations of Borrower
for such month and period subject only to changes from audit and
year-end adjustments and except that such statements need not contain
notes;
(c) promptly after the sending or filing thereof, as the case
may be, copies of any proxy statements, financial statements, or
reports which Borrower has made available to its shareholders generally
and copies of any regular, periodic and special reports or registration
statements which Borrower files with the Securities and Exchange
Commission or any governmental authority which may be substituted
therefor, or any national securities exchange;
(d) promptly after the filing thereof, copies of any annual
report required by ERISA to be filed in connection with each Plan; and
(e) such other data and information (financial and otherwise)
as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrower's financial condition or results
of operations.
Concurrently with the delivery of the financial statements described
in clause (a) of this subsection 8.1.3, Borrower shall forward to Lender a copy
of the accountants' letter to Borrower's management that is prepared in
connection with such financial statements and also shall cause to be prepared
and shall furnish to Lender a certificate of the aforesaid certified public
accountants certifying to Lender that, based upon their audit of the financial
statements of Borrower, they are not aware that Borrower is not in compliance
with the provisions of Sections 8.3.1, 8.3.2, 8.3.3, 8.3.4, 8.3.5, and 8.3.6,
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<PAGE> 25
or, if they are aware of such non-compliance, specifying the nature thereof.
Concurrently with the delivery of the financial statements described in clauses
(a) and (b) of this subsection 8.1.3, or more frequently if requested by Lender,
Borrower shall cause to be prepared and furnished to Lender a Compliance
Certificate in the form of Exhibit 8.1.3 hereto executed by the Chief Financial
Officer of Borrower.
8.1.4 Landlord and Storage Agreements. Provide Lender with copies of
all agreements between Borrower and any landlord or warehouseman which owns any
premises at which any Inventory may, from time to time, be kept.
8.1.5 [Intentionally omitted]
8.1.6 Projections. No later than thirty (30) days after the end of each
fiscal year of Borrower, deliver to Lender Projections of Borrower for the
forthcoming three (3) years, year by year, and for the forthcoming fiscal year,
month by month.
8.2 Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not:
8.2.1 Mergers; Consolidations; Acquisitions. Merge or consolidate with
any Person, nor acquire all or any substantial part of the Properties of any
Person.
8.2.2 Loans. Other than the ESOP Loan, make any loans or other advances
of money (other than for salary, travel advances, advances against commissions,
and other similar advances in the ordinary course of business) to any Person.
8.2.3 Total Indebtedness. Create, incur, assume, or suffer to exist any
Indebtedness, except:
(a) Obligations owing to Lender;
(b) [Intentionally omitted];
(c) [Intentionally omitted];
(d) accounts payable to trade creditors and current
operating expenses (other than for Money Borrowed) which are not aged
more than one hundred twenty (120) days from the billing date, in each
case incurred in the ordinary course of business and paid within such
time period, unless the same are being actively contested in good faith
and by appropriate and lawful proceedings and Borrower shall have set
aside such reserves, if any, with respect thereto as are
24
<PAGE> 26
required by GAAP and deemed adequate by Borrower and its independent
accountants;
(e) accounts payable to trade creditors and current operating
expenses (other than for Money Borrowed) which are not aged more than
ninety (90) days from the due date nor more than two hundred forty
(240) days from the billing date, in each case incurred in the ordinary
course of business and paid within such time period, unless the same
are being actively contested in good faith and by appropriate and
lawful proceedings and Borrower shall have set aside such reserves, if
any, with respect thereto as are required by GAAP and deemed adequate
by Borrower and its independent accountants;
(f) Obligations to pay Rentals permitted by subsection 8.2.13
hereof;
(g) Permitted Purchase Money Indebtedness;
(h) contingent liabilities arising out of endorsements of
checks and other negotiable instruments for deposit or collection in
the ordinary course of business; and
(i) Indebtedness not included in paragraphs (a) through (g)
above which does not exceed at any time, in the aggregate, the sum of
Three Hundred Fifty Thousand Dollars ($350,000).
8.2.4 Affiliate Transactions. Other than in connection with the
consummation of the Recapitalization Transactions, enter into, or be a party to,
any transaction with any Affiliate of Borrower, except in the ordinary course of
and pursuant to the reasonable requirements of Borrower's business and upon fair
and reasonable terms which are fully disclosed to Lender and are no less
favorable to Borrower than would obtain in a comparable arm's length transaction
with a Person not an Affiliate or stockholder of Borrower or except with respect
to Borrower's repurchase of shares of common stock held by a Noteholder as
described in Section 8.2.7(g). For purposes of this covenant and with respect
only to the transactions contemplated by the Loan Documents and the Churchill
Documents, Churchill shall be deemed not to be an Affiliate of Borrower.
8.2.5 Limitation on Liens. Create or suffer to exist any Lien upon
any of its Property, income or profits, whether now owned or hereafter acquired,
except:
(a) Liens at any time granted in favor of Lender;
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<PAGE> 27
(b) Liens for taxes (excluding any Lien imposed pursuant
to any of the provisions of ERISA) not yet due, or being contested in
the manner described in subsection 7.1.14 hereto, but only if in
Lender's judgment such Lien does not adversely affect Lender's rights
or the priority of Lender's Lien in the Collateral;
(c) Ordinary Course Liens;
(d) Purchase Money Liens securing Permitted Purchase
Money Indebtedness;
(e) [Intentionally omitted];
(f) such other Liens as appear on Exhibit 8.2.5 hereof;
and
(g) such other Liens as Lender may hereafter approve in
writing.
8.2.6 [Intentionally omitted]
8.2.7 Distributions. Declare or make any Distributions, except:
(a) the declaration and making of ESOP Qualifying
Dividends;
(b) the declaration and making of dividends
payable-in-kind in respect of the Churchill Preferred Stock;
(c) from and after April 22, 2001, and so long as the
Term Loan has been repaid in full and no Event of Default has occurred
and is continuing or would occur hereunder as a result thereof, the
declaration and making of current dividends paid in cash in respect of
the Churchill Preferred Stock;
(d) from and after the date that on which the Term Loan
has been repaid in full and so long as no Default has occurred and is
continuing or would occur hereunder as a result thereof, the redemption
of the Churchill Preferred Stock in accordance with the terms and
conditions of the Churchill Securities Purchase Agreement as in effect
on the date hereof;
(e) on the Closing Date, the redemption by Borrower of
$250,000 of its outstanding capital stock as part of the
Recapitalization Transactions;
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(f) (i) the declaration and making of contributions to
the ESOP, (ii) the declaration and making of cash distributions to
participants in the ESOP required by the ESOP Plan Document, and (iii)
the purchase of any share of the Series B Common Stock put to Borrower
pursuant to Section 14(b) of the ESOP Plan Document; so long as such
cash distributions and purchases do not exceed $500,000 at any one
time; and
(g) the repurchase of shares of common stock pursuant to
Section 5 of the Shareholder Agreement in connection with the death of
one of the Noteholders, so long as the funds used in connection with
such repurchase do not exceed the amount of Available Proceeds (as that
term is defined in the Shareholder Agreement).
8.2.8 Capital Expenditures. Make Capital Expenditures (including,
without limitation, by way of capitalized leases) which, in the aggregate, as to
Borrower, exceed One Million Dollars ($1,000,000) during any fiscal year of
Borrower.
8.2.9 Disposition of Assets. Other than in connection with the
consummation of the Recapitalization Transactions, sell, lease, or otherwise
dispose of any of its Properties, including any disposition of Property as part
of a sale and leaseback transaction, to or in favor of any Person, except (a)
sales of Inventory in the ordinary course of business for so long as no Event of
Default exists hereunder or (b) dispositions expressly authorized by this
Agreement.
8.2.10 [Intentionally omitted]
8.2.11 Bill-and-Hold Sales, Etc. Make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, or any sale on a repurchase or return basis.
8.2.12 Restricted Investment. Make or have any Restricted Investment.
8.2.13 Leases. Become a lessee under any operating lease (other than a
lease under which Borrower is lessor) of Property if the aggregate Rentals
payable during any current or future period of twelve (12) consecutive months
under the lease in question and all other leases under which Borrower is then
lessee would exceed $500,000. The term "Rentals" means, as of the date of
determination, all payments which the lessee is required to make by the terms of
any lease.
8.2.14 Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than a Subsidiary.
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<PAGE> 29
8.3 Specific Financial Covenants. During the term of this Agreement,
and thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.3.1 Minimum Working Capital. Maintain at all times Working Capital of
not less than (a) $3,500,000 during the months of March, April, May, June, July,
and August of each year, and (b) $4,000,000 during the remaining months in such
year.
8.3.2 Profitability. Achieve EBITDA of not less than the amount shown
below for the period corresponding thereto:
<TABLE>
<CAPTION>
Period EBITDA
------ ------
<S> <C>
March 1, 1996 through
August 31, 1996 $ 750,000
March 1, 1996 through
November 30, 1996 $3,900,000
March 1, 1996 through
February 28, 1997 $3,900,000
March 1, 1997 through
May 31, 1997 (Less than)$ 650,000(Greater than)
March 1, 1997 through
August 31, 1997 $ 750,000
March 1, 1997 through
November 30, 1997 $3,900,000
March 1, 1997 through
February 28, 1998 $3,900,000
March 1, 1998 through
May 31, 1998 (Less than)$ 650,000(Greater than)
March 1, 1998 through
August 31, 1998 $ 750,000
March 1, 1998 through
November 30, 1998 $4,200,000
</TABLE>
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<PAGE> 30
<TABLE>
<CAPTION>
Period EBITDA
------ ------
<S> <C>
March 1, 1998 through
February 28, 1999 $4,200,000
March 1, 1999 through
May 31, 1999 (Less than)$ 650,000(Greater than)
March 1, 1999 through
August 31, 1999 $ 750,000
March 1, 1999 through
November 30, 1999 $4,600,000
March 1, 1999 through
February 28, 2000 $4,600,000
For each period of
March 1 through May 31
during each subsequent fiscal year (Less than)$ 650,000(Greater than)
For each period of
March 1 through August 31
during each subsequent fiscal year $ 750,000
For each period of
March 1 through November 30
during each subsequent fiscal year $4,600,000
For each period of
March 1 through February 28/29
during each subsequent fiscal year $4,600,000
</TABLE>
8.3.3 Debt to Net Worth Ratio. Maintain at all times a Debt to Net
Worth Ratio of not more than (a) 3.5:1.0 during the months of December, January,
and February of each year, and (b) 4.0:1.0 during the remaining months in such
year.
8.3.4 Cash Flow. Achieve Pretax Profit for each month of not less than
a negative $500,000.
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<PAGE> 31
8.3.5 Interest Coverage Ratio. Achieve, at the end of each of the
following fiscal periods, an Interest Coverage Ratio of not less than the ratio
shown below for the period corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
For each period of
March 1 through August 31
during each fiscal year 1.2:1.0
For each period of
March 1 through February 28/29
during each fiscal year 2.5:1.0
</TABLE>
8.3.6 Total Senior Debt Coverage Ratio. Maintain, at the end of each of
the following fiscal periods, a ratio of (a) Total Senior Debt as of the date of
any determination, to (b) EBITDA for the twelve month period ending on the date
of determination minus Capital Expenditures for the twelve month period ending
on the date of determination (other than those expended in connection with the
repair, restoration, or refurbishing of already owned capital assets), of not
greater than the ratio shown below for the period corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
March 1, 1996 through
May 31, 1996 5.5:1.0
March 1, 1996 through
August 31, 1996 5.5:1.0
March 1, 1996 through
November 30, 1996 4.0:1.0
March 1, 1996 through
February 28, 1997 3.0:1.0
For each subsequent period
of March 1 through May 31
during each fiscal year 5.0:1.0
For each subsequent period
of March 1 through August 31
during each fiscal year 5.5:1.0
</TABLE>
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<PAGE> 32
<TABLE>
<CAPTION>
<S> <C>
For each subsequent period
of March 1 through November 30
during each fiscal year 4.0:1.0
For each subsequent period
of March 1 through February 28/29
during each fiscal year 3.0:1.0
</TABLE>
8.3.7 Total Senior Debt to Total Capitalization Ratio. Maintain for
each fiscal quarter a ratio of Total Senior Debt to Total Capitalization of not
more than the ratio shown below for the period corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
For each fiscal quarter ended
May 31 during each fiscal year .66:1.0
For each fiscal quarter ended
August 31 during each fiscal year .75:1.0
For each fiscal quarter ended
November 30 during each fiscal year .66:1.0
For each fiscal quarter ended
February 28/29 during each fiscal year .60:1.0
</TABLE>
8.3.8 Excess Availability. Maintain average Availability calculated
on a monthly basis of not less than (a) Five Hundred Thousand Dollars
($500,000), minus (b) the Recapture Amount.
SECTION 9. CONDITIONS PRECEDENT TO INITIAL CREDITS
Notwithstanding any other provision of this Agreement or any of the
other Loan Documents, and without affecting in any manner the rights of Lender
under the other sections of this Agreement, Lender shall not be required to make
or issue the initial Loans, Letters of Credit, or L/C Guaranties under this
Agreement unless and until each of the following conditions has been and
continues to be satisfied:
9.1 Documentation. Lender shall have received, in form and
substance satisfactory to Lender and its counsel, a duly executed copy of this
Agreement and the other Loan Documents (other than the Dominion Account
Agreement), together with such additional documents, instruments, and
certificates as Lender and its counsel shall require in connection therewith,
all in form and substance satisfactory to Lender and its counsel.
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9.2 Other Loan Documents. Each of the conditions precedent set forth
in the other Loan Documents shall have been satisfied.
9.3 Approvals and Consents. Borrower shall have received all
governmental consents, approvals, licenses, authorizations, permits,
certificates, inspections, and franchises necessary for the consummation of the
Recapitalization Transactions and the transactions contemplated by the Loan
Documents.
9.4 Interim Financial Statements. Prior to the Closing Date, Lender
shall have received copies of Borrower's interim financial statements, dated as
of February 29, 1996 , certified by an appropriate officer of Borrower as
presenting fairly in all material respects the financial condition of Borrower.
9.5 Pension Plans. Lender shall have received copies, certified as
true and correct by an appropriate officer of Borrower, of any and all Plans of
Borrower.
9.6 Labor Contracts. Lender shall have received a certificate, signed
by an appropriate officer of Borrower, stating that Borrower is not a party to
any collective bargaining agreements.
9.7 Pro Forma Balance Sheet. On the Closing Date, Lender shall have
received from a pro forma opening balance sheet of Borrower giving effect to the
Recapitalization Transactions and the making of the Loans, which shall be
satisfactory to Lender in its discretion.
9.8 Availability. Lender shall have determined that immediately after
Lender has made the initial Loans and issued the initial Letters of Credit and
LC Guaranties contemplated hereby, and paid all closing costs incurred in
connection with the transactions contemplated hereby, Availability shall be not
less than Two Million Dollars ($2,000,000).
9.9 Vendor Checks. Lender shall have performed vendor checks in
respect of Borrower's vendors and suppliers, the results of which checks shall
be satisfactory to Lender.
9.10 Certified Documents of Borrower. On or before the Closing Date,
Borrower shall have delivered to Lender copies of the following documents, duly
certified, or the following certificates, as applicable:
(a) Resolutions of the Board of Directors of Borrower authorizing (i)
the execution, delivery, and performance of the Loan Documents to which Borrower
is a party, (ii) the consummation of the transactions contemplated by the Loan
Documents to which Borrower is a party, and (iii) all other actions to be taken
by Borrower in connection with the Loan Documents to which Borrower is a party;
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<PAGE> 34
(b) A certificate, signed by the Secretary or an Assistant Secretary
of Borrower, dated as of the Closing Date, as to (i) the incumbency, and
containing the specimen signature or signatures, of the Person or Persons
authorized to execute the Loan Documents to which Borrower is a party on behalf
of Borrower, together with evidence of the incumbency of such Secretary or
Assistant Secretary, and (ii) the authenticity and completeness of the
respective Articles of Incorporation and By-Laws of Borrower; and
(c) Certificates of status or good standing of Borrower, from the
Secretary of State of California and of each state or other jurisdiction in
which Borrower is qualified to do business, dated within five (5) days of the
Closing Date.
9.11 Recapitalization Transactions Documents. Lender shall have
received copies, certified as true and correct by an appropriate officer of
Borrower, of the Recapitalization Transactions Documents.
9.12 Collateral Access Agreements. Lender shall have received
Collateral Access Agreements in respect of Borrower's office and warehouse
locations in Irvine, California and any other location (other than Borrower's
warehouse space in Long Beach, California) where Inventory or Equipment is
located, each of which shall have been duly executed and be in full force and
effect.
9.13 Confirmation Searches. Lender shall have received searches
reflecting the filing of its financing statements and fixture filings.
9.14 Opinion of Counsel. Lender shall have received from counsel for
Borrower a legal opinion in form and substance satisfactory to Lender and its
counsel.
9.15 Evidence of Insurance of Collateral. Lender shall have received
certificates of insurance in respect of the Collateral, together with the
endorsements thereto, as are required by subsection 6.1.2 hereof.
9.16 Use of Financing. Lender shall have received evidence satisfactory
to it that the ESOP shall purchase no less than thirty percent (30%) (after
warrant dilution) of the common stock of Borrower for an amount of not less than
Eleven Million Dollars ($11,000,000).
9.17 Independent Financial Advisor Opinion. Lender shall have received
a copy of a favorable opinion rendered by the Independent Financial Advisor that
(a) values Borrower at not less than Twenty-Two Million Dollars ($22,000,000),
(b) values the trademarks and other intangibles of Borrower at not less than
Seven Million Dollars ($7,000,000), and (c) indicates that the Recapitalization
Transactions are fair to the ESOP from a financial perspective.
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<PAGE> 35
9.18 Opinion of Counsel to ESOP Trustee. Lender shall have received an
opinion from counsel to the ESOP Trustee, dated as of the Closing Date, as to
Borrower's (a) eligibility to deduct its contributions to the ESOP from
Borrower's taxes and (b) compliance with ERISA and the IRC.
9.19 Certificate of Borrower. Lender shall have received a certificate,
signed by an officer of Borrower, dated as of the Closing Date, as to the amount
of ESOP contributions that would have been tax deductible in fiscal year 1995
had the ESOP been in existence during that time.
9.20 Pay-Off Letter and UCC Termination Statements, etc. Existing
Lender and each of the Noteholders shall have executed and delivered the Pay-Off
Letters, which shall be in full force and effect, and, in the case of Existing
Lender, together with UCC termination statements and other documentation
evidencing the termination of its Liens on the Property of Borrower.
9.21 Holdings. Lender shall have received evidence satisfactory to it
of the merger of Holdings into Borrower.
9.22 Closing Date Projections. Lender shall have received a set of
projections, a copy of which shall be attached hereto as Exhibit 9.22 (the
"Closing Date Projections"), as to the projected financial performance of
Borrower from the Closing Date (after giving effect to the transactions
contemplated hereby) through fiscal year ended December 31, 2001. The Closing
Date Projections shall be prepared on a year-by-year basis for each such year
and for the upcoming fiscal year shall be on a month-by-month basis. The Closing
Date Projections shall be in form and substance satisfactory to Lender and
certified by the chief financial officer of Borrower as being such officer's
good faith, best estimate of the financial performance of Borrower during such
period.
9.23 Churchill Equity Investment. Lender shall have received evidence
satisfactory to it that the Churchill Equity Investment has been consummated in
accordance with the Churchill Documents.
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<PAGE> 36
SECTION 9-A. CONDITIONS PRECEDENT TO ALL LOANS
Notwithstanding any other provision of this Agreement or any of the
other Loan Documents, and without affecting in any manner the rights of Lender
under the other sections of this Agreement, Lender shall not be required to make
or issue any Loans, Letters of Credit, or L/C Guaranties under this Agreement
unless each of the following conditions is satisfied:
9-A.1 No Default. No Default or Event of Default shall exist.
9-A.2 Representations and Warranties. The representations and
warranties contained in this Agreement and the other Loan Documents shall be
true and correct in all respects on and as of date of such Loan (except to the
extent that such representations and warranties relate solely to an earlier
date).
9-A.3 No Litigation. No action, proceeding, investigation,
regulation, or legislation shall have been instituted, threatened, or proposed
before any court, governmental agency, or legislative body to enjoin, restrain,
or prohibit, or to obtain damages in respect of, or which is related to or
arises out of this Agreement or the consummation of the transactions
contemplated hereby.
SECTION 9-B. CONDITIONS SUBSEQUENT
As conditions subsequent to the making of the Loans, Letters of
Credit, or L/C Guaranties on the Closing Date, Borrower shall perform or cause
to be performed the following (the failure by Borrower to so perform or cause to
be performed constituting an Event of Default hereunder):
9-B.1 Financial Management Information System. Within eighteen (18)
months of the Closing Date, Borrower shall upgrade its financial management
information system to provide more sophisticated and flexible reporting, which
upgrade shall be reasonably satisfactory to Lender.
9-B.2 Long Beach Collateral Access Agreement. If Borrower has not
vacated its warehouse facility in Long Beach, California within sixty (60) days
of the Closing Date, Borrower shall deliver to Lender, not later than the 60th
day after the Closing Date, a Collateral Access Agreement with respect to that
location.
9-B.3 Evidence of Key Man Life Insurance. Within thirty (30) days of
the Closing Date, Lender shall have received certificates of key man life
insurance with respect to Mr. John C. Diebel, together with the Absolute
Assignments thereof, as are required by Section 6.6 hereof.
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<PAGE> 37
9-B.4 Dominion Account Agreement. Within thirty (30) days of the
Closing Date, Lender shall have received a Dominion Account Agreement, in form
and substance satisfactory to Lender, which shall have been duly executed and be
in full force and effect.
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
10.1 Events of Default. The occurrence of one or more of the
following events shall constitute an "Event of Default":
10.1.1 Payment of Note. Borrower shall fail to pay any
installment of principal, interest or premium, if any, owing on the Term Note on
the due date of such installment.
10.1.2 Payment of Other Obligations. Borrower shall fail to pay
any of the Obligations that are not evidenced by the Term Note on the due date
thereof (whether due at stated maturity, on demand, upon acceleration or
otherwise).
10.1.3 Misrepresentations. Any representation, warranty, or
other statement made or furnished to Lender by or on behalf of Borrower in this
Agreement, any of the other Loan Documents or any instrument, certificate or
financial statement furnished in compliance with or in reference thereto proves
to have been false or misleading in any material respect when made or furnished
or when reaffirmed pursuant to Section 7.2 hereof.
10.1.4 Breach of Specific Covenants. (a) Borrower shall fail or
neglect to perform, keep, or observe any covenant contained in Sections 5.2,
6.1.1, 6.2 (exclusive of subsection 6.2.5), or 8.1.3 hereof on the date that
Borrower is required to perform, keep, or observe such covenant, and the breach
of such covenant is not cured to Lender's satisfaction within five (5) days of
such breach; and (b) Borrower shall fail or neglect to perform, keep, or observe
any covenant contained in Sections 6.2.5, 8.1.1, 8.2, or 8.3 hereof on the date
that Borrower is required to perform, keep, or observe such covenant.
10.1.5 Breach of Other Covenants. Borrower shall fail or neglect
to perform, keep, or observe any covenant contained in this Agreement (other
than a covenant which is dealt with specifically elsewhere in Section 10.1
hereof) and the breach of such other covenant is not cured to Lender's
satisfaction within thirty (30) days after the sooner to occur of Borrower's
receipt of notice of such breach from Lender or the date on which such failure
or neglect first becomes known to any officer of Borrower.
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<PAGE> 38
10.1.6 Default Under Security Documents/Other Agreements/
Recapitalization Transactions Documents. Borrower shall default in the
performance or observance of any term, covenant, condition, or agreement
contained in, any of the Security Documents, any of the Other Agreements, or the
Recapitalization Transactions Documents, and such default shall continue beyond
any applicable grace period.
10.1.7 Other Defaults. (a) There shall occur any default or
event of default on the part of Borrower under any agreement, document, or
instrument to which Borrower is a party or by which Borrower or any of its
Property is bound, creating or relating to any Indebtedness (other than the
Obligations) in excess of Fifty Thousand Dollars ($50,000) if the payment or
maturity of such Indebtedness is accelerated in consequence of such event of
default or demand for payment of such Indebtedness is made.
(b) There shall occur any unmatured event of non-compliance or
event of non-compliance on the part of Borrower under any of the Churchill
Documents.
10.1.8 Uninsured Losses. Any material loss, theft, damage, or
destruction of any of the Collateral not fully covered (subject to such
deductibles as Lender shall have permitted) by insurance.
10.1.9 Adverse Changes. There shall occur any material adverse
change in the financial condition or business prospects of Borrower.
10.1.10 Insolvency and Related Proceedings. Borrower shall cease
to be Solvent or shall suffer the appointment of a receiver, trustee, custodian,
or similar fiduciary, or shall make an assignment for the benefit of creditors,
or any petition for an order for relief shall be filed by or against Borrower
under the Bankruptcy Code (if against Borrower, the continuation of such
proceeding for more than sixty (60) days), or Borrower shall make any offer of
settlement, extension, or composition to its unsecured creditors generally.
10.1.11 Business Disruption. There shall occur a cessation of a
substantial part of the business of Borrower for a period which significantly
affects Borrower's capacity to continue its business, on a profitable basis; or
Borrower shall suffer the loss or revocation of any license or permit now held
or hereafter acquired by Borrower, or any lease or agreement to which Borrower
is or becomes a party, which is necessary to the continued or lawful operation
of its business; or Borrower shall be enjoined, restrained, or in any way
prevented by court, governmental or administrative order from conducting all or
any material part of its business affairs.
10.1.12 Change of Ownership. The Principal Shareholders shall
cease to own and control, beneficially and of record, at least forty percent
(40%) of the issued and outstanding common stock of Borrower.
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<PAGE> 39
10.1.13 ERISA. A Reportable Event shall occur which Lender, in
its sole discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the appropriate United States district court of a trustee for any
Plan, or if any Plan shall be terminated (other than in a "standard termination"
as defined in Section 4041(b) of ERISA) or any such trustee shall be requested
or appointed, or if Borrower is in "default" (as defined in Section 4219(c)(5)
of ERISA) with respect to payments in excess of Fifty Thousand Dollars ($50,000)
to a Multiemployer Plan resulting from Borrower's complete or partial withdrawal
from such Plan.
10.1.14 Challenge to Agreement. Borrower or any Affiliate of
Borrower shall challenge or contest in any action, suit, or proceeding the
validity or enforceability of this Agreement, or any of the other Loan
Documents, the legality or enforceability of any of the Obligations or the
perfection or priority of any Lien granted to Lender.
10.1.15 [Intentionally omitted]
10.1.16 Criminal Forfeiture. Borrower shall be criminally
indicted or convicted under any law that could lead to a forfeiture of any
Property of Borrower valued in the aggregate in excess of Fifty Thousand Dollars
($50,000).
10.1.17 Judgments. Any money judgment, writ of attachment, or
similar process is filed against Borrower or any of its Property in connection
with a claim in excess of Fifty Thousand Dollars ($50,000) and the same is not
discharged or bonded against within thirty (30) days of the date of such filing.
10.1.18 ESOP Loan. If the ESOP fails to pay when due and payable
or when declared due and payable, but subject to any requirement of prior notice
or the expiration of any grace period set forth in the ESOP Loan Agreement, any
amount payable under the ESOP Loan Agreement as a result of Borrower's failure
to make contributions to the ESOP.
10.2 Acceleration of the Obligations. Without in any way limiting the
right of Lender to demand payment of any portion of the Obligations payable on
demand in accordance with Section 3.2 hereof, upon or at any time after the
occurrence of an Event of Default, all or any portion of the Obligations shall,
at the option of Lender and without presentment, demand protest or further
notice by Lender, become at once due and payable and Borrower shall forthwith
pay to Lender, the full amount of such Obligations, provided that upon the
occurrence of an Event of Default specified in subsection 10.1.10 hereof, all of
the Obligations shall become automatically due and payable without declaration,
notice, or demand by Lender.
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10.3 Other Remedies. Upon and after the occurrence of an Event of
Default, Lender shall have and may exercise, from time to time, the following
rights and remedies:
10.3.1 All of the rights and remedies of a secured party under
the Code or under other applicable law, and all other legal and equitable rights
to which Lender may be entitled, all of which rights and remedies shall be
cumulative and shall be in addition to any other rights or remedies contained in
this Agreement or any of the other Loan Documents, and none of which shall be
exclusive.
10.3.2 The right to take immediate possession of the Collateral,
and to (a) require Borrower to assemble the Collateral, at Borrower's expense,
and make it available to Lender at a place designated by Lender which is
reasonably convenient to both parties, and (b) enter any premises where any of
the Collateral shall be located and to keep and store the Collateral on said
premises until sold (and if said premises be the Property of Borrower, Borrower
agrees not to charge Lender for storage thereof).
10.3.3 The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable. Borrower agrees that ten (10) days
written notice to Borrower of any public or private sale or other disposition of
Collateral shall be reasonable notice thereof, and such sale shall be at such
locations as Lender may designate in said notice. Lender shall have the right to
conduct such sales on Borrower's premises, without charge therefor, and such
sales may be adjourned from time to time in accordance with applicable law.
Lender shall have the right to sell, lease, or otherwise dispose of the
Collateral, or any part thereof, for cash, credit, or any combination thereof,
and Lender may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Obligations. The
proceeds realized from the sale of any Collateral may be applied, after allowing
two (2) Business Days for collection, first to the costs, expenses and
attorneys' fees incurred by Lender in collecting the Obligations, in enforcing
the rights of Lender under the Loan Documents and in collecting, retaking,
completing, protecting, removing, storing, advertising for sale, selling, and
delivering any Collateral, second to the interest due upon any of the
Obligations; and third, to the principal of the Obligations. If any deficiency
shall arise, Borrower shall remain liable to Lender therefor.
10.3.4 Lender is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature as it pertains to the Collateral, in advertising
for sale and selling any Collateral and Borrower's rights under all licenses and
all franchise agreements shall inure to Lender's benefit.
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<PAGE> 41
10.3.5 Lender may, at its option, require Borrower to deposit
with Lender funds equal to the LC Amount and, if Borrower fails to promptly make
such deposit, Lender may advance such amount as a Revolving Credit Loan (whether
or not an Overadvance is created thereby). Any such deposit or advance shall be
held by Lender as a reserve to fund future payments on such LC Guaranties and
future drawings against such Letters of Credit. At such time as all LC
Guaranties have been paid or terminated and all Letters of Credit have been
drawn upon or expired, any amounts remaining in such reserve shall be applied
against any outstanding Obligations, or, if all Obligations have been
indefeasibly paid in full, returned to Borrower.
10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule given to Lender or contained in any other agreement between
Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall
be deemed cumulative to and not in derogation or substitution of any of the
terms, covenants, conditions, or agreements of Borrower herein contained. The
failure or delay of Lender to require strict performance by Borrower of any
provision of this Agreement or to exercise or enforce any rights, Liens, powers,
or remedies hereunder or under any of the aforesaid agreements or other
documents or security or Collateral shall not operate as a waiver of such
performance, Liens, rights, powers, and remedies, but all such requirements,
Liens, rights, powers, and remedies shall continue in full force and effect
until all Loans and all other Obligations owing or to become owing from Borrower
to Lender shall have been fully satisfied. None of the undertakings, agreements,
warranties, covenants, and representations of Borrower contained in this
Agreement or any of the other Loan Documents and no Event of Default by Borrower
under this Agreement or any other Loan Documents shall be deemed to have been
suspended or waived by Lender, unless such suspension or waiver is by an
instrument in writing specifying such suspension or waiver and is signed by a
duly authorized representative of Lender and directed to Borrower.
SECTION 11. MISCELLANEOUS
11.1 Power of Attorney. Borrower hereby irrevocably designates, makes,
constitutes, and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent, may, without notice to Borrower and in either Borrower's or Lender's
name, but at the cost and expense of Borrower:
11.1.1 At such time or times upon or after the occurrence of a
Default or an Event of Default as Lender or said agent, in its sole discretion,
may determine, endorse Borrower's name on any checks, notes, acceptances,
drafts, money orders or any other evidence of payment or proceeds of the
Collateral which come into the possession of Lender or under Lender's control.
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11.1.2 At such time or times upon or after the occurrence of an
Event of Default as Lender or its agent in its sole discretion may determine:
(a) demand payment of the Accounts from the Account Debtors, enforce payment of
the Accounts by legal proceedings or otherwise, and generally exercise all of
Borrower's rights and remedies with respect to the collection of the Accounts;
(b) settle, adjust, compromise, discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the Accounts
or other Collateral; (c) sell or assign any of the Accounts and other Collateral
upon such terms, for such amounts and at such time or times as Lender deems
advisable; (d) take control, in any manner, of any item of payment or proceeds
relating to any Collateral; (e) prepare, file, and sign Borrower's name to a
proof of claim in bankruptcy or similar document against any Account Debtor or
to any notice of lien, assignment or satisfaction of lien or similar document in
connection with any of the Collateral; (f) receive, open and dispose of all mail
addressed to Borrower and to notify postal authorities to change the address for
delivery thereof to such address as Lender may designate; (g) endorse the name
of Borrower upon any of the items of payment or proceeds relating to any
Collateral and deposit the same to the account of Lender on account of the
Obligations; (h) endorse the name of Borrower upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to the Accounts, Inventory and any other Collateral; (i) use
Borrower's stationery and sign the name of Borrower to verifications of the
Accounts and notices thereof to Account Debtors; (j) use the information
recorded on or contained in any data processing equipment and computer hardware
and software relating to the Accounts, Inventory, Equipment and any other
Collateral; (k) make and adjust claims under policies of insurance; and (l) do
all other acts and things necessary, in Lender's determination, to fulfill
Borrower's obligations under this Agreement.
11.2 Indemnity. Borrower hereby agrees to indemnify Lender and hold
Lender harmless from and against any liability, loss, damage, suit, action, or
proceeding ever suffered or incurred by Lender (including reasonable attorneys
fees and legal expenses) as the result of Borrower's failure to observe, perform
or discharge Borrower's duties hereunder. In addition, Borrower shall defend
Lender against and save it harmless from all claims of any Person with respect
to the Collateral. Without limiting the generality of the foregoing, these
indemnities shall extend to any claims asserted against Lender by any Person
under any Environmental Laws or similar laws by reason of Borrower's or any
other Person's failure to comply with laws applicable to solid or hazardous
waste materials or other toxic substances. Notwithstanding any contrary
provision in this Agreement, the obligation of Borrower under this Section 11.2
shall survive the payment in full of the Obligations and the termination of this
Agreement.
11.3 Modification of Agreement; Sale of Interest. This Agreement may
not be modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement, any of the other Loan Documents, or any of the Obligations, or
any portion thereof, including, without limitation, Borrower's rights, title,
interests, remedies, powers, and duties
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hereunder or thereunder. Borrower hereby consents to Lender's participation,
sale, assignment, transfer or other disposition, at any time or times hereafter,
of this Agreement and any of the other Loan Documents, or of any portion hereof
or thereof, including, without limitation, Lender's rights, title, interests,
remedies, powers, and duties hereunder or thereunder. In the case of an
assignment, the assignee shall have, to the extent of such assignment, the same
rights, benefits and obligations as it would if it were "Lender" hereunder and
Lender shall be relieved of all obligations hereunder upon any such assignments.
Borrower agrees that it will use its best efforts to assist and cooperate with
Lender in any manner reasonably requested by Lender to effect the sale of
participations in or assignments of any of the Loan Documents or any portion
thereof or interest therein, including, without limitation, assisting in the
preparation of appropriate disclosure documents. Borrower further agrees that
Lender may disclose credit information regarding Borrower to any potential
participant or assignee in accordance with Section 11.16 hereof.
11.4 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
11.5 Successors and Assigns. This Agreement, the Other Agreements, and
the Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrower and Lender permitted under Section 11.3
hereof.
11.6 Cumulative Effect; Conflict of Terms. The provisions of the Other
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof
and except as otherwise provided in any of the other Loan Documents by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or inconsistent with,
any provision in any of the other Loan Documents, the provision contained in
this Agreement shall govern and control.
11.7 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument.
11.8 Notice. Except as otherwise provided herein, all notices, requests
and demands to or upon a party hereto, to be effective, shall be in writing and
shall be sent by certified or registered mail, return receipt requested, by
personal delivery against receipt, by overnight courier or by facsimile and,
unless otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered immediately when delivered
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against receipt, one Business Day after deposit in the mail, postage prepaid, or
with an overnight courier or, in the case of facsimile notice, when sent,
addressed as follows:
If to Lender: Fleet Capital Corporation
15260 Ventura Boulevard, Suite 1200
Sherman Oaks, California 91403
Attention: Loan Administration Manager
Facsimile No.: (818) 905-5927
With a copy to: Brobeck, Phleger & Harrison LLP
550 South Hope Street
Los Angeles, California 90071
Attention: John Francis Hilson, Esq.
Facsimile No.: (213) 239-1324
If to Borrower: Meade Instruments Corp.
16542 Millikan Avenue
Irvine, California 92714
Attention: Mr. John C. Diebel
Facsimile No.: (714) 756-1450
With a copy to: O'Melveny & Myers
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Attention: J. Jay Herron, Esq.
Facsimile No.: (714) 669-6994
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2 hereof
shall not be effective until received by Lender.
11.9 Lender's Consent. Whenever Lender's consent is required to be
obtained under this Agreement, any of the Other Agreements, or any of the
Security Documents as a condition to any action, inaction, condition, or event,
Lender shall be authorized to give or withhold such consent in its sole and
absolute discretion and to condition its consent upon the giving of additional
collateral security for the Obligations, the payment of money or any other
matter.
11.10 Credit Inquiries. Borrower hereby authorizes and permits Lender
to respond to usual and customary credit inquiries from third parties concerning
Borrower.
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11.11 Time of Essence. Time is of the essence of this Agreement, the
Other Agreements, and the Security Documents.
11.12 Entire Agreement. This Agreement and the other Loan Documents,
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written.
11.13 Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
LOS ANGELES, CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT IF
ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN
CALIFORNIA, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND
PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE
ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE
EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT
WITH THE LAWS OF CALIFORNIA. AS PART OF THE CONSIDERATION FOR NEW VALUE
RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF
BUSINESS OF BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE
SUPERIOR COURT OF LOS ANGELES, CALIFORNIA, OR, AT LENDER'S OPTION, THE UNITED
STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA, SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF
OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION
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OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY
BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET
FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON
THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT
IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY
JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS
AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
11.15 WAIVERS BY BORROWER. BORROWER WAIVES (A) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL; (B) PRESENTMENT, DEMAND AND PROTEST AND
NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE,
COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER,
ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES
AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (C) NOTICE PRIOR TO
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES; (D) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION
LAWS; AND (E) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE
FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS
AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE
DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED
THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY
WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT.
11.16 Confidentiality. Lender agrees that material, non-public
information regarding Borrower, its operations, assets, and existing and
contemplated business plans shall be treated by Lender in a confidential manner,
and shall not be disclosed by it to Persons who are not parties to this
Agreement, except: (a) to counsel for and other advisors, accountants, and
auditors to Lender, (b) as may be required by statute, decision,
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or judicial or administrative order, rule, or regulation, (c) as may be agreed
to in advance by Borrower, (d) as to any such information that is or becomes
generally available to the public, and (e) in connection with any assignment,
prospective assignment, sale, prospective sale, participation or prospective
participation, or pledge or prospective pledge of Lender's interests under this
Agreement, provided that any such assignee, prospective assignee, purchaser,
prospective purchaser, participant, prospective participant, pledgee, or
prospective pledgee shall have agreed in writing to take its interest hereunder
subject to the terms hereof.
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IN WITNESS WHEREOF, this Agreement has been duly executed in Los
Angeles, California, on the day and year specified at the beginning of this
Agreement.
ATTEST: MEADE INSTRUMENTS CORP.
/s/ STEVEN MURDOCK By /s/ JOHN C. DIEBEL
- ----------------------------------- --------------------------------
Secretary Title Chairman & CEO
[CORPORATE SEAL]
ACCEPTED IN Los Angeles, California:
FLEET CAPITAL CORPORATION
By /s/ ALISA FREDERICK
--------------------------------
Title Vice President
-----------------------------
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APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as of April 23, 1996
by and between Fleet Capital Corporation and Meade Instruments Corp., the
following terms shall have the following meanings (terms defined in the singular
to have the same meaning when used in the plural and vice versa):
Account Debtor - any Person who is or may become obligated under or on
account of an Account.
Accounts - all accounts, contract rights, chattel paper, instruments
(including the ESOP Note), and documents, whether now owned or hereafter
created or acquired by Borrower or in which Borrower now has or hereafter
acquires any interest.
Adjusted Net Earnings From Operations - with respect to any fiscal
period, means the net earnings (or loss) after provision for income taxes
for such fiscal period of Borrower, as reflected on the most recent
financial statement of Borrower supplied to Lender pursuant to subsection
8.1.3 of the Agreement, but excluding:
(i) any gain or loss arising from the sale of capital
assets;
(ii) any gain arising from any write-up of assets;
(iii) earnings of any corporation, substantially all the
assets of which have been acquired in any manner by Borrower, realized by
such corporation prior to the date of such acquisition;
(iv) net earnings of any business entity in which Borrower
has less than a one hundred percent (100%) ownership interest unless
such net earnings shall have actually been received by Borrower in the
form of cash distributions;
(v) the earnings of any Person to which any assets of
Borrower shall have been sold, transferred of disposed of, or into
which Borrower shall have merged, or been a party to any consolidation
or other form of reorganization, prior to the date of such transaction;
(vi) any gain arising from the acquisition of any
Securities of Borrower; and
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(vii) any gain arising from extraordinary or non-recurring
items.
Affiliate - a Person: (i) which directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common
control with, a Person; (ii) which beneficially owns or holds 5% or more of
any class of the Voting Stock of a Person; or (iii) 5% or more of the
Voting Stock (or in the case of a Person which is not a corporation, 5% or
more of the equity interest) of which is beneficially owned or held by a
Person or a Subsidiary of a Person.
Agreement - the Loan and Security Agreement referred to in the first
sentence of this Appendix A, all Exhibits thereto and this Appendix A.
Availability - the amount of money which Borrower is entitled to borrow
from time to time as Revolving Credit Loans, such amount being the
difference derived when the sum of the principal amount of Revolving Credit
Loans then outstanding (including any amounts which Lender may have paid
for the account of Borrower pursuant to any of the Loan Documents and which
have not been reimbursed by Borrower) and the LC Amount is subtracted from
the Borrowing Base. If the amount outstanding is equal to or greater than
the Borrowing Base, Availability is zero (-0-).
Bank - Fleet Bank Connecticut, N.A.
Base Rate - the rate of interest announced or quoted by Bank from time
to time as its prime rate for commercial loans, whether or not such rate is
the lowest rate charged by Bank to its most preferred borrowers; and, if
such prime rate for commercial loans is discontinued by Bank as a standard,
a comparable reference rate designated by Bank as a substitute therefor
shall be the Base Rate.
Base Rate Election - an election to cause interest on the Loans to be
computed with reference to the Base Rate, that is effected by the giving of
a Base Rate Request in accordance with Section 2.3.
Base Rate Request - a notice in writing (or by telephone confirmed by
telex, telecopy or other facsimile transmission on the same day as the
telephone request) from Borrower to Lender requesting that interest on the
Loans be computed with reference to the Base Rate, specifying the date upon
which such request is to become effective.
Borrowing Base - as at any date of determination thereof, an amount
equal to the lesser of:
(i) Ten Million Dollars ($10,000,000); or
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(ii) an amount equal to:
(a) eighty-five percent (85%) of the net amount of
Eligible Accounts (other than Wal Mart Accounts) outstanding
at such date, less the amount, if any, of the Dilution
Reserve; PLUS
(b) (i) the net amount of the Wal Mart Accounts
outstanding at such date, less the amount, if any, of the Wal
Mart Reserve, times (ii) eighty-five percent (85%); PLUS
(c) the lesser of (1) Five Million Dollars
($5,000,000) and (2) the sum of: (y) seventy-five percent
(75%) of the value of Eligible Finished Goods Inventory, and
(z) twenty-five percent (25%) of the value of Eligible Raw
Materials Inventory, at such date calculated on the basis of
the lower of cost or market value with the cost of raw
materials and finished goods calculated on a first-in,
first-out basis.
For purposes hereof, the net amount of Eligible Accounts at any time
shall be the face amount of such Eligible Accounts less any and all returns,
rebates, discounts (which may, at Lender's option, be calculated on shortest
terms), credits, allowances, or excise taxes of any nature at any time issued,
owing, claimed by Account Debtors, granted, outstanding, or payable in
connection with such Accounts at such time.
Business Day - any day excluding Saturday, Sunday, and any day which is
a legal holiday under the laws of the State of California or is a day on
which banking institutions located in such state are closed.
Capital Expenditures - expenditures made or liabilities incurred for
the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than
one year, including the total principal portion of Capitalized Lease
Obligations.
Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
Cash Flow - for any period, means Borrower's Consolidated (i) Adjusted
Net Earnings from Operations for such period, plus (ii) depreciation and
amortization expenses for such period, plus (iii) deferred taxes for such
period, all as determined in accordance with GAAP.
Churchill - Churchill ESOP Capital Partners, A Minnesota limited
partnership.
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Churchill Documents - the Churchill Securities Purchase Agreement, the
Churchill Warrant, the Registration Rights Agreement, the Shareholder
Agreement, the amended and restated articles of incorporation of Borrower,
and any other material document relating to the Churchill Equity
Investment.
Churchill Equity Investment - the purchase by Churchill of the
Churchill Preferred Stock for an aggregate consideration of Six Million
Dollars ($6,000,000).
Churchill Preferred Stock - One thousand (1,000) shares of Series A
Preferred Stock, no par value, of Borrower purchased by Churchill in
accordance with the terms of the Churchill Securities Purchase Agreement.
Churchill Securities Purchase Agreement - that certain Securities
Purchase Agreement, dated as of the date hereof, between Borrower and
Churchill, the terms of which shall include: (i) no mandatory redemption of
the Churchill Preferred Stock by Borrower earlier than the later of five
years after the Closing Date or the date of repayment in full by Borrower
of the Term Loan and (ii) a dividend not to exceed fourteen percent (14%)
per annum.
Churchill Warrant - the Class A Common Stock Warrant of Borrower issued
to Churchill pursuant to Section 2.2 of the Churchill Securities Purchase
Agreement.
Closing Date - the date on which all of the conditions precedent in
Sections 9 and 9A of the Agreement are satisfied and the initial Loan is
made or the initial Letter of Credit or LC Guaranty is issued under the
Agreement.
Code - the Uniform Commercial Code as adopted and in force in the State
of California as from time to time in effect.
Collateral - all of the Property and interests in Property described in
Section 5 of the Agreement, and all other Property and interests in
Property that now or hereafter secure the payment and performance of any of
the Obligations.
Collateral Access Agreement - a landlord waiver, mortgagee waiver,
bailee letter, or similar acknowledgement agreement of any warehouseman or
processor of Inventory or Equipment, in each case, in form and substance
satisfactory to Lender.
Consolidated - the consolidation in accordance with GAAP of the
accounts or other items as to which such term applies.
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Current Assets - at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets
shown on a balance sheet at such date in accordance with GAAP, except that
amounts due from Affiliates and investments in Affiliates shall be excluded
therefrom.
Debt to Net Worth Ratio - with respect to any date, the ratio of (i)
Total Liabilities for such date to (ii) Net Worth for such date, all as
determined in accordance with GAAP.
Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in subsection 2.1.2 of the Agreement.
Dilution Reserve - as of the date of any determination, an amount
sufficient to reduce Lender's advance rate against Eligible Accounts by one
(1) percentage point for each percentage point by which the amount
(expressed as a percentage and based upon the experience of the immediately
preceding three (3) months) of Borrower's Accounts (exclusive of Accounts
owed by Wal Mart) that are subject to bad debt write-downs, discounts,
co-op advertising, returns, promotions, credits, or other dilution is in
excess of seven and one-half percent (7.5%) of all Eligible Accounts.
Distribution - in respect of any corporation means and includes: (i)
the payment of any dividends or other distributions on capital stock of the
corporation (except distributions of the same series of Securities or
capital stock), (ii) the redemption or acquisition of Securities unless
made contemporaneously from the net proceeds of the sale of Securities,
(iii) the redemption of the Churchill Preferred Stock, and (iv) the payment
of the repurchase price with respect to the Churchill Warrant.
Dominion Account - a special account of Lender established by Borrower
pursuant to the Agreement at a bank selected by Borrower, but acceptable to
Lender in its reasonable discretion, and over which Lender shall have sole
and exclusive access and control for withdrawal purposes.
Dominion Account Agreement - as defined in subsection 6.2.5 of the
Agreement.
Early Termination Charge - as defined in subsection 4.2.3 of the
Agreement.
EBIT - with respect to any fiscal period, the sum of Borrower's net
earnings (or loss) before interest expense, and taxes for said period as
determined in accordance with GAAP.
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EBITDA - with respect to any fiscal period, EBIT before amortization
and depreciation and before ESOP Qualifying Dividends for such period as
determined in accordance with GAAP.
Eligible Account - an Account arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services which
Lender, in its sole credit judgment, deems to be an Eligible Account.
Without limiting the generality of the foregoing, no Account shall be an
Eligible Account if:
(i) it arises out of a sale made by Borrower to an Affiliate
of Borrower or to a Person controlled by an Affiliate of Borrower; or
(ii) [Intentionally omitted]
(iii) it is due or unpaid more than ninety (90) days after the
original invoice date; provided, however, that Accounts, approved by
Lender from time to time, that are due or unpaid not more than one
hundred fifty (150) days after the original invoice date may be
eligible up to a maximum aggregate amount not to exceed (a) One Million
Dollars ($1,000,000) during September through January and (b) Five
Hundred Thousand Dollars ($500,000) during the balance of the year, so
long as they are otherwise eligible hereunder; or
(iv) fifty percent (50%) or more of the Accounts from the
Account Debtor are not deemed Eligible Accounts hereunder; except that
in the case of Sam's Club, twenty-five percent (25%) or more of the
Accounts from such Account Debtor are not deemed Eligible Accounts
hereunder; or
(v) the total unpaid Accounts of the Account Debtor exceed
fifteen percent (15%) of the net amount of all Eligible Accounts, to
the extent of such excess; provided, however, that, in the case of
Service Merchandise, Wal Mart, The Nature Company, Natural Wonders,
and, to the extent such Accounts are covered under letters of credit
satisfactory to Lender, MIC International, the foregoing percentage
shall be twenty-five percent (25%); or
(vi) any covenant, representation or warranty contained in
the Agreement with respect to such Account has been breached; or
(vii) the Account Debtor is also Borrower's creditor or
supplier (other than MIC International), or the Account Debtor has
disputed liability with respect to such Account, or the Account Debtor
has made any claim with respect to any other Account due from such
Account Debtor to Borrower, or
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the Account otherwise is or may become subject to any right of setoff
by the Account Debtor; or
(viii) the Account Debtor has commenced a voluntary case under
the federal bankruptcy laws, as now constituted or hereafter amended,
or made an assignment for the benefit of creditors, or a decree or
order for relief has been entered by a court having jurisdiction in the
premises in respect of the Account Debtor in an involuntary case under
the federal bankruptcy laws, as now constituted or hereafter amended,
or any other petition or other application for relief under the federal
bankruptcy laws has been filed against the Account Debtor, or if the
Account Debtor has failed, suspended business, ceased to be Solvent, or
consented to or suffered a receiver, trustee, liquidator or custodian
to be appointed for it or for all or a significant portion of its
assets or affairs; or
(ix) it arises from a sale to an Account Debtor outside the
United States, unless (a) the Account is supported by an irrevocable
letter of credit satisfactory to Lender (as to form, substance, and
issuer, including an acceptable domestic confirming bank or, if Lender
has approved the issuing bank, advising bank) and assigned to, directly
drawable by, and in the possession of Lender, or (b) the Account is
covered by credit insurance issued by the Export Import Bank in form
and amount satisfactory to Lender; provided, however, that the
aggregate amount of such Accounts shall not exceed Two Million Dollars
($2,000,000); or
(x) it arises from a sale to the Account Debtor on a
bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment or any other repurchase or return basis; or
(xi) the Account Debtor is the United States of America or
any department, agency or instrumentality thereof, unless Borrower
assigns its right to payment of such Account to Lender, in a manner
satisfactory to Lender, so as to comply with the Assignment of Claims
Act of 1940 (31 U.S.C. Section 203 et seq., as amended); or
(xii) the Account is subject to a Lien other than a Permitted
Lien; or
(xiii) the goods giving rise to such Account have not been
delivered to and accepted by the Account Debtor or the services giving
rise to such Account have not been performed by Borrower and accepted
by the Account Debtor or the Account otherwise does not represent a
final sale; or
(xiv) the Account is evidenced by chattel paper or an
instrument of any kind, or has been reduced to judgment; or
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(xv) Borrower has made any agreement with the Account Debtor
for any deduction therefrom, except for discounts or allowances which
are made in the ordinary course of business for prompt payment and
which discounts or allowances are reflected in the calculation of the
face value of each invoice related to such Account or which are
reflected on the Schedule of Accounts submitted to Lender pursuant to
subsection 6.2.2 hereof; or
(xvi) Borrower has made an agreement subsequent to the
original invoice date with the Account Debtor to extend the time of
payment thereof.
Eligible Finished Goods Inventory - that portion of Eligible In-Transit
Inventory and Eligible Landed Inventory consisting of finished goods.
Eligible In-Transit Inventory - items of Inventory that do not qualify
as Eligible Landed Inventory solely because they are not located at a
location set forth on Exhibit 6.1.1 or is in transit but: (a) currently are
in-transit from a location not set forth on Exhibit 6.1.1 to a location set
forth on Exhibit 6.1.1; (b) title to such Inventory has passed to Borrower;
(c) are insured against types of loss, damage, hazards, and risks, and in
amounts, satisfactory to Lender in its discretion; and (d) the documents of
title with respect to such Inventory are in the possession of Borrower, its
agents, or Lender; in each case, with documentation therefor in form and
substance satisfactory to Lender in its discretion, and net of estimated
costs relating to unpaid freight charges, warehousing or storage charges,
taxes, duties, and other similar unpaid costs associated with the
acquisition of Eligible In-Transit Inventory by Borrower.
Eligible Inventory - Eligible In-Transit Inventory and Eligible Landed
Inventory.
Eligible Landed Inventory - such inventory of Borrower (other than
packaging materials and supplies) which Lender, in its sole credit
judgment, deems to be Eligible inventory. Without limiting the generality
of the foregoing, no inventory shall be Eligible Landed Inventory if:
(i) it is not raw materials or finished goods that is, in
Lender's opinion, readily marketable in its current form; or
(ii) it is not in good, new, and saleable condition; or
(iii) it is slow-moving, obsolete, or unmerchantable, or,
without duplication, is identified as a reserve in Borrower's books in
a manner consistent with Borrower's past practices; or
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(iv) it does not meet all standards imposed by any
governmental agency or authority; or
(v) it does not conform in all respects to the warranties
and representations set forth in the Agreement; or
(vi) it is not at all times subject to Lender's duly
perfected, first priority security interest and no other Lien except a
Permitted Lien; or
(vii) it is not situated at a location in compliance with this
Agreement or is in transit.
Eligible Raw Materials Inventory - that portion of Eligible In-Transit
Inventory and Eligible Landed Inventory consisting of raw materials.
Employer Securities - the shares of Series B Common Stock purchased by
the ESOP with the proceeds of the ESOP Loan in accordance with the ESOP
Purchase Agreements.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations or
owned by Borrower or in which Borrower has an interest, whether now owned
or hereafter acquired by Borrower and wherever located, and all parts,
accessories and special tools and all increases and accessions thereto and
substitutions and replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974, as
amended, and all rules and regulations from time to time promulgated
thereunder.
ESOP - the "Meade Instruments Corp. Employee Stock Ownership Plan"
established and maintained by Borrower as an employee benefit plan,
effective March 1, 1996, pursuant to the Meade Instruments Corp. Employee
Stock Ownership Plan (the "ESOP Plan Document") and the ESOP Trust
Agreement.
ESOP Loan - the loan made by Borrower to the ESOP Trustee in the amount
of Eleven Million Dollars ($11,000,000) in order to enable the ESOP Trustee
to purchase the Employer Securities in accordance with the ESOP Purchase
Agreements.
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ESOP Loan Agreement - that certain ESOP Loan and Pledge Agreement,
dated as of the date hereof, between Borrower and the ESOP Trustee.
ESOP Loan Documents - (i) the ESOP Loan Agreement, (ii) the ESOP Note,
and (iii) each other instrument or document executed and/or delivered by
the ESOP Trustee to Borrower to evidence or create any obligation of the
ESOP to Borrower to repay the ESOP Loan.
ESOP Note - that certain promissory note, dated as of the date hereof,
made by the ESOP to the order of Borrower, evidencing the ESOP's
obligations to Borrower under the ESOP Loan Agreement.
ESOP Purchase Agreements - collectively, those certain "Stock Purchase
Agreements," dated as of the date hereof, among the Principal Shareholders,
the ESOP Trustee, and Borrower pursuant to which the Principal Shareholders
have agreed to sell, and the ESOP Trustee has agreed to purchase one
million five hundred thousand (1,500,000) shares of Borrower's Series B
Common Stock for $7.3333 per share and an aggregate consideration of Ten
Million Nine Hundred Ninety-Nine Thousand Nine Hundred Fifty ($10,999,950).
ESOP Qualifying Dividends - with respect to any period, the preference
dividends on the Borrower's Series B Common Stock permitted by Sections
3.1(a)(i) and (ii) of the Borrower's Charter (as that term is defined in
the Churchill Securities Purchase Agreement) that are paid in cash during
such period.
ESOP Transaction Documents - (i) the ESOP Plan Document, (ii) the ESOP
Trust Agreement, (iii) the ESOP Purchase Agreements, and (iv) the ESOP Loan
Documents.
ESOP Trust - the trust created by the ESOP Trust Agreement to hold the
assets of the ESOP.
ESOP Trust Agreement - the Meade Instruments Corp. Employee Stock
Ownership Trust Agreement, effective on the date hereof, between Borrower,
as grantor, and the ESOP Trustee, as trustee, created to hold the assets of
the ESOP.
ESOP Trustee - Wells Fargo Bank, N.A.
Event of Default - as defined in Section 10.1 of the Agreement.
Excess Cash Flow - with respect to any fiscal period of Borrower,
twenty-five percent (25%) of the result of (a) Borrower's net income plus
depreciation, amortization, and all other non-cash charges for such fiscal
period, minus (b) the
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amount of regularly scheduled payments of principal on Indebtedness for
Money Borrowed and Capital Expenditures which are not financed for such
fiscal period.
Existing Lender - Bank of America NT&SA.
GAAP - generally accepted accounting principles in the United States of
America in effect from time to time.
General Intangibles - all personal property of Borrower (including
things in action) other than goods, Accounts, chattel paper, documents,
instruments, and money (including, without limitation, all of Borrower's
right, title, and interest with respect to the key man life insurance
policy with respect to Mr. John C. Diebel), whether now owned or hereafter
created or acquired by Borrower.
Holdings - Meade Holding Corp., a California corporation.
Indebtedness - as applied to a Person means, without duplication
(i) all items which in accordance with GAAP would be
included in determining total liabilities as shown on the liability
side of a balance sheet of such Person as at the date as of which
Indebtedness is to be determined, including, without limitation,
Capitalized Lease Obligations,
(ii) all obligations of other Persons which such Person has
guaranteed,
(iii) all reimbursement obligations in connection with letters
of credit or letter of credit guaranties issued for the account of such
Person, and
(iv) in the case of Borrower (without duplication), the
Obligations.
Independent Financial Advisor - the independent financial adviser
selected by the ESOP Trustee to evaluate that the purchase price being paid
by the ESOP Trustee for the Employer Securities does not exceed the fair
market value thereof.
Interest Coverage Ratio - with respect to any period of determination,
the ratio of (i) EBIT for such period to (ii) Interest Expense for such
period, all as determined in accordance with GAAP.
Interest Expense - with respect to any fiscal period, the interest
expense incurred for such period as determined in accordance with GAAP plus
the Letter of Credit and LC Guaranty fees owing for such period.
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Inventory - all of Borrower's inventory, whether now owned or hereafter
acquired including, but not limited to, all goods intended for sale or
lease by Borrower, or for display or demonstration; all work in process;
all raw materials and other materials and supplies of every nature and
description used or which might be used in connection with the manufacture,
printing, packing, shipping, advertising, selling, leasing or furnishing of
such goods or otherwise used or consumed in Borrower's business; and all
documents evidencing and General Intangibles relating to any of the
foregoing, whether now owned or hereafter acquired by Borrower.
Inventory Letter of Credit - documentary letters of credit issued to
support the purchase by Borrower of Inventory prior to transit to a
location set forth on Exhibit 6.1.1, that satisfy the following conditions:
all draws thereunder must require presentation of customary documentation
(including, if applicable, commercial invoices, packing list, certificate
of origin, bill of lading or airwaybill, customs clearance documents, quota
statement, inspection certificate, beneficiaries statement, and bill of
exchange, bills of lading, dock warrants, dock receipts, warehouse
receipts, or other documents of title) in form and substance satisfactory
to Lender and reflecting passage to Borrower of title to first quality
Inventory conforming to Borrower's contract with the seller thereof.
IRC - means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
LC Amount - at any time, the aggregate undrawn face amount of all
Letters of Credit and LC Guaranties then outstanding.
LC Guaranty - any guaranty pursuant to which Lender or any Affiliate of
Lender shall guaranty the payment or performance by Borrower of its
reimbursement obligation under any letter of credit.
Letter of Credit - any letter of credit issued by Lender or any of
Lender's Affiliates for the account of Borrower.
LIBOR Rate - the rate of interest displayed on the Reuters LIBOR Page
from time to time as the then prevailing one month LIBOR Rate; and, if such
rate quotation service is discontinued or substantially modified for any
reason, a comparable rate quotation designated by Lender as a substitute
therefor. Each determination by Lender of the LIBOR Rate shall, in the
absence of manifest error, be conclusive.
LIBOR Rate Election - an election to cause interest on the Loans to be
computed with reference to the LIBOR Rate, that is effected by the giving
of a LIBOR Rate Request in accordance with Section 2.3.
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LIBOR Rate Request - a notice in writing (or by telephone confirmed by
telex, telecopy or other facsimile transmission on the same, day as the
telephone request) from Borrower to Lender requesting that interest on the
Loans be computed with reference to the LIBOR Rate, specifying the date
upon which such request is to become effective.
Lien - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such
interest is based on common law, statute or contract. The term "Lien" shall
also include reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting Property. For the purpose of the
Agreement, Borrower shall be deemed to be the owner of any Property which
it has acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person for security purposes.
Loan Account - the loan account established on the books of Lender
pursuant to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements, and the Security
Documents.
Loans - all loans and advances of any kind made by Lender pursuant to
the Agreement.
Money Borrowed - means (i) Indebtedness arising from the lending of
money by any Person to Borrower; (ii) Indebtedness, whether or not in any
such case arising from the lending by any Person of money to Borrower, (A)
which is represented by notes payable or drafts accepted that evidence
extensions of credit, (B) which constitutes obligations evidenced by bonds,
debentures, notes or similar instruments, or (C) upon which interest
charges are customarily paid (other than accounts payable) or that was
issued or assumed as full or partial payment for Property payable over a
period longer than six (6) months; (iii) Indebtedness that constitutes a
Capitalized Lease Obligation; (iv) reimbursement obligations with respect
to letters of credit or guaranties of letters of credit; and (v)
Indebtedness of Borrower under any guaranty of obligations that would
constitute Indebtedness for Money Borrowed under clauses (i) through (iii)
hereof, if owed directly by Borrower.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of
ERISA.
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Net Worth - at any date of determination thereof (i) the aggregate
amount of all assets of Borrower (exclusive of the ESOP contra account) as
may be properly classified as such, less (ii) the aggregate amount of all
liabilities (exclusive of the ESOP contra account) of Borrower, all as
determined in accordance with GAAP.
Noteholders - Messrs. John C. Diebel, Ron Ezra, Joseph A. Gordon, Jr.,
and Steve Murdock.
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties, together with all interest, fees and
other charges thereon (including, without limitation, Early Termination
Charges), owing, arising, due or payable from Borrower to Lender of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under the Agreement or any of
the other Loan Documents or otherwise whether direct or indirect (including
those acquired by assignment), absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter arising and
however acquired.
Ordinary Course Liens - any of the following:
(i) Liens arising by operation of law in favor of
warehouseman, landlords, carriers, mechanics, materialmen, laborers,
employees or suppliers, incurred in the ordinary course of business of
Borrower and not in connection with the borrowing of money, for sums not
yet delinquent or which are being contested in good faith and by proper
proceedings diligently pursued, provided that a reserve or other
appropriate provision, if any, required by GAAP shall have been made
therefor on the applicable financial statements of Borrower;
(ii) Deposits made in connection with worker's compensation
or other unemployment insurance incurred in the ordinary course of
Borrower's business;
(iii) Deposits to secure performance of bids, tenders, or
leases (to the extent permitted under this Agreement), incurred in the
ordinary course of business of Borrower and not in connection with the
borrowing of money;
(iv) Liens arising by reason of security for surety or appeal
bonds in the ordinary course of business of Borrower;
(v) Liens of or resulting from any judgment or award, the
time for the appeal or petition for rehearing of which has not yet expired,
or in respect of which Borrower is in good faith prosecuting an appeal or
proceeding for a review, and in respect of which a stay of execution
pending such appeal or proceeding for review has been secured; and
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(vi) with respect to any real property: easements, rights of way,
zoning and similar covenants and restrictions and similar encumbrances which
customarily exist on properties of corporations engaged in similar activities
and similarly situated and which in any event do not materially interfere with
or impair the use or operation of the Collateral by Borrower or the value of
Lender's Lien on and security interest therein, or materially interfere with the
ordinary conduct of the business of Borrower.
Original Term - as defined in Section 4.1 of the Agreement.
Other Agreements - the Term Note, the Dominion Account Agreement, the
Pay-Off Letters, and any and all agreements, instruments and documents (other
than the Agreement and the Security Documents), heretofore, now or hereafter
executed by Borrower or any other third party and delivered to Lender in respect
of the transactions contemplated by the Agreement.
Overadvance - the amount, if any, by which the outstanding principal
amount of Revolving Credit Loans plus the LC Amount exceeds the Borrowing Base.
Patent Security Agreement - that certain patent security agreement, of
even date herewith, between Borrower and Lender, in form and substance
satisfactory to Lender.
Pay-Off Letters - means the letters, in form and substance reasonably
satisfactory to Lender, from Existing Lender and the Noteholders respecting the
amount necessary to repay in full all of the obligations of Borrower owing to
Existing Lender and the Noteholders and obtain, in the case of Existing Lender,
a termination or release of all of the security interests or liens existing in
favor of Existing Lender in and to the Property of Borrower.
Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of
the Agreement.
Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of
Borrower incurred after the date hereof which is secured by a Purchase Money
Lien and which, when aggregated with the principal amount of all other such
Indebtedness and Capitalized Lease Obligations of Borrower at the time
outstanding, does not exceed Two Million Dollars ($2,000,000). For the purposes
of this definition, the principal amount of any Purchase Money Indebtedness
consisting of capitalized leases shall be computed as a Capitalized Lease
Obligation.
Person - an individual, partnership, corporation, limited liability
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
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Plan - an employee benefit plan now or hereafter maintained for
employees of Borrower that is covered by Title IV of ERISA.
Pretax Profit - for any period, means Borrower's Consolidated (i)
Adjusted Net Earnings from Operations for such period, plus (ii) ESOP Qualifying
Dividends for such period, plus (iii) deferred taxes for such period, all as
determined in accordance with GAAP.
Principal Shareholders - Diebel Living Trust, Mr. Ron Ezra, Mr. Joseph
A. Gordon, Jr., and Murdock 1986 Trust.
Projections - Borrower's forecasted (i) balance sheets, (ii) profit and
loss statements, (iii) cash flow statements, and (iv) capitalization statements,
all prepared on a consistent basis with Borrower's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
Property - any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
Purchase Money Indebtedness - means and includes (i) Indebtedness
(other than the Obligations) for the payment of all or any part of the purchase
price of any fixed assets, (ii) any Indebtedness (other than the Obligations)
incurred at the time of or within ten (10) days prior to or after the
acquisition of any fixed assets for the purpose of financing all or any part of
the purchase price thereof, and (iii) any renewals, extensions or refinancings
thereof, but not any increases in the principal amounts thereof outstanding at
the time.
Purchase Money Lien - a Lien upon fixed assets which secures Purchase
Money Indebtedness, but only if such Lien shall at all times be confined solely
to the fixed assets the purchase price of which was financed through the
incurrence of the Purchase Money Indebtedness secured by such Lien.
Rate Election - a Base Rate Election or a LIBOR Rate Election.
Rate Request - a Base Rate Request or a LIBOR Rate Request.
Recapitalization Transactions - the series of transactions consisting
of: (i) the ESOP Loan; (ii) the sale by the Principal Shareholders of thirty
percent (30%) of Borrower's common stock to the ESOP; (iii) the redemption by
Borrower of $250,000 of its capital stock; (iii) the repayment by Borrower of
Shareholder Notes; and (iv) the Churchill Equity Investment.
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Recapitalization Transactions Documents - the Churchill Documents, the
ESOP Transaction Documents, and any other material documents and agreements
relating to the Recapitalization Transactions.
Recapture Amount - as of the date of any determination, the aggregate
amount of mandatory prepayments of the Revolving Credit Loans made by Borrower
pursuant to subsection 3.3.2.
Registration Rights Agreement - that certain Registration Rights
Agreement, dated as of the date hereof, between Borrower and Churchill.
Rentals - as defined in subsection 8.2.12 of the Agreement.
Renewal Terms - as defined in Section 4.1 of the Agreement.
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA.
Restricted Investment - any investment made in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or other
obligation or Security, or by loan, advance or capital contribution, or
otherwise, or in any Property except the following:
(i) [Intentionally omitted]
(ii) Property to be used in the ordinary course of
business;
(iii) Current Assets arising from the sale of goods and
services in the ordinary course of business of Borrower;
(iv) investments in direct obligations of the United
States of America, or any agency thereof or obligations guaranteed by the United
States of America, provided that such obligations mature within one year from
the date of acquisition thereof;
(v) investments in certificates of deposit maturing
within one (1) year from the date of acquisition issued by a bank or trust
company organized under the laws of the United States or any state thereof
having capital surplus and undivided profits aggregating at least One Hundred
Million Dollars ($100,000,000);
(vi) investments in commercial paper given the highest
rating by a national credit rating agency and maturing not more than two hundred
seventy (270) days from the date of creation thereof; and
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(vii) additional contributions to the ESOP sufficient to
enable the ESOP to make payments of principal and interest when due with respect
to the ESOP Loan.
Revolving Credit Loan - a Loan made by Lender as provided in Section
1.1 of the Agreement.
Schedule of Accounts - as defined in subsection 6.2.1 of the Agreement.
Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
Security Documents - the Trademark Security Agreement, the Patent
Security Agreement, and all other instruments and agreements now or at any time
hereafter securing the whole or any part of the Obligations.
Series B Common Stock - five million (5,000,000) authorized shares of
Series B Common Stock, no par value, of Borrower of which one million five
hundred thousand (1,500,000) shares are outstanding as of the Closing Date.
Shareholder Agreement - that certain Shareholder Agreement, dated as of
the date hereof, among Borrower, the Principal Shareholders, and Churchill.
Shareholder Notes - that certain Promissory Note, dated July 8, 1995,
made by Borrower to the order of Mr. John C. Diebel in the original principal
amount of One Million Five Hundred Thousand Dollars; that certain Subordinated
Note, dated February 28, 1991, made by Borrower to the order of Mr. John C.
Diebel in the original principal amount of Two Hundred Seventy-Five Thousand
Dollars ($275,000); that certain Subordinated Note, dated March 10, 1991, made
by Borrower to the order of Mr. Ron Ezra in the original principal amount of
Fifty Thousand Dollars; that certain Subordinated Note, dated March 1, 1991,
made by Borrower to the order of Mr. Joseph A. Gordon, Jr. in the original
principal amount of Twenty-Five Thousand Dollars ($25,000); and that certain
Subordinated Note, dated March 29, 1991, made by Borrower to the order of Mr.
Steve Murdock in the original principal amount of One Hundred Fifty Thousand
Dollars ($150,000).
Solvent - as to any Person, such Person (i) owns Property whose fair
saleable value is greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (ii) is able to pay all of its
Indebtedness as such Indebtedness matures, and (iii) has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage.
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Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the Voting Stock
at the time of determination.
Term Loan - the Loan described in subsection 1.2.1 of the Agreement.
Term Note - the Secured Promissory Note to be executed by Borrower on
or about the Closing Date in favor of Lender to evidence the Term Loan, which
shall be in the form of Exhibit 1.2.1 to the Agreement.
Total Capitalization - means, without duplication, the sum of (a) Total
Senior Debt, (b) the preferred stock of Borrower, and (c) the equity in
Borrower.
Total Credit Facility - Nineteen Million Five Hundred Thousand Dollars
($19,500,000).
Total Liabilities - at any date means all amounts properly classified
as liabilities of Borrower on a balance sheet at such date in accordance with
GAAP.
Total Senior Debt - means (i) Indebtedness arising from the lending of
money by any Person to Borrower; (ii) Indebtedness, whether or not in any such
case arising from the lending by any Person of money to Borrower, (A) which is
represented by notes payable or drafts accepted that evidence extensions of
credit, (B) which constitutes obligations evidenced by bonds, debentures, notes
or similar instruments, or (C) upon which interest charges are customarily paid
(other than accounts payable) or that was issued or assumed as full or partial
payment for Property; and (iii) Indebtedness that constitutes a Capitalized
Lease Obligation.
Trademark Security Agreement - that certain trademark security
agreement, of even date herewith, between Borrower and Lender, in form and
substance satisfactory to Lender.
Voting Stock - Securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
Wal Mart Accounts - Eligible Accounts where the Account Debtor is Wal
Mart.
Wal Mart Reserve - as at any date of determination, an amount equal to
ten percent (10%) of the Wal Mart Accounts; provided, however, that the amount
of the Wal Mart Reserve may be adjusted upon mutual agreement between Borrower
and Lender based on Lender's review of Borrower's relationship with Wal Mart
over a twelve (12) month period.
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Working Capital - at any date means Current Assets minus Current
Liabilities.
Other Terms. All other terms contained in the Agreement shall have,
when the context so indicates, the meanings provided for by the Code to the
extent the same are used or defined therein.
Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to the Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall not affect the
interpretation of the Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any of the Loan Documents shall include any and
all modifications thereto and any and all extensions or renewals thereof.
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LIST OF EXHIBITS
Exhibit 1.2.1 Term Note
Exhibit 6.1.1 Borrower's Business Locations
Exhibit 7.1.1 Jurisdictions in which Borrower is Authorized to do Business
Exhibit 7.1.4 Capital Structure of Borrower
Exhibit 7.1.5 Corporate Names
Exhibit 7.1.13 Surety Obligations
Exhibit 7.1.16 Patents, Trademarks, Copyrights and Licenses
Exhibit 7.1.19 Contracts Restricting Borrower's Right to Incur Debts
Exhibit 7.1.20 Litigation
Exhibit 7.1.22(A) Capitalized Leases
Exhibit 7.1.22(B) Operating Leases
Exhibit 7.1.23 Pension Plans
Exhibit 7.1.25 Labor Contracts
Exhibit 8.1.3 Compliance Certificate
Exhibit 8.2.5 Permitted Liens
Exhibit 9.22 Closing Date Projections
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. CREDIT FACILITY............................................................................... 2
1.1 Revolving Credit Loans........................................................................ 2
1.1.1 Loans and Reserves................................................................. 2
1.1.2 Use of Proceeds.................................................................... 2
1.2 Term Loan..................................................................................... 3
1.2.1 Term Loan.......................................................................... 3
1.2.2 [Intentionally omitted]............................................................ 3
1.3 Letters of Credit; LC Guaranties.............................................................. 3
SECTION 2. INTEREST, FEES AND CHARGES.................................................................... 3
2.1 Interest...................................................................................... 3
2.1.1 Rates of Interest.................................................................. 3
2.1.2 Default Rate of Interest........................................................... 4
2.1.3 Maximum Interest................................................................... 4
2.2 Computation of Interest and Fees.............................................................. 4
2.3 Rate Elections................................................................................ 4
2.4 Closing Fee................................................................................... 5
2.5 Letter of Credit and LC Guaranty Fees......................................................... 5
2.6 Unused Line Fee............................................................................... 5
2.7 Collection Charges............................................................................ 6
2.8 Audit and Appraisal Fees...................................................................... 6
2.9 Reimbursement of Expenses..................................................................... 6
2.10 Bank Charges.................................................................................. 6
SECTION 3. LOAN ADMINISTRATION........................................................................... 7
3.1 Manner of Borrowing Revolving Credit Loans.................................................... 7
3.1.1 Loan Requests...................................................................... 7
3.1.2 Disbursement....................................................................... 7
3.1.3 Authorization...................................................................... 7
3.2 Payments...................................................................................... 8
3.2.1 Principal.......................................................................... 8
3.2.2 Interest........................................................................... 8
3.2.3 Costs, Fees and Charges............................................................ 8
3.2.4 Other Obligations.................................................................. 8
3.3 Mandatory Prepayments......................................................................... 8
3.3.1 Proceeds of Sale, Loss, Destruction, or Condemnation of
Collateral......................................................................... 8
3.3.2 Excess Cash Flow Recapture......................................................... 8
3.4 Application of Payments and Collections....................................................... 9
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
3.5 All Loans to Constitute One Obligation........................................................ 9
3.6 Loan Account.................................................................................. 9
3.7 Statements of Account......................................................................... 9
SECTION 4. TERM AND TERMINATION.......................................................................... 10
4.1 Term of Agreement............................................................................. 10
4.2 Termination................................................................................... 10
4.2.1 Termination by Lender.............................................................. 10
4.2.2 Termination by Borrower............................................................ 10
4.2.3 Termination Charges................................................................ 10
4.2.4 Effect of Termination.............................................................. 11
SECTION 5. SECURITY INTERESTS............................................................................ 11
5.1 Security Interest in Collateral............................................................... 11
5.2 Lien Perfection; Further Assurances........................................................... 12
5.3 [Intentionally omitted]....................................................................... 12
SECTION 6. COLLATERAL ADMINISTRATION..................................................................... 12
6.1 General....................................................................................... 12
6.1.1 Location of Collateral............................................................. 12
6.1.2 Insurance of Collateral............................................................ 12
6.1.3 Protection of Collateral........................................................... 13
6.2 Administration of Accounts.................................................................... 13
6.2.1 Records, Schedules and Assignments of Accounts..................................... 13
6.2.2 Discounts, Allowances, Disputes.................................................... 14
6.2.3 Taxes.............................................................................. 14
6.2.4 Account Verification............................................................... 14
6.2.5 Maintenance of Dominion Account.................................................... 14
6.2.6 Collection of Accounts, Proceeds of Collateral..................................... 14
6.3 Administration of Inventory................................................................... 15
6.3.1 Records and Reports of Inventory................................................... 15
6.3.2 Returns of Inventory............................................................... 15
6.4 Administration of Equipment................................................................... 15
6.4.1 Records and Schedules of Equipment................................................. 15
6.4.2 Dispositions of Equipment.......................................................... 15
6.5 Payment of Charges............................................................................ 16
6.6 Key Man Life Insurance........................................................................ 16
SECTION 7. REPRESENTATIONS AND WARRANTIES................................................................ 16
7.1 General Representations and Warranties........................................................ 16
7.1.1 Organization and Qualification..................................................... 16
7.1.2 Corporate Power and Authority...................................................... 16
7.1.3 Legally Enforceable Agreement...................................................... 17
7.1.4 Capital Structure.................................................................. 17
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
7.1.5 Corporate Names.................................................................... 17
7.1.6 Business Locations; Agent for Process.............................................. 17
7.1.7 Title to Properties; Priority of Liens............................................. 18
7.1.8 Accounts........................................................................... 18
7.1.9 Equipment.......................................................................... 19
7.1.10 Financial Statements; Fiscal Year.................................................. 19
7.1.11 Full Disclosure.................................................................... 20
7.1.12 Solvent Financial Condition........................................................ 20
7.1.13 Surety Obligations................................................................. 20
7.1.14 Taxes.............................................................................. 20
7.1.15 Brokers............................................................................ 20
7.1.16 Patents, Trademarks, Copyrights, and Licenses...................................... 20
7.1.17 Governmental Consents.............................................................. 20
7.1.18 Compliance with Laws............................................................... 21
7.1.19 Restrictions....................................................................... 21
7.1.20 Litigation......................................................................... 21
7.1.21 No Defaults........................................................................ 21
7.1.22 Leases............................................................................. 21
7.1.23 Pension Plans...................................................................... 22
7.1.24 Trade Relations.................................................................... 22
7.1.25 Labor Relations.................................................................... 22
7.1.26 Eligible Inventory................................................................. 22
7.1.27 ESOP Qualification................................................................. 22
7.1.28 ESOP Loan.......................................................................... 22
7.1.29 ESOP Trustee and Independent Financial Advisor..................................... 23
7.2 Continuous Nature of Representations and Warranties........................................... 23
7.3 Survival of Representations and Warranties.................................................... 23
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS........................................................... 23
8.1 Affirmative Covenants......................................................................... 23
8.1.1 Visits and Inspections............................................................. 23
8.1.2 Notices............................................................................ 23
8.1.3 Financial Statements............................................................... 23
8.1.4 Landlord and Storage Agreements.................................................... 25
8.1.5 [Intentionally omitted]............................................................ 25
8.1.6 Projections........................................................................ 25
8.2 Negative Covenants............................................................................ 25
8.2.1 Mergers; Consolidations; Acquisitions.............................................. 25
8.2.2 Loans.............................................................................. 25
8.2.3 Total Indebtedness................................................................. 25
8.2.4 Affiliate Transactions............................................................. 26
8.2.5 Limitation on Liens................................................................ 26
8.2.6 [Intentionally omitted]............................................................ 27
8.2.7 Distributions...................................................................... 27
</TABLE>
iii
<PAGE> 73
<TABLE>
<CAPTION>
<S> <C> <C>
8.2.8 Capital Expenditures............................................................... 28
8.2.9 Disposition of Assets.............................................................. 28
8.2.10 [Intentionally omitted]............................................................ 28
8.2.11 Bill-and-Hold Sales, Etc........................................................... 28
8.2.12 Restricted Investment.............................................................. 28
8.2.13 Leases............................................................................. 28
8.2.14 Tax Consolidation.................................................................. 28
8.3 Specific Financial Covenants.................................................................. 29
8.3.1 Minimum Working Capital............................................................ 29
8.3.2 Profitability...................................................................... 29
8.3.3 Debt to Net Worth Ratio............................................................ 30
8.3.4 Cash Flow.......................................................................... 30
8.3.5 Interest Coverage Ratio............................................................ 31
8.3.6 Total Senior Debt Coverage Ratio................................................... 31
8.3.7 Total Senior Debt to Total Capitalization Ratio.................................... 32
8.3.8 Excess Availability................................................................ 32
SECTION 9. CONDITIONS PRECEDENT TO INITIAL CREDITS....................................................... 32
9.1 Documentation................................................................................. 32
9.2 Other Loan Documents.
9.3 Approvals and Consents........................................................................ 33
9.4 Interim Financial Statements.................................................................. 33
9.5 Pension Plans................................................................................. 33
9.6 Labor Contracts............................................................................... 33
9.7 Pro Forma Balance Sheet....................................................................... 33
9.8 Availability.................................................................................. 33
9.9 Vendor Checks................................................................................. 33
9.10 Certified Documents of Borrower............................................................... 33
9.11 Recapitalization Transactions Documents....................................................... 34
9.12 Collateral Access Agreements.................................................................. 34
9.13 Confirmation Searches......................................................................... 34
9.14 Opinion of Counsel............................................................................ 34
9.15 Evidence of Insurance of Collateral........................................................... 34
9.16 Use of Financing.............................................................................. 34
9.17 Independent Financial Advisor Opinion......................................................... 34
9.18 Opinion of Counsel to ESOP Trustee............................................................ 35
9.19 Certificate of Borrower....................................................................... 35
9.20 Pay-Off Letter and UCC Termination Statements, etc............................................ 35
9.21 Holdings...................................................................................... 35
9.22 Closing Date Projections...................................................................... 35
9.23 Churchill Equity Investment................................................................... 35
SECTION 9-A. CONDITIONS PRECEDENT TO ALL LOANS............................................................. 36
9-A.1 No Default.................................................................................... 36
</TABLE>
iv
<PAGE> 74
<TABLE>
<CAPTION>
<S> <C> <C>
9-A.2 Representations and Warranties................................................................ 36
9-A.3 No Litigation................................................................................. 36
SECTION 9-B. CONDITIONS SUBSEQUENT......................................................................... 36
9-B.1 Financial Management Information System....................................................... 36
9-B.2 Long Beach Collateral Access Agreement........................................................ 36
9-B.3 Evidence of Key Man Life Insurance............................................................ 36
9-B.4 Dominion Account Agreement.................................................................... 37
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON
DEFAULT....................................................................................... 37
10.1 Events of Default............................................................................. 37
10.1.1 Payment of Note.................................................................... 37
10.1.2 Payment of Other Obligations....................................................... 37
10.1.3 Misrepresentations................................................................. 37
10.1.4 Breach of Specific Covenants....................................................... 37
10.1.5 Breach of Other Covenants.......................................................... 37
10.1.6 Default Under Security Documents/Other Agreements/
Recapitalization Transactions Documents............................................ 38
10.1.7 Other Defaults..................................................................... 38
10.1.8 Uninsured Losses................................................................... 38
10.1.9 Adverse Changes.................................................................... 38
10.1.10 Insolvency and Related Proceedings................................................. 38
10.1.11 Business Disruption................................................................ 38
10.1.12 Change of Ownership................................................................ 38
10.1.13 ERISA.............................................................................. 39
10.1.14 Challenge to Agreement............................................................. 39
10.1.15 [Intentionally omitted]............................................................ 39
10.1.16 Criminal Forfeiture................................................................ 39
10.1.17 Judgments.......................................................................... 39
10.1.18 ESOP Loan.......................................................................... 39
10.2 Acceleration of the Obligations............................................................... 39
10.3 Other Remedies................................................................................ 40
10.4 Remedies Cumulative; No Waiver................................................................ 41
SECTION 11. MISCELLANEOUS................................................................................. 41
11.1 Power of Attorney............................................................................. 41
11.2 Indemnity..................................................................................... 42
11.3 Modification of Agreement; Sale of Interest................................................... 42
11.4 Severability.................................................................................. 43
11.5 Successors and Assigns........................................................................ 43
11.6 Cumulative Effect; Conflict of Terms.......................................................... 43
11.7 Execution in Counterparts..................................................................... 43
11.8 Notice........................................................................................ 43
</TABLE>
v
<PAGE> 75
<TABLE>
<CAPTION>
<S> <C> <C>
11.9 Lender's Consent.............................................................................. 44
11.10 Credit Inquiries.............................................................................. 44
11.11 Time of Essence............................................................................... 45
11.12 Entire Agreement.............................................................................. 45
11.13 Interpretation................................................................................ 45
11.14 GOVERNING LAW; CONSENT TO FORUM............................................................... 45
11.15 WAIVERS BY BORROWER........................................................................... 46
11.16 Confidentiality............................................................................... 46
</TABLE>
vi
<PAGE> 1
Exhibit 10.17
PURCHASE AND SALES AGREEMENT
This Purchase and Sales Agreement (the "Agreement") is entered
into as of December 29, 1994, by and between Meade Instruments Corporation, a
California corporation ("Meade") and Weidy Optical Co., Ltd., a Republic of
China corporation ("Weidy").
WHEREAS, Meade manufactures astronomical and terrestrial
telescopes and other optical products, and also purchases astronomical and
terrestrial telescopes from Weidy and various other suppliers in the Republic of
China ("R.O.C."), Japan and the Republic of Korea;
WHEREAS, Meade desires a smooth, uninterrupted flow of the
telescopes, telescope parts and telescope accessories from a single source in
order to better ensure that its product needs are fulfilled;
WHEREAS, Weidy desires to expand its business relationship
with Meade and ensure a predictable stream of orders from Meade for telescopes,
telescope parts and telescope accessories.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, and intending to be legally bound, Meade and Weidy hereby
agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions.
For purposes of this Agreement, the following definitions
shall apply:
"Effective Date" means January 1, 1995.
"Meade Designed Products" means Products manufactured by Weidy
or a Weidy Affiliate to designs provided by Meade, including, but not limited
to, Meade telescope models 285, 390, 395 and 4500.
"Meade Information" means certain confidential and proprietary
information of Meade, including but not limited to, technical knowledge,
inventions, creations, know-how, formulations, recipes, specifications, designs,
methods, processes, techniques, data, rights, devices, drawings, instructions,
expertise, trade practices, trade secrets, commercial information and other
information relating to the
1
<PAGE> 2
design, manufacture, assembly, application, inspection, testing, maintenance,
packaging and sale of the Meade Designed Products.
"Products" means telescopes, telescope parts and telescope
accessories manufactured by Weidy and Weidy Affiliates.
"Weidy Affiliate" means any company controlled by, sharing
common officers or directors with, or party to a consulting agreement with
Weidy, including, but not limited to, Special Optic, Inc., an R.O.C.
corporation.
"Weidy Australian Customer" means that certain customer of
Weidy in Australia who has purchased telescopes from Weidy through an agent in
Taiwan, R.O.C.
ARTICLE II.
OBLIGATIONS OF MEADE
2.1 Purchase of Products Exclusively from Weidy.
Meade agrees that all telescopes it purchases outside the
United States of America shall be purchased exclusively from Weidy during the
term of this Agreement.
2.2 Minimum Order in 1995.
On or before February 28, 1995 Meade shall place purchase
orders with Weidy for not less than 50,000 telescopes in the aggregate for
shipment by Weidy to Meade in 1995.
2.3 Annual Minimum Order After 1995.
For each year after 1995, Meade shall place purchase orders
with Weidy for not less than 50,000 telescopes in the aggregate to be shipped in
such year (the "Annual Minimum Order"). The purchase orders constituting the
Annual Minimum Order must be placed as follows:
(a) Purchase orders for not less than 25,000
telescopes must be received by Weidy on or before November 30
of the preceding year; and
(b) Purchase orders for the remaining portion of the
Annual Minimum Order must be received by Weidy on or before
February 28 of such year.
2.4 The Weidy Australian Customer.
(a) Continued Sales. Meade shall use reasonable
efforts to continue sales of telescopes manufactured by
Weidy to the Weidy Australian Customer. Meade shall
2
<PAGE> 3
not be prohibited from selling Products to other customers in
Australia.
(b) Notice to Weidy Australian Customer. Promptly
after receiving the addresses from Weidy, Meade shall contact
the Weidy Australian Customer and/or the Weidy Australian
Customer's selling agent in Taiwan, R.O.C. to notify them that
all subsequent orders for Products manufactured by Weidy must
be made to Meade. Meade agrees that the Weidy Australian
Customer may use the "Trust" brand name on Weidy telescopes
shipped to the Weidy Australian Customer but in no case shall
Weidy ship Meade Designed Products, including but not
necessarily limited to, Meade telescopes Models 285, 390, 395
or 4500 to the Weidy Australian Customer.
2.5 The Meade Information.
Meade shall provide the Meade Information to Weidy, provided
that Weidy shall use the Meade Information only in connection with the
manufacture of the Meade Designed Products, and for no other purpose.
ARTICLE III.
OBLIGATIONS OF WEIDY
3.1 Weidy Sales.
Weidy hereby agrees not to manufacture Products for any party
other than Meade and such consignees as Meade may designate during the term of
this Agreement.
3.2 Permitted Weidy Sales.
Notwithstanding Section 3.1, Weidy may manufacture and
sell Products in Taiwan, R.O.C. provided that:
(a) such Products do not include Meade Designed
Products or Products with 1.25-inch eyepieces; and,
(b) Weidy may not sell Products to any person in
Taiwan, R.O.C., other than Meade, who is or is expected to
engage in the business of reselling such products to customers
outside Taiwan, R.O.C.
3.3 Notice of Prospects.
Weidy shall refer to Meade all leads, prospects, and related
information which are directed to it or which it receives regarding potential
purchasers of the Products outside Taiwan, R.O.C.
3
<PAGE> 4
3.4 Weidy Affiliates.
Weidy shall use reasonable efforts to cause all Weidy
Affiliates to comply with the terms of this Article III.
3.5 Name and Address of Weidy Australian Customer.
Promptly after signing this Agreement, Weidy shall supply
Meade with the name and address of the Weidy Australian Customer and its Taiwan,
R.O.C. agent.
ARTICLE IV.
PAYMENT
4.1 Payment.
Meade shall provide Weidy with an irrevocable Letter of Credit
issued by a bank of good repute doing business in Taiwan, R.O.C. for the full
amount of the invoice covering each shipment of Products ordered by Meade. The
Letter of Credit with respect to a shipment shall normally be delivered to Weidy
before the shipment date, but in no case shall it be delivered to Weidy more
than seven days after the shipment date.
ARTICLE V.
TERM AND TERMINATION
5.1 Initial Term and Renewal.
This Agreement will continue until December 31, 1999 unless
terminated sooner in accordance with this Article V. This Agreement may be
renewed for an additional five-year term upon the mutual agreement of the
parties. The parties agree that any such renewal of the Agreement, if mutually
agreed upon, shall be executed not later than December 31, 1998.
5.2 Termination By Either Party.
Either party may terminate this Agreement (i) at will upon
twelve months' written notice given to the other party before the date of the
end of this Agreement, or (ii) upon seven days' notice if any of the following
events occurs:
(a) The other party becomes insolvent, files a
voluntary petition in bankruptcy or liquidation, proposes any
dissolution, liquidation, reorganization, or recapitalization
with creditors, or takes any similar action under the laws of
any jurisdiction;
(b) The other party has any involuntary petition in
bankruptcy or liquidation filed against it, or a
4
<PAGE> 5
receiver is appointed or takes possession of the other party's
property, or any similar action is taken against the other
party under the laws of any jurisdiction; or
(c) The other party makes an assignment for the
benefit of creditors, is adjudicated as a bankrupt, or takes
any similar action under the laws of any jurisdiction; or
(d) The other party materially breaches this
Agreement and such breach is not cured within 60 days after
receipt of written notice thereof.
5.3 Termination By Weidy.
Weidy may terminate this Agreement immediately upon notice to
Meade if Meade fails to place the Annual Minimum Order for two consecutive
years.
5.4 Effect of Termination.
Upon termination of this Agreement, all rights and obligations
of the parties hereunder shall cease except:
(a) Meade shall remain obligated to pay amounts due
to Weidy for Products shipped prior to termination;
(b) Weidy shall remain obligated to ship Products for
which it has already received payment, or to refund
the payment price to Meade;
(c) Both parties shall remain obligated to comply
with the provisions of Article VI hereof.
The parties recognize and agree that upon termination of this
Agreement Weidy shall continue to manufacture and ship Products for Meade in
such quantities and upon acceptance of such orders as Weidy determines.
ARTICLE VI.
CONFIDENTIALITY
6.1 Confidentiality of the Meade Information.
Meade shall and prior hereto has provided the Meade
Information to Weidy, all of which is hereby designated as confidential. Weidy
unconditionally agrees to, and shall cause its employees, agents and all Weidy
Affiliates to comply with, the following:
5
<PAGE> 6
(a) Obligation of Weidy. The Meade Information will be used
solely in connection with the manufacture of the Products in accordance with
this Agreement, will not be used for any other purpose, will not be used in any
way directly or indirectly detrimental to Meade and will be kept confidential by
Weidy, except that Weidy may disclose the Meade Information or portions thereof
to those of its officers, employees, agents and representatives who need to know
such information for the purpose of implementing this Agreement. Weidy agrees to
be responsible for any breach of this Article VI by such persons.
(b) Obligation Upon Termination. Upon termination of this
Agreement Weidy will use reasonable efforts promptly to return to Meade all
documentation in its possession, in any written or recorded form, containing any
Meade Information, unless Weidy receives Meade's written consent to retain such
Meade Information for its use in fulfilling subsequent orders by Meade for
Products.
ARTICLE VII.
TRADEMARK
7.1 Use of Meade Trademark.
Weidy may use the Meade trademark, on and in connection with
the manufacture of the Products for Meade.
ARTICLE VIII.
WARRANTIES
8.1 Product Warranty.
Weidy agrees to manufacture Products for Meade of a quality
level that Meade requires, and which are suitable for sale by Meade to Meade
dealers and distributors throughout the world.
8.2 Product Malfunction.
Weidy shall promptly repair or replace any Product which
malfunctions, fails to operate, or is otherwise defective within a reasonable
time of the shipping date to Meade.
ARTICLE IX.
ARBITRATION
9.1 Arbitration.
All disputes, claims and controversies concerning the
validity, interpretation, performance, termination or breach of
6
<PAGE> 7
this Agreement shall be referred to arbitration in Stockholm, Sweden under the
auspices of the Arbitration Institute of the Stockholm Chamber of Commerce. The
arbitration proceedings shall be conducted in English and the arbitration
tribunal shall apply the Arbitration Rules of the United Nations Commission on
International Trade Law in effect on the date hereof (the "Rules"); provided,
however, that this clause shall not be construed to limit or to preclude either
party from bringing any action in any court of competent jurisdiction for
injunctive or other provision or relief as necessary or appropriate.
9.2 Arbitrators.
Each party shall within 30 days after receipt of the request
for arbitration appoint an arbitrator, and the two so appointed shall within a
further 30 days appoint a third, presiding arbitrator, who may not be a citizen
or resident of either the Republic of China or the United States of America. If
they fail to agree within the stated period, the presiding arbitrator shall be
appointed in accordance with the Rules.
9.3 Procedure and Award.
The arbitrators shall conduct hearings in English; permit
cross-examination of all witnesses; and, by majority vote, render a written
decision stating reasons therefor within two months after the request for
arbitration. Any award or determination of the arbitrators shall be final,
nonappealable and conclusive upon the parties, and judgment thereon may be
entered by any court of competent jurisdiction.
ARTICLE X.
MISCELLANEOUS
10.1 Government Approvals.
It is the obligation of each party to obtain any governmental
approvals required for such party to discharge its respective obligations under
this Agreement. Each party shall assist the other in obtaining any such
approvals.
10.2 Effectiveness.
This Agreement shall become effective on the Effective Date.
However, until March 31, 1995 Weidy may continue to ship Products ordered
pursuant to purchase orders received by Weidy before the Effective Date.
10.3 Assignment.
This Agreement shall not be assigned by either party without
the prior consent of the other party.
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<PAGE> 8
10.4 Notices.
All written notices permitted or required to be delivered by
the provisions of this Agreement shall be given in writing and (a) delivered in
person, (b) transmitted by telex, telefax or telecommunications mechanism, or
(c) mailed, postage prepaid, receipt-requested as follows:
IF TO MEADE, ADDRESSED TO:
Meade Instruments Corporation
16542 Millikan Avenue
Irvine, California 92714
U.S.A.
Facsimile (714) 756-1450
Attention: John C. Diebel, Chairman
IF TO WEIDY, ADDRESSED TO:
Weidy Optical Co., Ltd.
48 Puwei Tsun
Peipu
Taiwan, R.O.C.
Facsimile (886) 35-803702
Attention: Mr. C. Lee, President
or to such other addresses as the parties may from time to time designate in
writing. Each such notice shall be effective, (i) if given by telecommunication,
when transmitted to the applicable number so specified in (or pursuant to) this
Section 10.4 and an appropriate answer back or confirmation of transmission is
received, (ii) if given by mail, seven days after such communication is
deposited in the mails with first class postage prepaid, properly addressed, or
(iii) if given by any other means, when actually received at such address.
10.5 Waiver and Delay.
No waiver by either party of any breach or series of breaches
or defaults in performance by the other party, and no failure, refusal or
neglect of either party to exercise any right, power or option given to it
hereunder or to insist upon strict compliance with or performance of either
parties obligations under this Agreement, shall constitute a waiver of the
provisions of this Agreement with respect to any subsequent breach thereof or a
waiver by either party of its right at any time thereafter to require exact and
strict compliance with the provisions thereof.
10.6 Successors and Assigns.
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<PAGE> 9
This Agreement shall be binding upon and inure to the benefit
of the successors and assigns of the parties hereto, subject to the restrictions
on assignment contained herein.
10.7 Entire Agreement.
This Agreement contains all of the terms and conditions agreed
upon by the parties hereto with reference to the subject matter hereof. No other
agreements, oral or otherwise shall be deemed to exist or to bind either of the
parties hereto, and all prior agreements and understandings are superseded
hereby. This Agreement cannot be modified or changed except by written
instrument signed by both of the parties hereto.
10.8 Headings.
The headings used in this Agreement are used for reference
only and shall not affect the meaning or interpretation of this Agreement.
10.9 Counterparts.
This Agreement and any amendments to this Agreement may be
executed in several counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same agreement or amendment, as the
case may be.
10.10 Force Majeure.
Neither party shall be liable for damages due to any cause
beyond its control, including, without limitation, acts of God, acts of civil or
military authority, fire, riots, civil commotions, war, embargo, blockage,
boycotts, floods, epidemics, delays in transportation or governmental
restrictions.
10.11 Severability.
If any provision or term of this Agreement shall for any
reason be held illegal or unenforceable, such provision or term shall in no way
affect the validity of this Agreement or its remaining terms and conditions.
9
<PAGE> 10
IN WITNESS WHEREOF this Agreement has been signed by a duly
authorized officer of each party as of the day and year first above written.
WEIDY OPTICAL CO., LTD.,
a Republic of China corporation
By: /s/ CHUCK LEE
--------------------------------
Its: President
-------------------------------
MEADE INSTRUMENTS CORPORATION,
a California corporation
By: /s/ JOHN C. DIEBEL
--------------------------------
Its: Chairman & CEO
-------------------------------
10
<PAGE> 1
EXHIBIT 10.18
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,
November 20, 1992, is made by and between ROSSMORE ENTERPRISES, a California
Corporation ("LESSOR") and MEADE INSTRUMENTS CORPORATION, a California
Corporation ("LESSEE"), (collective 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 16542 Millikan Avenue, Irvine, California 92714,
located in the County of Orange, State of California, and generally described as
an approximate 56,484 square foot industrial building on approximately 3.1
acres. Assessor's Parcel Number 435-093-03 ("Premises"). See Paragraph 2 for
further provisions.
1.3 TERM: Seven (7) years and 0 months ("ORIGINAL TERM") commencing
March 1, 1993 ("COMMENCEMENT DATE") and ending February 29, 2000 ("EXPIRATION
DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: Upon full execution of lease and delivery of
security deposit ("Early Possession Date"). (See Paragraphs 3.2 and 3.3 for
further provisions.)
1.5 BASE RENT: $22,500.00 per month ("BASE RENT"), payable on the first
(1st) day of each month commencing March 1, 1993. (See Paragraph 4 for further
provisions.)
1.6 BASE RENT PAID UPON EXECUTION: $22,500.00 as Base Rent for the
period March 1, 1993 through March 31, 1993.
1.7 SECURITY DEPOSIT: $22,500.00 ("Security Deposit"). (See Paragraph 5
for further provisions.)
1.8 PERMITTED USE: General offices, manufacturing, sales and
distribution of instruments, and related items. (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):
Collins Fuller Corporation represents both Lessor and Lessee,
and Collins Fuller Corporation represents 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 None ("GUARANTOR"). (See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 68 and Exhibits A all of which constitute a part of this
Lease.
2. PREMISES.
<PAGE> 2
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 therein is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense, If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE AND 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 See Addendum #49.
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. See Addendum #50.
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
2
<PAGE> 3
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 of possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts, changes or omissions of
Lessee.
4. RENT. See Addendum #51.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent
or charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on or
before the day on which it is due under the terms of this Lease. Base Rent and
all other rent and charges for any period during the term hereof which is for
less than one (1) full calendar month shall be prorated based upon the actual
number of days of the calendar month involved. Payment of Base Rent and other
charges shall be made to Lessor at its address stated herein or to such other
persons or at such other addresses as Lessor may from time to time designate in
writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any 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. See Addendum #52.
(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
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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 Hazardous Substance
with respect to which any Applicable Law requires that a notice be given to
persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but
in compliance with all Applicable Law, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of Lessee's
business permitted on the Premises, so long as such use is not a Reportable Use
and does not expose the Premises or neighboring properties to any meaningful
risk of contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its consent
to the use or presence of any Hazardous Substance, activity or storage tank by
Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefrom or therefor, including, but not limited to, the installation
(and removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the 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,
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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 after receipt of
Lessor's written request, provide Lessor with copies of all documents and
information, including, but not limited to, permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with any
Applicable Law specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable Law.
SEE ADDENDUM #53
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.
7.1 LESSEE'S OBLIGATIONS. SEE ADDENDUM #54
(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 all 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 as a result 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, fire hydrants, fixtures,
walls (interior and exterior), foundations, ceilings, roofs, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about, or
adjacent to the Premises. Lessee shall not cause or permit any Hazardous
Substance to be spilled or released in, on, under or about the Premises
(including through the plumbing or sanitary sewer 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, but not more frequently
than once every seven (7) years.
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(b) Lessee shall, at Lessee's sole cost and expense, procure
and maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems (v) roof covering and drain maintenance and (vi) asphalt and parking lot
maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) 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 as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations
or Utility Installations in, on, under or about the Premises without Lessor's
prior written consent. Lessee may, however, make non-structural Utility
Installations to the interior of the Premises (excluding the roof), as long as
they are not visible from the outside, do not involve puncturing, relocating or
removing the roof or any existing walls, and the cumulative cost thereof during
the term of this Lease 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,
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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.
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
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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 of Lessee's indemnity obligations
under this Lease. The limits of said insurance required by this Lease or as
carried by Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance to be carried by Lessee shall
be primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring
Party, Lessor shall also maintain liability insurance described in Paragraph
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 or
damage to the Premises. 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),
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 use laws as the result of a covered cause
of loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall
be liable for such deductible amount in the event of an Insured Loss, as defined
in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition,
obtain and keep in force during the term of this Lease a policy or policies in
the name of Lessor, with loss payable to Lessor and Lender(s), insuring the loss
of the full rental and other charges payable by Lessee to Lessor under this
Lease for one (1) year (including all real estate taxes, insurance costs, and
any scheduled rental increases). Said insurance shall provide that in the event
the Lease is terminated by reason of an insured loss, the period of indemnify
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 if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
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(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. SEE ADDENDUM #55
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 cancelable or subject to
modification except after thirty (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing
renewal thereof, or Lessor may order such insurance and charge the cost thereof
to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If the
Insuring Party shall fail to procure and maintain the insurance required to be
carried by the Insuring Party under this Paragraph 8, the other Party may, but
shall not be required to, procure and maintain the same, but at Lessee's
expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall 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 obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
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
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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. SEE ADDENDUM #56
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
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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.
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 after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of 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 eject, 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 dale 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. SEE ADDENDUM #5
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee falls 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. SEE ADDENDUM #58
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES. SEE ADDENDUM #59
(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,
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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 date 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 aver receipt of such police, 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, it required, as soon as
reasonably possible at Lessors expense, in which event this Lease shall continue
in full force and effect, or (ii) if the estimated cost to investigate and
remediate such condition exceeds twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater, give written notice to Lessee within thirty (30)
days after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition of Lessor's desire to terminate this Lease as of the date
sixty (60) days following the giving of such notice. In the event Lessor elects
to give such notice of Lessor's intention to terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the investigation and
remediation of such Hazardous Substance Condition totally at Lessee's expense
and without reimbursement from Lessor except to the extent of an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment. In
such event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the dale 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.
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10. REAL PROPERTY TAXES. SEE ADDENDUM #60
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 with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be 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.
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 valuations
assigned in the assessors 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. 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 ______________________
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, heal, 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.
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12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. SEE ADDENDUM #61
(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 its 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 nondurable 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. SEE
ADDENDUM #62
(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
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right
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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.
(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.
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
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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, it 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. SEE ADDENDUM # 63
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 abandonment of the Premises.
(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, it applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the 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.
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(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. Section 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.
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/or 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.
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(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.
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 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 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 date 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 than 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%)
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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 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 Base Rent shall be reduced in
the same proportion as the rentable floor area of the Premises 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.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $_____________) 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.
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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 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 LABILITY. 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 of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or assignment
and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that it
has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this Lease
and as to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
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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, codified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notice purposes. Either
Party may by written notice to the other specify a different address for notice
purposes, except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for the 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 States Postage Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. 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
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and 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.
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.
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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 hereof 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 fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term, "PREVAILING
PARTY" shall 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, 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 reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may
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at any time during the last one hundred twenty (120) days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, 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, 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).
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
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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 lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated 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.
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.
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40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, 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 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 he 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 the printed provisions of this 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 entitles named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
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TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS
OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR
THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER
THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
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The Parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Laguna Hills, California Executed at Costa Mesa, California
--------------------------- ---------------------------
on November 25, 1992 on November 24, 1992
------------------------------------ ------------------------------------
by LESSOR: by LESSEE:
ROSSMORE ENTERPRISES MEADE INSTRUMENTS CORPORATION
- --------------------------------------- ---------------------------------------
A California Corporation A California Corporation
- --------------------------------------- ---------------------------------------
By /s/ PHILLIP S. SIRIANNI By /s/ JOHN C. DIEBEL
----------------------------------- -----------------------------------
Name Printed: PHILLIP S. SIRIANNI Name Printed: JOHN C. DIEBEL
------------------------- -------------------------
Title: President Title: Chairman and Chief Executive
-------------------------------- --------------------------------
Officer
- --------------------------------------- ---------------------------------------
By By
------------------------------------ -------------------------------------
Name Printed: Name Printed:
-------------------------- -------------------------
Title: Title:
--------------------------------- --------------------------------
Address: 23041 Avenida de la Carlota, Address: 1675 Toronto Way,
------------------------------- ------------------------------
Suite 210, Laguna Hills, CA 92553 Costa Mesa, CA 92626
- --------------------------------------- ---------------------------------------
Tel. No. (714) 707-5400 Tel. No. (714) 556-2291
------------------------------ ------------------------------
Fax No. (714) 707-5546 Fax No. (714) 556-4604
------------------------------ ------------------------------
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ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL
SINGLE TENANT LEASE-NET
DATED NOVEMBER 20, 1992
BY AND BETWEEN
ROSSMORE ENTERPRISES, A CALIFORNIA CORPORATION AS "LESSOR" AND
MEADE INSTRUMENTS CORPORATION,
A CALIFORNIA CORPORATION AS "LESSEE"
This LEASE ADDENDUM ("Addendum") is attached to, made a part of, incorporated
into and amends and supplements that certain Standard Industrial/Commercial
Single-Tenant Lease - Net ("the Lease") entered into as of the 20th day of
November, 1992 by and between ROSSMORE ENTERPRISES, A California Corporation
("Lessor"), and MEADE INSTRUMENTS CORPORATION, A California Corporation
("Lessee"). Lessor and Lessee agree that notwithstanding anything contained in
the Lease to the contrary, the provisions set forth in this Addendum will be
deemed to be a part of the Lease and will supersede any contrary provision in
the Lease and prevail and control for all purposes. It is the intention of the
parties that the use of this Addendum will eliminate for the most part the need
to strike through and interlineate portions of the Lease in order to reflect the
changes to the Lease desired by the parties as set forth in this Addendum. All
references to the Lease and in this Addendum to "Lease" are to be construed to
mean the Lease as amended and supplemented by this Addendum, have the same
meaning as the terms used in the Lease.
49. PARAGRAPH 3.1 OPTION TO EXTEND TERM. Notwithstanding anything to
the contrary contained in Paragraphs 1.3, 3.1 or elsewhere in the Lease, subject
to the terms of Paragraph 39 of the Lease, Lessor hereby grants Lessee a one
time option to extend the Term ("Option to Extend") for an additional period of
five (5) years ("Option Period"). Such right shall apply only to Lessee's entire
Premises, shall be for a term that shall begin immediately following Lessee's
initial Term and shall be exercised by Lessee by giving written notice to Lessor
at lease nine (9) months prior to the expiration of the initial Term. If Lessee
exercises its Option to Extend the Term, Lessee shall continue to lease the
Premises for such extended period upon the same terms and conditions set forth
in this Lease except that the Base Rent payable by Lessee to Lessor during the
Option Period shall be at 95% of the prevailing fair market rental rate for the
Premises based upon the prevailing fair market rental rate for similar space in
similar industrial buildings within the vicinity of the building. Lessor shall
provide Lessee with written notice of the fair market rental rate for the
Premises, not later than thirty (30) days following receipt of Lessee's exercise
notice. Lessee shall have twenty (20) days ("Lessee's Review Period") after
receipt of Lessor's notice of the fair market rental rate within which to accept
such fair market rental rate or to reasonable object thereto in writing. If
Lessee objects to the fair market rental rate submitted by Lessor, Lessor and
Lessee shall attempt in good faith to agree upon such fair market rental rate,
using their best good faith efforts. If Lessor and Lessee fail to reach
agreement on such fair market rental rate within fifteen (15) days following
Lessee's Review Period (the "Outside Agreement Date") then, at Lessee's election
delivered to Lessor in writing, Lessee may either cancel its exercise of its
Option to Extend the
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Term or require that each party's determination of the fair market rental rate
for the Premises be submitted to appraisal in accordance with the following:
(i) Lessor and Lessee shall each appoint one appraiser who
shall, by profession, be a real estate appraiser who shall have been active over
the five (5) year period ending on the date of such appointment in the appraisal
of industrial properties in the Irvine, California area. The determination of
the appraisers shall be limited solely to the issue of whether Lessor's of
Lessee's submitted fair market rental rate for the Premises is the closest to
the actual fair market rental rate for the Premises as determined by the
appraisers, taking into account the requirements of this Item 2. Each such
appraiser shall be appointed within fifteen (15) days after the Outside
Agreement Date.
(ii) The two appraisers so appointed shall within fifteen (15)
days of the date of the appointment of the last appointed appraiser agree upon
and appoint a third appraiser who shall be qualified under the same criteria set
forth hereinabove for qualification of the initial two appraisers.
(iii) If the two appraisers are unable to agree upon a third
appraiser within fifteen (15) days, then they shall in lieu thereof each select
the names of two willing persons qualified to be appraisers hereunder and from
the four persons so named, one name shall be drawn by lot by a representative of
Lessor in the presence of a representative of Lessee, and the person whose name
is so drawn shall be the third appraiser. If either of the first two appraisers
fails to select the names of two willing appraisers and to cooperate with the
other appraiser so that a third appraiser can be selected by lot, the third
appraiser shall be selected by lot from the two appraisers which were selected
by the other appraiser for the drawing. Any vacancy in the office of the first
appraisers shall be filled by the party who initially selected that appraiser,
and if the appropriate party fails to fill any vacancy within fifteen (15) days
after such vacancy occurs, then such vacancy shall be filled by the other party.
Any vacancy in the office of the third appraiser shall be filled by the first
two appraisers in the manner specified above for the selection of a third
appraiser.
(iv) The three appraisers shall within thirty (30) days of the
appointment of the third appraiser reach a decision as to whether the parties
shall use Lessor's or Lessee's submitted fair market rental rate to establish
the new Base Rent for the Option Period, and shall notify Lessor and Lessee
thereof. Such decision shall be based upon the projected prevailing fair market
rentals being paid for similar industrial buildings in the Irvine, California
area.
(v) The decision of the majority of the three appraisers shall
be used to establish the new Base Rent for the Option Period unless either
Lessor or Lessee fails to appoint an appraiser within the time period specified
in Paragraph 3(i) hereinabove, in which event, the decision of the appraiser
appointed by one of them shall be used to establish the new Base Rent for the
Option Period.
(vi) Once the new Base Rent has been established, Lessee shall
have a period of five (5) days within which to either (1) accept such new Base
Rent by entering into a lease
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amendment with Lessor which will reflect the extension of the Lease Term and the
new Base Rent, or (2) rescind its election to extend the Lease Term in which
case the Lease will terminate as of the expiration of the initial Lease Term.
(vii) The cost of appraisal (and, if necessary, arbitration)
shall be paid by the party against whom the decision is rendered.
(viii) In determining the fair market rental rate, the
appraisers shall take into account the rates charged by Lessor for other
comparable space in other buildings in the finish-out requirements imposed upon
the Lessor and shall disregard any excess over "building standard" of the
quality of the existing improvements and finish-out in the Premises. The
appraisers must be independent third parties, neither (or none) of whom may be a
present of former or prospective business partner or employee of the Lessor or
Lessee.
50. PARAGRAPH 3.2 EARLY POSSESSION. Lessee will take early possession
on execution of the lease for purposes of tenant improvements, in conjunction
with Lessor's improvements, but that Lessee will not have beneficial occupancy
to conduct its business operations (ie., that Lessee is not liable for property
taxes, insurance, or maintenance) until March 1, 1993.
51. PARAGRAPH 4.1 BASE RENT. Notwithstanding anything to the contrary
contained in Paragraphs 1.5, 4.1 or elsewhere in the Lease:
(a) Lessee shall not be required to pay monthly installments
of Base Rent for month two (2) and shall only be required to pay one-half (1/2)
of each monthly installment of Base Rent ($11,250.00) for Months Three (3)
through Twelve (12) and shall pay the Base Rent for Months Thirteen (13) through
Twenty-Four (24) ($22,500.00) of the Lease Term. Notwithstanding the foregoing,
Lessee shall pay all other amounts of additional rent including taxes and
insurance during such abated rent periods.
(b) On March 1, 1995, March 1, 1997 and March 1, 1999
(hereafter collectively the "Adjustment Dates"), the rent due and payable by
Lessee to Lessor hereunder shall be adjusted upward to reflect any increase in
the Consumer Price Index for all urban consumers in the Los
Angeles-Anaheim-Riverside, California area (base, 1982-1984=100), as published
in the Monthly Labor Review by the Bureau of Labor Statistics, U.S. Department
of Labor (the "Index").
Implementation of any such cost of living rent increase may be made as of or at
any time after an Adjustment Date during "Lease Year" and, if implemented after
the Adjustment Date, such increase shall be retroactive back to said Adjustment
Date with Lessee being liable for the payment in full of the aggregate of all
accrued, but unpaid amounts of rent (as the same may have been increased) on the
first day of the month following notification from Lessor of the cost of living
adjustment. Such adjustment shall be computed by multiplying the monthly rent in
effect at the commencement of Lease term, ie., ($22,500.00 per month), by a
fraction, the numerator of which is the Index figure published most nearly prior
to the respective Adjustment
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Date and the denominator of which is the Index figure published most nearly
prior to the Commencement Date. Any of the foregoing notwithstanding, in no
event shall any such adjustment result in the rent by Lessee hereunder being
increased by less than eight and 16/100 percent (8.16%) nor greater than
thirteen and 42/100 percent (13.42%) of the rent previously in effect
immediately preceding the respective Adjustment Date. If the Index has changed
so that the days differ from that which is identified herein, the Index shall be
converted in accordance with conversion factors published by the U.S. Department
of Labor, Bureau of Labor Statistics. If the Index ceases to be published, the
parties shall agree upon another source of information to determine changes in
the purchasing power of the United States currency in the area in which the
Premises are located, and if they are unable to agree, such issue shall be
submitted to binding arbitration pursuant to the rules of the American
Arbitration Association for selection of a substitute index.
52. PARAGRAPH 6.2 HAZARDOUS SUBSTANCES. Notwithstanding any other
provision contained in the Lease or this Addendum, Lessee shall not be liable or
responsible for any condition arising out of the presence of any Hazardous
Substance located in, on, under, or about the Premises, on or prior to the date
Lessee occupies the Premises or for any condition that occurs during the term of
the Lease arising from Hazardous Substances caused by the migration of Hazardous
Substances onto the Premises through soil, groundwater or air from adjacent
properties so long as Lessee did not cause the migration or could have
reasonably prevented the same. Lessor further agrees to indemnify, protect,
defend and hold Lessee, its agents, employees, lenders and sublessees, if any,
harmless from and against all damages, liabilities, judgments, costs, claims,
liens, expenses, penalties, permits and attorney's and consultant's fees arising
out of or involving any Hazardous Substance condition described above. Lessor's
obligation shall include, but not be limited to, the affects of any
contamination or injury to person, property or the environment and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or any contamination therein
involved shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessor from its obligation under this provision, unless
specifically so agreed by Lessee in writing at the time of such agreement."
53. PARAGRAPH 6.3 LESSEE'S COMPLIANCE WITH LAW. Notwithstanding
anything to the contrary contained in Paragraph 6.3 or elsewhere in the Lease,
Lessee's obligation to comply with "Applicable Law" with respect to industrial
hygiene shall be limited to industrial hygiene matters relating to Lessee's
operations from the Premises.
54. PARAGRAPH 7.1(a) LESSEE'S OBLIGATIONS. LESSOR SHALL DELIVER THE
ROOF IN WATER-TIGHT CONDITION ON THE COMMENCEMENT DATE AND LESSEE WILL BE
RESPONSIBLE FOR REPAIR AND MAINTENANCE OF THE SAME THROUGHOUT THE LEASE TERM OR
ANY EXTENSIONS THEREOF, PROVIDED, HOWEVER, LESSOR WILL BE RESPONSIBLE FOR
REPLACEMENT OF THE ROOF.
55. PARAGRAPH 8.4 LESSEE'S PROPERTY INSURANCE. Notwithstanding anything
to the contrary contained in Paragraph 8.4 or elsewhere in the Lease, Lessee's
insurance for
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Lessee's personal property shall be in an amount equal to full insurable value
of such property, not full replacement cost.
56. PARAGRAPH 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Notwithstanding
anything to the contrary contained in paragraph 8.8 or elsewhere in the Lease,
the limitations on Lessor's liability contained in the first two sentences of
Paragraph 8.8 shall not apply in the event of the gross negligence or willful
misconduct of Lessor.
57. PARAGRAPH 9.4 TOTAL DESTRUCTION. Notwithstanding anything to the
contrary contained in Paragraph 9.4 or elsewhere in the Lease, in the event this
Lease shall terminate due to a Premises Total Destruction, such termination
shall occur as of the date of such Premises Total Destruction. Furthermore,
Lessor shall not have the right to recover Lessor's damages from Lessee in the
event of a Premises Total Destruction unless the damage or destruction was
intentionally caused by Lessee or due to the negligence of Lessee.
58. PARAGRAPH 9.5 DAMAGE NEAR END OF TERM. Notwithstanding anything to
the contrary contained in Paragraph 9.5, termination of the Lease pursuant to
Paragraph 9.5 shall be effective as of the date of occurrence of such damage or
destruction.
59. PARAGRAPH 9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES. In the event
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after receipt of notice from Lessee as provided in Paragraph
9.6(b) and this Lease is to continue in full force and effect as provided in
Paragraph 9.6(b), rent shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired. Any abatement of rent and other
charges under Paragraph 9.6(a) of the Lease shall commence as of the date of the
damage or destruction and continue for the period described in Paragraph 9.6(a)
of the Lease.
60. PARAGRAPH 10.1 REAL PROPERTY TAXES. Lessee shall not be responsible
for any increases in property taxes incurred as a result of a sale or transfer
in ownership of the Property occurring on or after the date of this Lease.
61. PARAGRAPH 12.1 ASSIGNMENT AND SUBLETTING. Notwithstanding anything
to the contrary contained in Paragraph 12.1(b), only a transfer, on a cumulative
basis, of forty-nine percent (49%) or more of the voting control of Lessee shall
constitute a change in control for purposes of Paragraph 12.1. Paragraph 12.1(d)
is hereby deleted in its entirety and is replaced with the following:
"(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific written consent shall be a Default curable after
notice per Paragraph 13.1(c)."
62. PARAGRAPH 12.2 TERNS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND
SUBLETTING. Notwithstanding anything to the contrary contained in paragraph
12.2(e):
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(a) The amount of the non-refundable deposit to be paid by
Lessee to Lessor in connection with each request for a consent to an assignment
or subletting shall be Five Hundred Dollars ($500.00).
(b) 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 two (2) times the then
monthly base rent, not six (6) times the then monthly base rent.
(c) Subparagraph (h) of Paragraph 12.2 is hereby deleted in
its entirety.
63. PARAGRAPH 13. DEFAULT; BREACH; REMEDIES. Notwithstanding anything
to the contrary contained in Paragraph 13.1 or elsewhere in the Lease:
(a) The first sentence of Paragraph 13.1(a) shall read "The
abandonment of the Premises".
(b) Lessee shall not be in Default under the Lease by reason
of vacating the Premises unless Lessee is at the time of such vacation otherwise
in monetary default under the Lease.
(c) Lessee shall not be in Default with respect to the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee under the Lease, whether to Lessor or to a third
party, unless Lessee shall fail to make payment within ten (10) days following
written notice to Lessee. Payment by Lessee to Lessor shall cure any default
under the terms of this paragraph.
(d) Lessee shall not be in Default by reason of the failure of
Lessee to provide Lessor with reasonable evidence of insurance or any surety
bond required under this Lease unless Lessee shall fail to cure such failure
within twenty (20) days after receipt of written notice from Lessor.
(e) Lessee shall not be in Default under the Lease by reason
of the failure of Lessee to perform any other non-monetary obligation under this
Lease other than an obligation which endangers or threatens life or property,
unless such failure continues for a period of twenty (20) days following written
notice thereof by or on behalf of Lessor to Lessee.
(f) Lessee shall have twenty (20) days following written
notice by or on behalf of Lessor to Lessee to cure a failure described in
Subparagraph (viii) of Paragraph 13.1(c).
64. PARAGRAPH 13.2 REMEDIES. Notwithstanding anything to the contrary
contained in Paragraph 13.2 or elsewhere in the Lease, Lessor shall not have the
right to exercise its remedies in the Lease, unless Lessee shall fail to perform
an affirmative duty or obligation under the Lease within the applicable cure or
grace period described in the Lease or, if no cure or grace period is stated,
unless Lessee shall fail to perform such affirmative duty or
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obligation within ten (10) days following written notice to Lessee.
Notwithstanding any of the foregoing, Lessor shall not have the right to delete
or cancel the "Inducement Provisions" of Paragraph 13.3 in the Lease unless
Lessee has been in Default per Addendum Paragraph 63(c) above for more than
thirty (30) days.
65. PARAGRAPH 13.5 BREACH BY LESSOR. In the event Lessor shall fail to
pay current Real Property Taxes to be maintained by Lessor under the Lease
subsequent to Lessor's receipt of Lessee's payment, before the same became
delinquent, Lessee shall have the right, notwithstanding anything to the
contrary contained in the Lease, including without limitation, Paragraphs 13.5
and 30.1, following written notice to Lessor and the passage of five (5)
business pays without cure by Lessor, to pay such Real Property Taxes directly
to the taxing authority in which event Lessor shall promptly reimburse Lessee
for the actual and reasonable costs which are incurred by Lessee based upon
written invoices to be submitted by Lessee to Lessor and if Lessor shall fail to
so reimburse Lessee, Lessee shall have the right to deduct one hundred five
percent (105%) such costs from Lessee's next due installment(s) of rent.
66. TENANT IMPROVEMENTS.
A. Lessor, at Lessor's sole cost and expense, shall
complete the following work to the Premises:
1. Paint building's exterior.
2. Paint all offices and warehouse interior.
3. Install new carpeting to replace existing
carpeting on the first floor and install new
carpeting throughout the mezzanine and
stairways, and replace damaged floor tiles
in the entry lobby.
4. Deliver roof, plumbing and electricity in
good working order.
5. Repair and slurry coat the parking area.
6. Enclose mezzanine area (approximately 7,252
square feet) with dry wall and install drop
ceiling, lighting, air conditioning and
electricity.
B. Lessor shall grant to Lessee an improvement allowance
of $80,000.00 which shall be used toward he cost of
installing a truck well at rear of building and a
7,000 square foot optical lab area on the ground
floor ("Lessee's tenant improvements"). The
improvement allowance will be paid to Lessee in
installments in amounts equal to billings or
construction draw requests Lessee receives from its
contractors during the course of construction of
Lessee's tenant improvements. Lessor will pay the
installments to Lessee within thirty (30) days of
receipt from Lessee of the billings or construction
draw requests. Payment will also be contingent upon
inspection and approval by Lessor of the improvements
relating to the respective billing or draw request,
said approval not to be unreasonably withheld.
Notwithstanding the foregoing, Lessor's total
contribution towards Lessee's tenant improvements
shall not exceed
7
<PAGE> 35
$80,000.00 irrespective of the total cost of the
same. Lessee shall provide a space plan and
construction drawings of Lessee's tenant improvements
for Lessor's approval before commencement of the
improvements. All tenant improvements shall be built
to city code and comply with all necessary
governmental agencies.
67. SIGNS. Lessee's signage shall be subject to review and approval by
Lessor. Lessee, at its sole cost and expense, shall be responsible for the
installation and removal of Lessee's signs. Lessee shall restore any part or
parts of the Premises to which Lessee's signs are attached to their original
condition after the removal of Lessee's signs.
68. INSURING PARTY. The insuring party under this lease shall be the
Lessee (see Paragraph 8 for further provisions).
All other terms and conditions of the lease shall remain the same and in full
force and effect.
AGREED AND ACCEPTED:
LESSOR LESSEE
ROSSMORE ENTERPRISES, MEADE INSTRUMENTS CORPORATION,
A CALIFORNIA CORPORATION A CALIFORNIA CORPORATION
By: /s/ PHILLIP S. SIRIANNI, JR. By: /s/ JOHN C. DIEBEL
----------------------------------- -----------------------------------
Phillip S. Sirianni, Jr. John C. Diebel
Its: President Its: Chairman and CEO
----------------------------------- -----------------------------------
Date: November 25, 1992 Date: November 24, 1992
--------------------------------- -------------------------------
8
<PAGE> 1
EXHIBIT 10.19
PROMISSORY NOTE
$1,500,000.00 Irvine, California
July 8, 1995
FOR VALUE RECEIVED, the undersigned, Meade Instruments Corp., a
California corporation (the "Company"), together with any successor to the
Company (collectively called the "Borrower"), promises to pay to the order of
John C. Diebel (the "Lender"), or his nominee, in lawful money of the United
States, on July 8, 1996, at 9 Lochmoor Lane, Newport Beach, California 92660, or
at such other address as the holder of this Note may specify in writing to the
Company at the address specified below, the principal sum of One million, five
hundred thousand Dollars ($1,500,000.00) (the "Obligated Amount"), plus all
accrued interest on the Obligated Amount.
The Obligated Amount shall accrue interest until repaid at the rate of
ten per cent (10%) per annum commencing upon the date of this Note. Interest
shall accrue on the basis of a 360-day year and a 30-day month, payable monthly.
Acceptance by the holder hereof of any partial payment shall not be
deemed to constitute a waiver by such holder to require prompt payment of all
sums due hereunder. Any demand made by the holder to the Borrower shall be sent
to the Company at 16542 Millikan Avenue, Irvine, California 92714.
Borrower and any endorser of this Note hereby consents to renewals and
extensions of time at or after the maturity hereof, without notice, and hereby
waives diligence, presentment, protest, demand and notice of any kind and, to
the full extent permitted by law, the right to plead any statute of limitations
as a defense to any demand hereunder.
The Borrower hereby promises to pay all costs of collection, including
reasonable attorneys' fees, incurred in connection with the collection of all or
any part of this Note.
This Note is made and delivered in California and shall be governed by,
and construed and enforced in accordance with, the laws of the State of
California.
Executed this 8th day of July, 1995.
MEADE INSTRUMENTS CORP.
a California corporation
By: /s/ STEVE MURDOCK
------------------------------
Name: STEVE MURDOCK
----------------------------
Title: President
---------------------------
<PAGE> 1
EXHIBIT 10.20
TRADEMARK DISTRIBUTION AGREEMENT
THIS TRADEMARK DISTRIBUTION AGREEMENT ("Agreement") is entered into and
effective as of this ______ day of ________, 199_, by and between Meade
Instruments Corporation ("Meade"), a California corporation having a place of
business at 16542 Millikan Avenue, Irvine, California 92714 U.S.A., and
________________________________________________________________________________
________________________________________________________________________________
("Distributor"), with reference to the following facts:
R E C I T A L S
A. Meade has used for many years the trademarks MEADE and M logo and
the combination thereof, as shown on Exhibit A hereto, and has developed certain
intellectual property rights in connection therewith (all such trademarks, trade
names and intellectual property rights, taken either individually or
collectively, hereinafter referred as the "Trademarks"). Meade manufactures and
sells, and licenses others to manufacture and sell _____________________________
incorporating the Trademarks hereinafter the "Products").
B. Distributor believes that it possesses the facilities and ability to
promote the sale of the Products and desires to sell the Products in the
territory hereinafter described.
C. Meade desires to have Distributor promote and sell the Products in
such territory on the terms and conditions set forth herein .
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. DISTRIBUTORSHIP
1.1 Appointment: Meade hereby appoints Distributor as its
____________________________________ distributor for the promotion and sale of
the Products to retailers and/or end users within the following territory:
_________________________________________________________________ (hereinafter
the "Territory"). During the term of this Agreement, Meade shall not appoint
any other or different person, firm or corporation to sell the Products in the
Territory.
1.2 Acceptance: Distributor accepts the foregoing appointment to
promote and to sell the Products within the Territory and agrees to make all
sales hereunder in accordance with this Agreement.
1.3 Term: The term of this Agreement and Distributor's appointment
hereunder shall commence on the effective date above and shall continue
indefinitely unless and until the Agreement is terminated pursuant to Paragraph
3.1 or 3.2 herein.
<PAGE> 2
1.4 Sales Outside the Territory: Distributor shall not actively solicit
orders for the Products outside the Territory, nor establish or maintain any
branch or distribution depot outside the Territory for the Products, without the
express prior written consent of Meade. However, Distributor may fill orders for
the Products received from outside the Territory that were not solicited by
Distributor.
1.5 Selling Rights Reserved: Meade reserves the right to sell the
Products, either directly, or through its licensees or other distributors,
throughout the rest of the world, except the Territory.
2. OPERATIONS
2.1 Orders: All orders Meade receives for the Products from Distributor
are subject to acceptance by Meade. Meade will use its best efforts to fill
accepted orders as promptly as practicable, subject, however, to delays caused
by acts or omissions of Distributor, government orders or requirements,
transportation conditions, labor or material, shortages, strikes, riots, fires,
or any other cause beyond Meade's control. In all cases, Meade will use its best
efforts to advise Distributor in advance of any inability to make full and
timely delivery of any of the Products which Distributor has ordered.
2.2 Prices: The prices to be paid to Meade for the Products shall be
the distributor price for the Products in effect at the time of receipt by Meade
of the order therefor. Meade may change its wholesale prices at any time without
notice, but Meade shall attempt to notify Distributor of any such changes as far
as possible in advance of the effective date thereof.
2.3 Payment for Products: Distributor shall pay the price for the
Products purchased by it prior to shipment in cash or by other instruments
acceptable to Meade.
2.4 Delivery Date: Meade shall arrange for transportation of the
Products to Distributor as hereinbelow provided in such manner as is reasonably
calculated to provide delivery of the Products to Distributor on or about the
delivery date specified in the order therefor. The delivery date shall
automatically be extended hereunder for any period resulting from causes beyond
Meade's control or without Meade's fault or negligence. Delays in delivery shall
not be a breach of this Agreement provided the Products are delivered within a
reasonable time after the delivery date. In all events, Meade shall not be
liable in damages for delays or defaults in deliveries. Distributor's sole and
exclusive remedy for unreasonable delays in delivery shall be its right to
cancel the order therefor.
2.5 Shipment: Meade will arrange for the shipment of Products from
Meade's warehouse in Irvine, California to the
2
<PAGE> 3
Distributor at the destination address shown in the order therefor, via
a carrier of the Distributor's choice. The Products will be shipped under a
straight bill of lading naming Distributor as Consignee to be sent to
Distributor at said destination address. The Products shall be packaged or
containerized, and the terms of shipment shall be as Meade shall elect. The
Products shall be shipped F.O.B. warehouse Irvine, it being specifically agreed
that Distributor shall pay all costs of shipment, and that the risk of loss of
the Products shall pass to Distributor as soon as the carrier has received the
Products from Meade's warehouse.
2.6 Taxes: To the extent that the sales price does not include any
federal, state, foreign or local sales, use, property or other taxes or charges,
of whatever type whatsoever, that may be levied or assessed by reason of the
sale or purchase of the Products and any interest therein or by reason of the
possession by Meade of the Products and any interest therein prior to
consummation of the sale thereof, any such tax or charge shall be the liability
of, and shall be paid by Distributor, and if Meade is charged with the
collection or payment thereof, the amount of said tax or charge shall be added
to the sales price of the Products and paid by Distributor.
2.7 Efforts, Facilities and Personnel: Distributor will use its best
efforts to promote demand for and sale of the Products within the Territory and
will maintain adequate facilities and sales, service, and repair personnel for
such purposes. Distributor agrees that it shall not engage, participate or
otherwise become involved in any activity or course of action that, in Meade's
sole determination, diminishes and/or tarnishes the image and/or reputation of
the Trademarks. In order to maintain the image and reputation of the Trademarks,
Distributor further agrees to abide by the policies and procedures established
by Meade from time to time, in its sole discretion, regarding, without
limitation, trademark usage and notices, advertising, promotion activities and
media relations. Distributor shall at all times comply with all local, state,
federal and foreign laws, ordinances and regulations governing the importation,
exportation, sale and distribution of the Products.
2.8 Place of Business: Show Room and Service Department: Distributor
shall maintain at all times a place of business and show room satisfactory to
Meade and Meade shall have the right at all reasonable times during business
hours to inspect such place of business and show room.
2.9 No Right to Use Name: Distributor may not use the name Meade, or
any of the other Trademarks, in any sign, store name, trading style or dba.
Distributor shall not form or register any company or business whose name
includes the Meade name. However, Distributor may use the Meade name or other
Trademarks in
3
<PAGE> 4
advertising or promotional materials during the continuance of this Agreement;
provided, however, that prior to such use by Distributor, Distributor shall have
obtained the written approval from Meade regarding the form of such usage, which
form shall identify the Distributor, and comply with clause 5.2 below. In case
of termination of this Agreement or, at any time upon request of Meade,
Distributor shall discontinue use of such name in any advertising or promotional
materials and thereafter shall not use the Meade name or Trademarks directly or
indirectly in connection with its business, nor use any other name, title, or
expression so nearly resembling it as would be likely to lead to confusion or
uncertainty or to deceive the public.
2.10 Currency: All payments made pursuant to this Agreement and all
calculations of amounts under this Agreement shall be in U.S. dollars.
2.11 No Competition: During the term of this Agreement, Distributor
shall not market, distribute, sell or otherwise represent any other goods within
the Territory which compete with the Products or which Meade reasonably
determines, in its sole discretion, to be likely to conflict with Distributor's
obligation to use its best efforts to represent and sell Products within the
Territory. Distributor further agrees not to engage in any other business
activity which would be competitive with Meade without obtaining the prior
written consent of Meade.
2.12 Non-Transferability of Rights: Distributor shall not grant,
assign, sublicense or otherwise convey or transfer any rights inuring to
Distributor or any obligation or duties owed by Distributor to Meade under this
Agreement, without the prior written consent of Meade. Meade, however, may
assign or transfer any and/or all of its rights or obligations under this
Agreement without prior notice to, or approval of, Distributor.
2.13 Indemnification: Distributor shall indemnify, defend and hold
Meade and its respective directors, officers, agents and employees harmless from
any and all liabilities, claims, obligations, suits, judgments and expenses
whatsoever, including court costs and attorneys' fees, which Meade may incur or
which may be asserted against Meade, and which arise or occur with respect to
the operation of Distributor's business as it relates to this Agreement. Such
indemnity shall extend to all Products and all advertising and promotional
materials and activities related thereto, notwithstanding Meade's approval of
advertising and promotional materials and activities, and to any and all
liabilities and claims incurred after the termination of this Agreement but
which are based on acts or events which proximate cause arose during this
Agreement. Meade shall have the right to defend any such action or proceeding
with attorneys of its own selection.
4
<PAGE> 5
2.14 Returns: Disclaimer of Warranties: Distributor may return or
exchange only those Products which are damaged or defective prior to delivery.
Distributor may ship such damaged or defective Products back to Meade for
replacement or credit, as determined by Meade, in its sole discretion. If
Distributor ships such damaged or defective Products back to Meade or an entity
authorized by Meade, all shipping costs and any and all expenses related thereto
shall be borne solely by Distributor unless otherwise authorized by Meade. In no
event shall Meade's liability for damaged or defective Products exceed the
purchase price of such damaged or defective Products. Notwithstanding the
foregoing, Distributor acknowledges and agrees that Meade shall not be obligated
to accept the return of any Products, exchange any Products or otherwise credit
Distributor for any Products, and that Meade's decision with respect thereto
shall be in Meade's sole discretion and shall be final and binding.
EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT, THE PRODUCTS ARE PROVIDED "AS
IS" WITHOUT ANY FURTHER WARRANTY OF ANY KIND, INCLUDING, BUT NOT LIMITED TO,
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
MEADE ADDITIONALLY DISCLAIMS ALL OBLIGATIONS AND LIABILITIES ON THE PART OF
MEADE FOR DAMAGES, INCLUDING, BUT NOT LIMITED TO, SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES (EVEN IF MEADE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES), ARISING OUT OF OR IN CONNECTION WITH THE SALE OF THE PRODUCTS.
3. TERMINATION
3.1 Termination by Meade for Cause: Meade may terminate this Agreement
at any time for cause reasonably deemed by Meade to justify such termination,
and by giving Distributor six (6) months notice.
3.2 Termination by Either Without Cause: Either party may terminate
this Agreement at any time without cause by giving the other party six (6)
months written notice of termination.
3.3 Applicability of Terms After Termination: In the event of
termination, this Agreement shall remain applicable to any orders for the
Products which Distributor has previously placed and, so long as Distributor is
indebted or otherwise obligated to Meade.
3.4 Effect of Termination: In the event of the termination of this
Agreement by either party for any reason, Distributor shall immediately:
(a) cease the sale and distribution of the Products,
except in accordance with this Section 3:
(b) cease all use of the Trademarks;
5
<PAGE> 6
(c) delete any reference to the Trademarks and Meade
from any and all advertising, promotional and directory materials,
including all references to having previously been a distributor of
Meade; and
(d) send to Meade an inventory of any Products in
Distributors possession.
3.5 Repurchase of Products on Termination: Meade may, at its
option, repurchase from Distributor at the net price paid by Distributor to
Meade, plus actual freight on the shipment thereof by Meade, any such Products.
On demand, Distributor shall deliver such Products to Meade forthwith, and Meade
shall pay the repurchase price therefor within ten (10) days of the receipt by
it of shipment. Meade reserves the right to reject any Product not in
first-class condition.
4. OWNERSHIP OF THE TRADEMARKS
4.1 Ownership by Meade: Distributor acknowledges that the Trademarks
are owned solely by Meade, and any use by Distributor of such Trademarks shall
inure only to the benefit of Meade. Distributor agrees to assign, and does
hereby assign to Meade any and all right, title and interest which it has
obtained, or may obtain, in the Trademarks. Distributor agrees that it will not
seek or obtain any registration of the Trademarks in any name or participate
directly or indirectly in such registration without Meade's prior written
consent.
4.2 No Warranty: Distributor acknowledges that it is often difficult,
particularly in foreign countries, to obtain clear, registered title to
trademarks and other intellectual property rights. Accordingly, Distributor
agrees that the rights granted herein exist only to the extent that Meade owns
such rights, and no warranty, express or implied, is made with respect thereto
or with respect to the rights of any third parties that may conflict with the
rights granted herein. Furthermore, Meade, at its sole discretion, shall have
the right, but not the obligation, to seek registrations for the Trademarks as
it deems necessary.
4.3 Appointment of Attorney-in-Fact: Distributor hereby irrevocably
appoints Meade as its attorney-in-fact for the limited purpose of executing any
and all documents and performing any and all acts necessary to give effect and
legality to the provisions of Section 4 of this Agreement.
5. USE, DISPLAY AND PROTECTION OF THE TRADEMARKS
5.1 Use of the Trademarks: Distributor agrees to use the Trademarks in
a commercially acceptable and reasonable manner and style, as determined by
Meade, in its sole discretion, to protect and enhance the image and reputation
of Meade and the Trademarks.
6
<PAGE> 7
5.2 Trademark Notice: All Products distributed or sold by Distributor,
and all advertising and promotional materials shall state that the Trademarks
are owned by Meade Instruments Corporation of Irvine, California. Distributor
agrees to use the following form of such notice, or its equivalent in the
appropriate foreign language, which Meade may change from time to time, in its
sole discretion:
MEADE and the M Logo are trademarks of
Meade Instruments Corporation
(R) U.S.A. and Selected Countries
(C) 19__ Meade Instruments Corporation
All Rights Reserved.
5.3 No Infringing Use: Distributor shall not have the right to use the
Trademarks in any manner that conflicts with the rights of any third party. If,
in Meade's sole determination, the use of the Trademarks on any or all of the
Products infringes the rights of any third party, or weakens or impairs Meade's
rights in the Trademarks, then Distributor agrees to immediately terminate or
modify such use in accordance with Meade's instructions, and Distributor shall
have no right of damages, offset or termination in connection with this
Agreement. In the event Distributor fails to terminate or modify such use as
directed by Meade, Meade may, in its sole discretion, terminate this Agreement
in accordance with paragraph 3 hereof.
6. LEGAL ACTIONS
Distributor agrees to cooperate with and assist Meade in protecting and
defending the Trademarks, and shall promptly notify Meade in writing of any
infringements, claims or actions by others in derogation of the Trademarks;
provided, however, that Meade shall have the sole right to determine whether any
action shall be taken on account of such infringements, claims or actions.
7. INTERPRETATION AND ENFORCEMENT
7.1 Notices: Any notice, request, demand or other communication
required or permitted hereunder shall be deemed to be properly given when
personally delivered or when deposited in the United States mail, postage
prepaid, or when deposited with a public telegraph company for transmittal,
charges prepaid, addressed:
(a) In the case of Meade, to ___________________________
_______________________________________________________________________________
_______________________________________________________, or to such other
person or address as Meade may from time to time provide to
Distributor.
(b) In the case of Distributor, to _____________________
_______________________________________________________________________________
7
<PAGE> 8
________________________________________________________, or to such other
person or address as Distributor may from time to time furnish to
Meade.
7.2 Distributor Not Agent or Legal Representative: This Agreement does
not constitute Distributor the agent or legal representative of Meade for any
purpose whatsoever. Distributor is not granted any right or authority to assume
or to create any obligation or responsibility, express or implied, in behalf of
or in the name of Meade or to bind Meade in any manner. In this connection, it
is expressly understood that Distributor shall have no right or authority, and
shall not attempt to modify in any manner the specific terms or conditions of
any product warranty (or any disclaimer thereof) applicable to any Products
pursuant to the announced policy of Meade in effect from time to time. Further,
the parties acknowledge and agree that this Agreement is strictly a distribution
agreement and does not constitute, and shall not be construed as, an
intellectual property rights license agreement or a manufacturer's agreement.
7.3 Completeness: This Agreement contains all of the agreements,
understandings, representations, conditions, warranties and covenants made
between the parties hereto. All modifications and amendments hereto must be in
writing.
7.4 Assignment: This Agreement constitutes a personal contract and
Distributor shall not transfer or assign the Agreement or any part thereof
without written consent of Meade.
7.5 No Implied Waivers: The failure of either party at any time to
require performance by the other party of any provision hereof shall not affect
in any way the full right to require such performance at any time thereafter.
The waiver by either party of a breach of any provision hereof shall not be
construed or held to be a waiver of the provision itself.
7.6 Governing Law: This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California. It is further agreed
that this Agreement is deemed to be consummated in the State of California,
U.S.A. and the forum for any dispute shall be the Federal Courts located in the
State of California whose jurisdiction is the County of Orange, or the Superior
Court of California for the County of Orange' whichever is appropriate.
7.7 Attorneys' Fees: In any action or proceeding between the parties
hereto with respect to any of the terms or provisions of this Agreement, the
prevailing party shall be entitled, in addition to other relief, to its
reasonable costs and expenses, not limited to taxable costs, and to reasonable
attorneys' fees.
7.8 Severability: Should any party of this Agreement for any reason be
declared invalid, such decision shall not affect the
8
<PAGE> 9
validity of any remaining portion, which remaining portion shall remain in force
and effect as if this Agreement had been executed with the invalid portion
thereof eliminated, as it is hereby declared the intention of the parties hereto
that they would have executed the remaining portion of the Agreement without
putting therein any such part, or parts, or portions which may, for any reason,
be hereafter declared invalid.
8. ADDITIONAL TERMS AND CONDITIONS
IN WITNESS WHEREOF, the parties have executed this Trademark
Distribution Agreement the day and year first hereinabove mentioned.
"Meade"
By:____________________________________________________________________________
Name (printed) and Title:______________________________________________________
"Distributor"
By:____________________________________________________________________________
Name (printed) and Title:______________________________________________________
9
<PAGE> 10
EXHIBIT A
[MEADE LOGO]
<PAGE> 1
EXHIBIT 10.21
TRADEMARK DISTRIBUTION AGREEMENT
THIS TRADEMARK DISTRIBUTION AGREEMENT ("Agreement") is entered into and
effective as of this ____ day of _____________, 199_, by and between Meade
Instruments Corporation ("Meade"), a California corporation having a place of
business at 16542 Millikan Avenue, Irvine, California 92714 U.S.A., and
________________________________________________________________________________
________________________________________________________________________________
("Distributor"), with reference to the following facts:
R E C I T A L S
A. Meade has used for many years the trademarks MEADE and M logo and
the combination thereof, as shown on Exhibit A hereto, and has developed certain
intellectual property rights in connection therewith (all such trademarks, trade
names and intellectual property rights, taken either individually or
collectively, hereinafter referred as the "Trademarks"). Meade manufactures and
sells, and licenses others to manufacture and sell incorporating the Trademarks
(hereinafter the "Products").
B. Distributor believes that it possesses the facilities and ability
to promote the sale of the Products and desires to sell the Products in the
territory hereinafter described.
C. Meade desires to have Distributor promote and sell the Products in
such territory on the terms and conditions set forth herein.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. DISTRIBUTORSHIP
1.1 Appointment: Meade hereby appoints Distributor as its
distributor for the promotion and sale of the Products to retailers and/or end
users within the following territory: (hereinafter the "Territory").
During the term of this Agreement, Meade shall not appoint any other or
different person, firm or corporation to sell the Products in the Territory.
1.2 Acceptance: Distributor accepts the foregoing appointment to
promote and to sell the Products within the Territory and agrees to make all
sales hereunder in accordance with this Agreement.
1.3 Term: The term of this Agreement and Distributor's appointment
hereunder shall commence on the effective date above and shall continue
indefinitely unless and until the Agreement is terminated pursuant to Paragraph
3.1 or 3.2 herein.
<PAGE> 2
1.4 Sales outside the Territory: Distributor shall not actively solicit
orders for the Products outside the Territory, nor establish or maintain any
branch or distribution depot outside the Territory for the Products, without the
express prior written consent of Meade.
1.5 Selling Rights Reserved: Meade reserves the right to sell the
Products, either directly, or through its licensees or other distributors,
throughout the rest of the world, except the Territory.
2. OPERATIONS
2.1 Orders: All orders Meade receives for the Products from Distributor
are subject to acceptance by Meade. Meade will use its best efforts to fill
accepted orders as promptly as practicable, subject, however, to delays caused
by acts or omissions of Distributor, government orders or requirements,
transportation conditions, labor or material, shortages, strikes, riots, fires,
or any other cause beyond Meade's control. In all cases, Meade will use its best
efforts to advise Distributor in advance of any inability to make full and
timely delivery of any of the Products which Distributor has ordered.
2.2 Prices: The prices to be paid to Meade for the Products shall be
the distributor price for the Products in effect at the time of receipt by Meade
of the order therefor. Meade may change its wholesale prices at any time without
notice, but Meade shall attempt to notify Distributor of any such changes as far
as possible in advance of the effective date thereof.
2.3 Payment for Products: Distributor shall pay the price for the
Products purchased by it prior to shipment in cash or by other instruments
acceptable to Meade.
2.4 Delivery Date: Meade shall arrange for transportation of the
Products to Distributor as hereinbelow provided in such manner 'as is reasonably
calculated to provide delivery of the Products to Distributor on or about the
delivery date specified in the order therefor. The delivery date shall
automatically be extended hereunder for any period resulting from causes beyond
Meade's control or without Meade's fault or negligence. Delays in delivery shall
not be a breach of this Agreement provided the Products are delivered within a
reasonable time after the delivery date. In all events, Meade shall not be
liable in damages for delays or defaults in deliveries. Distributor's sole and
exclusive remedy for unreasonable delays in delivery shall be its right to
cancel the order therefor.
2.5 Shipment: Meade will arrange for the shipment of Products from
Meade's warehouse in Irvine, California to the Distributor at the destination
address shown in the order therefor, via a carrier of the Distributor's choice.
The
2
<PAGE> 3
Products will be shipped under a straight bill of lading naming Distributor as
Consignee to be sent to Distributor at said destination address. The Products
shall be packaged or containerized, and the terms of shipment shall be as Meade
shall elect. The Products shall be shipped F.O.B. warehouse Irvine, it being
specifically agreed that Distributor shall pay all costs of shipment, and that
the risk of loss of the Products shall pass to Distributor as soon as the
carrier has received the Products from Meade's warehouse.
2.6 Taxes: To the extent that the sales price does not include any
federal, state, foreign or local sales, use, property or other taxes or charges,
of whatever type whatsoever, that may be levied or assessed by reason of the
sale or purchase of the Products and any interest therein or by reason of the
possession by Meade of the Products and any interest therein prior to
consummation of the sale thereof, any such tax or charge shall be the liability
of, and shall be paid by Distributor, and if Meade is charged with the
collection or payment thereof, the amount of said tax or charge shall be added
to the sales price of the Products and paid by Distributor.
2.7 Efforts, Facilities and Personnel: Distributor will use its best
efforts to promote demand for and sale of the Products within the Territory and
will maintain adequate facilities and sales, service, and repair personnel for
such purposes. Distributor agrees that it shall not engage, participate or
otherwise become involved in any activity or course of action that, in Meade's
sole determination, diminishes and/or tarnishes the image and/or reputation of
the Trademarks. In order to maintain the image and reputation of the Trademarks,
Distributor further agrees to abide by the policies and procedures established
by Meade from time to time, in its sole discretion, regarding, without
limitation, trademark usage and notices, advertising, promotion activities and
media relations. Distributor shall at all times comply with all local, state,
federal and foreign laws, ordinances and regulations governing the importation,
exportation, sale and distribution of the Products.
2.8 Place of Business, Show Room and Service Department: Distributor
shall maintain at all times a place of business and show room satisfactory to
Meade and Meade shall have the right at all reasonable times during business
hours to inspect such place of business and show room.
2.9 No Right to Use Name: Distributor may not use the name Meade, or
any of the other Trademarks, in any sign, store name, trading style or dba.
Distributor shall not form or register any company or business whose name
includes the Meade name. However, Distributor may use the Meade name or other
Trademarks in advertising or promotional materials during the continuance of
this Agreement; provided, however, that prior to such use by
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<PAGE> 4
Distributor, Distributor shall have obtained the written approval from Meade
regarding the form of such usage, which form shall identify the Distributor, and
comply with clause 5.2 below. In case of termination of this Agreement or, at
any time upon request of Meade, Distributor shall discontinue use of such name
in any advertising or promotional materials and thereafter shall not use the
Meade name or Trademarks directly or indirectly in connection with its business,
nor use any other name, title, or expression so nearly resembling it as would be
likely to lead to confusion or uncertainty or to deceive the public.
2.10 Currency: All payments made pursuant to this Agreement and all
calculations of amounts under this Agreement shall be in U.S. dollars.
2.11 No Competition: During the term of this Agreement, Distributor
shall not market, distribute, sell or otherwise represent any other goods within
the Territory which compete with the Products or which Meade reasonably
determines, in its sole discretion, to be likely to conflict with Distributor's
obligation to use its best efforts to represent and sell Products within the
Territory. Distributor further agrees not to engage in any other business
activity which would be competitive with Meade without obtaining the prior
written consent of Meade.
2.12 Non-Transferability of Rights: Distributor shall not grant,
assign, sublicense or otherwise convey or transfer any rights inuring to
Distributor or any obligation or duties owed by Distributor to Meade under this
Agreement, without the prior written consent of Meade. Meade, however, may
assign or transfer any and/or all of its rights or obligations under this
Agreement without prior notice to, or approval of, Distributor.
2.13 Indemnification: Distributor shall indemnify, defend and hold
Meade and its respective directors, officers, agents and employees harmless from
any and all liabilities, claims, obligations, suits, judgments and expenses
whatsoever, including court costs and attorneys' fees, which Meade may incur or
which may be asserted against Meade, and which arise or occur with respect to
the operation of Distributor's business as it relates to this Agreement. Such
indemnity shall extend to all Products and all advertising and promotional
materials and activities related thereto, notwithstanding Meade's approval of
advertising and promotional materials and activities, and to any and all
liabilities and claims incurred after the termination of this Agreement but
which are based on acts or events which proximate cause arose during this
Agreement. Meade shall have the right to defend any such action or proceeding
with attorneys of its own selection.
2.14 Returns; Disclaimer of Warranties: Distributor may return or
exchange only those Products which are damaged or defective prior to delivery.
Distributor may ship such damaged
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<PAGE> 5
or defective Products back to Meade for replacement or credit, as determined by
Meade, in its sole discretion. If Distributor ships such damaged or defective
Products back to Meade or an entity authorized by Meade, all shipping costs and
any and all expenses related thereto shall be borne solely by Distributor unless
otherwise authorized by Meade. In no event shall Meade's liability for damaged
or defective Products exceed the purchase price of such damaged or defective
Products. Notwithstanding the foregoing, Distributor acknowledges and agrees
that Meade shall not be obligated to accept the return of any Products, exchange
any Products or otherwise credit Distributor for any Products, and that Meade's
decision with respect thereto shall be in Meade's sole discretion and shall be
final and binding.
EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT, THE PRODUCTS ARE
PROVIDED "AS IS" WITHOUT ANY FURTHER WARRANTY OF ANY KIND, INCLUDING, BUT NOT
LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. MEADE ADDITIONALLY DISCLAIMS ALL OBLIGATIONS AND LIABILITIES ON THE
PART OF MEADE FOR DAMAGES, INCLUDING, BUT NOT LIMITED TO, SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES (EVEN IF MEADE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES), ARISING OUT OF OR IN CONNECTION WITH THE SALE OF THE PRODUCTS.
3. TERMINATION
3.1 Termination by Meade for Cause: Meade may terminate this Agreement
at any time for cause reasonably deemed by Meade to justify such termination,
and by giving Distributor six (6) months notice.
3.2 Termination by Either Without Cause: Either party may terminate
this Agreement at any time without cause by giving the other party six (6)
months written notice of termination.
3.3 Applicability of Terms After Termination: In the event of
termination, this Agreement shall remain applicable to any orders for the
Products which Distributor has previously placed and, so long as Distributor is
indebted or otherwise obligated to Meade.
3.4 Effect of Termination: In the event of the termination of this
Agreement by either party for any reason, Distributor shall immediately:
(a) cease the sale and distribution of the Products,
except in accordance with this Section 3;
(b) cease all use of the Trademarks;
(c) delete any reference to the Trademarks and Meade
from any and all advertising, promotional and directory
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materials, including all references to having previously
been a distributor of Meade; and
(c) send to Meade an inventory of any Products in
Distributor's possession.
3.5 Repurchase of Products on Termination: Meade may, at its option,
repurchase from Distributor at the net price paid by Distributor to Meade, plus
actual freight on the shipment thereof by Meade, any such Products. On demand,
Distributor shall deliver such Products to Meade forthwith, and Meade shall pay
the repurchase price therefor within ten (10) days of the receipt by it of
shipment. Meade reserves the right to reject any Product not in first-class
condition.
4. OWNERSHIP OF THE TRADEMARKS
4.1 Ownership by Meade: Distributor acknowledges that the Trademarks
are owned solely by Meade, and any use by Distributor of such Trademarks shall
inure only to the benefit of Meade. Distributor agrees to assign, and does
hereby assign to Meade any and all right, title and interest which it has
obtained, or may obtain, in the Trademarks. Distributor agrees that it will not
seek or obtain any registration of the Trademarks in any name or participate
directly or indirectly in such registration without Meade's prior written
consent.
4.2 No Warranty: Distributor acknowledges that it is often difficult,
particularly in foreign countries, to obtain clear, registered title to
trademarks and other intellectual property rights. Accordingly, Distributor
agrees that the rights granted herein exist only to the extent that Meade owns
such rights, and no warranty, express or implied, is made with respect thereto
or with respect to the rights of any third parties that may conflict with the
rights granted herein. Furthermore, Meade, at its sole discretion, shall have
the right, but not the obligation, to seek registrations for the Trademarks as
it deems necessary.
4.3 Appointment of Attorney-in-Fact: Distributor hereby irrevocably
appoints Meade as its attorney-in-fact for the limited purpose of executing any
and all documents and performing any and all acts necessary to give effect and
legality to the provisions of section 4 of this Agreement.
5. USE, DISPLAY AND PROTECTION OF THE TRADEMARKS
5.1 Use of the Trademarks: Distributor agrees to use the Trademarks in
a commercially acceptable and reasonable manner and style, as determined by
Meade, in its sole discretion, to protect and enhance the image and reputation
of Meade and the Trademarks.
5.2 Trademark Notice: All Products distributed or sold by Distributor,
and all advertising and promotional materials shall
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<PAGE> 7
state that the Trademarks are owned by Meade Instruments Corporation of Irvine,
California. Distributor agrees to use the following form of such notice, or its
equivalent in the appropriate foreign language, which Meade may change from time
to time, in its sole discretion:
MEADE and the M Logo are trademarks of
Meade Instruments Corporation
(R) U.S.A. and Selected Countries
(C) 19 _ Meade Instruments Corporation
All Rights Reserved.
5.3 No Infringing Use: Distributor shall not have the right to use the
Trademarks in any manner that conflicts with the rights of any third party. If,
in Meade's sole determination, the use of the Trademarks on any or all of the
Products infringes the rights of any third party, or weakens or impairs Meade's
rights in the Trademarks, then Distributor agrees to immediately terminate or
modify such use in accordance with Meade's instructions, and Distributor shall
have no right of damages, offset or termination in connection with this
Agreement. In the event Distributor fails to terminate or modify such use as
directed by Meade, Meade may, in its sole discretion, terminate this Agreement
in accordance with paragraph 3 hereof.
6. LEGAL ACTIONS
Distributor agrees to cooperate with and assist Meade in protecting and
defending the Trademarks, and shall promptly notify Meade in writing of any
infringements, claims or actions by others in derogation of the Trademarks;
provided, however, that Meade shall have the sole right to determine whether any
action shall be taken on account of such infringements, claims or actions.
7. INTERPRETATION AND ENFORCEMENT
7.1 Notices: Any notice, request, demand or other communication
required or permitted hereunder shall be deemed to be properly given when
personally delivered or when deposited in the United States mail, postage
prepaid, or when deposited with a public telegraph company for transmittal,
charges prepaid, addressed:
(a) In the ease of Meade, to _________________________________
________________________________________________________________________________
_______________________________________________________________________________,
or to such other person or address as Meade may from time to time provide to
Distributor.
(b) In the case of Distributor, to____________________________
________________________________________________________________________________
_______________________________________________________________________________,
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<PAGE> 8
or to such other person or address as Distributor may from time to time furnish
to Meade.
7.2 Distributor Not Agent or Legal Representative: This Agreement does
not constitute Distributor the agent or legal representative of Meade for any
purpose whatsoever. Distributor is not granted any right or authority to assume
or to create any obligation or responsibility, express or implied, in behalf of
or in the name of Meade or to bind Meade in any manner. In this connection, it
is expressly understood that Distributor shall have no right or authority, and
shall not attempt to modify in any manner the specific terms or conditions of
any product warranty (or any disclaimer thereof) applicable to any Products
pursuant to the announced policy of Meade in effect from time to time. Further,
the parties acknowledge and agree that this Agreement is strictly a distribution
agreement and does not constitute, and shall not be construed as, an
intellectual property rights license agreement or a manufacturer's agreement.
7.3 Completeness: This Agreement contains all of the
agreements,understandings,representations,conditions, warranties and covenants
made between the parties hereto. All modifications and amendments hereto must be
in writing.
7.4 Assignment: This Agreement constitutes a personal contract and
Distributor shall not transfer or assign the Agreement or any part thereof
without written consent of Meade.
7.5 No Implied Waivers: The failure of either party at any time to
require performance by the other party of any provision hereof shall not affect
in any way the full right to require such performance at any time thereafter.
The waiver by either party of a breach of any provision hereof shall not be
construed or held to be a waiver of the provision itself.
7.6 Governing Law: This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California. It is further agreed
that this Agreement is deemed to be consummated in the State of California,
U.S.A. and the forum for any dispute shall be the Federal Courts located in the
State of California whose jurisdiction is the County of Orange, or the Superior
Court of California for the County of Orange, whichever is appropriate.
7.7 Attorneys' Fees: In any action or proceeding between the parties
hereto with respect to any of the terms or provisions of this Agreement, the
prevailing party shall be entitled, in addition to other relief, to its
reasonable costs and expenses, not limited to taxable costs, and to reasonable
attorneys' fees.
7.8 Severability: Should any party of this Agreement for any reason be
declared invalid, such decision shall not affect the validity of any remaining
portion, which remaining portion shall
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<PAGE> 9
remain in force and effect as if this Agreement had been executed with the
invalid portion thereof eliminated, as it is hereby declared the intention of
the parties hereto that they would have executed the remaining portion of the
Agreement without putting therein any such part, or parts, or portions which
may, for any reason, be hereafter declared invalid.
8. ADDITIONAL TERMS AND CONDITIONS
IN WITNESS WHEREOF, the parties have executed this Trademark
Distribution Agreement the day and year first hereinabove mentioned.
"Meade"
By:______________________________
Name (printed) and Title:____________________________________
"Distributor"
By:______________________________
Name (printed) and Title:____________________________________
9
<PAGE> 10
EXHIBIT A
[MEADE LOGO]
<PAGE> 1
Exhibit 10.22
INCENTIVE COMPENSATION AGREEMENT
THIS AGREEMENT (this "Agreement") is dated as of October 4,
1995, for reference purposes only, by and between BRENT CHRISTENSEN (the
"Employee") and Meade Instruments Corp., a California corporation (the
"Company"). The parties hereto agree as follows:
1. ACCRUAL OF TERMINATION BENEFIT. Effective as of March 1,
1995, Employee shall accrue a termination benefit equal to 0.2% of the aggregate
book value of all outstanding common stock of Meade Holding Corp., a California
corporation ("Meade Holding"), for each twelve-month period that Employee has
been continuously and actively employed by the Company, commencing with March 1,
1995. Accordingly, Employee shall accrue a termination benefit of 0.2% of the
aggregate book value of Meade Holding's outstanding common stock on February 28
of each of 1996, 1997, 1998, and 1999. The maximum accrual is 1.0% of the
aggregate book value of Meade Holding's outstanding common stock and assumes
continuous and active employment by the Company through February 28, 1999. For
purposes of this Agreement, the "book value" of the outstanding common stock of
Meade Holding shall be determined on a consolidated basis with the Company and
shall be based upon the books and records maintained by Meade Holding and the
Company. The Company shall determine such book value. If there is any
disagreement between the parties hereto as to the book value as determined by
the Company, the Company's independent accountants shall determine such book
value and such determination shall be conclusive, final and binding on the
parties hereto.
2. VESTING OF TERMINATION BENEFIT. Employee shall vest in each
0.2% accrual of his termination benefit referred to in Section 1 on each
anniversary date referred to in Section 1. If Employee's employment with the
Company is terminated at any time during the term of this Agreement but prior to
any "sale of a substantial number of shares," whether such termination is
effected voluntarily by Employee or by the Company, with or without cause (and
including any termination as a result of Employee's disability), then the
Employee shall be entitled to receive payment from the Company equal to the
vested termination benefit percentage multiplied by the aggregate book value of
the outstanding common stock of Meade Holding as of the end of the month
preceding the month in which Employee's employment with the Company ends. For
purposes hereof, a "sale of a substantial number of shares" shall be deemed to
mean (i) a sale of 80% or more of the outstanding Common Stock of Meade Holding
or the Company whether by merger or otherwise, or (ii) a sale by shareholders of
25% or more of the outstanding Common Stock of Meade Holding or the Company in
an underwritten public offering registered with the Securities and Exchange
Commission.
<PAGE> 2
Example: Employee receives 0.2% book value
accruals on February 28, 1996 and on February 28, 1997, but terminates his
employment with the Company on September 10, 1997. Employee has thus accrued and
vested in 0.4% of the book value of the outstanding common stock of Meade
Holding. If on August 31, 1997, the book value of Meade Holding's outstanding
common stock is $1,000,000 as determined on a consolidated basis, then Employee
shall be entitled to receive payment from the Company in the amount of 0.4% of
$1,000,000, or $4,000. This example assumes no "sale of a substantial number of
shares" prior to September 1, 1997.
3. PAYMENT OF TERMINATION BENEFIT. Any payments to
which Employee shall become entitled under Sections 1 and 2
hereof shall be made in a lump sum cash distribution within 30
days of Employee's termination.
4. INCENTIVE COMPENSATION FOR SALE OR PUBLIC OFFERING. If
during the period of this Agreement, there occurs a sale of a substantial number
of shares (as defined in Section 2 hereof), and Employee is then employed by the
Company, then the Employee shall, upon the closing of such event, be entitled to
a payment equal to 1.0% of the cash (non-cash consideration and/or cash
consideration received or to be received by any selling shareholder more than
six months after the closing date of such sale shall be disregarded) actually
received by the selling shareholders on the closing date of such sale in lieu of
any payment required to be made under Sections 1 and 2 hereof and, in such
event, no payment shall be required under Section 1 and 2 hereof. Any payment
hereunder shall be made to the Employee by the Company in a lump sum cash
distribution within 30 days of the closing of the sale of a substantial number
of shares.
Example: Employee receives 0.2% book value
accruals on February 28, 1996 and on February 28, 1997, for a total book value
accrual of 0.4%. On October 1, 1997, 25% of the Company's outstanding common
stock held by its shareholder(s) is sold in an underwritten public offering
registered with the Securities and Exchange Commission and in consideration
therefor, such shareholder(s) receives a cash consideration at closing of
$10,000,000 in the aggregate. Within 30 days of the closing of such sale,
Employee is entitled to receive a lump sum cash distribution from the Company in
an amount equal to 1.0% of $10,000,000, or $100,000.
Example: Assume the same facts as in the
preceding example, except that on October 1, 1997, 80% of the Company's or Meade
Holding's common stock is sold to a third party. In addition, assume that in
cash consideration therefor, the shareholder(s) receives a total of $20,000,000
in cash on the closing date. Within 30 days of the closing of such sale,
Employee is entitled to receive a lump sum cash distribution from
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<PAGE> 3
the Company or its successor in an amount equal to 1.0% of $20,000,000, or
$200,000.
5. ASSIGNABILITY. The rights and benefits of Employee
hereunder are not assignable or transferable and any purported transfer,
assignment, pledge or other encumbrance or attachment of any payments or
benefits under this Agreement shall not be permitted or recognized. The
obligations of the Company hereunder shall be binding upon the successors and
assigns of the Company.
6. WITHHOLDING. The Company shall have the right to deduct
from any payment hereunder, any federal, state or local taxes, if any, required
by law to be withheld with respect to such payments.
7. LIMITATION ON BENEFITS. The accruals of stock value to
which Employee is entitled under Agreement are devices used solely for the
measurement and determination of the amounts to be paid as cash under this
Agreement. Such accruals shall not be as property or as a trust fund of any
kind. All amounts at any time attributable to such accruals shall be and remain
the sole property of the Company, and the Employee's such accruals are limited
to the right to receive cash as herein provided. The Employee shall not be
entitled to any voting rights or any other rights normally associated shares of
common stock of the Company or Meade Holding or an interest therein.
8. RELEASE AND SATISFACTION. Any payment to the Employee in
accordance with the provisions of this Agreement shall, to the extent thereof,
be in full satisfaction of all claims against the Company hereunder, and, to the
extent permitted by law, the Company may require the Employee, as a condition
precedent to such payment, to execute a receipt and release to such effect.
9. LIMITATION ON RIGHTS. Employee's being a party to this
Agreement shall not give him any right to be retained in the employ of the
Company or any rights or interest other than to the payments provided for
herein. The employment rights of the Employee shall not be enlarged, guaranteed
or affected by reason of any provisions of this Agreement. The Company reserves
the right to dismiss the Employee at any time, with or without cause, without
any liability for any claim against the Company under this Agreement, except for
payment of vested benefits to the extent expressly provided herein. This
Agreement shall create a contractual obligation on the part of the Company as to
such vested amounts and shall not be construed as creating a trust. This
Agreement, in and of itself, has no assets and is not funded. The Employee shall
have only the rights of a general and unsecured creditor of the Company with
respect to vested amounts payable hereunder.
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<PAGE> 4
10. FUTURE MERGER. If at any time in the future Meade Holding
is merged into the Company, or if the Company is merged into Meade Holding, this
Agreement shall be and remain in full force and effect and the accrual of
benefits hereunder shall be based on the value of the outstanding common stock
of the surviving entity.
11. GOVERNING LAW. The validity of this Agreement or any of
its provisions shall be construed administered and governed in all respects by
the laws of the State of California. If any provisions of this instrument shall
be held by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions hereof shall continue to be fully effective.
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date set forth above.
MEADE INSTRUMENTS CORP.,
a California corporation
By: /s/ JOHN C. DIEBEL
----------------------------
Title: CHAIRMAN & CEO 10/4/95
----------------------------
/s/ BRENT CHRISTENSEN
---------------------------------
EMPLOYEE
Acknowledged and agreed to:
MEADE HOLDING CORP.,
a California corporation
By: /s/ JOHN C. DIEBEL
-------------------------
Title: PRESIDENT 10/4/95
-------------------------
5
<PAGE> 1
EXHIBIT 10.23
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -- GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes
only, January 31, 1996, is made by and between CNH, LLC ("Lessor") and Meade
Instruments Corporation ("Lessee"), (collectively the "PARTIES," or individually
a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 2026 McGaw Avenue, located in the City
of Irvine, County of Orange, State of California, with zip code 92714, as
outlined on Exhibit __ attached hereto ("PREMISES"). The "BUILDING" is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): approximately 27,360 square feet of
warehouse space which is part of a larger 105,120 square foot industrial
building, as shown on Exhibit A.
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the Building or to
any other buildings in the Industrial Center. The Premises, the Building, the
Common Areas, the land upon which they are located, along with all other
buildings and improvements thereon, are herein collectively referred to as the
"INDUSTRIAL CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: 0 unreserved vehicle parking spaces ("UNRESERVED
PARKING SPACES"): and 0 reserved vehicle parking spaces ("RESERVED PARKING
SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: 1 years and 0 months ("ORIGINAL TERM") commencing upon
the date Lessor notifies Lessee that Lessor has completed the tenant
improvements described in Paragraph 49 ("COMMENCEMENT DATE") and ending 12
months later ("EXPIRATION DATE"). (Also see Paragraph 3.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $9,576.00 per month ("BASE RENT"), payable on the
1st day of each month commencing the Commencement Date (Also see Paragraph 4.)
[ ] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum _____ attached hereto.
1.6(a) BASE RENT PAID UPON OCCUPANCY: $9,576.00 as Base Rent for the
first month of the Term.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: Zero percent
(0%) ("LESSEE'S SHARE") as determined by [ ] prorata square footage of the
Premises as compared to the total square footage of the Building or [ ] other
criteria as described in Addendum ____.
1.7 SECURITY DEPOSIT: $9,576.00 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: storage of telescopes and related optical
products ("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see
Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[X] Lee & Associates represents Lessor exclusively ("LESSOR'S BROKER");
[X] CB Commercial represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] ________________ represents both Lessor and Lessee ("DUAL AGENCY").
(Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) 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 Broker(s) (or in the event there is
no separate written agreement between Lessor and said Broker(s), the sum of
$_____) for brokerage services rendered by said Broker(s) in connection with
this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by (N/A) ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or
Addenda consisting of Paragraphs 49 through 50 and Exhibit A, all of which
constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
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 and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) 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, electrical systems, fire sprinkler system, lighting, air
conditioning and heating systems and loading doors, if any, in the Premises,
other than those constructed by Lessee, shall be in good operating condition on
the Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation
of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants that any improvements (other than those constructed by Lessee
or at Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be
reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under Applicable Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that
it has been advised by the Broker(s) 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, seismic and earthquake
requirements, and compliance with the Americans with Disabilities Act and
applicable zoning, municipal, county, state and federal laws, ordinances and
regulations and any covenants or restrictions of record (collectively,
"APPLICABLE LAWS") 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, is satisfied with reference thereto,
and assumes all responsibility therefore as the same relate to Lessee's
occupancy of the Premises and/or the terms 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 said matters other than as set
forth in this Lease.
2.5 LESSEE AS 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.
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2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that
belong to or are controlled by Lessee or Lessee's employees, suppliers,
shippers, customers, contractors or invitees to be loaded, unloaded, or parked
in areas other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited
activities described in this Paragraph 2.6, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may
have, to remove or tow away the vehicle involved and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease,
provide the parking facilities required by Applicable Law.
2.7 COMMON AREAS -- DEFINITION. The term "COMMON AREAS" is defined
as all areas and facilities outside the Premises and within the exterior
boundary line of the Industrial Center and interior utility raceways within the
Premises that are provided and designated by the Lessor from time to time for
the general non-exclusive use of Lessor, Lessee and other lessees of the
Industrial Center and their respective employees, suppliers, shippers,
customers, contractors and invitees, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.8 COMMON AREAS -- LESSEE'S RIGHTS. Lessor hereby grants to
Lessee, for the benefit of Lessee and its employees, suppliers, shippers,
contractors, customers and invitees, during the term of this Lease, the
non-exclusive right to use, in common with others entitled to such use, the
Common Areas as they exist from time to time, subject to any rights, powers,
and privileges reserved by Lessor under the terms hereof or under the terms of
any rules and regulations or restrictions governing the use of the Industrial
Center. Under no circumstances shall the right herein granted to use the
Common Areas be deemed to include the right to store any property, temporarily
or permanently, in the Common Areas. Any such storage shall be permitted only
by the prior written consent of Lessor or Lessor's designated agent, which
consent may be revoked at any time. In the event that any unauthorized storage
shall occur then Lessor shall have the right, without notice, in addition to
such other rights and remedies that it may have, to remove the property and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.
2.9 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable Rules and Regulations with respect thereto
in accordance with Paragraph 40. Lessee agrees to abide by and conform to all
such Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not
be responsible to Lessee for the non-compliance with said rules and regulations
by other lessees of the Industrial Center.
2.10 COMMON AREAS -- CHANGES. Lessor shall have the right, in
Lessor's sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to
the Common Areas;
(e) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Industrial Center, or
any portion thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be appropriate.
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 an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after
the Early Possession Date but prior to the Commencement Date, the obligation to
pay Base Rent shall be abated for the period of such early occupancy. All
other terms of this Lease, however, (including but not limited to the
obligations to pay Lessee's Share of Common Area Operating Expenses and to
carry the Insurance required by Paragraph 8) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee 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
after the end of said sixty (60) day period, 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. Except as may
be otherwise provided, and regardless of when the Original Term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to the period during which the Lessee would have otherwise 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 pay Base Rent and other rent or
charges, as the same may be adjusted from time to time, to 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
full month shall be prorated based upon the actual number of days of the 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.
4.2 COMMON AREAS OPERATING EXPENSES. Lessee shall pay to Lessor
during the term hereof, in addition to the Base Rent, Lessee's Share (as
specified in Paragraph 1.6(b)) of all Common Area Operating Expenses, as
hereinafter defined, during each calendar year of the term of this Lease, in
accordance with the following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for
purposes of this Lease, as all costs incurred by Lessor relating to the
ownership and operation of the Industrial Center, including, but not limited
to, the following:
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following:
(aa) The Common Areas, including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant
directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and
telephone to service the Common Areas.
(iii) Trash disposal, property management and
security services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair
of Common Areas.
(v) Any increase above the Base Real Property Taxes
(as defined in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost increase" (as defined in
Paragraph 8.1).
(vii) The cost of insurance carried by Lessor with
respect to the Common Areas.
(viii) Any deductible portion of an insured loss
concerning the Building or the Common Areas.
(ix) Any other services to be provided by Lessor
that are stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property
Taxes that are specifically attributable to the Building or to any other
building in the Industrial Center or to the operation, repair and maintenance
thereof, shall be allocated entirely to the Building or to such other
building. However, any Common Area Operating Expenses and Real Property Taxes
that are not specifically attributable to the Building or to any other building
or to the operation, repair and maintenance thereof, shall be equitably
allocated by Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and
services set forth in Subparagraph 4.2(a) shall not be deemed to impose an
obligation upon Lessor to either have said improvements or facilities or to
provide those services unless the Industrial Center already has the same,
Lessor already provides the services, or Lessor has agreed elsewhere in this
Lease to provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall
be payable by Lessee within ten (10) days after a reasonably detailed statement
of actual expenses is presented to Lessee by Lessor. At Lessor's option,
however, an amount may be estimated by Lessor from time to time of Lessee's
Share of annual Common Area Operating Expenses and the same shall be payable
monthly or quarterly, as Lessor shall designate, during each 12-month period of
the Lease term, on the same day as the Base Rent is due hereunder. Lessor
shall deliver to Lessee within sixty (60) days after the expiration of each
calendar year a reasonably detailed statement showing Lessee's Share of the
actual Common Area Operating Expenses incurred during the preceding year. If
Lessee's payments under this Paragraph 4.2(d) during said preceding year exceed
Lessee's Share as indicated on said statement, Lessee shall be credited the
amount on such over-
Initials: [Sig]
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payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the payment
of any 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 therefore deposit monies 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 monies with Lessor as an addition to the Security
Deposit so that the total amount of the Security Deposit shall at all times bear
the same proportion to the then current Base Rent as the initial Security
Deposit bears to the initial Base Rent set forth in Paragraph 1.5. 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 monies to be paid by Lessee under this
Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the Permitted Use
set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential 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 or by-products thereof. Lessee
shall not engage in any activity in 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 Requirements (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, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require 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 upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, 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 any Reportable Use of
any Hazardous Substance 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 therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including but
not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(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 damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) 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 consultants' and attorneys' 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, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean 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), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
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 Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDERS") 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 Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance 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 by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to 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 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.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall,
at Lessee's sole cost and expense and at all times, keep the Premises and
every part thereof in good order, condition and repair (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 equipment or facilities specifically serving
the Premises such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire hose connections if within the Premises, fixtures, interior walls,
interior surfaces of exterior walls, ceilings, floors, windows, doors, plate
glass, and skylights, but excluding any items which are the responsibility of
Lessor pursuant to Paragraph 7.2 below. 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.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this Paragraph
7.1, Lessor may 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
Premises in good order, condition and repair, in accordance with Paragraph 13.2
below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection
INITIALS: [SIG]
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systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to paint the exterior or interior surfaces of exterior walls nor
shall Lessor be obligated to maintain, repair or replace windows, doors or
plate glass of the Premises. Lessee expressly waives the benefit of any
statute now or hereafter 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 Building, Industrial Center or Common Areas in
good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
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 which can be removed
without doing material damage to the Premises. The term "ALTERATIONS" shall
mean any modification of the improvements on the Premises which are provided by
Lessor under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined
as Alterations and/or Utility Installations made by Lessee that are not yet
owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause
to be made 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) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the
cumulative cost thereof during the term of this Lease as extended does not
exceed $2,500.00.
(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 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 be in
compliance with all Applicable Requirements. 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 $2,500.00 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.
(c) LIEN PROTECTION. 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
mechanic's 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 attorneys' 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 and to cause Lessee to become the owner thereof as hereinafter provided
in this Paragraph 7.4, all Alterations and Utility Installations 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 the Premises and be
surrendered with the Premises by Lessee.
(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
that their installation may have been consented to by Lessor. Lessor may
require the removal at any time of all or any part of any 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,
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 herein, the Premises, as
surrendered, shall include the Alterations and 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 Lessee-Owned Alterations and 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 Requirements 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 OF PREMIUM INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASE" is
defined as any increase in the actual cost of the insurance applicable to the
Building and required to be carried by Lessor pursuant to Paragraphs 8.2(b),
8.3(a) and 8.3(b), ("REQUIRED INSURANCE"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "Insurance Cost Increase"
shall include, but not be limited to, requirements of the holder of a mortgage
or deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term "Insurance Cost Increase"
shall not, however, include any premium increases resulting from the nature of
the occupancy of any other lessee of the Building. If the parties insert a
dollar amount in Paragraph 1.9, such amount shall be considered the "BASE
PREMIUM." If a dollar amount has not been inserted in Paragraph 1.9 and if the
Building has been previously occupied during the twelve (12) month period
immediately preceding the Commencement Date, the "Base Premium" shall be the
annual premium applicable to such twelve (12) month period. If the Building
was not fully occupied during such twelve (12) month period, the "Base Premium"
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the Commencement Date, assuming the most nominal use possible
of the Building. In no event, however, shall Lessee be responsible for any
portion of the premium cost attributable to liability insurance coverage in
excess of $1,000,000 procured under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
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, Lessor and any Lender(s) whose names have been
provided to Lessee in writing (as additional insureds) 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" endorsement
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 of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by Lessee shall not, however, limit the liability of Lessee
nor relieve Lessee of any obligation hereunder. All insurance to be carried by
Lessee shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. 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. Lessor 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 any Lender(s), insuring against loss or
damage to the Premises: Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
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. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's 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 or included in the Base
Premium), 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 Building required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
loss, but not including plate glass insurance. Said policy or policies shall
also contain an agreed valuation provision in lieu of any co-insurance 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.
(b) RENTAL VALUE. Lessor shall also 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 any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may 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 co-insurance clause,
and the amount of coverage shall be adjusted annually to reflect the projected
rental income. Real Property Taxes, insurance premium costs and other
expenses, if any, otherwise payable, for the next 12-month period. Common Area
Operating Expenses shall include any deductible amount in the event of such
loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in
the premiums for the property insurance of the Building and for the Common
Areas or other buildings in the Industrial Center if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
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(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
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.
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, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph
8.3(a). Such insurance shall be full replacement cost coverage with a
deductible not to exceed $1,000 per occurrence. The proceeds from any such
insurance shall be used by Lessee for the replacement of personal property and
the restoration of Trade Fixtures and Lessee-Owned Alterations and Utility
Installations. Upon request from Lessor, Lessee 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,
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. Lessee shall cause to be delivered to
Lessor, within seven (7) days after the earlier of the Early Possession Date or
the Commencement Date, certified copies of, or certificates evidencing the
existence and amounts of, the insurance required under Paragraph 8.2(a) and
8.4. No such policy shall be cancelable or subject to modification except after
thirty (30) days' prior written notice to Lessor. Lessee shall at least thirty
(30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor 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 or damage to their 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. Lessor and Lessee agree to have their respective insurance
companies issuing property damage insurance waive any right to subrogation that
such companies may have against Lessor or Lessee, as the case may be, so long as
the insurance is not invalidated thereby.
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, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. 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 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, 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 lessee of Lessor nor from the failure by Lessor to enforce the
provisions of any other lease in the Industrial Center. 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 Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is less than fifty percent (50%)
of the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(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 fifty percent
(50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations
and Trade Fixtures of any lessees of the Building) of the Building shall, at the
option of Lessor, be deemed to be Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, 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 PREMISES PARTIAL DAMAGE--INSURED LOSS. If 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. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, 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, Lessor 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 Lessor does not receive such funds or assurance within
such ten (10) day period, and if Lessor does not so elect to restore and
repair, 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.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If 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), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after
receipt by Lessor of knowledge of the occurrence of such damage of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the
date 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 such commitment from Lessee. 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 after 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 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 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one 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 (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the
repairs on or before the earlier of (i) the date which is ten (10) days after
Lessee's receipt of Lessor's written notice purporting to terminate this Lease,
or (ii) the day prior to the date upon which such option expires. If Lessee
duly exercises such option during such 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 such
period, then this Lease shall terminate as of the date set forth in the first
sentence of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in excess
of proceeds from insurance required to be carried under Paragraph 8.3(b).
Except for abatement of Base Rent, Common Area Operating Expenses 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 damage, destruction, repair, remediation
or restoration.
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<PAGE> 6
(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 date 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 the receipt of such
notice, this Lease shall continue in full force and effect. "COMMENCE" as used
in this Paragraph 9.6 shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever occurs first.
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 Requirements and this Lease shall continue in full force and effect,
but subject to Lessor's rights under Paragraph 6.2(c) and 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 date 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 excess costs of
(a) investigation and remediation of such Hazardous Substance Condition to the
extent required by Applicable Requirements, over (b) an amount equal to twelve
(12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee
shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following said commitment by Lessee.
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 after the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the
same period specified above, this Lease shall terminate as of the date specified
in Lessor's notice of termination.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and 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 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent it
is inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except
as otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) 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 Industrial Center 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 Industrial Center or any portion thereof, 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 Industrial Center
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.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall
be the amount of Real Property Taxes, which are assessed against the Premises,
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the
calculation of Real Property Taxes for such calendar year based upon the number
of days which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall
not include Real Property Taxes specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the
Industrial Center by other lessees or by Lessor for the exclusive enjoyment of
such other lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall,
however, pay to Lessor at the time Common Area Operating Expenses are payable
under Paragraph 4.2, the entirety of any increase in Real Property Taxes if
assessed solely by reason of Alterations, Trade Fixtures or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed,
Real Property Taxes allocated to the Building 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.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations and Trade Fixtures, furnishings, equipment and all personal
property of Lessee contained in the Premises or stored within the Industrial
Center. When possible, Lessee shall cause its Lessee-Owned Alterations and
Utility Installations and 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 property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee's property
within ten (10) days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
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, "assign")
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 its 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 a greater than twenty-five percent
(25%) of such Net Worth of Lessee as it was represented to Lessor at the time
of full execution and delivery 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, or a non-curable
Breach without the necessity of any notice and grace period. If Lessor elects
to treat such unconsented to assignment or subletting as a non-curable 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 for the Premises to the greater of the then fair market rental value of
the Premises, as reasonably determined by Lessor, or one hundred ten percent
(110%) of the Base Rent then in effect. 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 rental 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 as reasonably determined by Lessor (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, (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 rental bears to the Base Rent in effect
immediately prior to the adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
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, nor (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 an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent for 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 assignee or
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 under this Lease or the sublease and
without obtaining their consent, and such action shall not relieve such persons
from liability under this Lease or the sublease.
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(d) In the event of any Default or Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor.
(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 monthly Base Rent applicable to the portion of the Premises which is the
subject of the proposed assignment or sublease, 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
12.2(c) shall give Lessor the right (but not the obligation) to require that
the Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase 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 schedule
of the rent payable under this Lease be adjusted to what is then the market
value and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
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 the foregoing provision 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 such 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 under a sublease approved by Lessor 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" by
Lessee is defined as a failure by Lessee to observe, comply with or perform any
of the terms, covenants, conditions or rules applicable to Lessee under this
Lease. A "BREACH" by Lessee 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.
(b) Except as expressly otherwise provided in this Lease,
the failure by Lessee to make any payment of Base Rent, Lessee's Share of
Common Area Operating Expenses, or any other monetary payment required to be
made by Lessee hereunder 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
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (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 13.1(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. Code Section
101 or by 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 13.1(e) is
contrary to any applicable law, such provision shall be of no force or effect,
and shall not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, 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 assurances of 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 own 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 any leasing commission paid by Lessor in connection with this Lease
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 immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the
provisional remedy of unlawful detainer, Lessor shall have the right to recover
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ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
Subparagraph 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
Subparagraph 13.1(b), (c) or (d). In such case, the applicable grace period
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 (2) 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 recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. Lessor and
Lessee agree that the limitations on assignment and subletting in this Lease
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 this 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 (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 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 deed of trust covering the
Premises. Accordingly, if any installment of rent or 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 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 than thirty (30) days after receipt
by Lessor, and by any Lender(s) whose name and address shall have been
furnished to 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
portion of the Common Areas designated for Lessee's parking, 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 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 Base Rent shall be reduced in the same proportion as the rentable
floor area of the Premises taken bears to the total rentable floor area of the
Premises. No reduction of Base Rent shall occur if the condemnation does not
apply to any portion of the Premises. 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 of 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 Lessee's Share of the legal and other expenses incurred by
Lessor in the condemnation matter, repair any damage to the Premises caused by
such condemnation authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
15. BROKERS' FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are
the procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise
agreed in writing, Lessor agrees that: (a) if Lessee exercises any Option (as
defined in Paragraph 39.1) granted under this Lease or any Option subsequently
granted, or (b) if Lessee acquires any rights to the Premises or other premises
in which Lessor has an interest, 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 Broker(s) a fee in accordance with the schedule of said
Broker(s) in effect at the time of the execution of this Lease.
15.3 ASSUMPTION OF OBLIGATIONS. 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 an intended third party beneficiary of the
provisions of Paragraph 1.10 and 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.
15.4 REPRESENTATIONS AND WARRANTIES. 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 as named in Paragraph 1.10(a) 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 Broker(s) 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, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. 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 a 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 FINANCIAL STATEMENT. If Lessor desires to finance, refinance,
or sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors 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. 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 of such transfer
or assignment. Except as provided in Paragraph 15.3, 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 ten (10) days
following the date on which it was due, shall bear interest from the date due
at the prime rate charged by the largest state chartered bank in the state in
which the Premises are located plus four percent (4%) per annum, but not
exceeding the maximum rate allowed by law, in addition to the potential 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. Each Broker shall be an intended third party
beneficiary of the provisions of this Paragraph 22.
Initials: [SIG]
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MULTI-TENANT--GROSS
(C) American Industrial Real Estate Association 1993
<PAGE> 9
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or
registered mail or U.S. Postal Service Express Mail, with postage prepaid, or
by facsimile transmission during normal business hours, 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 DATE OF NOTICE. 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 States Postal Service or courier.
If any notice is transmitted by facsimile transmission or similar means, the
same shall be deemed served or delivered upon telephone or facsimile
confirmation of receipt of the transmission thereof, provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday or a Sunday
or a 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 any other term, covenant or condition hereof. Lessor's
consent to or approval of, any such 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 Default or Breach by Lessee of any provision hereof. 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. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
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. 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
pursuant to Paragraph 13.5. 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 hereof.
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 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. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorneys' fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "PREVAILING PARTY"
shall 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 attorneys' fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred. Lessor shall be entitled to attorneys'
fees, costs and expenses incurred in 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. Broker(s) shall be intended third party beneficiaries of this
Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as
Lessor may reasonably deem necessary. Lessor may at any time place on or about
the Premises or Building any ordinary "For Sale" signs and Lessor may at any
time during the last one hundred eighty (180) 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
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 exterior of the
Premises or the Building, 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 so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. 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 of the Building, and the right to install
advertising signs on the Building, including the roof, which do not
unreasonably interfere with the conduct of Lessee's business; Lessor shall be
entitled to all revenues from such advertising signs.
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 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' and
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, shall be paid by Lessee to
Lessor upon receipt of an invoice and supporting documentation therefor. In
addition to the deposit described in Paragraph 12.2(e), 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. 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
impositions 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 FORM OF GUARANTY. 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 such 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 required in
Paragraph 16.
INITIALS: [SIG]
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MULTI-TENANT -- GROSS
(C) American Industrial Real Estate Association 1993
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<PAGE> 10
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. 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 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 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 Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal
to purchase the Premises, or the right of first offer to purchase the Premises,
or the right to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor, or the right of first offer to
purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated 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.
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 separate Defaults under
Paragraph 13.1 during the twelve (12) month period immediately preceding the
exercise of the Option, whether or not the Defaults are cured.
(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 (3) or more notices of separate Defaults under
Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults
are cured, or (iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("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 the Building and the Industrial Center and their Invitees.
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 the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
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 he 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 the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered 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.
<PAGE> 11
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 YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS,
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 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 and on the dates
specified above their respective signatures.
Executed at: Executed at:
------------------------- -------------------------
on: on:
---------------------------------- ----------------------------------
By LESSOR: By LESSEE:
CNH, LLC Meade Instruments Corporation
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
By: /s/ ALFONSO CORDERO By: /s/ JOHN C. DIEBEL
- ------------------------------------- -------------------------------------
Name Printed: Alfonso Cordero Name Printed: John C. Diebel
- ------------------------------------- -------------------------------------
Title: Managing Member Title: Chairman & CEO
- ------------------------------------- -------------------------------------
By: By:
- ------------------------------------- -------------------------------------
Name Printed: Name Printed:
- ------------------------------------- -------------------------------------
Title: Title:
- ------------------------------------- -------------------------------------
Address: 2026 McGaw Avenue Address: 16542 Millikin Avenue
- ------------------------------------- -------------------------------------
Irvine, CA 92714 Irvine, CA 92714
- ------------------------------------- -------------------------------------
Telephone: (714) 757-0530 Telephone: (714) 556-2291
- ------------------------------------- -------------------------------------
Facsimile: ( ) Facsimile: ( )
- ------------------------------------- -------------------------------------
BROKER: BROKER:
Executed at: Executed at:
------------------------- -------------------------
on: on:
- ------------------------------------- -------------------------------------
By: By:
- ------------------------------------- -------------------------------------
Name Printed: Name Printed:
- ------------------------------------- -------------------------------------
Title: Title:
- ------------------------------------- -------------------------------------
Address: Address:
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
Telephone: ( ) Telephone: ( )
- ------------------------------------- -------------------------------------
Facsimile: ( ) Facsimile: ( )
- ------------------------------------- -------------------------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa
St., M-1, Los Angeles, CA 90071. (213) 687-8777.
MULTI-TENANT--GROSS Initials [SIG]
(c)American Industrial Real Estate Association 1993 -------
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<PAGE> 12
EXHIBIT A
TO THE AIR STANDARD
INDUSTRIAL MULTI-TENANT LEASE -- GROSS
DATED JANUARY 9, 1996 BY AND BETWEEN
CNH, LLC AS "LESSOR" AND
MEADE INSTRUMENTS CORPORATION AS "LESSEE"
[FIRST FLOOR PLAN]
<PAGE> 13
ADDENDUM TO THE AIR STANDARD
INDUSTRIAL MULTI-TENANT LEASE - GROSS
DATED JANUARY 9, 1996 BY AND BETWEEN
CNH, LLC AS "LESSOR" AND
MEADE INSTRUMENTS CORPORATION AS "LESSEE"
49. Tenant Improvements:
Lessor, at Lessor's sole cost and expense, shall provide the following
tenant improvements:
1) Construct a demising wall separating the Premises from the rest
of the Building. Said wall shall be from floor to ceiling and
provide no entry into the Premises.
2) Install one (1) rest room in the north east corner of the
Premises.
3) Install one (1) air conditioned office to be located at the
south east corner of the Premises.
4) Repaint the interior of the Premises.
50. Lease Renewal:
Sixty (60) days prior to the Expiration Date, Lessor will notify Lessee
if Lessor intends to continue to lease the Premises after the Expiration
Date. Lessee shall have seven (7) days after receipt of Lessor's notice
to elect to renew this Lease for a term of one (1) year commencing on
the first day after the Expiration Date on the same terms and conditions
as set forth in this Lease. If Lessee does not elect to renew this Lease
within such seven (7) days period, Lessor shall be free to lease the
Premises to others.
LESSOR:
CNH, LLC, a California limited liability company
By: /s/ Alfonso Cordero
-------------------------------
Alfonso Cordero,
Managing Member
LESSEE:
Meade Instruments Corporation
By: /s/ John C. Diebel
------------------------------
John C. Diebel
Chairman & CEO
<PAGE> 14
ADDENDUM
THIS ADDENDUM SHALL BE MADE A PART OF THAT CERTAIN AIR MULTI-TENANT (GROSS)
LEASE DATED JANUARY 31, 1996 BETWEEN CNH, LLC AND MEADE INSTRUMENTS
CORPORATION, FOR THE PROPERTY LOCATED AT 2026 MCGAW AVENUE, IRVINE, CALIFORNIA.
51. This Addendum shall serve to set forth a specific expiration date of
the leases described in Item 1.3 of the original lease document. The
expiration date shall be October 1, 1997.
52. Beginning with the April 1997 payment and through the balance of the
lease term, the rent shall be at $0.45 per square foot, (gross) for a
total of $12,312/mo.
All other terms and conditions of the original lease document shall remain in
full force and effect and only those items described above shall supercede and
items contained in the January 31, 1996 draft of the lease.
Landlord: Tenant:
CNH, LLC Meade Instruments Corporation
By: /s/ ALFONSO CORDERO By: /s/ STEVEN MURDOCK
---------------------------- ------------------------------
Title: Managing Partner Title: President
------------------------- ---------------------------
Date: 12/19/96 Date: 12/16/96
-------------------------- ----------------------------
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<FISCAL-YEAR-END> FEB-28-1997 FEB-29-1996
<PERIOD-START> MAR-01-1996 MAR-01-1995
<PERIOD-END> NOV-30-1996 FEB-29-1996
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