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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
DCH TECHNOLOGY, INC.
(Name of small business issuer in its charter)
Colorado 95-4516364
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
27811 Avenue Hopkins #6
Valencia, California 91355
(Address of principal executive offices, including Zip Code)
Issuer's telephone number, including area code: (661) 775-8120
Securities to be registered pursuant to Section 12(b) of the Act: Not
applicable
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
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PART I
ITEM 1. BUSINESS.
DCH Technology, Inc., a Colorado corporation ("DCH" or the "Company"),
licenses, manufactures and markets state-of-the-art technologies involving
hydrogen-related products, primarily hydrogen gas detectors and fuel cells.
History
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DCH was formed in November 1994 as a partnership between David P. Haberman,
DCH's Vice President of Technology and Planning and Chairman of the Company's
Board of Directors, and David A. Walker, the Company's President and a member of
the Board of Directors. DCH's initial strategy was to assist a small
engineering company in Marina Del Rey, California in the manufacturing and sale
of aircraft thermocouples based on the engineering company's design and
development work.
DCH initially established offices in Sherman Oaks, California in December
1994. The Company was incorporated in California in January 1995.
By mid-1995, the Company had abandoned the thermocouple business when the
local engineering company's design was found to have irrecoverable flaws.
Management of DCH then re-directed its efforts toward the commercialization of a
hydrogen gas detector developed and patented by Sandia National Laboratories
("Sandia") in Albuquerque, New Mexico. From this time until mid 1997, the
Company funded itself primarily through research contracts and the resale of
aerospace equipment.
After investigating the hydrogen energy industry and related technologies,
management of DCH decided to pursue the licensing of the Sandia patent. In
April 1996, the Company entered into a license with Sandia and began to
concentrate on the production and qualification of the hydrogen sensors. DCH
commenced initial pre-production and qualification of the hydrogen sensors in
February 1997, and continued redesign of the sensors to improve performance and
reduce costs.
In May 1997, all of the outstanding capital stock of DCH was acquired by
Connection Sports, Inc., a publicly traded Colorado corporation ("CSI") in
exchange for the issuance of 6,000,000 shares of CSI common stock. The
survivor was CSI, and its name was changed to DCH Technology, Inc. This stock
exchange transaction is treated as an acquisition by the Company of the net
tangible book value of the assets of CSI, at the date of the acquisition. In
this Registration Statement, the terms "DCH" or "the Company" refers to DCH
Technology, Inc., a Colorado corporation, and DCH Sensors Corp., its wholly
owned California subsidiary. DCH is currently traded on the Over-the-Counter
Bulletin Board under the symbol "DCHT".
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DCH expanded its offices and moved to Valencia, California in June 1998.
This relocation allowed the Company to set up offices, manufacturing and
engineering areas, including a design and engineering laboratory, a test and
calibration laboratory and a manufacturing/assembly area. DCH's offices are
located at 27811 Avenue Hopkins #6, Valencia, California 91355; its telephone
number is (661) 775-8120. It also has a Web site, located at
http:\\www.dcht.com.
General / Products
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DCH licenses, manufactures and markets state-of-the-art technologies
focusing on hydrogen-related products. The Company specializes in licensing and
converting new ideas and technologies into state-of-the-art products. To date,
DCH has licensed three technologies involving hydrogen gas sensors and one
concerning fuel cells.
Hydrogen Gas Sensors
--------------------
The Company's sensors are used for detection of hydrogen, the most
plentiful element on the earth. Hydrogen is one of two major elements of water,
which covers over 60% of the planet. It appears in different forms in plants,
animals, fossil fuels and a wide range of chemical compounds. Hydrogen is a
combustible, odorless and colorless gas that is widely used in industrial,
commercial and medical applications. When hydrogen burns, it generates only
energy and water, and thus is a clean non-polluting fuel. The Company believes
that in the future, hydrogen may replace fossil fuels in both electrical power
generation and as the fuel of choice for the automotive industry.
Hydrogen is also the key component in the manufacture of chemicals,
especially ammonia and methanol. It is used in large quantities in refineries
for manufacturing gasoline and heating oil, as well as to make fertilizers,
glass, refined metals, vitamins, cosmetics, semiconductor circuits, soaps,
lubricants, cleaners, margarine, peanut butter and rocket fuel. DCH's sensors
act to monitor and measure the amount of hydrogen used in processes within these
and other industries.
In addition to its uses, however, hydrogen carries certain dangers.
Hydrogen is explosive when it reaches an approximate four percent concentration
in air or oxygen (this is known as the "Lower Explosive Limit" or "LEL" of
hydrogen). In order to avoid these explosions, it is necessary to monitor and
measure the concentration of hydrogen in areas of concern and to either sound
warnings as this danger point is approached or to activate control equipment
which results in the avoidance of hazardous situations. DCH's sensors act to
alert, warn, measure and/or control the flow and use of hydrogen.
Based on industry sources, DCH estimates that the total annual worldwide
sales of gas detectors amounted to approximately $1.09 billion in 1997.
Approximately one-half of these sales involved gas detectors for carbon
monoxide, hydrogen sulfide, ammonia, oxygen and hydrogen, with hydrogen
detectors comprising approximately 9.8% of total sales.
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DCH's technologies have opened additional markets for hydrogen gas sensors.
For example, DCH's sensors have been sold to Westinghouse for installation in
the Leningrad Nuclear Power Plant as safety monitors, as they were the only
economically priced hydrogen gas sensors that could withstand the harsh
environment of a nuclear power plant.
DCH has licensed certain sensor technologies from several sources, and is
currently developing products based on these technologies: the Robust Hydrogen
Sensor, the Thick Film Hydrogen Sensor and the Universal Gas Detector. The
Company is also developing a Fiber Optic Hydrogen Sensor.
The Robust Hydrogen Sensor. The Robust Hydrogen Sensor technology was
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invented and patented (patent number 5,279,795) by the U.S. Department of Energy
("DOE") at Sandia in Albuquerque, New Mexico. The technology, an Applications
Specific Integrated Circuit ("ASIC"), was developed by Sandia for the U.S.
Department of Defense for a classified nuclear weapons application. After Sandia
had patented the technology, it was made available to the commercial market for
licensing. This process permits the U.S. government to receive royalties and
licensing fees for the technology without expending the resources required to
commercialize products.
DCH licensed the Robust Hydrogen Sensor from Sandia in April 1996. The
Sandia license agreement, which expires on the earlier of January 1, 2015 or the
expiration of Sandia's patent rights, required DCH to pay an up-front license
fee, payable in three equal installments. All of these installments have been
paid. In addition to the license fee, DCH will pay a royalty to Sandia for every
ASIC sold (whether sold alone or installed in a device or system), subject to
certain minimum royalties. In 1998 and 1999, DCH paid royalties of $1,000 and
$8,000, respectively, to Sandia under the Sandia license agreement. No royalties
were earned in 1997.
The Robust Hydrogen Sensor technology consists of an array of two hydrogen-
sensing elements: palladium-nickel ("PdNi") gate CMOS field effect transistors
("FETs") and PdNi resistors. The threshold voltage of the FETs shifts in
response to the concentration of hydrogen in the surrounding environment,
detecting hydrogen in concentrations from approximately ten parts per million
("ppms") to one percent. The PdNi resistors also change their resistance in
response to the concentration of ambient hydrogen, allowing sensing from about
one percent to 100% concentration. The technology also includes a micro-
thermometer (temperature diode) and micro-heaters for maintaining on-chip
temperature control and other chip functions. In addition, the heaters are used
to temporarily heat the chip to "boil" off hydrogen molecules, which may stick
to the palladium, thus freeing the sensor for repeated use.
The Sandia license agreement defines two fields of use for the licensed
technology. The first field of use, covering the petrochemical, energy, waste
management, environmental and manufacturing industries, is exclusive to DCH
through
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April 24, 2001. After that date, the license in this field becomes non-exclusive
for the remaining term of the license agreement. The second field of use covers
all other commercial applications and is non-exclusive.
DCH offers the Robust Hydrogen Sensor technology in three basic forms. The
first, an integration kit, is used for installation into customized systems as
leak detectors and measurement devices. The second form consists of a hand-held
unit, affording portability in hydrogen detection and measurement. The third
form is a sensor system, a fixed installation arrangement for leak detection
and/or measurement in remote locations. DCH anticipates that this third product
will have the ability to be remotely interrogated whenever desired, and may be
coupled with a modem or radio tag which could power the ASIC and send a reading
back to a computer or other equipment at another location.
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To date, DCH has received over $700,000 in orders for its Robust Hydrogen
Sensor products. The largest of these was received in March 1998, when
Westinghouse Nuclear Products Division (Monroeville, Pennsylvania) placed an
order for a retrofit of the reactor and turbine areas of the Leningrad Nuclear
Power Plant (LNPP) in Russia.
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Thick Film Hydrogen Sensor. The Thick Film Hydrogen Sensor technology was
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invented and patented (under U.S. patent numbers 5,367,283 and 5,451,920) by the
U.S. DOE at Oak Ridge National Laboratory in Oak Ridge, Tennessee ("ORNL"). The
sensor, developed by Barbara Hoffheins and Robert Lauf of ORNL, relies on the
reversible solubility of hydrogen in palladium.
DCH commenced the development of the Thick Film Hydrogen Sensor technology
from Lockheed Martin Energy Research ("LMER"), an ORNL contractor, in September
1996, pursuant to a Cooperative Research and Development Agreement ("CRADA")
(the "ORNL CRADA"). Under the ORNL CRADA, DCH has provided a business plan and
product definition for commercialization of the technology, while LMER continues
development efforts for certain products based on the technology. The ORNL
CRADA, which expires in September 1999, anticipates an aggregate expenditure, in
cash and in-kind, of $1,170,000.
Concurrently with entering into the CRADA, DCM and LMER entered into a
license agreement. The LMER license grants DCH the sole commercial right and
license to manufacture, use, sell or offer for sale the products based on the
thick film hydrogen sensor technology in the following fields of use: (i)
production, storage and transportation of hydrogen for use in the generation of
power; (ii) use of hydrogen in fuel cells and high yield energy storage; and
(iii) safety applications in the chemical and petroleum industries.
The license has an initial term of five years, with renegotiation for
renewal every five years thereafter. It provides for an initial license fee
(paid by DCH in September 1996) and royalties on sales of products incorporating
the thick film hydrogen sensor technology. To date, no revenues have been
generated from such sales; management of DCH anticipates that production of
products will commence in approximately 12 to 18 months.
The sensor is fabricated with conventional thick film materials and methods
(primarily because of significant cost advantages). The design consists of
several electronic compositions that are separately screen-printed and fired
onto an alumna substrate. The key sensor composition is primarily composed of
palladium metal because of its documented affinity for hydrogen. Changes in
hydrogen concentration in the palladium matrix correspond to changes in the
electrical resistance of the palladium and can be easily measured.
Universal Gas Detector. A patent application was filed for the Universal
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Gas Detector technology on March 27, 1998 (priority claimed by United States
Provisional Application 60/041,653). DCH licensed the invention from Simon
Fraser University ("SFU") in Burnaby, British Columbia, Canada on July 28, 1998.
The technology is intended to selectively detect any reducing gas or oxidizing
gas and/or their vapors, and involves a detecting system that can be designed to
use any commercially available sensor head.
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The license grants DCH the exclusive right and license, for any use, to
make, have made, use, maintain, execute, copy, market, lease and sell products
based on the technology.
The license term is from July 28, 1998 until the end of the term for which
patent rights are granted. It provides for an initial license fee (paid by DCH
in April 1998) and royalties on sales of products incorporating the universal
gas detector technology. To date, no revenues have been generated from such
sales; management of DCH anticipates that production of products will commence
in approximately 18 to 24 months.
The technology consists of software and electronics, which can be set to
selectively detect any reducing gas or oxidizing gas (and/or their vapors) to
which it is exposed. This involves a detecting system that can be designed to
use any commercially available sensor head.
Fiber Optic Hydrogen Sensor The Fiber Optic Hydrogen Sensor technology
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was invented by the U.S. DOE at the National Renewable Energy Laboratory
("NREL") in Golden, Colorado. DCH, through Amerisen, a joint-venture with
Midwest Research Technology, Inc. ("MRT"), commenced development of the Fiber
Optic Hydrogen Sensor technology in May 1996 pursuant to a CRADA with NREL. The
NREL CRADA required NREL to have primary responsibility for design and
development of a prototype sensor, while Amerisen would develop and manufacture
a hydrogen detector test station and demonstrate the sensor to potential
customers. Each party would contibute in-kind support, valued at an aggregate of
$1,700,000. The NREL CRADA expires in September 1999. The parties are currently
negotiating a license for the Fiber Optic Hydrogen Sensor technology. There can
be no assurance that such a license can be negotiated on terms acceptable to
DCH.
Fuel Cells
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The fuel cell was invented by William Robert Grove in 1839. A fuel cell is
a device that uses a fuel (usually hydrogen) to create electricity. The method
it uses to create the electricity is fairly simple: Hydrogen is introduced to
one side of the fuel cell (known as the anode). The hydrogen atom is stripped of
its electron as it progresses through the cell. The electron goes through a
conductor to create an electrical current. At the other end, the hydrogen joins
up with oxygen and forms water (H2O).
When a fuel cell is used it creates clean power (electricity) with pure
water as the only byproduct. The amount of power that can be created is
significant. ONSI Corporation, one of DCH's competitors, has manufactured a fuel
cell delivering 200kW of power. Ballard Power Systems, another competitor of the
Company, makes fuel cells used in buses in the U.S. and Canada which generate
205 kW (275 HP). Fuel cells are being considered for use to power electric
vehicles by many of the major automobile manufacturers.
The fuel cell industry is generally considered to be in its infancy (even
though the basic technology is almost 160 years old), because fuel cells
historically have been large and extremely expensive to manufacture. However,
with the interest and financing from government labs (like Los Alamos National
Lab) and private entities (like Daimler Benz), the fuel cell is quickly becoming
economically viable and physically practical.
PEM Fuel Cell. The Company believes that in addition to the
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transportation sector, fuel cells might be used in markets such as emergency
power supplies, medical
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applications, and portable low-power sources. As a result of this belief, DCH is
working with Los Alamos National Laboratory in Los Alamos, New Mexico ("LANL")
to commercialize its Proton-Exchange-Membrane ("PEM") fuel cell -- a small,
stackable device (each unit is a little smaller than a baseball cap) that will
deliver low power (less than 50 to 500 watts) reliably and cleanly. The current
configuration of the PEM fuel cell is not powerful enough to operate an
automobile, but the Company believes that it can provide enough power for people
in third world countries or in an emergency situation or other venue where no
power is present to operate such items as small medical equipment, communication
devices and camping equipment.
The PEM fuel cell technology, relating to annular feed air breathing fuel
cell stacks, was invented and patented (under U.S. patent numbers 5,514,486 and
5,595,834) by the U.S. DOE at LANL. The fuel cell is designed to provide clean,
economic low power (from less than 50W to 5kW).
DCH commenced development of the PEM fuel cell technology with LANL in
March 1999, pursuant to a CRADA (the "LANL CRADA"). Under the LANL CRADA, DCH
has provided a business plan and product definition for commercialization of the
technology, while LANL continues development efforts for 50W and 300W fuel cells
based on the technology. The LANL CRADA for the PEM fuel cell technology expires
in October 2000 and contemplates aggregate development expenditures (in cash and
in-kind) of $1,200,000.
In connection with the LANL CRADA, DCH received two licenses for the PEM
fuel cell technology. The first license grants DCH the exclusive license to
make, have made, use, import, sell and offer to sell the products based on the
patented technology (with sublicense rights) in the fields of use of
power generation for marine, aerospace, military, portable and remote-area
applications. This exclusive license commenced in March 1999 and continues
until the expiration of the last patent on the technology.
The exclusive license agreement provides for an up-front fee (paid by DCH
in March 1999) and annual license fees due on January 31st of each year of the
term of the exclusive license; these fees will be credited against royalties on
net sales of the fuel cells and other payments (such as sublicense fees).
The second license grants DCH the non-exclusive license to make, have made,
use, import, sell and offer to sell the products based on the patented
technology (with sublicense rights) in the all fields of use except power
generation for marine, aerospace, military, portable and remote-area
applications. The nonexclusive license commenced in March 1999 and continues
until the expiration of the last patent on the technology.
The nonexclusive license agreement provides for an up-front fee (paid by
DCH in March 1999) and annual license fees due on January 31st of each year of
the term of the nonexclusive license; these fees will be credited against
royalties on net sales of the fuel cells and other payments (such as sublicense
fees).
To date, no revenues have been generated from sales of fuel cells pursuant
to either the exclusive or nonexclusive licenses; management of DCH
anticipates that production of products will commence in approximately 12 to 18
months.
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Marketing and Sales
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Hydrogen Sensors. DCH has devised a marketing strategy for its hydrogen
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sensors, and is currently in the process of implementing this strategy. The
Company's strategy involves three components: establishing DCH in the "hydrogen
community", comprised of trade groups such as the National Hydrogen Association,
the California Hydrogen Business Council and the Congressional Hydrogen
Technical Advisory Panel; establishing a coalition with the insurance industry
to require use of hydrogen detection systems; and using commissioned independent
sales representatives specializing in particular industries to sell the
Company's products.
The strategy differs in each of DCH's target markets: for example, in the
government/aerospace industries, DCH has utilized contacts with NASA to test its
sensors on certain aircraft engines. Its continuing strategy includes
additional testing on engines, and installation of the sensors at various NASA
sites. In the energy industry, DCH intends to participate in the creation and
refinement of the various codes and standards governing sensor systems as well
as to persuade insurance companies to promote the use of hydrogen sensors as
safety devices. To date, DCH has participated in the associations listed above
and has contracted with companies including Westinghouse to provide hydrogen
sensors. DCH's marketing strategy in the petrochemical industry involves the
introduction of sensors on a test basis to oil refineries through the Company's
pipe corrosion detection feature, a relatively new field of use. DCH also
believes that refineries will recognize the value of its hydrogen sensors as a
cost-saving safety device.
As part of its overall business plan, the Company has entered into
strategic partnerships with several organizations. The Company believes that
strategic partnerships are a key to future growth, especially in the hydrogen
gas detection and measurement business. The Company has identified 34 industries
where hydrogen sensors are used. By creating alliances with value added
resellers ("VARs") and distributors, the Company anticipates that it will be
able to penetrate multiple markets and realize higher sales volumes.
In addition, the Company has made alliances with multiple transformer gas
analysis companies, which are testing DCH equipment for use in transformer
cooling oil. These Companies may become VARs of DCH equipment based upon
qualification of DCH sensors in test procedures.
On January 21, 1999, the Company announced the signing of a distribution
agreement with Horiba, Ltd., an international gas analyzer company. The
distribution agreement permits Horiba to distribute and sell products in Japan
based on the Robust Hydrogen
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Sensor technology, utilizing both the DCH Hand Held Unit design and integrating
DCH electronics into a Horiba gas analyzer. The Horiba distribution agreement
has a term of one year, but will be automatically renewed for a five-year term
if Horiba sells 50 of such products during such year.
The Company plans to use distributors to market its products overseas and
currently has agreements with ten distributors worldwide for the Robust Hydrogen
Sensor product line.
DCH also has increased its visibility by providing presentations at
national and international conferences advocating the use of hydrogen sensors.
The Company has also participated in the formation of a coalition to provide
insurance industry risk assessments.
Fuel Cells. The Company has developed a marketing plan for its fuel cell
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product line, targeting certain domestic and international markets. The plan
has not been fully implemented, however, because the product is still in
development. Management believes that the single largest barrier to market
acceptance of its fuel cells will be the lack of market knowledge about the
benefits of fuel cells. With this in mind, the Company has embarked on a market
education program. The Company has manufactured several prototype demonstration
units of its fuel cells and has successfully operated hardware at trade shows
and conferences. In addition, Company personnel have spoken at conferences about
the fuel cell product. As the Company nears the commercial introduction of its
fuel cells, these educational activities will continue to increase.
Research and Development
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Management of DCH believes that continuing research and development of its
licensed technology is critical to penetrating existing markets through superior
product features, opening new markets and obtaining a competitive advantage.
Due to its limited resources, DCH currently conducts its research and
development activities with strategic partners: sensor development in
connection with federal research laboratories such as ORNL; applications
development in conjunction with DCH's field representatives; and advanced
systems designs for specialized industries with customers.
To date, a significant portion of DCH's research and development has
occurred through CRADAs with the U.S. Department of Energy: the ORNL CRADA, the
LANL CRADA and the NREL CRADA. See "Business - General/Products".
During the years ended December 31, 1997 and 1998, the Company expended
$59,484 and $1,810,185 respectively, on Research and Development. None of these
expenses were funded by the Company's customers.
Manufacturing
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At the present time, the Company's Robust Hydrogen Sensor product line
constitutes the only products of the Company in production. DCH subcontracts
specialty processes relating to the Robust Hydrogen Sensor product line to
several major manufacturers. Semiconductor wafer production for the Company's
hydrogen sensor element occurs at Allied Signal's Microelectronics and
Technology Center in Columbia,
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Maryland. Electronic circuit boards are fabricated by International Circuits and
Components, Inc. (ICCI) in Anaheim, California. Housings and other hardware are
fabricated by various small manufacturers. DCH conducts final assembly,
calibration and finished product testing of the sensors. To date, DCH has not
experienced any interruption in the manufacture of its products, and anticipates
that sources for each of its subcontracting activities will be readily
available. The Company is currently in the initial production phase and
anticipates going into full production within a year.
Backlog
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The commercial order backlog for DCH's products at June 30, 1999 was
$267,195, compared with $271,043 at June 30, 1998. Since the Company generally
ships its products within the same quarter that it receives a purchase order
from the customer for such products, the Company believes that its backlog at
any particular time is generally not indicative of the level of future sales.
Competition
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DCH competes in both the hydrogen sensor and fuel cell markets. The
hydrogen sensor market is extremely competitive, with several manufacturers
competing for acceptance. Most of DCH's competitors have far greater financial,
marketing and manufacturing resources than DCH by virtue of their being long
established in the field. The attributes upon which competition is based are
primarily reliability, ease of use, product support, response speed, accuracy
and price. Management of DCH believes that its hydrogen sensor products offer
several advantages, including a faster reaction time of less than two seconds
near the LEL (current detectors may take as long as two minutes to return a
reading) and extended sensor life. In addition, the Company's sensors are
hydrogen-specific and therefore not prone to false readings, and operate in
hostile environments such as radioactive areas. Finally, the sensors indicate a
complete range of hydrogen presence, similar to that offered by mass
spectrometers but at a much lower cost.
Competition in the fuel cell industry is comprised primarily of companies
that do research and testing but have no foreseeable path to commercialization.
DCH believes its simple, passive technology will provide significant economic,
utilization and performance advantages. Management believes the Company's fuel
cell has significant advantages over existing low power fuel cells in
development at other companies. These advantages include a smaller size and
weight, no moving parts (it is a completely passive device), low cost and
simplicity of design.
Government Regulation
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The Company is permitted to export its hydrogen sensors without
restriction, as the U.S. Department of Commerce, Bureau of Export Control has
assigned the sensor an ECCN of EAR99.
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DCH's production of hydrogen fuel cells will be subject to various federal,
state and local laws and regulations relating to, among other things, land use,
safe working conditions, handling and disposal of hazardous and potentially
hazardous substances and emissions of pollutants into the atmosphere. To date,
DCH believes that it has obtained all necessary government permits and has been
in substantial compliance with all of these applicable laws and regulations.
Employees
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As of June 30, 1999, the Company employed 13 people on a full-time basis,
consisting of 7 people in engineering/development/manufacturing, 4 in
administration and 2 in sales/customer service. DCH's employees are not
represented by a labor union, and it has experienced no work stoppages. The
Company believes that its employee relations are good. The loss of key
employees could cause delays in completing contracted work and research and
development and commercialization activities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
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DCH licenses, manufactures and markets state-of-the-art technologies
involving hydrogen-related products, primarily hydrogen gas detectors and fuel
cells. The Company currently obtains its funding from private placements of
equity securities and product sales. The Company commenced initial production of
its first product line, the Robust Hydrogen Sensor product line, in November
1998. As production activity increases, the production facilities are more fully
utilized and the Company fully implements its marketing strategies, management
expects revenues from sales of product to increase in proportion to funding from
continued equity placements.
Results of Operations
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Six Months Ended June 30, 1999 Compared with Six Months Ended June 30, 1998
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For the six months ended June 30, 1999, the Company had sales of $216,773
compared to sales of $24,000 for the six months ended June 30, 1998. The
increased sales in 1999 were due primarily to the Company's introduction of its
Robust Hydrogen Sensor product line in November 1998. In accordance with the
growth in sales, the cost of products sold increased to $142,878 for the six
months ended June 30, 1999 compared to $5,720 for the comparable period in 1998.
Gross profit was $73,895 for the six months ended June 30, 1999 compared to
$18,280 for the six months ended June 30, 1998, also reflecting the increased
sales.
Selling, general and administrative expenses were $1,033,784 for the six months
ended June 30, 1999, compared to $1,281,448 for the comparable period in 1998.
Substantially all of the selling, general and administrative expenses in the
first two quarters of 1999 were derived from the ramp up required to
commercialize and introduce the Robust Hydrogen Sensor product line, while the
1998 expenses primarily reflected stock-based awards issued by the Company to
employees and non-employees in consideration of services or goods provided.
Depreciation and amortization increased to $24,014 for the six months ended June
30, 1999, compared to $7,518 for the six months ended June 30, 1998, due to
purchases by the Company of equipment for its operations.
The Company expended $319,498 on research and development during the six months
ended June 30, 1999 compared to expenditures of $610,294 for the comparable
period in 1998. The decrease was due to the movement of the Robust Hydrogen
Sensor product line from the research and development phase to initial
production.
As a result of the foregoing factors, the Company's net loss decreased to
$1,303,357 for the six months ended June 30, 1999, from $1,879,072 for the six
months ended June 30, 1998. Due to an increase in the number of shares
outstanding during the period, the net loss per share decreased to $.10 for the
six months ended June 30, 1999 from $.22 for the comparable period in 1998.
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
- -----------------------------------------------------------------------
For the year ended December 31, 1998, the Company reported sales of
$207,580, compared to sales of $89,751 in the prior year. Sales in both years
consisted primarily of research projects performed by the Company for the
benefit of third parties. The increase in sales was due primarily to an
increase in the number of projects undertaken by the Company, but also reflected
the introduction of the Company's Robust Hydrogen Sensor product line in
November 1998. Cost of sales for the year ended December 31, 1998 equaled
$66,480; the Company did not incur costs of sales for the prior year, as sales
in 1998 consisted solely of research projects with no hardware deliverables.
Selling, general and administrative expenses were $2,880,897 for the year
ended December 31, 1998, as compared to $208,026 for the year ended December 31,
1997. The substantial increase was composed of several factors reflecting the
Company's ramp
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up of operations: stock-based awards issued by the Company during fiscal 1998 to
employees and non-employees in consideration of services or goods provided prior
to or during that year, an increase in the number of employees, the Company's
move to larger facilities and the commencement of manufacturing operations.
The Company incurred depreciation and amortization expenses of $31,857 in
the year ended December 31, 1998 compared to $8,304 in the prior year, due to
purchases by the Company of equipment for its operations.
Research and development expenditures in the year ended December 31, 1998
were $1,810,185, compared to $ 59,484 in 1997. The increase in 1998 was
primarily due to the ramp up in the development of several systems for the
Robust Hydrogen Sensor product line and the research and development of the
Company's thick film hydrogen sensor, universal gas detector and fuel cell
products.
Due to the factors set forth above, the Company incurred a net loss of
$4,577,656 in 1998 compared with $185,157 in 1997. The net loss per share
increased to $.48 for the year ended December 31, 1998 compared to $.04 for the
year ended December 31, 1997.
Liquidity and Capital Resources
- -------------------------------
To date, the Company has funded its operations primarily through private
placements of equity securities and secondarily through product sales and loans
from officers and major shareholders. Such placements generated net proceeds of
$900,356 during the six months ended June 30, 1999, $1,310,729 for the year
ended December 31, 1998 and $81,500 during the year ended December 31, 1997. At
June 30, 1999, the Company had a working capital deficit of $164,885, including
$38,531 cash, compared to a working capital deficit of $656,891, including
$344,417 cash at June 30, 1998.
The Company's cash increased by $662 during the year ended December 31,
1998. The increase was due primarily to financing activities, which provided
$1,478,021 to the Company in 1998. Operating activities in 1998 utilized
$1,228,371 of cash, and investing activities utilized $248,988 during the same
period.
The Company remains dependent upon its ability to obtain outside financing
through the issuance of additional securities until it achieves sustained
profitability through increased sales. Management believes that the Company
will require significant resources in 1999, principally to fund the Company's
working capital needs to support the commercialization of the Company's hydrogen
sensor and fuel cell products and continuing research and development efforts.
The Company expects to generate the necessary resources for its 1999 business
plan through a combination of the contribution from sales of its products and
additional private placements of equity securities. No assurances can be given,
however, that the Company will be able to obtain such additional resources.
15
<PAGE>
If the Company is unsuccessful in generating anticipated resources from one
or more of the anticipated sources and is unable to replace any shortfall with
funding from another source, the Company may be able to extend the period for
which available resources would prove adequate by deferring the satisfaction of
various commitments or otherwise scaling back operations. If the Company were
unable to generate the required resources, its ability to meet its obligations
and to continue its operations would be adversely affected. The Company's
financial statements have been prepared under the assumption of a going concern.
Failure to generate required resources and to achieve sustained profitability
would have an adverse effect on the financial position, results of operations,
cash flows and prospects of the Company and ultimately on its ability to
continue as a going concern.
Year 2000 Readiness Disclosure
- ------------------------------
The Year 2000 ("Y2K") issue refers to the potential for failure of computer
systems that use two digits rather than four digits to identify the applicable
year. This raises the possibility that some systems may recognize the year 2000
as the year 1900, which may result in system failure, miscalculations, loss of
data, etc.
In 1998, the Company contracted with a Y2K consultant who, in concert with
Company personnel and one of the Company's aerospace customers, conducted a
comprehensive evaluation of all its systems, including the internal network,
local micro-computers, test equipment, financial systems and software imbedded
in its products. Based on this testing, the Company was found to be Y2K
compliant in all of its product and internal systems. The Company has also
received assurances from the suppliers of the software it employs that such
software is Y2K compliant, and intends to obtain assurances that any computer
software and hardware purchased in 1999 is Y2K compliant. The Company does not
believe that its insistence upon Y2K compliant hardware or software will
materially increase the cost thereof.
The Company currently has limited information regarding the Y2K compliance
status of its principal customers and suppliers of goods and services. In
informal communications with all of its suppliers, the Company has been assured
that such suppliers' computer systems are Y2K compliant; however, it has not
received formal guarantees of such compliance. If any principal suppliers of
the Company lack systems that are Y2K compliant or programs that provide
reasonable assurance that such systems will be Y2K compliant well before the end
of 1999, the Company will attempt to identify and establish relations with
alternative suppliers who have Y2K compliant systems. There can be no assurance
that the Company would be successful in locating such new suppliers.
The Company sells its products for integration in other systems developed
by its customers. While management believes those systems to either be Y2K
compliant or committed to be Y2K compliant by January 1, 2000 (based the
Company's survey of those customers), the Company has no control over the
ability and internal commitment
16
<PAGE>
of such customers to meet this goal. Therefore, the possibility remains that
some DCH products may be integrated with other companies' non-Y2K compliant
equipment.
The Company believes that the costs associated with monitoring Y2K
compliance by suppliers and customers and dealing with any non-compliance will
not be material. The failure of the Company or any of its principal customers
or suppliers to become Y2K compliant in a timely manner could have a material
adverse effect on the Company's business, financial condition, results of
operations and cash flow.
ITEM 3. PROPERTIES.
The Company's principal executive, administrative, and engineering
operations are located in two leased facilities totaling 6,700 square feet in
Valencia, California. The main office is occupied under a lease expiring on May
31, 2001. The production facility is in a separate building nearby
(approximately 150 yards from the main office) occupied under a lease expiring
on April 30, 2002. The Company leases approximately 3,300 square feet in
Madison, Wisconsin where it conducts research and development on the fuel cell
product and where it plans to expand into limited production. This lease
expires on April 30, 2002. The Company also occupies a small sales office
(approximately 150 square feet) in Washington, DC under a month-to-month lease.
Management considers that the current facilities are adequate for the present
level of operations and that additional office and factory space is available in
the immediate vicinity.
17
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
Principal Stockholders
----------------------
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1999 (i) by each director
of the Company; (ii) by each person known by the Company to own beneficially
more than five percent of the Company's Common Stock; (iii) by the executive
officers named in the Summary Compensation Table set forth in "Item 6-Executive
Compensation"; and (iv) by all directors and executive officers of the Company
as a group.
Name and Address(1) Number of Shares(2) Percent
------------------- ------------------- -------
David A. Walker 2,327,751 (3) 13.2% (3)
David P. Haberman 2,218,000 (4) 12.6% (4)
Randall S. Firestone 1,163,170 (5) 6.6% (5)
Dr. William L. Firestone 1,898,854 (6) 10.8% (6)
Daniel Teran 80,000 (7) *
Robert S. Walker 0 *
Raymond Winkel 180,040 (8) 1.0% (8)
All executive officers and
Directors as a group (seven
Persons) 7,867,815 (9) 44.7% (9)
_____________________________
(*) Less than one percent.
(1) The address of all persons listed above is c/o DCH Technology, Inc., 27811
Avenue Hopkins, #6, Valencia, California 91355.
(2) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
as to which the individual has sole or shared voting or investment power
and also any shares which the individual has the right to acquire within 60
days after June 30, 1999. The inclusion herein of such shares, however,
does not constitute an admission that the named stockholder is a direct or
indirect beneficial owner of such shares. Unless otherwise indicated, each
person named in the table has sole voting and investment power (or shares
such power with his or her spouse) with respect to all shares of Common
Stock listed as owned by such person.
18
<PAGE>
(3) Includes 1,350,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of June 30, 1999.
(4) Includes 1,400,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of June 30, 1999.
(5) Includes 50,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of June 30, 1999.
(6) Includes 675,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of June 30, 1999.
(7) Includes 50,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of June 30, 1999.
(8) Includes 100,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of June 30, 1999.
(9) Includes 3,625,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of June 30, 1999.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS.
Management
----------
The following table sets forth certain information concerning the Company's
executive officers and directors.
Name and Age Office(s) Held
- ------------ --------------
David P. Haberman, 38 Chairman of the Board of Directors and
Vice President, Technology &
Planning
David A. Walker, 41 President, Vice President of Business
Operations and Director
Randall S. Firestone, 44 Director
19
<PAGE>
Dr. William L. Firestone, 78 Director
Daniel Teran, CPA, 46 Director
Robert S. Walker, 56 Director
Raymond N. Winkel, 70 Director
David P. Haberman is the Chairman of the Company's Board of Directors and has
served in that capacity and as Vice President, Technology and Planning since co-
founding the Company with David A. Walker in November 1994. Mr. Haberman served
as an engineering consultant at CBOL Corporation between 1993 and 1994 and
served in various technical capacities at the Astronautics Corporation of
America from 1983 to 1993. He is an experienced applications engineer and has a
background in the design and development of hardware. In addition, Mr. Haberman
was elected to the Board of Directors of the National Hydrogen Association in
April 1999 and previously served on that Board between 1996 and 1998. Since
October 1998, Mr. Haberman has also served as a member of the Hydrogen Technical
Advisory Panel, which reports to Congress on hydrogen-related issues. Mr.
Haberman also serves as an American delegate to the International Standards
Organization (ISO) on hydrogen safety.
David A. Walker was appointed President of DCH Technology upon the retirement of
Dr. William L. Firestone in April 1999. Prior to that, he served as Vice
President, Operations of DCH since co-founding the Company with David P.
Haberman in November 1994. In addition, he served on the Board of Directors
from the inception of the Company through May 1997, and has served on the
current Board since January 1999. Mr. Walker also worked as an independent
management consultant for the Management Resource Group and the George S. May
International Company between January 1990 and November 1994. Between 1981 and
1990, he served in various management capacities for Rockwell International. He
is a member of the American Society for Quality, the American Management
Association, a Certified Quality Auditor and Certified Management Consultant.
Mr. Walker holds a B.S. degree in Business Administration from California
Baptist College and a M.S. degree in Human Resource Management from Chapman
University. Mr. Walker is no relation to Board Member Robert S. Walker.
Randall S. Firestone has served as a member of the Company's Board of Directors
since December 1997. Mr. Firestone is a licensed California attorney and has
operated his own practice in Hermosa Beach, California, specializing in civil
litigation, since 1984. Mr. Firestone has done extensive lecturing and
volunteer work and served on the Speaker's Bureau of the Anti-Defamation League
from 1979 through 1986. Mr. Firestone is the son of Dr. William L. Firestone, a
member of DCH's Board of Directors.
20
<PAGE>
Dr. William L. Firestone has served as a member of the Company's Board of
Directors since May 1997. He served as President of DCH Technology between May
1997 and April 1999. Dr. Firestone had been in retirement before joining DCH.
He served as General Manager at Rogerson Kratos Co. from 1991 to 1993. From
1988 to 1991 he was an independent management consultant. Between 1983 and
1988, he served as President of Jerrold Electronics and Teloc, Inc. Prior to
this, he served as a Vice President and General Manager of Texscan Corporation,
RCA, Hallicrafters Corp. and Whittaker Corp. between 1965 and 1983. Between
1955 and 1965, he served in various capacities at Motorola. Dr. Firestone holds
a B.S. in Electrical Engineering from the University of Colorado, an M.S. in
Electrical Engineering from the Illinois Institute of Technology, and a Ph.D. in
Electrical Engineering from Northwestern University. Dr. Firestone is the
father of Randall Firestone, a member of the Company's Board of Directors.
Daniel Teran has served as a member of the Company's Board of Directors since
December 1997. Mr. Teran is a Certified Public Accountant licensed in the state
of California and has had his own practice in the city of Los Alamitos in Orange
County since July 1989. He offers services in accounting, systems setup and
design and taxation. He also provides tax planning and tax return preparation
for individuals and businesses, and represents clients in audits with the
Internal Revenue Service and the California Franchise Tax Board. Prior to July
1989, he worked as Chief Financial Officer for the Stephen Hopkins Development
Company (a shopping center developer) and as Controller for NRC Construction
Company. He also served as an auditor for Seidman and Seidman (a large national
public accounting firm). He is an active member of the American Institute of
Certified Public Accountants and the California Society of Certified Public
Accountants, and has served on various committees within these professional
organizations. He received a Bachelor of Science degree in Accounting from
California State University at Long Beach.
Robert S. Walker has served as a member of the Company's Board of Directors
since January 1999. Mr. Walker has served as President of the Wexler Group, a
Washington D.C.-based lobbying firm, since his retirement from Congress in 1997
where he had served as a representative from Pennsylvania since 1977. During
his tenure in the House, he authored the Hydrogen Future Act of 1996 and served
as Chairman of the House Science Committee. Also, he served as Vice Chairman of
the Budget Committee, Chairman of the Republican Leadership, Chief Deputy
Minority Whip, and a member of Speaker Newt Gingrich's six person Advisory
Group. For many years, he was an active and influential member of the Republican
majority in Congress. Mr. Walker also serves on the Board of Trustees of the
Aerospace Corporation, the United States Space Science Foundation, and the
Susquehana Center for Public Policy. He is also a member of the Advisory Board
for the Imax Corporation. He is a fellow at Millersville University and Franklin
and Marshall College, and serves as a regular academic lecturer. In addition, he
continues to be a frequent guest on CNBC's "Hardball," PBS's "The Lehrer
Newshour," and other C-SPAN, CNN, FOX and MSNBC programs. Mr. Walker began his
career as a high school teacher and congressional aide. He received a B.S.
degree in Education from Millersville University, a M.A. degree in Political
Science from the University of
21
<PAGE>
Delaware and an Honorary Doctor of Laws from Franklin and Marshall College. Mr.
Walker is no relation to DCH President and Board member David A. Walker.
Raymond N. Winkel, a retired US Navy Rear Admiral, has served as a member of the
Company's Board of Directors since December 1996. He served as Vice President of
Programs for Astronautics Corporation of America in Milwaukee, Wisconsin from
1984 until his retirement in 1995. Prior to this, he was Vice President of the
Telephonics Corporation between 1980 to 1983. However, the majority of his
career was spent in the United States Navy, working his was up as one of the few
enlisted men to ever reach flag Rank. Admiral Winkel joined the Navy in 1947,
flew the four engine P4Y2 Privateer Anti-Submarine Warfare Aircraft during the
Korean War and later served in several important capacities until joining the
Naval Air Systems Command in Washington in 1971. Admiral Winkel has been awarded
the Air Medal, the Naval Aviator's Gold Wings, the Legion of Merit, the
Presidential Meritorious Service Medal, the Secretary of the Navy Commendation
Medal, the Good Conduct Medal, the National Defense Service Medal (with the
Bronze Star), the China Service Medal, the Korean Presidential Unit Citation
Ribbon and a number of other medals and citations. Adm. Winkel earned a BS
degree at Naval Post Graduate School in Monterey, California, a MS degree from
Villanova University, and graduated from the Advanced Management Program at
Harvard University.
All officers of the Company serve at the discretion of the Board of Directors.
Directors serve until the next annual meeting of the Company's shareholders, or
until their successors have been duly elected and qualified.
Committees of the Board of Directors
- ------------------------------------
The Board of Directors of DCH currently has a Compensation Committee, an
Audit Committee, a Legal Committee, a Public Policy Committee and a Technical
Committee. The functions of each of these committees are described and the
members of each are listed below.
The Compensation Committee is chaired by David A. Walker. Dr. William L.
Firestone, Daniel Teran and Robert S. Walker serve as the other Committee
members. The Compensation Committee renders advice with respect to compensation
matters and administers the Company's equity and incentive compensation plans.
The Audit Committee is comprised of Daniel Teran (who serves as Chairman),
Randall S. Firestone and Robert S. Walker. The Audit Committee is responsible
for supervising the Company's auditors and reviewing the financial condition of
the Company.
Randall S. Firestone serves as the sole member of the Legal Committee. The
Legal Committee is responsible for monitoring changes in the law which may be
applicable to the Company, and for supervising the activities of the Company's
outside legal counsel.
22
<PAGE>
The Public Policy Committee is chaired by Robert S. Walker; David P.
Haberman and Raymond N. Winkel serve as the other members of the Committee. The
Public Policy Committee is responsible for monitoring and reporting on activity
occurring in government relating to hydrogen and other matters that could affect
DCH, its products and/or its marketing strategies.
The Technical Committee is chaired by Raymond N. Winkel; it also consists
of David P. Haberman and Dr. William L. Firestone. Dr. John Barclay (President
of CryoFuel Systems, Inc.) is an outside adviser to this Committee. The
Technical Committee examines new and existing technologies and renders advice to
the Company regarding potential products based on those technologies.
Director Compensation
- ---------------------
Members of the Board of Directors did not receive cash compensation in 1998
for their services to DCH in such capacity. However, in 1998 each Director
received 30,000 shares of the Company's restricted Common Stock for their
service as Board members. In addition, each Board member was granted in 1998
options to purchase 50,000 shares of the Company's Common Stock, at an exercise
price of $0.25 per share, expiring in 2008. The options vested immediately upon
the date of grant.
Effective in 1999, compensation for members of the Board of Directors
(regardless of whether such members are employees of the Company) will be as
follows:
For serving on the Board of Directors, $10,000 per year;
For each Board meeting, $2,000;
For chairing a committee, $2,000;
For serving on a committee, $2,000; and
For each working committee meeting, $2,000
At the option of the Company, the above compensation, payable at the end of
the year, may be paid in cash or in shares of the Company's Common Stock.
In addition, each non-employee director receives reimbursement for the
expenses that he incurs in travelling to meetings of the Board of Directors or
any of its committees.
ITEM 6. EXECUTIVE COMPENSATION.
Summary Compensation Table
- --------------------------
The following table provides compensation information for the periods
indicated with respect to the person who served as the Company's Chief Executive
Officer (the "Named Executive Officer") for the three fiscal years ended
December 31, 1998. No
23
<PAGE>
other executive officer of the Company received total salary and bonus in excess
of $100,000 during the year ended December 31, 1998.
<TABLE>
<CAPTION>
Annual Compensation Securities
Name and Fiscal ----------------------- Underlying
Principal Position Year Salary Bonus Options(#)
- ------------------ -------- -------- -------- -----------
<S> <C> <C> <C> <C>
Dr. William Firestone, 1998 $0 $0 393,525
President 1997(1) $0 $0 281,475
</TABLE>
- -----------------------
(1) Dr. Firestone became the President of the Company in May 1997.
Employment Agreements
- ---------------------
The Company currently has employment agreements with each of David P.
Haberman and David A. Walker, its Vice President, Technology and Planning, and
President, respectively. Each employment agreement commenced on January 1, 1995
and terminates on December 31, 2000, and provides for an annual salary currently
set at $100,000. Neither of the employment agreements provides for additional
payments upon a change in control. Messrs. Haberman and Walker have declined
any cash compensation due under their respective employment agreements since
the inception of the contracts.
Fiscal Year Option Grants
- -------------------------
Option grants for the year ended December 31, 1998 for the Named Executive
Officer are shown in the table below:
<TABLE>
<CAPTION>
Percent of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Granted Employees in Price Expiration
Name (#) Fiscal Year ($/sh) Date
- ---------------------- --------------- ------------- --------- ------------
<S> <C> <C> <C> <C>
William L. Firestone 675,000 (1) 18.6% $0.25 12/31/2008
</TABLE>
________________________
(1) Includes options to purchase 281,475 shares of Common Stock granted in
fiscal 1998 for service in fiscal 1997.
24
<PAGE>
Fiscal Year Option Exercises and Fiscal Year-End Option Values
- --------------------------------------------------------------
Shown below is information regarding exercises of options by the Named
Executive Officer during the year ended December 31, 1998 and unexercised stock
options held by the Named Executive Officer at December 31, 1998.
<TABLE>
<CAPTION>
Number of
Unexercised
Options at Value of Unexercised
Fiscal In-the-money
Shares Year-End Options at Fiscal Year End($)
Acquired on Value (Exercisable/ (Exercisable/Unexercisable)(1)
Name Exercise (#) Realized ($) Unexercisable)(1) 5% 10%
- -------------------- ------------- -------------- ------------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
William L. Firestone 0 $0.00 675,000/ $924,750/ $1,471,500/
675,000 $924,750 $1,471,500
</TABLE>
(1) The assumed 5% and 10% compound rates of annual stock appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock prices.
Assuming a ten year term of the option, the total calculated compounded amount
of stock appreciation is 63% (assuming 5% per year) and 159% (assuming 10% per
year).
25
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has received loans from officers and directors amounting to
$128,725 as of June 30, 1999. These loans bear interest at the prime rate
(currently 7.75% per annum) and are payable on demand after January 1, 2001.
In the year ended December 31, 1998, certain officers and directors of the
Company were granted options to purchase shares of the Company's Common Stock as
consideration for past services performed, including services performed during
prior fiscal years. All of these options have an exercise price of $0.25 per
share, expire on December 31, 2008 and were fully vested on the date of grant.
The following table sets forth such option grants:
<TABLE>
<CAPTION>
Number of Shares For Service
Name Underlying Options During Fiscal Year
- ----------------------- ------------------ ------------------
<S> <C> <C>
Randall S. Firestone 50,000 1998
William L. Firestone 393,525 1998
281,475 1997
David P. Haberman 364,000 1998
364,000 1997
364,000 1996
308,000 1995
Daniel Teran 50,000 1998
David A. Walker 363,000 1998
342,200 1997
326,600 1996
318,200 1995
Raymond N. Winkel 100,000 1998
</TABLE>
On October 30, 1998, David P. Haberman, the Company's Chairman of the Board
of Directors and Vice President, Technology and Planning, exercised options to
purchase 80,000 shares of the Company's Common Stock at an exercise price of
$0.25 per share. No other officers or directors of the Company exercised
options in fiscal 1998.
ITEM 8. DESCRIPTION OF SECURITIES.
DCH is authorized to issue 50,000,000 shares of Common Stock, 13,977,503
shares of which were outstanding at June 30, 1999, and 5,000,000 shares of
Preferred Stock, none of which were outstanding at June 30, 1999. All
outstanding shares of Common Stock are duly authorized, validly issued, fully
paid and nonassessable.
26
<PAGE>
Common Stock
- ------------
The 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 cumulative voting rights in the election of directors. Holders of Common
Stock are entitled to dividends when, if and as may be declared by the Board of
Directors out of funds legally available therefor. Under the Colorado
Corporations Code, DCH may declare and pay dividends only out of its surplus, or
if there shall be no such surplus, out of its net profits for the fiscal year in
which the dividend is declared or the preceding year. In the event of the
liquidation, dissolution or winding up of the Company, holders of shares of
Common Stock are entitled to share ratably in the assets, if any, available for
distribution after payment of all creditors and the liquidation preferences on
any outstanding shares of Preferred Stock. Holders of Common Stock have no
preemptive rights to subscribe for any additional securities of any class which
the Company may issue, nor any conversion, redemption or sinking fund rights.
The rights and privileges of holders of Common Stock are subject to the
preferences of any shares of Preferred Stock that the Company may issue in the
future.
Preferred Stock
- ---------------
The Company may issue shares of Preferred Stock in one or more classes or
series within a class as may be determined by the Company's Board of Directors,
who may establish, from time to time, the number of shares to be included in
each class or series, may fix the designation, powers, preferences and rights of
the shares of each such class or series and any qualifications, limitations or
restrictions thereof, and may increase or decrease the number of shares of any
such class or series without any further vote or action by the shareholders.
Any Preferred Stock so issued by the Board of Directors may rank senior to the
Common Stock with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up of the Company, or both. In addition,
any such shares of Preferred Stock may have class or series voting rights.
Moreover, under certain circumstances, the issuance of Preferred Stock or the
existence of the unissued Preferred Stock may tend to discourage or render more
difficult a merger or other change in control of the Company.
Transfer Agent and Registrar
- ----------------------------
The Transfer Agent and Registrar for the Company's Common Stock is Holladay
Stock Transfer, Inc., in Phoenix, Arizona.
27
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS.
Since May 16, 1997, the Company's Common Stock has been traded on the OTC
Bulletin Board under the symbol "DCHT". The following table sets forth, for the
periods indicated, the high and low bid prices for the Common Stock as reported
by the OTC Bulletin Board. The following quotations should not be construed to
imply that an established trading market exists for the Common Stock; trading to
date has been sporadic.
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C>
1999
- ----
3rd Quarter 0.88 0.59
(through
July 30, 1999)
2nd Quarter 1.38 0.72
1st Quarter 2.06 0.78
1998
- ----
4th Quarter 1.59 0.56
3rd Quarter 4.75 1.50
2nd Quarter 8.12 0.44
1st Quarter 0.62 0.19
1997
- ----
4th Quarter 1.25 0.03
3rd Quarter 3.00 0.62
2nd Quarter 3.00 0.25
</TABLE>
The market price for the Company's Common Stock has historically been
volatile. Significant volatility in the market price of shares of the Company's
Common Stock may arise in the future due to factors such as the Company's
developing business, historic losses and relatively low price per share. In
addition, future announcements concerning the Company or its competitors may
have a significant impact on the market price of the Common Stock. Such
announcements might include financial results, the results of testing,
technological innovations, new commercial products, changes to government
regulations, developments concerning proprietary rights, or litigation. As long
as there is only a limited public market for the Common Stock, the sale of a
significant number of shares of Common Stock at any particular time could be
difficult to achieve at the market prices prevailing immediately before such
shares are offered, and the offering of a significant number of shares of Common
Stock at one time could cause a severe decline in the price of the Common Stock.
28
<PAGE>
ITEM 2. LEGAL PROCEEDINGS.
To the best knowledge of the Company's management, there is no legal
proceeding pending to which the Company is a party or to which the Company's
property is subject.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has conducted private placements of equity securities in the
past three years pursuant to exemptions from registration provided by the
Securities Act of 1933.
On October 1, 1997, the Company closed a private placement of 163,000
shares of its Common Stock. An aggregate of $81,500 was raised in this
placement. The issuance and sale of these shares was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
as a transaction by an issuer not involving a public offering. All of the
purchasers represented to the Company that they were acquiring the shares for
their own accounts and not for the account or benefit of another person; that
the Shares were being acquired for investment and not with a view to the
distribution thereof; and that the purchasers did not intend to sell or
otherwise dispose of all or any part of the shares at the time of purchase or
upon the occurrence or nonoccurrence of any predetermined event. Each purchaser
also agreed that he or she would offer or resell shares only if the shares were
registered under the Securities Act or an exemption from such registration was
available. No advertising or public solicitation was used in the placement. The
Company placed a restrictive legend on the certificates representing the shares
and placed "stop transfer" instructions with the transfer agent.
On December 31, 1997, the Company issued an aggregate of 492,320 shares of
Common Stock to 10 investors for services previously rendered to the Company.
The issuance of these shares was exempt from the registration requirements of
the Securities Act pursuant to Rule 701 thereof. At the time of the issuance,
the Company was not subject to the reporting requirements of the Securities
Exchange Act of 1934, and the value of the securities issued did not exceed
$1,000,000 (at the date of issuance, the shares had an aggregate value of
$244,859). The shares were issued for bona fide services previously provided to
the Company, and were not in connection with a capital-raising transaction.
On January 7, 1998, the Company closed a private placement of 65,000 shares
of its Common Stock, raising an aggregate of $32,000. The issuance and sale of
these shares was exempt from the registration requirements of the Securities Act
pursuant to section 4(2) thereof as a transaction by an issuer not involving a
public offerings. All of the purchasers represented to the Company that they
were acquiring the shares for their own accounts and not for the account or
benefit of another person; that the shares were being acquired for investment
and not with a view to the distribution thereof; and that the purchasers did not
intend to sell or otherwise dispose of all or any part of the shares at the time
of purchase or upon the occurrence or nonoccurrence of any predetermined event.
Each purchaser also agreed that he or she would offer or resell shares only if
the shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. The Company placed a restrictive legend on the certificates
representing the Shares and placed "stop transfer" instructions with its
transfer agent.
On April 11, 1998, the Company closed a private placement of 236,401 shares
of its common stock, raising an aggregate of $107,977. The issuance and sale of
these shares was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof as a transaction by an issuer not involving a
public offering. All of the purchasers represented to the Company that they were
acquiring the shares for their own accord and not for the account or benefit of
another person; that the shares were being acquired for investment and not with
a view to the distribution thereof; and that the purchasers did not intend to
sell or otherwise dispose of all or any part of the shares at the time of
purchase or upon the occurrence or nonoccurrence of any predetermined event.
Each purchaser also agreed that he or she would offer or resell shares only if
the shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. The Company placed a restrictive legend on the certificates
representing the shares and placed "stop transfer" instructions with its
transfer agent.
29
<PAGE>
On April 30, 1998, the Company consummated an offering of 1,293,586 shares
of its common stock pursuant to Rule 504 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). An aggregate of
$707,627 was raised in this placement; all purchasers represented to the Company
that they were "accredited investors" as defined in the Securities Act.
On May 18, 1998, the Company closed a private placement of 217,029 shares
of its Common Stock, raising aggregate proceeds of $325,126. The issuance and
sale of these shares was exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof as a transaction by an issuer
not involving a public offering. All of the purchasers represented to the
Company that they were acquiring the shares for their own accord and not for the
account or benefit of another person; that the shares were being acquired for
investment and not with a view to the distribution thereof; and that the
purchasers did not intend to sell or otherwise dispose of all or any part of the
shares at the time of purchase or upon the occurrence or nonoccurrence of any
predetermined event. Each purchaser also agreed that he or she would offer or
resell shares only if the shares were registered under the Securities Act or an
exemption from such registration was available. No advertising or public
solicitation was used in the placement. The Company placed a restrictive legend
on the certificates representing the shares and placed "stop transfer"
instructions with its transfer agent.
On July 31, 1998, the Company issued an aggregate of 60,000 shares of
Common Stock to two limited liability companies, in consideration of an equity
interest in each of the limited liability companies. The issuance and sale of
these shares was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof as a transaction by an issuer not involving a
public offering. All of the purchasers represented to the Company that they were
acquiring the shares for their own accord and not for the account or benefit of
another person; that the shares were being acquired for investment and not with
a view to the distribution thereof; and that the purchasers did not intend to
sell or otherwise dispose of all or any part of the shares at the time of
purchase or upon the occurrence or nonoccurrence of any predetermined event.
Each purchaser also agreed that he or she would offer or resell shares only if
the shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. The Company placed a restrictive legend on the certificates
representing the shares and placed "stop transfer" instructions with its agent.
On September 9, 1998, the Company closed a private placement of 19,210
shares of its common stock, raising aggregate proceeds of $25,000. The issuance
and sale of these shares was exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof as a transaction by an issuer
not involving a public offering. All of the purchasers represented to the
Company that they were acquiring the shares for their own accord and not for the
account or benefit of another person; that the shares were being acquired for
investment and not with a view to the distribution thereof; and that the
purchasers did not intend to sell or otherwise dispose of all or any part of the
shares at the time of purchase or upon the occurrence or nonoccurrence of any
predetermined event. Each purchaser also agreed that he or she would offer or
resell shares only if the shares were registered under the Securities Act or an
exemption from such registration was available. No advertising or public
solicitation was used in the placement. The Company placed a restrictive legend
on the certificates representing the shares and placed "stop transfer"
instructions with its transfer agent.
On October 6, 1998, the Company closed a private placement of 147,220
shares of Common stock, raising aggregate proceeds of $93,000. The issuance and
sale of these shares was exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof as a transaction by an issuer
not involving a public offering. All of the purchasers represented to the
Company that they were acquiring the shares for their own accord and not for the
account or benefit of another person; that the shares were being acquired for
investment and not with a view to the distribution thereof; and that the
purchasers did not intend to sell or otherwise dispose of all or any part of the
shares at the time of purchase or upon the occurrence or nonoccurrence of any
predetermined event. Each purchaser also agreed that he or she would offer or
resell shares only if the shares were registered under the Securities Act or an
exemption from such registration was available. No advertising or public
solicitation was used in the placement. The Company placed a restrictive legend
on the certificates representing the shares and placed "stop transfer"
instructions with its transfer agent.
30
<PAGE>
On December 31, 1998, the Company closed a private placement of 1,539,658
shares of Common Stock for services previously rendered to the Company. The
issuance and sale of these shares was exempt from the registration requirements
of the Securities Act pursuant to Section 4(2) thereof as a transaction by an
issuer not involving a public offering. All of the purchasers represented to the
Company that they were acquiring the shares for their own accord and not for the
account or benefit of another person; that the shares were being acquired for
investment and not with a view to the distribution thereof; and that the
purchasers did not intend to sell or otherwise dispose of all or any part of the
shares at the time of purchase or upon the occurrence or nonoccurrence of any
predetermined event. Each purchaser also agreed that he or she would offer or
resell shares only if the shares were registered under the Securities Act or an
exemption from such registration was available. No advertising or public
solicitation was used in the placement. The Company placed a restrictive legend
on the certificates representing the shares and placed "stop transfer"
instructions with its transfer agent.
On December 31, 1998, the Company issued an aggregate of 1,335,224 shares
of Common Stock to 26 investors for services previously rendered to the Company.
The issuance of these shares was exempt from the registration requirements of
the Securities Act pursuant to Rule 701 thereof. At the time of issuance, the
Company was not subject to the registration requirements of the Securities
Exchange Act of 1934, and the value of the securities issued did not exceed
$1,000,000 (at the date of issuance, the shares had an aggregate value of
$619,627). The shares were issued to investors for bona fide services previously
provided to the Company, and were not in connection with a capital-raising
transaction.
On February 2, 1999, the Company issued an aggregate of 100,000 shares of
Common Stock to 1 investor for services previously rendered to the Company. The
issuance of these shares was exempt from the registration requirements of the
Securities Act pursuant to Rule 701 thereof. At the time of the issuance, the
Company was not subject to the registration requirements of the Securities
Exchange Act of 1934, and the value of the securities issued did not exceed
$1,000,000 (at the date of issuance, the shares had an aggregate value of
$75,000). The shares were issued to an investor for bona fide services
previously provided to the Company, and were not in connection with a capital-
raising transaction.
On March 31, 1999, the Company closed a private placement of 184,667
shares of Common Stock, raising aggregate proceeds of $114,667. The issuance and
sale of these shares was exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof as a transaction by an issuer
not involving a public offering. All of the purchasers represented to the
Company that they were acquiring the shares for their own accord and not for the
account or benefit of another person; that the shares were being acquired for
investment and not with a view to the distribution thereof; and that the
purchasers did not intend to sell or otherwise dispose of all or any part of the
shares at the time of purchase or upon the occurrence or nonoccurrence of any
predetermined event. Each purchaser also agreed that he or she would offer or
resell shares only if the shares were registered under the Securities Act or an
exemption from such registration was available. No advertising or public
solicitation was used in the placement. The Company placed a restrictive legend
on the certificates representing the shares and placed "stop transfer"
instructions with its transfer agent.
31
<PAGE>
On May 6, 1999, the Company issued an aggregate of 102,000 shares of Common
Stock to 2 investors for services previously rendered to the Company. The
issuance of these shares was exempt from the registration requirements of the
Securities Act pursuant to Rule 701 thereof. At the time of the issuance, the
Company was not subject to the registration requirements of the Securities
Exchange Act of 1934, and the value of the securities issued did not exceed
$1,000,000 (at the date of issuance, the shares had an aggregate value of
$61,549). The shares were issued to investors for bona fide services previously
provided to the Company, and were not in connection with a capital-raising
transaction.
On May 11, 1999, the Company closed a private placement of 635,195 shares
of Common Stock, raising an aggregate of $410,137. The issuance and sale of
these shares was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof as a transaction by an issuer not involving a
public offerings. All of the purchasers represented to the Company that they
were acquiring the shares for their own accounts and not for the account or
benefit of another person; that the shares were being acquired for investment
and not with a view to the distribution thereof; and that the purchasers did not
intend to sell or otherwise dispose of all or any part of the shares at the time
of purchase or upon the occurrence or nonoccurrence of any predetermined event.
Each purchaser also agreed that he or she would offer or resell shares only if
the shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. The Company placed a restrictive legend on the certificates
representing the shares and placed "stop transfer" instructions with its
transfer agent.
On June 23, 1999, the Company consummated an offering of 637,582 shares of
its common stock pursuant to Rule 504 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). An aggregate of
$475,552 was raised in this placement; all purchasers represented to the Company
that they were "accredited investors" as defined in the Securities Act.
32
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article V of the Company's Bylaws require the Company to indemnify, to the
fullest extent allowed by the Colorado Business Corporation Act (the "CBCA"),
any person who serves or who has served at any time as a director or an officer
of the Company, and any director or officer who, at the request of the Company,
serves or at any time has served as a director, officer, partner, trustee,
employee, or agent of any other foreign or domestic corporation or of any
partnership, joint venture, trust, other enterprise or employee benefit plan,
against any and all liabilities and reasonable expenses incurred in connection
with any claim, action, suit, or proceeding to which such director or officer is
made a party, or which may be asserted against him, because he is or was a
director or an officer. This Article also provides that directors of the
Company shall not be liable to the Company or any of its shareholders for
monetary damages caused by a breach of fiduciary duty as a director.
Sections 7-109-102 and 103 of the CBCA authorize the indemnification of
directors and officers against liability incurred by reason of being a director
or officer and against expenses (including attorney's fees) judgments, fines and
amounts paid in settlement and reasonably incurred in connection with any action
seeking to establish such liability, in the case of third-party claims, if the
officer or director acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and in the
case of actions by or in the right of the corporation, if the officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interest of the corporation and if such officer or
director shall not have been adjudged liable to the corporation, unless a court
otherwise determines. Indemnification is also authorized with respect to any
criminal action or proceeding where the officer or director had no reasonable
cause to believe his conduct was unlawful.
The above discussion of the Company's Bylaws and the CBCA is only a summary
and is qualified in its entirety by the full text of each of the foregoing.
Directors and officers of the Company and its subsidiaries are covered by
an insurance policy that insures them against certain losses, liabilities and
expenses. The annual aggregate liability limit under the policy is $2,000,000.
The policy contains numerous exclusions, including exclusions for personal
profit, libel and slander and certain environmental liabilities.
33
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
Exhibit No. Description
- ----------- -----------
2.1 Articles of Incorporation of Connection Sports
International, Inc., as amended.
2.2 Bylaws of DCH Technology, Inc.
3.1 Agreement and Plan of Reorganization, dated
May 28, 1997, by and among Connection Sports
International, Inc., DCH Technology, Inc.,
a California corporation, and its shareholders.
3.2 Specimen certificate for the Registrant's
Common Stock.
6.1 License Agreement, dated April 24, 1996, by
and between Registrant and Sandia Corporation. (1)
6.2 Limited Exclusive Field of Use Patent License
Agreement, dated March 15, 1999, by and between
Registrant and The Regents of the University
of California. (1)
6.3 Nonexclusive Field of Use Patent License
Agreement, dated March 15, 1999, by and between
Registrant and The Regents of the University
of California. (1)
6.4 LANL Modular CRADA Stevenson-Wydler Cooperative
Research and Development Agreement No. LA98C10384,
dated October 30, 1998, by and between Registrant
and The Regents of the University of California. (1)
6.5 Stevenson-Wydler Cooperative Research and Development
Agreement No. ORNL 96-0454, dated September 26, 1996,
as amended, by and between Registrant and Lockheed
Martin Energy Research Corporation. (1)
6.6 Sole Commercial Patent License Agreement, dated
September 26, 1996, by and between Registrant and
Lockheed Martin Energy Research Corporation. (1)
6.7 Exclusive License Agreement, effective as of
May 15, 1998, by and between Registrant and Simon
Fraser University. (1)
35
<PAGE>
6.8 Stevenson-Wydler Cooperative Research and Development
Agreement, dated May 6, 1996, as amended, by and
between Amerisen and Midwest Research Institute. (1)
6.9 Agency Agreement, dated January 18, 1999, by and
between Registrant and Horiba, Ltd.
6.10 Employment Agreement, dated December 31, 1994, by
and between Registrant and David A. Walker.
6.11 Employment Agreement, dated December 31, 1994, by
and between Registrant and David P. Haberman.
6.12 Limited Liability Company Operating Agreement, dated
July 31, 1998, of Renewable Energies Group LLC.
6.13 Operating Agreement of Infrasol LLC, dated July 31,
1998.
6.14 Standard Industrial/Commercial Multi-Tenant Lease-
Gross, dated April 28, 1998, by and between Registrant
and Bradmore Realty Investment Company, Ltd.
6.15 Standard Industrial/Commercial Multi-Tenant Lease-
Gross, dated April 2, 1999, by and between Registrant
and Valencia Gardens.
6.16 Lease Agreement, dated as of April 22, 1999, by and
between Registrant and Welton Family Limited Partnership.
23.1 Consent of Lucas, Horsfall, Murphy & Pindroh, LLP
27.1 Financial Data Schedule
(1) Portions omitted pursuant to a request for confidentiality filed with the
Commission.
ITEM 2. DESCRIPTION OF EXHIBITS.
See Item 1 above.
36
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
DCH TECHNOLOGY, INC.
A Colorado corporation
Date: August 6, 1999 By: /s/ DAVID A. WALKER
___________________
David A. Walker
President
37
<PAGE>
PART F/S
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
---------------
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
----------------------------
The Stockholders and Board of Directors of
DCH Technology, Inc.
We have audited the accompanying consolidated balance sheet of DCH Technology,
Inc. and Subsidiary as of December 31, 1998 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 1998 and 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of DCH Technology, Inc. and Subsidiary
at December 31, 1998 and the results of its operations and its cash flows for
the years ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements, the Company incurred significant losses since inception, and has an
accumulated deficit. These conditions raise substantial doubt about its ability
to continue as a going concern. Management plans regarding those matters are
described in Note 12. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ LUCAS, HORSFALL, MURPHY & PINDROH, LLP
- ------------------------------------------
Pasadena, California
February 22, 1999, except for Note 13 to the financial statements
which is as of April 30, 1999.
F-2
<PAGE>
DCH Technology, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEET
INFORMATION AS TO THE PERIOD ENDED JUNE 30, 1999 IS UNAUDITED
ASSETS
DECEMBER 31, JUNE 30,
1998 1999
------------ -------------
CURRENT ASSETS (UNAUDITED)
Cash $ 1,802 $ 38,531
Accounts receivable 58,829 165,582
Inventory 143,714 39,848
Prepaid expenses - 71,179
Advance to customer 100,000 100,000
------------ -------------
TOTAL CURRENT ASSETS 304,345 415,140
PROPERTY AND EQUIPMENT - NET 108,659 111,484
OTHER ASSETS
Licensed patents, net of
amortization 29,025 48,865
Investment in partnerships 99,000 99,000
------------ -------------
TOTAL OTHER ASSETS 128,025 147,865
------------ -------------
$ 541,029 $ 674,489
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft $ 3,212 $ -
Accounts payable 174,418 177,694
Accrued expenses 40,799 365,281
Deferred revenue 28,800 37,050
------------ -------------
TOTAL CURRENT LIABILITIES 247,229 580,025
LONG TERM LIABILITIES
Advances from stockholders 180,359 128,725
------------ -------------
TOTAL LIABILITIES 427,588 708,750
COMMITMENTS AND CONTINGENCIES
(Notes 11 and 12)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.10 par value
5,000,000 shares authorized,
- 0 - shares issued and
outstanding - -
Common stock, $0.01 par value,
50,000,000 shares authorized,
12,273,059 and 13,977,503
issued and outstanding,
respectively 122,730 139,774
Additional paid-in-capital 5,021,642 6,160,253
Common stock subscribed, 160,000
shares outstanding at December 31, 1998 100,000 0
------------ -------------
5,244,372 6,300,027
Less: common stock
subscriptions receivable (100,000) 0
------------ -------------
5,144,372 6,300,027
Accumulated deficit (5,030,931) (6,334,288)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 113,441 (34,261)
------------ -------------
$ 541,029 $ 674,489
============ =============
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
DCH Technology, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE SIX FOR THE SIX
ENDED ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1998 1999
--------------- --------------- ---------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales $ 89,751 $ 207,580 $ 24,000 $ 216,773
Cost of products sold - 66,480 5,720 142,878
--------------- -------------- -------------- ---------------
Gross profit 89,751 141,100 18,280 73,895
Operating expenses:
Selling, general and administrative
expenses 208,026 2,880,897 1,281,448 1,033,784
Depreciation and amortization 8,304 31,857 7,518 24,014
Research & development 59,484 1,810,185 610,294 319,498
--------------- -------------- -------------- ---------------
275,814 4,722,939 1,899,260 1,377,296
--------------- -------------- -------------- ---------------
Loss from operations (186,063) (4,581,839) (1,880,980) (1,303,401)
Interest income 106 4,183 1,908 44
--------------- -------------- -------------- ---------------
Net loss $ (185,957) $ (4,577,656) $ (1,879,072) $ (1,303,357)
=============== ============== ============== ===============
Weighted average common shares
outstanding 4,211,936 9,579,059 8,561,276 13,166,244
=============== ============== ============== ===============
Net loss per common share
Basic $ (0.04) $ (0.48) $ (0.22) $ (0.10)
=============== ============== ============== ===============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
DCH Technology, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 IS UNAUDITED
<TABLE>
<CAPTION>
Common Stock
------------------------------------------- Additional
No. of Paid-in- Subscription
Shares Amount Subscribed Capital Receivable
---------- -------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 22,000 $ 32,077 $ - $ - $ -
Effect of acquisition 6,602,411 34,167 - - -
Issuance of common
stock for services 492,320 4,923 - 239,936 -
Issuance of common
stock for cash 163,000 1,630 - 79,870 -
Net loss - - -
---------- -------- --------------- ----------- ---------------
Balances at December 31, 1997 7,279,731 72,797 - 319,806 -
Issuance of common stock
and warrants for services 2,874,882 28,749 2,118,938 -
Issuance of common stock
options for services - - - 1,194,353 -
Issuance of common stock
and warrants for cash 1,978,446 19,784 - 1,270,945 -
Issuance of common stock
to acquire interest in
Infrasoll LLC and
Renewable Energies, LLC 60,000 600 - 98,400 -
Issuance of common stock
pursuant to exercise of
stock options 80,000 800 - 19,200 -
Common stock subscription - - 100,000 - (100,000)
Net loss - - - - -
---------- -------- --------------- ----------- ---------------
Balances at December 31, 1998 12,273,059 122,730 100,000 5,021,642 (100,000)
Unaudited:
Issuance of common stock
for services 202,000 2,020 - 134,529 -
Issuance of common stock
and warrants for cash 1,457,444 14,574 - 985,782 -
Issuance of common stock
pursuant to exercise of
warrants 45,000 450 18,300
Common stock subscriptions - - (100,000) - 100,000
Net loss (unaudited) - - - - -
---------- -------- --------------- ----------- ---------------
Balances at June 30, 1999 (unaudited) $ 13,977,503 $139,774 $ - $ 6,160,253 $ -
========== ======== =============== =========== ===============
<CAPTION>
Total
Accumulated Stockholders'
Deficit Equity (Deficit)
----------------- -----------------------
<S> <C> <C>
Balances at December 31, 1996 $ (267,318) $ (235,241)
Effect of acquisition - 34,167
Issuance of common
stock for services - 244,859
Issuance of common
stock for cash - 81,500
Net loss (185,957) (185,957)
----------------- -----------------------
Balances at December 31, 1997 (453,275) (60,672)
Issuance of common stock
and warrants for services - 2,147,687
Issuance of common stock
options for services - 1,194,353
Issuance of common stock
and warrants for cash - 1,290,729
Issuance of common stock
to acquire interest in
Infrasoll LLC and
Renewable Energies, LLC - 99,000
Issuance of common stock
pursuant to exercise of
stock options - 20,000
Common stock subscription - -
Net loss (4,577,656) (4,577,656)
----------------- -----------------------
Balances at December 31, 1998 (5,030,931) 113,441
Unaudited:
Issuance of common stock
for services - 136,549
Issuance of common stock
and warrants for cash - 1,000,356
Issuance of common stock
pursuant to exercise of
warrants - 18,750
Common stock subscriptions - -
Net loss (1,303,357) (1,303,357)
----------------- -----------------------
Balances at June 30, 1999(unaudited) $ (6,334,288) $ (34,261)
================= =======================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
DCH Technology, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE SIX FOR THE SIX
ENDED ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1998 1999
---------------- ---------------- ----------------- ---------------
(UNAUDITED) (UNAUDITED)
<C> <C> <C> <C>
<S>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net loss $ (185,957) $ (4,577,656) $ (1,879,072) $ (1,303,357)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation and amortization 8,304 31,857 7,518 24,014
Issuance of stock, warrants and options
for services 244,859 3,342,040 487,744 136,549
Change in:
Accounts receivable (11,730) (47,099) 2,730 (106,753)
Inventory - (143,714) (4,561) 103,866
Prepaid expenses (1,500) 1,500 1,500 (79,178)
Bank overdraft - 3,212 - (3,212)
Accounts payable 36,309 121,890 (13,478) 3,276
Accrued expenses - 40,799 975,820 324,480
Deferred revenue 30,000 (1,200) 100,152 8,250
---------------- ---------------- ----------------- ---------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 120,285 (1,228,371) (321,647) (884,065)
CASH FLOWS FROM (TO) INVESTING ACTIVITIES
Advances to stockholders (278,967) - (9,590) (51,634)
Advance to customer - (100,000) - -
Purchase of licenses - (30,000) (16,000) (25,000)
Purchase of equipment (12,638) (118,988) (81,297) (21,678)
---------------- --------------- ----------------- ---------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (291,605) (248,988) (106,887) (98,312)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and
warrants 81,500 1,310,729 763,159 900,356
Advances from stockholders 56,793 167,292 8,652 0
Proceeds from exercise of warrants - - - 18,750
Proceeds from common stock subscriptions
receivable - - - 100,000
---------------- ---------------- ----------------- ---------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 138,293 1,478,021 771,811 1,019,106
---------------- ---------------- ----------------- ---------------
NET INCREASE (DECREASE) IN CASH (33,027) 662 343,277 36,729
CASH, BEGINNING OF PERIOD 34,167 1,140 1,140 1,802
---------------- ---------------- ----------------- ---------------
CASH, END OF PERIOD $ 1,140 $ 1,802 $ 344,417 $ 38,531
================ ================ ================= ===============
Supplemental disclosure of cash flow
information is as follows:
Cash paid for
Interest - - - -
Income taxes $ 800 $ 1,600 $ 1,600 $ 1,600
</TABLE>
Non-cash transactions
During the year ended December 31, 1998, $99,000 of common stock was
issued in connection with the Company's acquisition of interests in
Infrasoll, LLC and Renewable Energies, LLC.
See Accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Organization and business
-------------------------
DCH Technology, Inc. (the Company), formerly Connection Sports
International, Inc., a Colorado corporation, was incorporated on February
23, 1996. The Company is engaged in the business of specializing in
licensing and converting new ideas and technology into state-of-the art
products. Currently, the Company has licensed technologies related to
hydrogen sensing and fuel cells and is in the initial stages of limited
production and limited sales.
Business Recapitalization and Restatement
-----------------------------------------
On May 28, 1997, all of the outstanding capital stock of DCH Technology,
Inc. was acquired by Connection Sports International, Inc. (CSI). In
connection with this transaction, all of the shares of DCH Technology,
Inc., were exchanged for 6,000,000 shares of CSI with CSI as the surviving
corporation, which changed its name to DCH Technology, Inc. This stock
exchange transaction is treated as an acquisition by the Company of the net
tangible book value of the assets of CSI, at the date of the acquisition.
Operating results of CSI for all periods prior to the date of its
acquisition were not included in the operating results of the Company since
such reverse merger is not treated as a pooling of interest for accounting
purposes. DCH Technology, Inc. was engaged in the business of specializing
in licensing and converting new ideas and technology into state-of-the art
products.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of DCH
Technology, Inc. and its wholly owned subsidiary. Significant intercompany
accounts have been eliminated.
Revenue Recognition
-------------------
Revenue from product sales is generally recognized at the time the product
is shipped, with provisions established for priced protection programs and
estimated product returns. Upon shipment, the Company also provides for the
estimated cost that may be incurred for product warranties and post-sale
support, if any. Service revenue is recognized over the contractual period
or as services are rendered and accepted by the customer.
Product Warranty
----------------
The Company has calculated a reserve for the estimated cost of fulfilling
its warranty obligation for products sold. The amount of such warranty
obligation has been calculated based upon the expected returns for the
various products lines and average estimated repair cost. Management does
not deem the reserve to be significant to the accompanying financial
statements, and therefore, a reserve has not been recorded at December 31,
1998 and June 30, 1999.
F-7
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Allowance for Doubtful Accounts
-------------------------------
No allowance for doubtful accounts has been provided, as it is the
management's belief that receivables are fully collectible at December 31,
1998 and June 30, 1999.
Recently Issued Accounting Pronouncements
-----------------------------------------
In 1997, the Financial Accounting Standards Board (FASB) issued Statements
No. 130, "Reporting Comprehensive Income", and No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The Company's adoption
of these statements had no material impact on the accompanying financial
statements.
Year 2000 Issues
----------------
Many computers and other equipment with embedded chips or microprocessors
may not be able to appropriately interpret dates after December 31, 1999,
because such systems use only two digits to indicate a year in the date
field rather than four digits. If not corrected, many computers and
computer applications could fail or create miscalculations, causing
disruptions to the Company's operations. In addition, the failure of
customer and supplier computer systems could result in interruption of
sales and deliveries of key supplies or utilities. Because of the
complexity of the issues and the number of parties involved, the Company
cannot reasonable predict with certainty the nature of likelihood of such
impacts.
The Company is actively addressing this situation and anticipates that it
will not experience a material adverse impact to its operations, liquidity
or financial condition related to systems under control. The Company is
addressing the Year 2000 issue in four overlapping phases: (i)
identification and assessment of all critical software systems and
equipment requiring modification or replacement prior to 2000; (ii)
assessment of critical business relationships requiring modification prior
2000; (iii) corrective action and testing of critical systems; (iv)
development of contingency and business continuation plans to mitigate any
disruption to the Company's operations arising from the Year 2000 issue.
The Company is in the process of implementing a plan to obtain information
from its external service providers, significant suppliers and customer,
and financial institutions to confirm their plans and readiness to become
Year 2000 compliant, in order to better understand and evaluate how their
Year 2000 issues may affect the Company's operations. The Company currently
is not in a position to assess this aspect of the Year 2000 issues;
however, the Company plans to take the necessary steps to provide itself
with reasonable assurance that its service providers, customers and
financial institutions are Year 2000 compliant.
The Company is developing contingency plans to identify and mitigate
potential problems and disruptions to the Company's operations arising from
the Year 2000 issue. The total cost to achieve Year 2000 compliance is not
expected to be material. Amounts spent to date have not been material.
F-8
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
While the Company believes that its own internal assessment and planning
efforts with respect to its external service providers, suppliers,
customers and financial institutions are and will be adequate to address
its Year 2000 concerns, there can be no assurance that these efforts will
be successful or will not have a material adverse effect on the Company's
operations.
Inventories
-----------
Inventories are stated at the lower of cost or market using the first-in,
first-out method (FIFO). Inventories consist of parts and assemblies that
are included in the final product.
Research and Development
------------------------
Research and development expenditures are charged to operations as
incurred.
Property and Equipment
----------------------
Property and equipment is stated at cost. The assets are being depreciated
using the straight-line method over their estimated useful life of five to
seven years.
It is the policy of the Company to capitalize significant improvements and
to expense repairs and maintenance.
Deferred Revenue
----------------
On January 15, 1997, the Company entered into an agreement with a
California company for sale of a certain number of various hydrogen
sensors. The sales agreement includes a provision of an initial payment of
$30,000 when the first order is placed. As of December 31, 1998 and June
30, 1999, the remainder of the initial payment was $28,800 and has been
reflected as deferred revenue on the consolidated balance sheet at December
31, 1998. On June 24, 1999 the Company received a pre-payment on a purchase
order of $8,250. The total, $37,050, is reflected as deferred revenue on
the consolidated balance sheet at June 30, 1999.
Stock Based Compensation
------------------------
The Company accounts for stock-based compensation as prescribed by
Statement of Financial Accounting Standard (SFAS) Number 123, and has
adopted its disclosure provisions. SFAS 123 requires pro forma disclosures
of net income and earnings per share as if the fair value based method of
accounting for stock based compensation had been applied.
Loss Per Share
--------------
Loss per share of common stock is computed using the weighted average
number of common shares outstanding during the period shown. Common stock
equivalents are not included in the determination of the weighted average
number of shares outstanding, as they would be antidilutive.
F-9
<PAGE>
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Statement of Cash Flows
-----------------------
For the purpose of the statement of cash flows, cash includes amounts "on-
hand" and amounts deposited with financial institutions.
Impairment of Long Lived Assets
--------------------------------
The Company evaluates its long lived assets by measuring the carrying
amount of the asset against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of certain long lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their
fair values. No adjustment to the carrying value of the assets have been
made.
Use of Estimates in Preparation of Consolidated Financial Statements
--------------------------------------------------------------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenue, expenses and
disclosure of contingent assets and liabilities to prepare these financial
statements in accordance with generally accepted accounting principles.
Accordingly, actual results may differ from those estimates.
Reclassification of Financial Statement Presentation
----------------------------------------------------
Certain reclassifications have been made to the 1997 financial statements
to conform with the 1998 financial statement presentation.
Unaudited Interim Financial Statements
--------------------------------------
In the opinion of management, the unaudited interim financial statements
for the six months periods ending June 30, 1999 and 1998 are presented on a
basis consistent with the audited financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for
fair presentation of the results of such periods.
2. RELATED PARTY TRANSACTIONS
Various advances from stockholders and advances from the Company to
stockholders, occurred during the year ended December 31, 1998. As of
December 31, 1998, the Company has a payable to stockholders in the amount
of $180,359 and as of June 30, 1999, has a payable to stockholders in the
amount of $128,725. Interest is accruing at a rate equal to the prime rate
as published in the Wall Street Journal on the last day of the month. The
rate at December 31, 1998 and June 30, 1999 was 7.75%. The advances are
payable on demand after January 1, 2001.
F-10
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
----------------- -------------------
(UNAUDITED)
<S> <C> <C>
Automobiles $ 37,949 $ 37,949
Equipment 76,968 95,530
Furniture and fixtures 11,449 12,686
Leasehold improvements 18,460 20,340
Tools 2,900 2,900
------------------ -------------------
Total 147,726 169,405
Less accumulated depreciation (39,067) (57,921)
------------------ -------------------
Net $ 108,659 $ 111,484
================== ===================
</TABLE>
Depreciation expense was $26,082 and $6,904 for the years ended December
31, 1998 and 1997, respectively and $18,845 and $5,574, for the periods
ended June 30, 1999 and 1998, respectively.
4. INVESTMENT IN PARTNERSHIPS
During the year ended December 31, 1998, the Company invested in two
partnerships. The investments are accounted for in accordance with the
provisions of Accounting Principles Board (APB) Opinion Number 18, Equity
Method of Accounting for Investments in Common Stock. As the Corporation's
ownership interest in all of the limited partnerships in the investment
portfolio is more than 20% and less than or equal to 50%, the investment in
the limited partnerships is accounted for using the equity method. Under
this method, the investor adjusts the carrying amount of an investment for
its share of the earnings or losses of the investee and reports the
recognized earnings and losses in income.
Dividends received from an investee reduce the carrying amount of the
investment. The cost of the investments in limited partnerships at December
31, 1998 and June 30, 1999, is as follows:
Infrasoll LLC $ 66,000
Renewable Energies Group LLC 33,000
---------------
$ 99,000
===============
No activity has occured in these partnerships since the initial investment.
F-11
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
5. ADVANCE TO CUSTOMER
In 1998, the Company made an advance to a customer in the amount of
$100,000. The advance is due on or before September 30, 1999. If the
customer becomes a public company through an Initial Public Offering (IPO)
prior to repayment of the advance, the customer will provide shares to the
Company as repayment of this advance at an equivalent of $10.00 per share
or 33% discount to the IPO price, whichever is less.
6. WARRANTS
The Company has issued to consultants and others warrants to purchase the
Company's common stock.
Following is a summary of warrant activity for the year ended December 31,
1998 and the period ended June 30, 1999:
<TABLE>
<CAPTION>
Weighted
Exercise Average
Price per Exercise
Warrants Share Price
--------------- -------------- ------------
<S> <C> <C> <C>
Balance at December 31, 1997 - - -
Granted 380,634 $0.75 - 2.00 $1.47
Exercised - - -
Forfeited - - -
--------------- -------------- ------------
Balance at December 31, 1998 380,634 $0.75 - 2.00 $1.47
Unaudited:
Granted 673,337 0.50 - 0.75 0.53
Exercised (45,000) 0.25 - 0.50 0.42
Forfeited - - -
--------------- -------------- ------------
Balance at June 30, 1999 1,008,971 $0.25 - 2.00 0.93
=============== ============== ============
</TABLE>
Under APB 25 the Company has recognized compensation expense of $1,844 for the
year ended December 31, 1998.
F-12
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
7. INCOME TAXES
Income taxes are provided pursuant to SFAS No. 109 Accounting for Income
Taxes. The statement requires the use of an asset and liability approach
for financial reporting for income taxes. If it is more likely than not
that some portion or all of a deferred tax asset will not be realized, a
valuation allowance is recognized. Accordingly, as the realization and use
of the net operating loss carryforward is not probable at December 31, 1998
and June 30, 1999, the tax benefit of the loss carryforward has been
offset by a valuation allowance of the same amount.
The composition of deferred tax assets is as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
Total deferred tax assets $ 1,226,000 1,564,000
Total valuation allowance (1,226,000) (1,564,000)
---------------- ----------------
Total deferred tax assets $ - $ -
================ ================
</TABLE>
The tax effects of temporary differences and carryforwards that give rise
to deferred assets are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,226,000 $ 1,564,000
---------------- ----------------
Gross deferred tax assets 1,226,000 1,564,000
Valuation allowance (1,226,000) (1,564,000)
---------------- ----------------
Net deferred tax assets $ - -
================ ================
</TABLE>
No provision for income taxes has been recorded for the periods ended
December 31, 1998 and 1997 and for the periods ended June 30, 1999 and
1998 as the Company has incurred losses during these periods.
The Company has approximately $5,300,000 of federal and state loss
carryforwards available to reduce future federal and state tax liability
through the year 2018 and 2003, respectively.
8. STOCK OPTIONS
During the year ended December 31, 1998, the Board of Directors awarded
3,625,000 stock options, to certain officers and Board members, to purchase
shares of the Company's restricted common stock at an exercise price of
$0.25 per share. The options vest immediately and expire on December 31,
2008.
F-13
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
8. STOCK OPTIONS (Continued)
The following table summarizes information about stock option transactions
for the year ended December 31, 1998 and period ended June 30, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
------------- -----------
<S> <C> <C>
Outstanding at beginning
of year - 0 -
Awards:
Granted in the year ended December 31, 1998 3,625,000 $ 0.25
Exercised in the year ended December 31, 1998 (80,000) 0.25
-------------
Outstanding at December 31, 1998 and
June 30, 1999 3,545,000 $ 0.25
=============
Exercisable at December 31, 1998 and
June 30, 1999 3,545,000 $ 0.25
=============
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998 and at June 30, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Remaining Weighted Weighted
Number of Years of Average Number of Average
options Contractual Exercise Options Exercise
Exercise prices outstanding Life Price Exercisable Price
----------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 0.25 3,545,000 10 $ 0.25 3,545,000 $ 0.25
</TABLE>
During the fiscal 1997 year, the Company adopted SFAS 123 and under the
provisions of the new standard has elected to continue using the intrinsic-
value method of accounting for stock-based awards granted to employees or
to acquire goods or services from non-employees in accordance with APB 25.
Under APB 25 the Company has recognized compensation expense of $1,194,353
for the year ended December 31, 1998, for its stock-based awards to
employees.
The following table reflects pro forma net loss and earnings per share had
the Company elected to adopt the fair value approach of SFAS 123 for the
year ended December 31, 1998:
<TABLE>
<S> <C>
Net loss:
As reported $ (4,577,656)
Pro forma $ (5,069,203)
Loss per share:
As reported $ (0.48)
Pro forma $ (0.53)
</TABLE>
F-14
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
8. STOCK OPTIONS (Continued)
The estimated fair value of each option granted is calculated using the
Black-Scholes option-pricing model.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has used market information for similar instruments and applied
judgment to estimate fair values of financial instruments. At December 31,
1998, and June 30, 1999, the fair values of cash, accounts receivable,
advance to customers and accounts payable approximated carrying values
based the short maturity of these items. The fair value of advances from
stockholders approximated carrying value as the interest rate charged is
the current market rate.
10. CONCENTRATION OF CREDIT RISK
The Company had accounts receivable that comprised more than 50% of the
total accounts receivable from the following entities:
<TABLE>
<CAPTION>
December 31, June 30,
Entity 1998 1999
------ --------------- -----------
(Unaudited)
<S> <C> <C>
Customer A $ - $ 131,467
Individual accounts receivable
Comprising less than 50% of
total Accounts receivable 58,829 34,115
--------------- -----------
$ 58,829 $ 165,582
=============== ===========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
Leases
--------
The Company leases its main facilities under a noncancellable operating
lease agreement expiring May 31, 2001, with an option to extend the lease
for two additional 36-month periods. The lease agreement includes
provisions for cost of living adjustments (COLA) and market rental value
adjustments to the base rent for the option periods.
F-15
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
11. COMMITMENTS AND CONTINGENCIES (Continued)
Minimum future lease payments are as follows:
<TABLE>
<CAPTION>
Fiscal year
Ending
----------------
<S> <C>
1999 $ 24,600
2000 24,600
2001 10,250
---------------
$ 59,450
===============
</TABLE>
Rent expense for the year ended December 31, 1998 was $30,245 and for the
period ended June 30, 1999 was $24,960.
License Agreements
------------------
On April 24, 1996, the Company negotiated and executed a license agreement
with Sandia Corporation (manager and operator of a federally-owned facility
known as Sandia National Laboratories for the United States Department of
Energy (DOE)), the owner of the rights to U.S. Patent 5,279,795 (a
sensitive detector for hydrogen). Under the terms of the agreement, in
exchange for a license fee, the Company was granted a limited nonexclusive
right to make, have made or sell products under one or more claims of
Sandia patent rights. The license fee is being amortized on a straight-line
basis over the remaining life of the license agreement. In addition to the
annual payments for the license, the Company has agreed to pay royalties,
which is the larger of a minimum amount or a percentage of sales and to
meet certain production and sales milestones during the term of the
contract. The license expires on January 1, 2015.
The Company entered into an agreement with Lockheed Martin Energy Research
Corporation (manager of Oak Ridge National Laboratory for the U.S.
Department of Energy) for a license fee the Company was granted the license
for U.S. Patent 5,451,920 (Thick Film Hydrogen Sensor") and U.S. Patent
Application S/N 08/445,325 ("Improved Thick Film Hydrogen Sensor"), on
September 30, 1996. Under the terms of the agreement, the Company will be
the sole licensee to manufacture, use, sell or offer for sale the products
for a period of five years. The license fee is being amortized on a
straight-line basis over the 5 year life of the contract. The contract also
includes a provision for royalty payments which is the larger of a minimum
amount or a percentage of net sales.
Additionally, the Company entered into an agreement with Simon Fraser
University on May 15, 1998, owner of the provisional patent rights to an
invention called "Universal Gas Sensor", to be the exclusive licensee to
make, have made, execute, copy, market, lease and sell licensed products
during the term of the agreement. Under the terms of the agreement, in
exchange for a license fee, the Company was granted the license for the
patent to the "Universal Gas Sensor". The license fee is amortized on a
straight-line basis over a 5 year life. The contract also includes a
provision for royalty payments which is the larger of a minimum amount or a
percentage of net sales.
The total amortization expense related to the license agreements was $5,775
and $1,400 for the years ended December 31, 1998 and 1997, respectively and
$5,169 and $1,944 for the periods ended June 30, 1999 and 1998,
respectively.
F-16
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
11. COMMITMENTS AND CONTINGENCIES (Continued)
Royalties
---------
The Company has entered into certain license agreements which requires
minimum royalty payments as follows:
<TABLE>
<CAPTION>
Fiscal year
Ending
----------------
<S> <C>
1999 $ 41,000
2000 64,000
2001 62,000
2002 52,000
2003 52,000
Thereafter 626,000
---------------
$ 897,000
===============
</TABLE>
The future minimum royalty payments may be reduced as licenses are
cancelled as the technology becomes obsolete.
Royalty expense for the year ended December 31, 1998, and 1997 was $18,773
and $11,000, respectively, and for the period ended June 30, 1999, and
1998, was $20,500 and $9,000, respectively.
Employment Agreements
---------------------
The Company currently has employment agreements with each of David P.
Haberman and David A. Walker, its Vice President, Technology and Planning,
and President, respectively. Each employment agreement commenced on January
1, 1995 and terminates on December 31, 2000, and provides for an annual
salary currently set at $100,000. Neither of the employment agreements
provides for additional payments upon a change in control.
12. GOING CONCERN
The Company has not had significant revenues and has experienced operating
losses since inception primarily caused by its continued development and
marketing costs. As shown in the accompanying financial statements, the
Company incurred a net loss of $4,577,656 and $185,957 for the year ended
December 31, 1998 and 1997, and as of December 31, 1998 has an accumulated
deficit of $5,030,931. Those factors create an uncertainty and raise
substantial doubt about the Company's ability to continue as a going
concern. Management of the Company intends to pursue various means of
obtaining additional capital. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as
a going concern. Continuation of the Company as a going concern is
dependent on the Company continuing to raise capital, developing
significant revenues and ultimately attaining profitable operations.
F-17
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
13. SUBSEQUENT EVENTS
In April 1999, the Company entered into two facility lease agreements for
facilities in California and Wisconsin. The California lease is a three-
year lease commencing on June 1, 1999 with monthly payments of $1,913. The
lease includes annual increases in base rent as provided for in the lease
agreement. The Wisconsin lease is also a three-year lease commencing on
April 22, 1999, with beginning monthly payments of $1,400, with annual
increases of 3% of previous year's rent. The leases include provisions for
two, three-year options to extend the lease.
F-18
<PAGE>
EXHIBIT 2.1
<TABLE>
Mail to: Secretary of State For office use only 002
Corporations Section
Please include a typed 1560 Broadway, Suite 200
self-addressed envelope Denver, CO 80202 19971100996 M $25.00
(303) 894-2242 SECRETARY OF STATE
MUST BE TYPED 06-25-97 11:50:02
FILING FEE: $25.00
MUST SUBMIT TWO COPIES
<S> <C> <C> <C>
</TABLE>
DPC 19961025465
ARTICLES OF AMENDMENT
Please include a typed TO THE
self-addressed envelope ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Connection Sports International, Inc.
SECOND: The following amendment to the Articles of Incorporation was adopted on
May 28 1997, as prescribed by the Colorado Business Corporation Act, in the
manner marked with an X below:
________ No shares have been issued or Directors Elected - Action by
Incorporators
______ No shares have been issued but Directors Elected - Action by
Directors
________ Such amendment was adopted by the board of directors where shares
have been issued and shareholder action was not required.
X Such amendment was adopted by a vote of the shareholders. The
- --------
number of shares voted for the amendment was sufficient for
approval.
THIRD: If changing corporate name, the new name of the corporation is DCH
Technology, Inc.
FOURTH: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the amendment
shall be effected, is as follows:
If these amendments are to have a delayed effective date, please list that
date:______________,
(Not to exceed ninety (90) days from the date of filing)
___________________________________
SEE ATTACHED Signature /s/ Randy Brasmen
--------------------------
Title __________________________
Revised 7/95
<PAGE>
ADDENDUM
TO THE
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
CONNECTION SPORTS INTERNATIONAL, INC.
The corporation is increasing the authorized shares from 9,000,000 shares to
55,000,000 shares of which 50,000,000 shares being Common Stock with a par value
of $0.1 per share and 5,000,000 shares being Preferred Stock with a par value of
$.10 per share. The Board of Directors may issue the Preferred Stock from time
to time in one or more series, to have such voting right, preference in
dividends and in liquidation and such other rights, preferences and conditions
as the Board of Directors may designate by an amendment to these Articles of
Incorporation by action duly adopted without shareholder action and shareholder
action shall not be required therefore fully-paid stock of this Corporation
shall not be liable to any further call or assessment.
<PAGE>
<TABLE>
Mail to: Secretary of State For office use only
Corporations Section
Please include a typed 1560 Broadway, Suite 200 FILED ONLY
self-addressed envelope Denver, CO 80202 1961093003 M $25.00
(303) 894-2242 SECRETARY OF STATE
MUST BE TYPED 07-15-94 14:03
FILING FEE: $25.00
MUST SUBMIT TWO COPIES
<S> <C> <C>
</TABLE>
DPC 19961025465
ARTICLES OF AMENDMENT
Please include a typed TO THE
self-addressed envelope ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is CONNECTION SPORTS, INC.
SECOND: The following amendment to the Articles of Incorporation was adopted on
June 24, 1996, as prescribed by the Colorado Business Corporation Act, in the
manner marked with an X below:
________ No shares have been issued or Directors Elected - Action by
Incorporators
________ No shares have been issued but Directors Elected - Action by
Directors
X Such amendment was adopted by the board of directors where shares
- --------
have been issued.
________ Such amendment was adopted by a vote of the shareholders. The
number of shares voted for the amendment was sufficient for
approval.
NAME CHANGE TO: CONNECTION SPORTS INTERNATIONAL, INC.
THIRD: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the amendment
shall be effected, is as follows:
If these amendments are to have a delayed effective date, please list that
date:_______________
(Not to exceed ninety (90) days from the date of filing)
/s/ Mary Writer
-----------------------------------
By MARY WRITER
---------------------------------
Its SECRETARY/TREASURER
----------------------------
Title
<PAGE>
<TABLE>
Mail to: Secretary of State For office use only 001
Corporations Section
Please include a typed 1560 Broadway, Suite 200
self-addressed envelope Denver, CO 80202 960125465 0 $50.00
(303) 894-2242 SECRETARY OF STATE
MUST BE TYPED 02-23-96 10:55
FILING FEE: $5.00
MUST SUBMIT TWO COPIES
<S> <C> <C> <C>
</TABLE>
ARTICLES OF INCORPORATION
Corporation Name Connection Sports, Inc.
----------------------------------------------------------------
Principal Business Address 11059 E. Bethany Drive, Suite 114; Aurora, CO 80014
-----------------------------------------------------
(Include City, State, Zip)
Cumulative voting shares of stock is authorized. Yes [_] No [X]
If duration is less than perpetual enter number of years N/A
--------------
Preemptive rights are granted to shareholders. Yes [_] No [X]
Stock information: (If additional space is needed, continue on a separate sheet
of paper.)
Stock Class Common Authorized Shares 9,000,000 Par Value .01
------------ ----------------- ---------
Stock Class ____________ Authorized Shares _________________ Par Value _________
The name of the initial registered agent and the address of the registered
office is:(If another corporation, use last name space)
Last Name Watson First & Middle Name James H. (Jr.)
---------- -----------------------------------------
Street Address 11059 E. Bethany Drive, Suite 114; Aurora, CO 80014
------------------------------------------------------------------
(Include City, State, Zip)
The undersigned consents to the appointment as the initial registered agent.
Signature of Registered Agent /s/ [SIGNATURE ILLEGIBLE]^^
---------------------------------------------------
These articles are to have a delayed effective date of: ________________________
Incorporators: Names and addresses: (If more than two, continue on a separate
sheet of paper.
NAME ADDRESS
James H. Watson, Jr. 6998 E. Long Ave.; Englewood, CO 80112
- ----------------------------------- -----------------------------------------
___________________________________ _________________________________________
Incorporators who are natural persons must be 18 years or more. The undersigned,
acting as incorporator(s) of a corporation under the Colorado Business
Corporation Act, adopt the above Articles of Incorporation.
Signature /s/ [SIGNATURE ILLEGIBLE]^^ Signature _______________________________
----------------------------
<PAGE>
EXHIBIT 2.2
BY LAWS
OF
DCH Technology, Inc.
ARTICLE I
OFFICES
The principal office of the Corporation in the State of California, shall be
located at 14241 Ventura Boulevard, Suite 208, Sherman Oaks, California 91423,
County of Los Angeles. The Corporation may have such other offices, either
within or without the State of California, as the Board of Directors may
designate or as the business of the Corporation may require from time to time.
ARTICLE II
SHAREHOLDERS
SECTION 1. Annual Meeting:
- -------------------------
The annual meeting of the shareholders shall be held within one month of the
close of the fiscal year of the Corporation, for the purpose of electing
directors, and transacting such other business as may properly come before the
meeting.
SECTION 2. Special Meetings:
- ---------------------------
Special meetings of the Shareholders, for any purpose(s), unless otherwise
prescribed by statute, may be called by the President or Board of Directors, and
shall be called by the President at the request of the holders of not less than
ten per cent (10%) of all the outstanding shares of the Corporation entitled to
vote at the meeting.
SECTION 3. Place of Meeting:
- ---------------------------
The Board of Directors may designate any place, either within or without the
State of California, unless otherwise prescribed by statute, as the place of
meeting for any annual meeting or for any special meeting. A waiver of notice
signed by all shareholders entitled to vote at a meeting may designate any
place, within or without the State of California, unless otherwise prescribed by
statute, as the place for the holding of such meeting. If no designation is
made, the place of meeting shall be the principal office of the Corporation.
SECTION 4. Notice of Meetings:
- -----------------------------
Written notice stating the place, day and hour of the meeting and, in case of a
special meeting, the purpose or purposes for which the meeting is called, shall
unless otherwise prescribed by statute, be delivered not less than ten or nor
more than fifty days before the date of the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be
<PAGE>
delivered when deposited in the United States Mail, addressed to the shareholder
at his address as it appears on the stock transfer books of the Corporation,
with postage thereon prepaid.
SECTION 5. Closing of Transfer Books or Fixing of Records:
- ---------------------------------------------------------
For the purpose of determining shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, or shareholders entitled
to receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period, but not to exceed in any case fifty (50) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least 5 days immediately preceding such meeting. In lieu of
closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than 30 days and, in case of a meeting of shareholders,
not less than 10 days prior to the date on which the particular action requiring
such determination of shareholders is to be taken. If the stock transfer books
are not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
SECTION 6. Voting Lists:
- -----------------------
The officer or agent having charge of the stock transfer books for shares of the
corporation shall make a complete list of the shareholders entitled to vote at
each meeting of shareholders or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each.
Such list shall be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting for the purposes thereof.
SECTION 7. Quorum:
- -----------------
A majority of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. If less than a majority of the outstanding shares are represented
at a meeting, a majority of the shares so represented may adjourn the meeting
from time to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
SECTION 8. Proxies:
- ------------------
<PAGE>
At all meetings of shareholders, a shareholder may vote in person or by proxy
executed in writing by the shareholder or by his duly authorized attorney-in-
fact. Such proxy shall be filed with the secretary of the Corporation before or
at the time of the meeting. A meeting of the Board of Directors may be had by
means of a telephone conference or similar communications equipment by which all
persons participating in the meeting can hear each other, and participation in a
meeting under such circumstances shall constitute presence at the meeting.
SECTION 9. Voting of Shares:
- ---------------------------
Each outstanding share entitled to vote shall be entitled to one vote upon each
matter submitted to a vote at a meeting of shareholders.
SECTION 10. Voting of Shares by Certain Holders:
- -----------------------------------------------
(a) Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the Bylaws of such corporation may prescribe or, in
the absence of such provision, as the Board of Directors of such corporation may
determine.
(b) Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
(c) Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name, if authority to do so be
contained in an appropriate order of the court by which such receiver was
appointed.
(d) A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
(e) Shares of its own stock belonging to the Corporation shall not be voted,
directly or indirectly, at any meeting, and shall not be counted in determining
the total number of outstanding shares at any given time.
SECTION 11. Informal Action by Shareholders:
- -------------------------------------------
Unless otherwise provided by law, any action required to be taken at a meeting
of the shareholders, or any other action which may be taken at a meeting of the
shareholders, may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the shareholders entitled
to vote with respect to the subject matter thereof.
ARTICLE III
BOARD OF DIRECTORS
<PAGE>
SECTION 1. General Powers:
- -------------------------
The business and affairs of the Corporation shall be managed by its Board of
Directors.
SECTION 2. Number, Tenure and Qualifications:
- --------------------------------------------
The number of directors of the Corporation shall be fixed by the Board of
Directors, but in no event shall be less than three (3). Each director shall
hold office until the next annual meeting of shareholders and until his
successor shall have been elected and qualified.
SECTION 3. Regular Meetings:
- ---------------------------
A regular meeting of the Board of Directors shall be held without other notice
than this By-Law immediately after, and at the same place as, the annual meeting
of shareholders. The Board of Directors may provide, by resolution, the time and
place for the holding of additional regular meetings without notice other than
such resolution.
SECTION 4. Special Meetings:
- ---------------------------
Special meetings of the Board of Directors may be called by or at the request of
the President or any two directors. The person or persons authorized to call
special meetings of the Board of Directors may fix the place for holding any
special meeting of the Board of Directors called by them.
SECTION 5. Notice:
- -----------------
Notice of any special meeting shall be given at least one (1) day previous
thereto by written notice delivered personally or mailed to each director at his
business address, or electronically. If mailed, such notice shall be deemed to
be delivered when deposited in the United States Mail so addressed, with postage
thereon prepaid. If notice be given electronically, such notice shall be deemed
to be delivered when the transmission is delivered to the director. Any
directors may waive notice of any meeting. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 6. Quorum:
- -----------------
A majority of the number of directors fixed by Section 2 of this Article III
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if less than such majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice.
SECTION 7. Manner of Action:
- ---------------------------
The act of the majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors.
<PAGE>
SECTION 8. Action Without a Meeting:
- -----------------------------------
Any action that may be taken by the Board of Directors at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so to be
taken, shall be signed before such action by all of the directors.
SECTION 9. Vacancies:
- --------------------
Any vacancy occurring in the Board of Directors may be filled by the affirmative
vote of a majority of the remaining directors though less than a quorum of the
Board of Directors, unless otherwise provided by law. A director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
directors may be filled by election by the Board of Directors for a term of
office continuing only until the next election of directors by the shareholders.
SECTION 10. Compensation:
- ------------------------
By resolution of the Board of Directors, each director may be paid his expenses,
if any, of attendance at each meeting of the Board of Directors, and may be paid
a stated salary as director or compensation in the form of stock in the
Corporation or a fixed sum for attendance at each meeting of the Board of
Directors or any combination thereof. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
SECTION 11. Presumption of Assent:
- ---------------------------------
A director of the Corporation who is present at a meeting of the Board of
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the Secretary of the meeting before the
adjournment thereof, or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
ARTICLE IV
OFFICERS
SECTION 1. Number:
- -----------------
The officers of the Corporation shall be a President, one or more Vice
Presidents, a Secretary and a Treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors, including a
Chairman of the Board. In its discretion, the Board of Directors may leave
unfilled for any such period as it may determine any office except those of
President and Secretary. Any two or more offices may be held by the same person,
except for the offices of President and
<PAGE>
Secretary, Chairman and Secretary and Chairman and President, which may not be
held by the same person. Officers may be directors or shareholders of the
Corporation.
SECTION 2. Election and Term of Office:
- --------------------------------------
The officers of the Corporation to be elected by the Board of Directors shall be
elected annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of the shareholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as conveniently as it may be. Each officer shall hold office until
his successor shall have been duly elected and shall have qualified, or until
his death, or until he shall resign or shall have been removed in the manner
hereinafter provided.
SECTION 3. Removal:
- ------------------
Any officer or agent may be removed by the Board of Directors whenever, in its
judgment, the best interests of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not of itself
create contract rights, and such appointment shall be terminable at will.
SECTION 4. Vacancies:
- --------------------
A vacancy in any office because of death, resignation, removal, disqualification
or otherwise, may be filled by the Board of Directors for the unexpired portion
of the term.
SECTION 5. Chief Executive Officer:
- ----------------------------------
The Chief Executive Officer (CEO) shall be the principal executive officer of
the Corporation and, subject to the control of the Board of Directors, shall in
general supervise and control all of the business and affairs of the
Corporation. He shall, when present, preside at all meetings of the shareholders
and of the Board of Directors, unless there is a Chairman of the Board, in which
case the Chairman shall preside. He may sign, with the Secretary or any other
proper officer of the Corporation thereunto authorized by the Board of
Directors, certificates for shares of the Corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
SECTION 6. President and Vice President/s:
- -----------------------------------------
(a) In the absence of the CEO or in event of his death, inability or refusal to
act, the President shall perform the duties of the CEO, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
CEO. The President shall perform such other duties as from time to time may be
assigned to him by the CEO or by the Board of Directors.
<PAGE>
(b) If there is more than one Vice President, each Vice President shall succeed
to the duties of the President in order of rank as determined by the Board of
Directors. If no such rank has been determined, then each Vice President shall
succeed to the duties of the President in order of date of election, the
earliest date having the first rank.
SECTION 7. Secretary:
- --------------------
The Secretary shall: (a) keep the minutes of the proceedings of the shareholders
and of the Board of Directors in one or more minute books provided for that
purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of the
corporate records and of the seal of the Corporation and see that the seal of
the Corporation is affixed to all documents, the execution of which on behalf of
the Corporation under its seal is duly authorized; (d) keep a register of the
post office address of each shareholder which shall be furnished to the
Secretary by such shareholder; (e) sign with the CEO certificates for shares of
the Corporation, the issuance of which shall have been authorized by resolution
of the Board of Directors; (f) have general charge of the stock transfer books
of the Corporation; and (g) in general perform all duties incident to the office
of the Secretary and such other duties as from time to time may be assigned to
his/her by the CEO or by the Board of Directors.
SECTION 8. Treasurer:
- --------------------
The Treasurer shall: (a) have charge and custody of and be responsible for all
funds and securities of the Corporation; (b) receive and give receipts for
moneys due and payable to the Corporation from any source whatsoever, and
deposit all such moneys in the name of the Corporation in such banks, trust
companies or other depositories as shall be selected in accordance with the
provisions of Article VI of these Bylaws; and (c) in general perform all of the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him by the CEO or by the Board of Directors. If required
by the Board of Directors, the Treasurer shall give a bond for the faithful
discharge of his duties in such sum and with such sureties as the Board of
Directors shall determine.
SECTION 9. Salaries:
- -------------------
The salaries of the officers shall be fixed from time to time by the Board of
Directors, and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the Corporation.
ARTICLE V
INDEMNITY
The Corporation shall indemnify its directors, officers and employees as
follows:
(a) Every director, officer, or employee of the Corporation shall be
indemnified by the Corporation against all expenses and liabilities, including
counsel fees, reasonably incurred by or imposed upon him in connection with any
proceeding to which he may be made a party, or in which he may become involved,
by reason of his being or having been a director, officer, employee or agent of
the Corporation or is or was serving at the request of the Corporation as a
director,
<PAGE>
officer, employee or agent of the corporation, partnership, joint venture, trust
or enterprise, or any settlement thereof, whether or not he is a director,
officer, employee or agent at the time such expenses are incurred, except in
such cases wherein the director, officer, or employee is adjudged guilty of
willful misfeasance or malfeasance in the performance of his duties; provided
that in the event of a settlement the indemnification herein shall apply only
when the Board of Directors approves such settlement and reimbursement as being
for the best interests of the Corporation.
(b) The Corporation shall provide to any person who is or was a director,
officer, employee, or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of the
corporation, partnership, joint venture, trust or enterprise, the indemnity
against expenses of suit, litigation or other proceedings which is specifically
permissible under applicable law.
(c) The Board of Directors may, in its discretion, direct the purchase of
liability insurance by way of implementing the provisions of this Article V.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts:
- --------------------
The Board of Directors may authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the Corporation, and such authority may be general or confined
to specific instances.
SECTION 2. Loans:
- ----------------
No loans shall be contracted on behalf of the Corporation and no evidences of
indebtedness shall be issued in its name unless authorized by a resolution of
the Board of Directors. Such authority may be general or confined to specific
instances.
SECTION 3. Checks, Drafts, etc:
- ------------------------------
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the Corporation, shall be signed
by such officer or officers, agent or agents of the Corporation and in such
manner as shall from time to time be determined by resolution of the Board of
Directors.
SECTION 4. Deposits:
- -------------------
All funds of the Corporation not otherwise employed shall be deposited from time
to time to the credit of the Corporation in such banks, trust companies or other
depositories as the Board of Directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares:
- ----------------------------------
<PAGE>
Certificates representing shares of the Corporation shall be in such form as
shall be determined by the Board of Directors. Such certificates shall be signed
by the President and by the Secretary or by such other officers authorized by
law and by the Board of Directors so to do, and sealed with the corporate seal.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except that in case of a lost,
destroyed or mutilated certificate, a new one may be issued therefor upon such
terms and indemnity to the Corporation as the Board of Directors may prescribe.
SECTION 2. Transfer of Shares:
- -----------------------------
Transfer of shares of the Corporation shall be made only on the stock transfer
books of the Corporation by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of authority to transfer, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Corporation, and on surrender for cancellation
of the certificate for such shares. The person in whose name shares stand on the
books of the Corporation shall be deemed by the Corporation to be the owner
thereof for all purposes. Provided, however, that upon any action undertaken by
the shareholders to elect S Corporation status pursuant to Section 1362 of the
Internal Revenue Code and upon any shareholders agreement thereto restricting
the transfer of said shares so as to disqualify said S Corporation status, said
restriction on transfer shall be made a part of the bylaws so long as said
agreement is in force and effect.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall begin on the 1st day of January and end
on the 31st day of December of each year.
ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation may
pay, dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law and its Articles of Incorporation.
ARTICLE X
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the Corporation and the state
of incorporation and the words, "Corporate Seal".
<PAGE>
ARTICLE XI
WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be given to
any shareholder or director of the Corporation under the provisions of these
Bylaws or under the provisions of the Articles of Incorporation or under the
provisions of the applicable Business Corporation Act, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice.
ARTICLE XII
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be adopted
by the Board of Directors at any regular or special meeting of the Board of
Directors.
The above Bylaws are certified to have been adopted by the Board of Directors of
the Corporation on the 26' Day of February, 1996.
<PAGE>
EXHIBIT 3.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Plan") is made this 28th, day of
May, 1997, among Connection Sports International, Inc., a Colorado corporation
("Connection"); DCH Technology, Inc., a California corporation, any and all of
its subsidiaries (hereinafter collectively referred to as "DCH") and its
shareholders (hereinafter "Shareholders").
Connection wishes to acquire all the issued and outstanding stock of DCH for and
in exchange for stock of Connection, in a stock for stock transaction intending
to qualify as a tax-free exchange pursuant to (S)368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended. The parties intend for this Plan to represent
the terms and conditions of such tax-free reorganization, which Plan the parties
hereby adopt.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein, IT IS AGREED:
Section I
Terms of Exchange
1.1 Number of Shares. Upon the execution hereof, the Shareholders of DCH agree
to assign, transfer, and deliver to Connection, free and clear of all liens,
pledges, encumbrances, charges, restrictions or known claims of any kind, nature
or description, all of their shares of DCH stock, which constitutes all of the
issued and outstanding shares of DCH aggregating 39,275 common shares, and
Connection agrees to acquire such shares on the date thereof, or as soon as
practicable thereafter, by issuing and delivering in exchange therefore solely
common shares of Connection stock, par value $0.01, in the aggregate of
6,000,000 post split shares, as subject to the provisions of this Plan, which
shall represent, as a result thereof, approximately 95% of the then issued and
outstanding shares of Connection. Subsequent to the date hereof, the
Shareholders shall, upon the surrender of the DCH certificates representing
their respective beneficial and record ownership of all of the issued and
outstanding shares of DCH to Connection. As soon as practicable hereafter, and
further provided an exemption from the registration provisions of Section 5 of
the Securities Act of 1933 is available for the issuance thereof, the
Shareholders shall be entitled to receive a certificate(s) evidencing share of
the exchanged Connection stock as provided for herein. Upon the consummation of
the transaction contemplated herein, Connection shall be the beneficial and
record owner of all of the issued and outstanding stock of DCH.
1.2 Anti-Dilution. For all relevant purposes of this Plan, the number of
Connection shares to be issued and delivered pursuant to this Plan, shall be
appropriately adjusted to take into account any stock split, stock dividend,
reverse stock split, recapitalization, or similar change in Connection common
stock, which may occur between the date of the execution of this Plan and the
date of the delivery of such shares.
1.3 Delivery of Certificates. The Shareholders shall transfer to Connection at
the closing provided for in Section 2 (the "Closing") the shares of common stock
of DCH listed opposite their respective names on Exhibit A hereto (the "DCH
shares") in exchange for the post-split shares of the common stock of Connection
as outlined above in Section 1.1 hereof (the "Connection Stock"). All of such
<PAGE>
shares of Connection common stock shall be issued at the closing to the
Shareholders, in the number shown opposite their respective names in Exhibit A.
The transfer of DCH shares by the Shareholders shall be effected by the delivery
to Connection at the Closing of certificates representing the transferred shares
endorsed in blank or accompanied by stock powers executed in blank, with all
signatures guaranteed by a national bank and with all necessary transfer taxes
and other revenue stamps affixed and acquired are the Shareholders' expense.
1.4 Further Assurances. Subsequent to the execution thereof, and from time to
time thereafter, the Shareholders shall execute such additional instruments and
take such other action as Connection may request in order to move more
effectively sell, transfer and assign clear title and ownership in the DCH
shares to Connection.
Section 2
Closing
2.1 Closing. The Closing contemplated by Section 1.3 shall be held at the
offices of Connection Sports International, Inc. on May 29, 1997 or at such
other time or place as may be mutually agreed upon in writing by the parties.
The Closing may also be accomplished by wire, express mad or other courier
service, conference telephone communications or as otherwise agreed upon by the
respective parties or their duly authorized representatives. In any event, the
closing of the transactions contemplated on the Plan shall be effected as soon
as practicable after all of the conditions contained herein have been satisfied.
2.2 Closing Events. At the Closing, each of the respective parties hereto shall
execute, acknowledge and deliver (or shall cause to be executed, acknowledged,
and delivered) any agreements, resolutions, rulings, or other instruments
required by this Plan to be delivered at or prior to Closing, together with such
other items as may be reasonably requested by the parties hereto and their
respective legal counsel in order to effectuate or evidence the transaction
contemplated hereby.
Section 3
Representatives, Warranties and Covenants of Connection
Connection represents and warrants to, and covenants with, the Shareholders and
DCH as follows:
3.1 Corporate Status. Connection is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado
incorporated on February 23, 1996. Connection has full corporated power and is
duly authorize, qualified, franchised, and licensed under all applicable laws,
regulations, ordinances, and orders of public authorities to own all of its
properties and assets and to carry on its business on all material respects as
it is now being conducted, and there is no jurisdiction in which the character
and location of the assets owned by it, or the nature of the business transacted
by it, requires qualification. Included in the Connection schedules (defined
below) are complete and correct copies of its Article of Incorporation and
Bylaws as in effect on the date hereof The execution and delivery of this Plan
does not, and the consummation of the transactions contemplated hereby will not,
violate and provision of the Connection Articles of Incorporation or Bylaws.
Connection has taken all action required by law, its Articles of Incorporation,
its Bylaws, or otherwise, to authorize the execution and delivery of this Plan.
<PAGE>
3.2 Capitalization. The authorized capital stock of Connection as of the date
hereof consists of 9,000,000 common shares, par value $0.01. As of the date
hereof there are 1,873,233 common shares of Connection issued and outstanding.
The foregoing shares constitute fully paid, non-assessable shares. There are no
outstanding options, warrants, or calls or any understanding, agreements,
commitments, contracts or promises with respect to the issuance of Connection
common stock or with regard to any options, warrants or other contractual rights
to acquire any of Connection authorized but unissued common shares.
3.3 Financial Statements.
(a) Connection hereby warrants and covenants to DCH that the audited financial
statements of the period ended October 31, 1996, fairly and accurately represent
the financial condition of Connection and that the same will be prepared along
with the period ended as of the date of accordance with generally accepted
accounting principles consistently applied, on or before the expiration of
forty-five days from the date of Closing.
(b) Connection hereby warrants and represents that the audited financial
statements for the periods set forth in subparagraph (a), supra, fairly and
accurately represent the financial condition of Connection as submitted
heretofore to DCH for examination and review.
3.4 Subsidiaries. Connection has no subsidiaries.
3.5 Conduct of Business. Connection has no ongoing business.
3.6 Litigation. There are no material actions, suits, or proceedings, pending,
or, to the best knowledge of Connection, threatened by or against or effecting
Connection at law or in equity, or before any governmental agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind;
Connection does not have any knowledge of any default on its part with respect
to any judgement, order, writ, injunction, decree, warrant, rule, or regulation
any court, arbitrator, or governmental agency or instrumentality.
3.7 Books and Records. From the date hereof and for any reasonable prior
subsequent thereto, Connection and its present management will (i) give to the
Shareholders and DCH, or their duly authorized representatives, full access,
during normal business hours, to all of its books, records, contracts and other
corporate documents and properties so that the Shareholders and DCH, or their
duly authorized representatives, may inspect them; and (ii) furnish such
information concerning the properties and affairs of Connection as the
Shareholders and DCH, or their duly authorized representatives, may reasonably
request. Any such request to inspect Connection books shall be directed to
Connection counsel, Gary Blume, at the address set forth herein under section
9.4 Notices.
3.8 Confidentiality. Until the Closing (and thereafter if there is no Closing),
Connection and its representatives will keep confidential any information which
they obtain from the Shareholders or from DCH concerning its properties, assets
and the proposed business operations of DCH. If the terms and conditions of this
Plan imposed on the parties hereto are not consummated on or before 5:00 p.m.
MST on May 29, 1997 or otherwise waived or extended in writing to a date
mutually agreeable to the parties hereto, Connection will return to DCH all
written matter with regard to DCH obtained in connection with the negotiations
or consummation of this Plan.
<PAGE>
3.9 Conflict with Other Instruments. The transactions contemplated by this Plan
will not result in the breach of any term or provision of, or constitute a
default under any indenture, mortgage, deed of trust, or there material
agreements or instrument to which Connection was or is a party, or to which any
of its assets or operations are subject, and will not conflict with any
provision of the Articles of Incorporation or Bylaws of Connection.
3.10 Corporate Authority. Connection has full corporate power and authority to
enter into this Plan and to carry out its obligations hereunder and will deliver
to the Shareholders and DCH or their respective representatives, at the Closing,
a certified copy of resolutions of its Board of Directors authorizing execution
of this Plan by its officers and performance thereunder.
3.11 Consent of Shareholders. Connection hereby warrants and represents that the
Shareholders of Connection, being owners of a majority of the issued and
outstanding stock of the Corporation consented in writing to the authorization
to execute an Agreement and Plan of Reorganization as between Connection and DCH
pursuant to a stock-for-stock transaction in which Connection would acquire all
of the issued and outstanding shares of DCH in exchange for the issuance of
6,000,000 post reverse common shares of Connection.
3.12 Resignation of Director. Upon the Closing, the current directors of
Connection shall submit their resignations.
3.13 Special Covenants and Representations Regarding the Exchanged Connection
Stock. The consummation of this Plan and the transactions herein contemplated
include the issuance of the exchanged Connection shares to the Shareholders,
which constitutes an offer and sale of securities under the Securities Act of
1933, as amended, and applicable states' securities laws. Such transaction shall
be consummated in reliance on exemptions from the registration and prospectus
requirements of such statutes which depend interlace on the circumstances under
which the Shareholders acquire such securities. In connection with the reliance
upon exemptions from the registration and prospectus delivery requirements for
such transactions, at the Closing, Shareholders shall cause to be delivered to
Connection a Letter(s) of Investment Intent in the form attached hereto as
Exhibit B and incorporated herein by reference.
3.14 Undisclosed or Contingent Liabilities. Connection hereby represents and
warrants that it has no undisclosed or contingent liabilities which have not
been disclosed to DCH.
3.15 Information. The information concerning Connection set forth in this Plan,
and the Connection schedules attached hereto, are complete and accurate in all
material respects and do not contain, or will not contain, when delivered, any
untrue statement or a material fact or omit to state a material fact the
omission of which would be misleading to DCH in connection with this Plan.
3.16 Title and Related Matters. Connection has good and marketable title to all
of its properties, interests in properties, and assets, real and personal, which
are reflected, or will be reflected, in the Connection balance sheets, free and
clear of any and all liens and encumbrances.
3.17 Contracts or Agreements. Connection is not bound by any material contracts,
agreements or obligation which it has not already disclosed to DCH.
<PAGE>
3.18 Governmental Authorizations. Connection has all licenses, franchises,
permits and other governmental authorizations that are legally required to
enable it to conduct its business in all material respects as conducted on the
date hereof Connection shall use its best efforts to obtain as quickly as
possible a listing in Moody's OTC Industrial Manual, or some other recognized
manual, recognized by the various states as an exemption from registration
provisions of any such state for the purposes of interstate trading of
Connections' post-split stock. Except for compliance with federal and state
securities laws, no authorization, approval, consent or order of, or
registration, declaration, or filing with, any court or governmental body is
required in connection with the execution and delivery by Connection of this
Plan and the consummation by DCH of the transaction contemplated hereby.
3.19 Compliance with Laws and Regulations. Connection has complied with all
applicable statutes and regulations of any federal, state, or other applicable
jurisdiction or agency thereof, except to the extent that noncompliance would
not materially and adversely effect the business, operations, properties,
assets, or condition of Connection or except to the extent that noncompliance
would not result in the occurrence of any material liability, not otherwise
disclosed to DCH.
3.20 Approval of Plan. The Board of Directors of Connection has authorized the
execution and delivery of this Plan by Connection and have approved the Plan and
the transactions. contemplated hereby. Connection has full power, authority, and
legal right to enter into this Plan and to consummate the transactions
contemplated hereby.
3.21 Ratification by Shareholders. This Plan will be submitted to the
Shareholders of Connection for approval and ratification of the plan; the
adoption and ratification of the Plan by a majority of the Shareholders of
Connection is a condition precedent to the consummation of the Plan.
3.22 Investment Intent. Connection is acquiring the DCH shares to be transferred
to it under this Plan for investment and no with a view to the sale or
distribution thereof, and Connection has no commitment or present intention to
liquidate DCH or to sell or otherwise dispose of the DCH shares.
3.23 Unregistered Shares and Access to Information. Connection understands that
the offer and sale of the DCH shares have not been registered with or reviewed
by the Securities and Exchange Commission under the Securities Act of 1933, as
amended, or with or by any state securities law administrator, and no federal,
state securities law administrator has reviewed or approved any disclosure or
other material concerning DCH or the DCH shares. Connection has been provided
with and reviewed all information concerning DCH the DCH shares as it has
considered necessary or appropriate as a prudent and knowledgeable investor to
enable it to make an informed investment decision concerning the DCH shares.
Connection has made an investigation as to the merits and risks of its
acquisition of the DCH Shares and has had the opportunity to ask questions of,
and has received satisfactory answers from, the officers and directors of DCH
concerning DCH the DCH shares and related matters, and has had an opportunity to
obtain additional information necessary to verify the accuracy of such
information and to evaluate the merits and risks of the proposed acquisition of
the DCH shares.
3.24 Connection Schedules. Connection has delivered to DCH the following items
listed below, hereafter referred to as the "Connection Schedules", which is
hereby incorporated by reference and made a part hereof A certification executed
<PAGE>
by a duly authorized officer of Connection on or about the date within the Plan
is executed to certify that the Connection Schedules are true and correct.
(a) Copy of Articles of Incorporation, as amended, and Bylaws;
(b) Connections' Prospectus;
(c) Financial statements;
(d) Shareholder list;
(e) Consent of Directors to Plan;
(f) Officer's Certificate as required under Section 6.2 of the Plan;
(g) Opinion of counsel as required under Section 6.4 of the Plan;
(h) Certificate of Good Standing;
(i) Resignations of current Board of Directors; and
(j) Consent of Shareholders approving the Plan.
Section 4
Representations, Warranties and Covenant of DCH
DCH represents and warrants to, and covenants with, the Shareholders and
Connection as follows:
4.1 Corporate Status. DCH is a corporation duly organized, validly existing and
in good standing under the laws of the State of California on January 11, 1995.
DCH has full corporate power and is duly authorized, qualified, franchised, and
licensed under all applicable laws, regulations, ordinances, and orders of
public authorities to own all of its properties and assets and to carry on its
business on all material respects as it is now being conducted, and there is no
jurisdiction in which the character and location of the assets owned by it, or
the nature of the business transacted by it, required qualification. Included in
the DCH schedules (defined below) are complete and correct copies of its
Articles of Incorporation and Bylaws as in effect on the date hereof The
execution and delivery of its Plan does not, and the consummation of the
transactions contemplated hereby will not, violate any provision of DCH's
Articles of Incorporation or Bylaws. DCH has taken all action required by law,
its Articles of Incorporation, its Bylaws, or otherwise, to authorize the
execution and delivery of this Plan.
4.2 Capitalization. The authorized capital stock of DCH as of the date hereof
consists of 50,000 common shares, par value $0.01. As of the date hereof there
are 39,275 common shares of DCH issued and outstanding. The foregoing shares
constitute fully paid, non-assessable shares. There are no outstanding options,
warrants, or calls or any understanding, agreements, commitments, contracts or
promises with respect to the issuance of DCH's common stock or with regard to
any options, warrants or other contractual rights to acquire any of DCH's
authorized but unissued common shares.
4.3 Financial Statements.
(a) DCH hereby warrants and covenants to Connection that the financial
statements of the period from incorporation to April 30, 1997, fairly and
accurately represent the financial condition of DCH and that the same will be
prepared along with the period ended as of the date of Closing on or before the
expiration of forty-five days from the date of Closing.
(b) DCH hereby warrants and represents that the unaudited financial statements
for the periods set forth in subparagraph (a), supra, fairly and accurately
represent the financial condition of DCH as submitted heretofore to Connection
for examination and review.
<PAGE>
4.4 Conduct of Business. DCH will use its best efforts to maintain and preserve
its business organization, employee relationships and goodwill intact, and will
not, without the prior written consent of Connection, enter into any material
commitments except in the ordinary course of business.
DCH agrees that DCH will conduct itself in the following manner pending the
Closing:
(a) Certificate of Incorporation Bylaws. No change will be made in the
Certificate of Incorporation or Bylaws of DCH.
(b) Capitalization, etc, DCH will not make any change in its authorized or
issued shares of class, declare or pay and dividend or other distribution, or
issue, encumber, purchase or otherwise acquire any of its shares of any class.
4.5 Options, Warrants and Rights. Although DCH intends to enact and put into
effect various management and employee benefit plans in the near future, as of
the date hereof, DCH has no options, warrants or stock appreciation rights
related to the authorized but unissued DCH common stock. There are no existing
options, warrants, calls, or commitments of any character relating to the
authorized and unissued DCH common 'stock, except options, warrants, calls or
commitments, if any, to which DCH is not a party and by which it is not bound.
4.6 Title to Property. DCH has good and marketable title to all of its
properties and assets, real and personal, proprietary or otherwise, as will be
reflected in the balance sheets of DCH, and the properties and assets of DCH are
subject to no mortgage, pledge, lien or encumbrance, unless as otherwise
disclosed in its financial statements.
4.7 Litigation. There are no material actions, suits, or proceedings, pending,
or, to the best knowledge of DCH threatened by or against or effecting DCH at
law or in equity, or before any governmental agency or instrumentality, domestic
or foreign, or before any arbitrator of any kind; DCH does not have any
knowledge of any default on its part with respect to any judgement, order, writ,
injunction, decree, warrant, rule, or regulation any court, arbitrator, or
governmental agency or instrumentality.
4.8 Books and Records, From the date hereof and for any reasonable prior
subsequent thereto, DCH and its present management will (i) give to the
Shareholders and DCH or their duly authorized representatives, full access,
during normal business hours, to all of its books, records, contracts and other
corporate documents and properties so that the Shareholders and DCIL or their
duly authorized representatives, may inspect them; and (ii) furnish such
information concerning the properties and affairs of DCH as the Shareholders and
DCH or their duly authorized representatives, may reasonably request. Any such
request to inspect DCH's books shall be directed to DCH's representative, T.
Marney Edwards, at the address set forth herein under section 9.4 Notices.
4.9 Confidentiality. Until the Closing (and thereafter if there is no Closing),
DCH and its representatives will keep confidential any information which they
obtain from the Shareholders or from DCH concerning its properties, assets and
the proposed business operations of DCH. If the terms and conditions of this
Plan imposed on the parties hereto are not consummated on or before 5:00 p.m.
MST on May 29, 1997 or otherwise waived or extended in writing to a date
mutually agreeable to the parties hereto, DCH will return to Connection all
written matter with regard to Connection obtained in connection with the
negotiations or consummation of this Plan.
<PAGE>
4.10 Investment Intent. The Shareholders represent and covenant that they are
acquiring the unregistered and restricted common shares of Connection to be
delivered to them under this Plan for investment purposes and not with a view to
the subsequent sale or distribution thereof, and as agreed, supra, the
Shareholders, their successors and assigns agree to execute and deliver to
Connection on the date of Closing or no later than the date on which the
restricted shares are issued and delivered to the Shareholders, their assigns,
or designees, an Investment Letter similar in form to that attached hereto as
Exhibit B.
4.11 Unregistered Shares and Access to Information. DCH and the Shareholders
understand that the offer and sale of Connection post-split shares to be
exchanged for the DCH shares have not been registered with or reviewed by the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
or with or by any state securities law administrator, and no federal or state
securities law administrator has reviewed or approved any disclosure or other
material facts concerning Connection or Connection post-split stock., DCH and
the Shareholders have been provided with and reviewed all information concerning
Connection and Connection post-split shares, to be exchanged for the DCH shares.
DCH and Shareholders have made an investigation as to the merits and risks of
their acquisition of the Connection post-split shares, to be exchanged for the
DCH shares and have had the opportunity to ask questions of, and have received
satisfactory answers from, the officers and directors of Connection concerning
Connection post-split shares to be exchanged for the DCH shares and related
matters, and have had an opportunity to obtain additional information necessary
to verify the accuracy of such information and to evaluate the merits and risks
of the proposed acquisition of the Connection post-split shares to be exchanged
for the DCH shares.
4.12 Title to Shares. The Shareholders are the beneficial and record owners,
free and clear of any hens and encumbrances, of whatever kind or nature, of all
of the shares of DCH of whatever class or series, which the Shareholders have
contracted to exchange.
4.13 Contracts.
(a) Set forth in the DCH Schedules are copies or descriptions of all material
contracts which written or oral, all agreements, franchises, licenses, or other
commitments to which DCH is a party by which DCH or its properties are bound.
(b) Except as may be set forth in the DCH Schedules, DCH is not a party to any
contract, agreement, corporate restriction, or subject to any judgement, order,
writ, injunction, decree, or award, which materially adversely effect the
business, operations, properties, assets, or conditions of DCH.
(c) Except as set forth in the DCH Schedules, DCH is not a party to any material
oral or written (i) contract for employment of any officer which is not
terminable on 30 days (or less) notice; (ii) profit sharing, bonus, deferred
compensation, stock option, severance, or any other retirement plan of
arrangement covered by Title IV of the Employee Retirement Income Security Act,
as amended, or otherwise covered; (iii) agreement providing for the sale,
assignment or transfer of any of its rights, assets or properties, whether
tangible or intangible, except sales of its property in the ordinary business
with a value of less that $2,000; or (iv) waiver of any right of any value which
in the aggregate is extraordinary or material concerning the assets or
properties scheduled by DCIL except for adequate value and -pursuant to
contract. DCH has not entered into any material transaction which is not listed
in the DCH Schedules or reflected in the DCH financial statements.
<PAGE>
4.14 Material Contract Defaults. DCH is not in default in any material respect
under the terms of any contract, agreement, lease or other commitment which is
material to the business, operations, properties or assets, or condition of DCH
and there is no event of default or event which, with notice of lapse of time or
both, would constitute a default in any material respect under any such
contract, agreement, lease, or other commitment in respect of which DCH has not
taken adequate steps to prevent such default from occurring, or otherwise
compromised, reached a satisfaction of, or provided for extensions of time in
which to perform under any one or more contract obligations, among others.
4.15 Conflict with Other Instruments. The consummation of the within
transactions will not result in the breach of any term or provision of, or
constitute a default under any indenture, mortgage, deed of trust, or material
agreement or instrument to which DCH was or is a party, or to which any of its
assets or operations are subject, and will not conflict with any provision of
the Articles of Incorporation or Bylaws of DCH.
4.16 Governmental Authorizations. DCH has all licenses, franchises, permits and
other governmental authorizations that are legally required to enable it to
conduct its business in all material respects as conducted on the date hereof.
Except for compliance with federal and state securities laws, no authorization,
approval, consent or order of, or registration, declaration, or filing with, any
court or governmental body is required in connection with the execution and
delivery by DCH of this Plan and the consummation by DCH of the transaction
contemplated hereby.
4.17 Compliance with Laws and Regulations. DCH has complied with all applicable
statutes and regulations of any federal, state, or other applicable jurisdiction
or agency thereof, except to the extent that noncompliance would not materially
and adversely effect the business, operations, properties, assets, or condition
of DCH or except to the extent that noncompliance would not result in the
occurrence of any material liability, not otherwise disclosed to Connection.
4.18 Approval of Plan. The Board of Directors of DCH has authorized the
execution and delivery of this Plan by DCH and have approved the Plan and the
transactions. contemplated hereby. DCH has full power, authority, and legal
right to enter into this Plan and to consummate the transactions contemplated
hereby.
4.19 Information. The information concerning DCH set forth in this Plan, and the
DCH Schedules attached hereto, are complete and accurate in all material
respects and do not contain, or will not contain, when delivered, any untrue
statement or a material fact or omit to state a material fact the omission of
which would be misleading to Connection in connection with this Plan,
4.20 DCH's Schedules. DCH has delivered to Connection the following items listed
below, hereafter referred to as the "DCH Schedules", which is hereby
incorporated by reference and made a part hereof A certification executed by a
duly authorized officer of DCH on or about the date within the Plan is executed
to certify that the DCH Schedules are true and correct.
(a) Copy of Articles of Incorporation and Bylaws;
(b) Resolutions of Board of Directors Meeting approving the Plan;
(c) Consent of Shareholder approving the Plan;
(d) Waiver of Notice of Shareholder's Meeting;
(e) Copies of all licenses, permits and other governmental authorizations,
requests or applications therefore pursuant to which DCH carries on or proposes
<PAGE>
to carry on its business except those which, in the aggregate, are immaterial to
the present or proposed opinion business of DCH.
(f) A list of all employees, including current compensation, with notation as to
job description and whether or not such employee is subject to written contract,
and if subject to a contract or employment agreement, a copy of the same;
(g) A schedule showing the name and location of each bank or other institution
with which DCH has an account and names of the authorized persons to draw
thereon or having access thereto;
(h) Financial statements of DCH;
(i) A schedule setting forth the Shareholders, together with the number of
shares owned beneficially or of record by each (also attached as Exhibit A);
(j) Officer's Certificate as required by Section 7.2 of the Plan;
(k) Certificate of Good Standing;
(1) Acceptance of Nominations as Directors.
Section 5 -
Special Covenants
5.1 Resignation of Directors. At the Closing, all of Connections' current
management will resign their respective positions, seriatim, as Directors.
5.2 DCH Information Incorporated in Connections' Reports. DCH represents and
warrants to Connection that all the information furnished under this Plan shall
be true and correct in all material respects and that there is no omission or
any material fact required to make the information stated not misleading. DCH
agrees to indemnify and hold Connection hardness, including each of its
Directors and Officers, and each person, if any, who controls such party, under
any applicable law from and against any and all losses, claims, damages,
expenses or liabilities to which any of them become subject under applicable
law, or reimburse them for any legal or other expenses reasonably incurred by
them in connection with investigating or defending such actions, whether or not
resulting in liability, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based on any untrue statement,
alleged untrue statement, or omission of a material fact contained in such
information delivered hereunder.
5.3 Special Covenants and Representations Regarding the Exchanged Connection
Stock. The consummation of this Plan and the transactions herein contemplated,
including the issuance of Connection post-split shares in exchange for all of
the issued and outstanding shares of DCH to the Shareholders constitutes the
offer and sale of securities under the Securities Act and the applicable state
statutes, which depend, inter alia, on the circumstances under which the
Shareholders acquire such securities. Connection intends to rely on the
exemption of the registration provision of Section 5 of the Securities Act as
provided for under Section 4.2 of the Securities Act of 1933, which states
"transactions not involving a public offering", among others. Each Shareholder
upon submission of his DCH shares and the receipt of the Connection post-split
shares exchanged therefor, shall execute and deliver to Connection a letter of
investment intent to indicate, among other representations, that the Shareholder
is exchanging the DCH shares for Connection post-split shares for investment
purposes and not with a view to the subsequent distribution thereof A proposed
Investment Letter is attached hereto as Exhibit B and incorporated herein by
reference for the general use by the Shareholders, as they may determine.
5.4 Action Prior to Closing. Upon the execution hereof until the Closing date,
and the completion of the financial statements,
<PAGE>
(a) DCH and Connection will (i) perform all of its obligations under
material contract, leases, insurance policies and/or documents relating to its
assets and business; (ii) use its best efforts to maintain and preserve its
business organization intact, to retain its key employees, and to maintain its
relationship with existing potential customers and clients; and (iii) fully
comply with and perform in all material respects all duties and obligations
imposed on it by all federal and state laws and all rules, regulations, and
orders imposed by all federal or state governmental authorities.
(b) Neither DCH nor Connection will (i) make any change in its Articles of
Incorporation or Bylaws except as contemplated pursuant to Section 3 of this
Plan; (ii) enter into or amend any contract, agreement, or other instrument of
the types described in the parties' schedules, except that a party may enter
into or amend any contract or other instrument in the ordinary course of
business involving the sale of goods or services, provided that such contract
does not involve obligations in excess of $10,000.
Section 6
Conditions Precedent to Obligations of DCH and the Shareholders
All obligations of DCH and the Shareholders under this Plan are subject to the
satisfaction, on or before the Closing date, except as otherwise provided for
herein, or waived or extended in writing by the parties hereto, of the following
conditions:
6.1 Accuracy of Representations. The representations and warranties made by
Connection in this Plan were true when made and shall be true as of the Closing
date (except for changes permitted by this Plan) with the same force and effect
as if such representations and warranties were made at and as the Closing date;
and, Connection shall have performed and complied with by Connection prior to
Closing, unless waived or extended in writing by the parties hereto. DCH shall
have been furnished with a certificate, signed by a duly authorized executive
officer of Connection and dated the Closing date, to the foregoing effect.
6.2 Officers' Certificate. DCH and the Shareholders shall have been furnished
with a certificate dated the Closing date and signed by a duly authorized
executive officer of Connection, to the effect that no litigation, proceeding,
investigation, or inquiry is pending, or to the best knowledge of Connection,
threatened, which might result in an action or enjoin or prevent the
consummation of the transactions contemplated by this Plan, or which might
result in any material adverse change in the assets, properties, business, or
operations of Connection.
6.3 No Material Adverse Change. Prior to the Closing date, there shall have not
occurred any material adverse change in the final condition, business or
operations of, nor shall any event have occurred which, with lapse of time or
the giving of notice or both, may cause or create any material adverse change in
the financial condition, business or operations of Connection, except as
otherwise disclosed to DCH.
6.4 Opinion of Counsel of Connection. Connection shall furnish to DCH and the
Shareholders an opinion dated as of the Closing date and in form and substance
satisfactory to DCH and the Shareholders to the effect that:
(a) Connection is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Colorado, and with all requisite
corporate power to perform its obligations under this Plan.
<PAGE>
(b) The business of Connection, as presently conducted, including, upon the
consummation hereof, the ownership of all of the issued and outstanding shares
of DCR does not require it to register it to do business as a foreign
corporation on any jurisdiction other than under the jurisdiction of its
Articles of Incorporation or Bylaws and Connection has complied to the best of
its knowledge in all material respects with all the laws, regulations, licensing
requirements and orders applicable to its business activities and has filed with
the proper authorities, including the Department of Commerce, Division of
Corporations, State of Colorado and Secretary of State of California, all
statements and reports required to be filed.
(c) The authorized and outstanding capital stock of Connection as set forth
in Section 3.2 above, and all issued and outstanding shares have been duly and
validly authorized and issued and are fully paid and non-assessable.
(d) There are no material claims, suits or other legal proceedings pending
or threatened against Connection of any court or before or by any governmental
body which might materially effect the business of Connection or the financial
condition of Connection as a whole and no such claims, suits or legal
proceedings are contemplated by governmental authorities against Connection.
(e) Connections' initial public offering file declared effective by the
Colorado Securities Commission on November 27, 1996, and was offered and sold in
accordance with and in compliance the rules and regulations of the Securities
Act of 1933, as amended. Subsequent to the termination of Connection' public
offering, no stop orders suspending the effectiveness of the distribution is or
was in effect, and no proceedings since termination thereof for that purpose are
pending before or threatened by any state or federal agency or authority.
(f) To the best knowledge of such counsel, the consummation of the
transactions contemplated by this Plan will not violate or contravene the
provisions of the Certificate of Incorporation or Bylaws of Connection, or any
contract, agreement, indenture, mortgage, or order by which Connection is bound.
(g) This Plan constitutes a legal, valid and binding obligation of
Connection enforceable in accordance with its terms, subject to the effect or
any bankruptcy, insolvency, reorganization, moratorium, or similar law effecting
creditors' rights generally and general principles of equity (regardless of
whether such principles are considered in a proceeding in equity or law).
6.5 Good Standing. DCH shall have received a Certificate of Good Standing from
the State of Colorado, dated within sixty (60) days prior to Closing, but in no
event later than ten (10) days subsequent to the execution hereof certifying
that Connection is in good standing as a corporation in the State of Colorado.
6.6 Other Items. DCH and the Shareholders shall have received such further
documents, certifications or instruments relating to the transactions
contemplated hereby as DCH and the Shareholders may reasonably request.
6.7 Resignations and Designation of New Directors. DCH and the Shareholders
shall have received duly executed resignations from all of the directors and
officers of Connection dated and effective as of the Closing, and appointing the
person or persons designated by DCH, and who are listed in Exhibit C hereto, to
serve on the Board of Directors of Connection until the next annual meeting of
the stockholders and until their successors shall be elected and qualified.
6.8 Changes in Capitalization and Cancellation of Shares. Change of Name of
Connection. All resolutions required to complete the matters outlined in Section
1.4 hereof shall have been adopted, ratified and approved, save only for the
filing of the required and necessary documentation.
Section 7
<PAGE>
Conditions Precedent to Obligations of Connection
All obligations of Connection under this Plan are subject, at its option, to the
fulfillment, before the Closing, of each of the following conditions:
7.1 Accuracy of Representations. The representations and warranties made by DCH
and the Shareholders under this Plan were true when made and shall be true as of
the Closing date (except for changes therein permitted by this Plan) with the
same force and effect as if such representations and warranties were made at and
as of the Closing date; and, Connection shall have performed and complied with
by DCH prior to the Closing, unless waived or extended in writing by the parties
hereto. Connection shall have been furnished with a certificate, signed by a
duly authorized executive officer of DCH and dated the Closing date, to the
forgoing effect.
7.2 Officers' Certificate. Connection shall have been furnished with a
certificate dated the Closing date and signed by a duly authorized executive
officer of DCH to the effect that no litigation, proceeding, investigation, or
inquiry is pending, or to the best knowledge of DCH, threatened, which might
result in an action to enjoin or prevent the consummation of the transactions
contemplated by this Plan, or which might result in any material adverse change
in the assets, properties, business, or operations of DCH.
7.3 No Material Adverse Change. Prior to the Closing date, there shall have not
occurred any material adverse change in the final condition business or
operations of Connection, nor shall any event have occurred which, with lapse of
time of the giving notice or both, may cause or create any material adverse
change in the financial condition, business or operations of DCH except as
otherwise disclosed to Connection.
7.4 Good Standing. Connection shall have received a Certificate of Good
Standing from the State of California, dated within sixty (60) days prior to
Closing, but in no event later than ten (10) days subsequent to the execution
hereof certifying that DCH is in good standing as a corporation in the State of
California.
7.5 Dissenter's Rights Waived. The Shareholders of DCH, and each of them, agree
and hereby waive any dissenters' rights, if any, under the laws of the State of
California in regards to any objection to this Plan as outlined herein and
otherwise consent to and agree and authorize the execution and consummation of
the within Plan in accordance to the terms and conditions of this Plan by the
management of DCH.
7.6 Other Items. Connection shall have received such further documents,
certifications or instruments relating to the transactions contemplated hereby
as Connection may reasonably request.
7.7 Registration of DCH Shares. In connection with the exchange of Connection
shares for DCH shares, Connection agrees, if practicable, and subject to the
consent of an underwriter(s) in the event Connection undertakes to file a
Registration Statement under the Securities Act of 1933, as amended, for the
purpose of raising money from the public through the sale of its equity, to
ensure that the Connection shares issued in connection with the within Plan will
be included as part of a general Registration Statement and "piggy back" any
such offering for the purpose of registering the same for sale by the
Shareholders, as they may determine.
<PAGE>
7.8 Execution of Investment Letter. The Shareholders shall have executed and
delivered copies of Exhibit B to Connection.
Section 8
Termination
8.1 Termination by DCH or the Shareholders. This plan may be terminated at any
time prior to the Closing date by action of DCH or the Shareholders, if
Connection shall fail to comply in any material respect with any of the
covenants or agreements contained in this Plan, or if any of its representations
and warranties contained herein shall be inaccurate in any material respect.
8.2 Termination by Connection. This Plan may be terminated at any time prior to
the Closing date by action of Connection if DCH shall fail to comply in any
material respect with any of the covenants or agreements contained in this Plan,
or if any of its representations or warranties contained herein shall be
inaccurate in any material respect.
8.3 Termination by Mutual Consent.
(a) This Plan may be terminated at any time prior to the Closing date by
mutual consent of Connection, expressed by action of its Board of Directors, DCH
or the Shareholders.
(b) If this Plan is terminated pursuant to Section 8, this Plan shall be of
no further force and effect and no obligation, right of liability shall arise
hereunder. Each party shall bear its own costs in connection herewith.
Section 9
Shareholder's Representative
The Shareholders hereby irrevocably designate and appoint David A. Walker, who
will act as agent and attorney in fact ("the Shareholder's Representative") with
full power and authority until the Closing to execute, deliver and receive all
notices, requests and other communications hereunder; to fix and alter on their
behalf the date, time and place of the Closing; to waive, amend or modify any
provisions of this Plan and to take such other action on their behalf in
connection with this Plan, the Closing and the transactions contemplated hereby
as such agent deems appropriate; provided, however that no such waiver,
amendment or modification may be made if it would decrease the number of shares
to be issued to the Shareholders under Section I hereof or increase the extent
of their obligation to Connection hereunder, unless agreed in writing by David
A. Walker.
Section 10
General Provisions
10.1 Further Assurances. At any time, and from time to time, after the Closing
date, each party will execute such additional instruments and take such action
as may be reasonably requested by the other party to confirm or perfect title to
any property transferred hereunder or otherwise to carry out the intent and
purposes of the Plan.
<PAGE>
10.2 Payments of Estimated Costs and Fees. Connection and DCH mutually determine
and agree that Connection shall pay the estimated costs and fees incurred in
connection with the execution and consummation of the Plan.
10.3 Press Release and Shareholders' Communications. On the date of Closing, or
as soon thereafter as practicable, DCH and the Shareholders shall cause to have
promptly prepared and disseminated a news release concerning the execution and
consummation of the Plan, such press release and communication to be released
promptly and within the time required by the laws, rules and regulations as
promulgated by the United States Securities and Exchange Commission, and
concomitant therewith to cause to be prepared a full and complete letter to
Connections' shareholders which shall contain information required by Regulation
240.14f- I as promulgated under Section 14(f) as mandated under the Securities
and Exchange Act of 1934, as amended.
10.4 Notices. All notices and other communications required or permitted
hereunder shall be sufficiently given if personally delivered, sent by
registered mail, or certified mail, return receipt requested, postage prepaid,
or by facsimile transmission addressed to the following parties hereto or at
such other addresses as follows:
If to Connection Sports:
Connection Sports International, Inc.
6312 South Fiddlers Green Circle
Englewood, Co 80111
With a copy to:
Gary Blume, Esq.
1180 Tatum Blvd # 108
Phoenix, AZ 85028
If to DCH Technology, Inc.:
DCH Technology, Inc.
14241 Ventura Blvd, Suite 208
Sherman Oaks, CA 91423
If to the Shareholders Representative:
David A. Walker
14241 Ventura Blvd, Suite 208
Sherman Oaks, CA 81423
or at such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication shall
be deemed to have been given as of the date so delivered, mailed, sent by
facsimile transmission, or telegraphed.
10.5 Entire Agreement. This Plan represents the entire agreement between the
parties relating to the subject matter hereof, including any previous letters of
intent, understandings, or agreements between Connection, DCH and the
Shareholders with respect to the subject matter hereof, all of which are hereby
merged into this Plan, which alone fully and completely expresses the agreement
of the parties relating to the subject matter hereof. Excepting the foregoing
agreement, there are no other courses of dealing, understandings, agreements,
representations, or warranties, written or oral, except as set forth herein.
10.6 Governing Law. This Plan shall be governed by and construed and enforced in
accordance with the laws of the State of Colorado, except to the extent
<PAGE>
preempted by federal law, in which event (and to that extent, only) federal law
shall govern.
10.7 Tax Treatment. The transaction contemplated by this Plan is intended to
qualify as a "tax-free" reorganization under the provisions of Section
368(a)(1)(B) of the Internal Revenue code of 1986, as amended. DCH and
Connection acknowledge, however, that each are being represented by their own
tax advisors in connection with this transaction, and neither has made any
representations or warranties to the other with respect to treatment of such
transaction or any part or effect thereof under applicable tax laws, regulations
or interpretations; an no attorney's opinion or tax revenue ruling has been
obtained with respect to the tax consequences or the transactions contemplated
by the within Plan.
10.8 Attorney Fees. In the event that any party prevails in any action or suit
to enforce this Plan, or secure relief from any default hereunder or breach
hereof, the nonprevailing party or parties shall reimburse the prevailing party
or parties for all costs, including reasonable attorney fees, incurred in
connection therewith.
10.9 Amendment of Waiver. Every right and remedy provided herein shall be
cumulative with every other right and remedy, whether conferred herein, at law
or in equity, and may be enforced concurrently or separately, and no waiver by
any party of the performance of any obligation by the other shall be construed
as a waiver of the same or any other default then, therefore, of thereafter
occurring or existing. Any time prior to the expiration of thirty (30) days from
the date hereof, this Plan may be amended by a writing signed by all parties
hereto, with respect to any of the terms contained herein, and any ten-n or
condition of this Plan may be waived of the time for performance thereof may be
extended by a writing signed by the party or parties for whose benefit the
provision is intended.
10.10 Counterparts. This Plan may be executed in any number of counterparts,
each of which when executed and delivered shall be deemed to be an original, and
all of which together shall constitute one and the same instruments.
10.11 Headings. The section and subsection headings in this Plan are inserted
for convenience only and shall not effect in any way the meaning or
interpretation of the Plan.
10.12 Parties in Interest.. Except as may be otherwise expressly provided
herein, all terms and provisions of this Plan shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, beneficiaries,
personal and legal representatives, and assigns.
IN WITNESS WHEREOF, the parties have executed this Plan and Agreement of
Reorganization effective the day and year first set forth above.
Attest: Connection Sports International, Inc.:
/s/ RANDY BRASMER
By: Randy Brasmer, Secretary
Attest: DCH Technology, Inc.:
/s/ DAVID HABERMAN
By: David P. Haberman, Secretary
Attest: Shareholders Representative:
/s/ DAVID A WALKER
By: David A. Walker
<PAGE>
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
CUSIP NO. 233092 10 5
DCH
SHARES TECHNOLOGY SHARES
AUTHORIZED COMMON STOCK: 50,000,000 SHARES
PAR VALUE: 3.01
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
***Shares of DCH Technology, Inc. common stock***
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
DAVID HABERMAN W. L. FIRESTONE
/s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE]
- --------------------------- ---------------------------
Secretary President
[SEAL]
NOT VALID UNLESS COUNTERSIGNED Countersigned Registered
BY TRANSFER AGENT HOLLADAY STOCK TRANSFER INC.
4350 E. CAMELBACK ROAD, SUITE 100F
Pheonix, AZ 85016
By _________________________
Authorized Signature
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations when used in
the inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations :
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ............Custodian.........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of
survivorship and not as tenants under Uniform Gifts to Minors
in common Act..........................
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ___________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
--------------------------------------
_______________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________________________
_______________________________________________________________________________________________
_________________________________________________________________________________________Shares
of the capital stock represented by the within certificate, and do hereby irrevocably
constitute and appoint
_______________________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with full power of
substitution in the premises.
Dated ___________________
______________________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER
</TABLE>
<PAGE>
EXHIBIT 6.1
LICENSE AGREEMENT
Between
SANDIA CORPORATION
and
DCH TECHNOLOGY, INC.
LICENSE NUMBER 96-CO0333
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
-----
<S> <C>
ARTICLE I--DEFINTIONS............................................. 2
ARTICLE II--LICENSE............................................... 3
ARTICLE III--THE PARTIES' DUTIES.................................. 3
ARTICLE IV--ROYALTIES............................................. 4
ARTICLE V--STATEMENTS, REPORTS AND PAYMENTS....................... 4
ARTICLE VI--DURATION AND TERMINATION.............................. 6
ARTICLE VII--WARRANTY, LIABILITY AND INDEMNIFICATION.............. 7
ARTICLE VIII--GENERAL PROVISIONS.................................. 7
ARTICLE IX--ASSIGNMENT............................................ 9
ARTICLE X--PREFERENCE FOR U.S. INDUSTRY........................... 9
ARTICLE XI--GOVERNMENT RIGHTS AND SPONSORSHIP..................... 9
ARTICLE XII--EXPORT CONTROL....................................... 10
ARTICLE XIII--CONTROLLING LAW..................................... 10
ARTICLE XIV--ENTIRE AGREEMENT..................................... 10
EXHIBIT A......................................................... 12
- ---------
EXHIBIT B......................................................... 13
- ---------
</TABLE>
<PAGE>
LICENSE AGREEMENT
-----------------
This License Agreement, effective on the date of last signature hereto, is by
and between Sandia Corporation ("Sandia"), a corporation whose principal place
of business is located in Albuquerque, New Mexico, and DCH Technology, Inc., a
corporation whose principal place of business is located in Sherman Oaks,
California.
WITNESSETH THAT:
WHEREAS, Sandia manages and operates a federally-owned facility known as
Sandia National Laboratories for the United States Department of Energy
("DOE") under Contract DE-AC04-94AL85000;
WHEREAS, Sandia has developed and acquired, may further develop and
acquire, and may further become, the assignee of Sandia Patent Rights (as
defined herein);
WHEREAS, Sandia desires to license Sandia Patent Rights in support of
technology for transfer to United States industries to enhance the United
States' competitiveness;
WHEREAS, the United States Government is neither a party to nor assumes
any liability for activities of Sandia in connection with this License
Agreement;
WHEREAS, Sandia has either been granted or will request a waiver of title
from DOE for Sandia Patent Rights. Under the terms of this waiver, the
United States Government reserves a nonexclusive license in Sandia Patent
Rights for use by or on behalf of the United States Government;
WHEREAS, at the time of conception of the invention comprising Sandia
Patent Rights, Sandia was operated by American Telephone & Telegraph
Company ("AT&T") under Contract No. DE-AC04-76DP00789 with the DOE under
which AT&T reserved nonexclusive licenses in Sandia Patent Rights; and
WHEREAS, DCH desires to obtain from Sandia, and Sandia is willing to make
available to DCH, a license under Sandia Patent Rights to make, have made,
and sell Licensed Product in accordance with the terms and conditions set
forth herein, including the payment of moneys.
NOW, THEREFORE, in consideration of the agreement between Sandia and DCH, and in
consideration of the faithful performance of this License Agreement, it is
hereby agreed as follows:
<PAGE>
Article 1--Definitions
1.1 "Sandia" and "DCH" may each be referred to as a "Party" or, collectively,
as "Parties" to this License Agreement.
1.2 "Field of Use No. 1" shall mean the fields of "petroleum, energy, waste
management, environmental and manufacturing.
1.3 "Field of Use No. 2" shall mean all other fields, not including those
identified in the Field of Use No. 1 Field of Uses.
1.4 "Sandia Patent Rights" shall mean the United States patent application set
forth in EXHIBIT A, which is incorporated by reference hereto and made a
part hereof, and any division, continuation, continuation-in-part, or
reissue thereof, or any foreign counterpart thereof
1.5 "Licensed Product" shall mean any product that is, or is produced by a
process that is, operated under any claim of Sandia Patent Rights.
1.6 "Net Sales Price" shall mean:
(a) In respect of Licensed Product sold, leased or transferred in normal arm's
length commercial transactions between DCH and non-Affiliates, the Net
Sales Price shall mean the gross sales price of Licensed Product charged to
DCH customers without any deductions other than the following relating to
such transactions where applicable: (1) prompt payment and other trade
discounts, (2) allowances for return of defective shipments, (3)
transportation and packing charges, and (4) sales and excise taxes, to the
extent that such items are separately stated in invoices or appear as items
of allowance in the records of DCH.
(b) In the event DCH makes, sells, leases or transfers systems combining
Licensed Product with other systems, the Net Sales Price of Licensed
Product shall be calculated in the manner set forth in Paragraphs 1.6(a) of
this Article 1, except that the gross sales price for Licensed Product in
such combination shall be DCH's gross sales price for the same quantities
of the same or substantially similar Licensed Product not in such
combination or, if no such gross sales price exists, then the fair market
value thereof
1.7 "Government" shall mean the United States of America and agencies thereof.
<PAGE>
Article II--License
2.1 Subject to the terms and conditions of this License Agreement, Sandia
hereby grants DCH a nontransferable, limited nonexclusive right and license
for five (5) years from the execution date of this License Agreement, for
DCH to make, have made, and sell Licensed Product under one or more claims
of Sandia Patent Rights in Field of Use No. 1; and for DCH's customers to
use Licensed Product sold, leased or transferred by DCH for which royalties
have been paid hereunder to Sandia. At the end of this five (5) year time
frame, DCH's right shall convert to a nonexclusive in all fields identified
in Field of Use No. 1.
DCH shall also have the right and license upon the execution of this
License Agreement to make, have made, and sell Licensed Product under one
or more claims of Sandia Patent Rights in Field of Use No. 2.
2.2 Express or implied rights and licenses outside the scope of Article II are
expressly excluded.
2.3 Provided that DCH otherwise meets its obligations under Article III, Sandia
agrees not to grant third parties a right and license to use Sandia Patent
Rights in Field of Use No. I for five (5) years following the execution
date of this License Agreement.
Article III--The Parties' Duties
3.1 DCH agrees to undertake a thorough, vigorous and diligent program for
developing, marketing and selling a commercial version of Licensed Product
by meeting all of the performance milestone requirements described in
EXHIBIT B.
3.2 Sandia, without unduly interfering with its other requirements of its
engineers and scientists involved in developing and using Sandia Patent
Rights, shall make up to 160 manhours of technical assistance available to
DCH at no additional cost to DCH for up to eighteen (18) months from the
effective date of this License Agreement, to expedite DCH's use of Sandia
Patent Rights.
<PAGE>
Article IV--Royalties
4.1 DCH agrees that as initial consideration for Sandia's grant of the rights
and licenses set forth in this License Agreement, DCH will pay to Sandia
the up-front fee of [*] per the following payment schedule:
[*]
4.2 In consideration of the licenses and other rights granted by Sandia herein,
DCH hereby agrees to pay to Sandia the following running royalty percent of
the Net Sales Price of Licensed Product sold, leased or transferred by DCH
during the term of this License Agreement. Also, DCH hereby agrees to pay
to Sandia the following minimum annual royalties for the duration of this
License Agreement, due by January 31 of each year this License Agreement is
in effect.
Minimum Annual Royalty % Royalty
[*]
Article V--Statements, Reports and Payments
5.1 For the purpose of computing royalties hereunder, a Licensed Product shall
be considered sold, leased or transferred, when billed out, when shipped
out or when paid for, whichever shall first occur.
5.2 DCH shall render to Sandia by January 31 and July 31 of each calendar year,
while this License Agreement exists, a royalty statement reporting each
amount DCH invoices its
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
customers for Licensed Product during the preceding semiannual accounting
period beginning respectively on the preceding July 1 or January 1. The
statement shall give all information necessary for the determination of
royalties payable hereunder. DCH shall accompany each such statement with
the payment of all such royalties due Sandia, computed in accordance with
Article IV. If for any semiannual accounting period no royalty payment
shall be due, DCH shall submit a written statement to that effect.
5.3 DCH shall keep true and accurate records in such manner and detail as to
permit the verification of all royalties paid and payable under this
License Agreement. Such records shall be made available during ordinary
business hours for inspection at DCH's ordinary place of business by
authorized representatives of Sandia. DCH shall be obligated to retain such
records for at least five (5) years after the report to which such records
pertain is rendered to Sandia.
5.4 All royalties payable by DCH hereunder shall be paid to Sandia at the
address specified in Article VRI hereof in United States of America dollars
in the total amounts provided for in this License Agreement. Any taxes,
assessments or charges assessed or imposed by an entity or government other
than by the Government of the United States of America or any state or
local government in the United States of America, that Sandia or DCH or any
other party shall be required to pay with respect to such royalty, shall be
borne by DCH.
5.5 The rate of exchange to be used in calculating royalties payable by DCH for
an accounting period shall be the rate of exchange published by the Wall
Street Journal on the last business day of such accounting period.
5.6 Without excusing prompt payment of royalties due, any and all royalties
left unpaid after the aforementioned dates in Paragraphs 4. 1 and 5.2,
shall bear interest at the prime rate in effect at the First Security Bank
of Albuquerque, New Mexico, on the date that payment of said royalties
becomes due, plus three (3) percentage points.
5.7 The DOE may require Sandia to report on the utilization or the effect of
obtaining Sandia Patent Rights in the commercial marketplace. In this
regard, DCH agrees to cooperate with and reasonably assist Sandia in making
all such reports.
5.8 DCH will provide to Sandia on July 31 of each year a report on DCH's
utilization of the Sandia Hydrogen Sensor technology in the fields of use
which DCH is selling licensed product. The report will include information
on the economic impact of the technology on DCH. Examples include but not
limited to: dollar and percentage change in sales and number of jobs
created or eliminated, changes in efficiency of operations, changes in
DCH's competitive position in the industry, and how the Sandia technology
and Licensed Product compares with similar domestic and international
technologies and products.
<PAGE>
Article VI--Duration and Termination
6.1 The rights and licenses granted to DCH under Article II and the obligation
to pay royalty under Article IV shall continue until January 1, 2015, or
until the expiration of Sandia Patent Rights, whichever occurs first,
unless earlier terminated as specified in Article VI. Except for DCH's
rights and licenses granted under Article II, all other provisions relating
to DCH and intended to survive the date set forth in Paragraph 6. 1, and
the expiration of Sandia Patent Rights and any such early termination,
shall survive. DCH's obligation to pay royalty shall cease in the event all
claims of the Sandia Patent rights covering the Licensed Product are held
invalid by a federal court in a final judgment from which no appeal is
taken.
6.2 Following termination of the rights and licenses granted by Sandia under
this License Agreement, as specified in Paragraphs 6.3 through 6.6 hereof,
DCH shall have no further rights and licenses under Article II.
6.3 Termination of DCH's rights and licenses under this License Agreement for
any reason shall not relieve DCH of any obligation or liability accrued
either before or after the termination.
6.4 Sandia may terminate the right and license by Article II if DCH, at any
time:
(a) defaults in the payment of any royalty due to Sandia;
(b) commits any material breach of this License Agreement; or
(c) makes any false statement;
and fails to remedy or cure any such default, breach or false statement
within sixty (60) days after written notice of the default, breach or false
statement is given by Sandia.
6.5 Sandia may terminate the rights and licenses granted by Article II, if the
combined royalties for any two (2) consecutive semiannual accounting
periods hereunder are less than the minimum annual royalty, by giving DCH a
written notice of its election to do so, specifying an effective date of
termination not less than sixty (60) days from the date of such notice. DCH
may prevent such termination by paying before the effective date of
termination specified in such notice, the difference between royalties
accrued and paid by DCH for the two (2) consecutive annual accounting
periods and the minimum annual royalty.
6.6 Sandia may terminate the rights and licenses granted by Article II by
giving written notice to DCH in the event DCH experiences any of the
following events: dissolution, insolvency, filing of a voluntary petition
in bankruptcy (other than reorganization under Chapter 11), adjudication as
a bankrupt pursuant to an involuntary petition, appointment by a court of a
temporary or permanent receiver, trustee or custodian for its business, or
an assignment for
<PAGE>
the benefit of creditors. Such termination shall be effective immediately
upon the giving of such notice.
Article VII--Warranty, Liability and Indemnification
7.1 Sandia warrants that it has the right to grant the rights and licenses in
Article II.
7.2 Sandia makes no warranty, express or implied, as to the accuracy or utility
of any Sandia Patent Rights. Sandia further makes no warranty, express or
implied, that the use of any Sandia Patent Rights made available to DCH
under this License Agreement will not infringe any United States or foreign
patent, copyright or trade secret. Under this License Agreement, Sandia
Patent Rights are made available to DCH on an "AS-IS" basis.
EXCEPT FOR THE WARRANTIES EXPRESSLY PROVIDED HEREIN, ALL WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE EXCLUDED
HEREUNDER.
7.3 Neither Sandia nor the Government, nor their agents, officers and employees
shall be liable for any loss, damage (including incidental, consequential
and special), injury or other casualty of whatsoever kind, or by whomsoever
caused, to the person or property of anyone, including DCH, arising out of
or resulting from the licenses granted to DCH herein, or the accuracy and
validity of Sandia Patent Rights, or from any system or component thereof
made, used, sold, leased or transferred by DCH. DCH agrees for itself, its
successors and assigns, to defend Sandia and to indemnify and hold Sandia
and the Government, harmless from and against all claims, demands,
liabilities, suits or actions (including all reasonable expenses and
attorney's fees incurred by or imposed on Sandia or the Government in
connection therewith) for such loss, damage (including incidental,
consequential and special), injury or other casualty.
7.4 Sandia makes no warranty or guarantee in respect of the validity of Sandia
Patent Rights.
7.5 Sandia shall retain the sole right to bring litigation for infringement of
Sandia Patent Rights. DCH shall promptly bring to Sandia's attention any
information of which DCH is aware relating to third party infringement of
Sandia Patent Rights.
Article VIII--General Provisions
5.1 DCH shall not, without the express written consent of Sandia, make any
verbal or written statements or perform any act indicating that Sandia
endorses or approves, or has endorsed or approved, any Licensed Product.
Specifically, DCH shall not, without the express written consent of Sandia,
associate or in any way connect any name or trademark of Sandia with any
Licensed Product. However, DCH may indicate that Licensed Product is
manufactured, sold, leased or used under a license granted by Sandia.
<PAGE>
8.2 Any notice with respect to this License Agreement shall be deemed given on
the date when sent by facsimile transmission with receipt of confirmation
or when mailed by registered mail, return receipt requested, addressed to
the Party to be notified at its address set forth below or such other
address as is designated by writing:
Sandia Corporation:
For Statements and Notices:
Sandia Corporation
Attention: Licensing Administrator, Org. 4200
Reference: License #96-CO0333
Mailstop 1380
P.O. Box 5800
Albuquerque, NM 87185-1380
Telephone: (505) 843-4190
Facsimile: (505) 843-4175
For Payments:
Sandia Corporation
Attention: Assistant Treasurer, Org. 10507
Reference: License #96-CO0333
Mailstop 0189
P.O. Box 5800
Albuquerque, NM 87185-0189
For DCH:
DCH Technology, Inc.
Attention: Mr. David Walker
14241 Ventura Blvd., Suite 208
Sherman Oaks, CA 91423
Telephone: (818) 385-0400
Facsimile: (818) 385-0849
8.3 The waiver of a breach of this License Agreement or the failure of either
Party to exercise any right under this License Agreement shall in no event
constitute a waiver as to any other breach, whether similar or dissimilar
in nature, or prevent the exercise of any right under this License
Agreement.
8.4 DCH agrees to affix appropriate statutory patent markings to all materials
included in Licensed Product made hereunder and covered by issued and
unexpired claims of Sandia
<PAGE>
Patent Rights and otherwise to modify such notice as Sandia may from time
to time direct in conformity with the patent statutes.
8.5 The Index and Headings used in this License Agreement are for reference
purposes only and shall not be used in the interpretation of this License
Agreement.
Article IX--Assignment
9.1 DCH shall not, without the prior written consent of Sandia, assign this
License Agreement or any rights hereunder except to a successor to the
business of DCH who shall agree to be bound to the same extent as DCH by
all the terms and conditions of this License Agreement.
9.2 Sandia may assign or otherwise transfer this License Agreement or any
rights hereunder to any assignee or transferee.
Article X--Preference for U.S. Industry
10.1 DCH agrees that any products embodying Sandia Patent Rights or produced
through the use of Sandia Patent Rights will be designed, developed and
manufactured substantially in the United States.
Article XI--Government Rights and Sponsorship
11.1 The Government has been granted for itself and others acting on its behalf
a paid-up, nonexclusive, irrevocable, worldwide license in Sandia Patent
Rights to make, use or sell.
11.2 DCH will not pay royalty on Licensed Product sold to the Government or a
contractor for the benefit of any Government contract (pursuant to the
Government's nonexclusive reserved license).
11.3 MARCH-IN RIGHTS. The Parties agree and understand that the Government
retains "march-in" rights, in accordance with the procedures set forth in
35 USC 203 and any supplemental regulations promulgated by the DOE.
11.4 NEITHER THE GOVERNMENT NOR THE DOE, NOR ANY OF THEIR EMPLOYEES, MAKES ANY
WARRANTY, EXPRESS OR IMPLIED, OR ASSUMES ANY LEGAL LIABILITY OR
RESPONSIBILITY FOR THE ACCURACY, COMPLETENESS, OR USEFULNESS OF ANY
INFORMATION, APPARATUS, PRODUCT, OR PROCESS DISCLOSED, OR REPRESENTS THAT
ITS USE WOULD NOT INFRINGE PRIVATELY OWNED RIGHTS.
11.5 DCH acknowledges that the DOE has audit and inspection rights over all
activities conducted at Sandia's location. DCH hereby permits the exercise
of such rights in
<PAGE>
conjunction with DCH's activities which may involve proprietary
information disclosed to Sandia hereunder; provided, however, that any
disclosure to DOE is further protected under 18 USC 1905.
Article XII--Export Control
4.1 DCH shall abide by the export control laws and regulations of the United
States Department of Commerce and other United States governmental
regulations relating to the export of Sandia Patent Rights. Failure to
obtain an export control license or other authority from the Government
may result in criminal liability under U.S. laws.
Article XIII--Controlling Law
4.1 This License Agreement is made in Albuquerque, New Mexico, U.S.A., and
shall be governed by and construed in accordance with the laws of the
State of New Mexico. The Parties agree to the exclusive jurisdiction of
the courts of New Mexico or the United States District Court for New
Mexico. However, as a first recourse, any dispute arising under this
License Agreement may be settled by nonbinding arbitration by a single
arbitrator in the City of Albuquerque, New Mexico, under the rules of the
American Arbitration Association.
Article XIV--Entire Agreement
14.1 Each Party warrants and represents that the execution and delivery of this
License Agreement by Sandia and DCH has not been induced by any promises,
representations, warranties or other agreements, other than those
specifically expressed. This License Agreement includes EXHIBIT A and
EXHIBIT B, and embodies the entire understanding between DCH and Sandia
with respect to the subject matter described within this License
Agreement. This License Agreement shall supersede all previous
communications, representations or undertakings, either verbal or written,
between DCH and Sandia with regard to License Agreement.
14.2 No modification of this License Agreement shall be valid or binding upon
the Party against whom enforcement of the modification is sought, unless
the modification is made in writing and signed by duly authorized
representatives of both Sandia and DCH.
14.3 This License Agreement is binding and shall insure to the heirs, assigns
or successors of the Parties of this License Agreement.
<PAGE>
IN CONSIDERATION OF THE FOREGOING TERMS AND CONDITIONS, DCH Technology, Inc. and
Sandia Corporation have caused this License Agreement to be executed in
duplicate by their duly authorized representatives. This License Agreement will
be effective on the last day and year written below.
Approved as to SANDIA CORPORATION:
Legal Form
_________
By: /s/ WARREN D. SIEMENS
___________________________________
Warren D. Siemens
Title: Director, Technology Partnerships
and Commercialization
-----------------------------------
Date: 4/24/96
-----------------------------------
DCH TECHNOLOGY, INC.:
By: /s/ DAVID A. WALKER
___________________________________
David A. Walker
Title: Vice President, Operations
-----------------------------------
Date: APRIL 18, l996
-----------------------------------
THIS LICENSE AGREEMENT DOES NOT BIND OR OBLIGATE EITHER PARTY IN ANY MANNER
UNLESS DULY EXECUTED BY AN AUTHORIZED REPRESENTATIVE OF BOTH PARTIES.
<PAGE>
EXHIBIT A
---------
Sandia Patent (SD-4958). U.S. Patent 5,279,795
- -----------------------------------------------
A thin-film palladium-nickel alloy has been shown to be a sensitive detector for
hydrogen in the parts-per-million to 100% range. It displays reproducibility,
large signals for high hydrogen concentrations, very fast and reversible
response, and resistance to poisoning.
<PAGE>
Exhibit 6.2
LANL Control Number: 99-42-00530
EXCLUSIVE FIELD OF USE PATENT LICENSE AGREEMENT BETWEEN THE REGENTS OF THE
UNIVERSITY OF CALIFORNIA AND DCH TECHNOLOGY, INC.
LANL Control Number: 99-42-00530
TABLE OF CONTENTS
BACKGROUND 1
1. DEFINITIONS 1
2. GRANT 3
3. SUBLICENSES 3
4. FEES AND ROYALTIES 4
5. DILIGENCE 5
6. REPORTS 5
7. BOOKS AND RECORDS 6
8. TERM OF THE LICENSE AGREEMENT 6
9. TERMINATION BY THE UNIVERSITY 7
10. TERMINATION BY THE LICENSEE 8
11. PATENT PROSECUTION AND MAINTENANCE 8
12. USE OF NAMES, TRADENAMES, AND TRADEMARKS 8
13. WARRANTY BY THE UNIVERSITY 9
14. INFRINGEMENT 10
15. WAIVER 10
16. ASSIGNABILITY 11
17. INDEMNIFICATION - PRODUCT LIABILITY 12
18. LATE PAYMENTS 12
19. NOTICES 13
20. FORCE MAJEURE 13
21. EXPORT CONTROL LAWS 13
22. PREFERENCE FOR UNITED STATES INDUSTRY 13
23. DISPUTE RESOLUTION 13
24. CONFLICT OF INTEREST 13
25. PATENT MARKING 14
26. SURVIVOR 14
27. GOVERNMENT APPROVAL OR REGISTRATION 14
28. DISPOSITION OF LICENSED PRODUCTS 14
29. MISCELLANEOUS 14
Appendix A - PATENT RIGHTS AND FIELD OF USE 17
Appendix B - CONFIRMATORY LICENSE 18
Appendix C - FEES AND ROYALTIES 19
Appendix D - MILESTONES 20
Appendix E - PROGRESS REPORT FORMAT 21
Appendix F - FINANCIAL REPORT FORMAT 22
Appendix G - DESIGNATION OF LICENSING TEAM 23
LIMITED EXCLUSIVE FIELD OF USE PATENT LICENSE AGREEMENT
DCH TECHNOLOGY, INC.
THIS LICENSE AGREEMENT is entered into by and between THE REGENTS OF THE
UNIVERSITY OF CALIFORNIA, a nonprofit educational institution and a public
corporation of the State of California, hereinafter referred to as the
"University;" and DCH Technology, Inc., 27811 Ave. Hopkins, Suite 6, Valencia,
CA 91355, a Colorado Corporation, hereinafter referred to as the "Licensee," the
parties to this License Agreement being referred to individually as a "Party,"
and collectively as "Parties."
<PAGE>
BACKGROUND
The University conducts research and development at the Los Alamos National
Laboratory (LANL) for the U.S. Government under Contract No. W-7405-ENG-36 with
the U.S. Department of Energy (DOE).
Rights in inventions and technical data made in the course of the University's
research and development at LANL are governed by the terms and conditions of the
Contract.
Certain TECHNOLOGY relating to an Annular Feed Air Breathing Fuel Cell Stack has
been developed in the course of the University's research and development at
LANL and is covered by the University's PATENT RIGHTS as defined hereinbelow.
The University desires that such TECHNOLOGY be developed and utilized to the
fullest extent possible so as to enhance the accrual of economic and
technological benefits to the U@S. domestic economy and to provide the benefit
of federally sponsored research to U.S. industrial competitiveness.
The University is therefore willing to grant to Licensee, and the Licensee
desires to obtain from the University certain exclusive rights for the
commercial development, manufacture, use, and sale of the TECHNOLOGY.
NOW, THEREFORE, the Parties agree as follows-
1. DEFINITIONS
1.1 "TECHNOLOGY" means technical information, know-how, data and PATENT RIGHTS
owned or controlled by the University and relating to Annular Feed Air Breathing
Fuel Cell Stacks.
1.2 "PATENT RIGHTS" means the University's rights arising from U.S. patents or
applications, including any continuing applications, divisionals, and reissues
thereof (but not including continuations-in-part); and any patents issuing on
said applications where elected by Licensee and identified in Appendix A,
attached hereto.
1.3 "LICENSED METHOD" means any method, procedure or process whose use would
constitute, but for the license granted to Licensee herein, an infringement of
any subsisting claim of any patent or patent application identified in Appendix
A.
1.4 "LICENSED PRODUCT" means any article of manufacture, machine or
composition of matter whose manufacture, use, sale, or offer for sale would
constitute, but for the license granted to Licensee herein, an infringement of
any subsisting claim of any patent or patent application identified in Appendix
A, and any article of manufacture, machine or composition of matter produced
through the practice of LICENSED METHOD or whose only substantial use is to
practice LICENSED METHOD.
1.5 "LICENSED INVENTION" means any LICENSED PRODUCT or LICENSED METHOD.
1.6 "SALES" means disposing of LICENSED PRODUCTS by sale, lease, or other
delivery or practicing LICENSED METHOD. A Sale occurs when LICENSED PRODUCTS are
invoiced, or when delivered to a third person, whichever occurs first.
<PAGE>
1.7. "SALES PRICE" means the invoice prices for SALES or, if LICENSED
INVENTIONS are not sold but otherwise disposed of, the selling price at which
products of similar kind and quality, sold in similar quantities in which
LICENSED INVENTIONS are being disposed of, are being offered for sale by
Licensee. Where such LICENSED PRODUCTS are not currently being offered for Sale
by Licensee, the SALES PRICE for purposes of computing royalties is the average
selling price at which similar kind and quality, sold in similar quantities, are
then currently being offered for sale by other companies. If such products are
not currently sold or offered for sale by others, then the SALES PRICE, for
purposes of computing royalties, is Licensee's cost of manufacture determined by
Licensee's customary accounting procedures, plus Licensee's standard mark-up.
1.8 "NET SALES" means the gross amounts for SALES at SALES PRICE by Licensee
and its' sublicensee(s), less the following deductions where applicable: (a)
SALES returns; (b) normal and customary allowances, (c) trade discounts; (d)
SALES to the U.S. Government pursuant to Paragraph 4.2 and (e) transportation
charges, duties and tariffs only if separately stated on an invoice; but before
deduction of sales and excise taxes, costs of insurance, and agents'
commissions.
1.9 "AFFILIATE" means:
a) any business entity that owns fifty (50%) percent or more of Licensee's
outstanding stock; or
b) any business entity of which Licensee owns fifty (50%) or more of such
entity's outstanding stock.
1.10 "FIELD OF USE" means a limitation of the application or utilization of
PATENT RIGHTS and is defined in Appendix A.
2. GRANT
2.1 The University grants to the Licensee, subject to Paragraphs 2.2 and 2.3,
an exclusive license to make, have made, use, import, sell and offer to sell
LICENSED INVENTION under the PATENT RIGHTS, with the right to sublicense
others under the terms of Article 3, limited to the FIELD OF USE recited in
Appendix A.
2.2 Rights not expressly granted to Licensee herein are expressly reserved to
the University.
2.3 The University expressly reserves the right to use the TECHNOLOGY,
including the right to make, have made, use and have used LICENSED INVENTION for
any purpose, including Cooperative Research and Development Agreements (CRADAs),
Work for Others (WFOs), and User Facility Agreements (UFAs).
2.4 The U.S. Government has a nonexclusive, nontransferable, irrevocable,
paid-up license to practice or have practiced throughout the world, for or on
behalf of the United States Government, inventions covered by the University's
PATENT RIGHTS, and has certain other rights under 35 U.S.C. 200-212 and
applicable implementing regulations and under the U.S. Department of Energy
Confirmatory License, attached as Appendix B to this License Agreement.
2.5 Under 35 U.S.C. 203, the U.S. Department of Energy has the right to
require the Licensee to grant a nonexclusive, partially exclusive or exclusive
license under the PATENT RIGHTS in any field of use to a responsible applicant
or applicants, 48 CFR 27.304-1(g).
<PAGE>
2.6 The Licensee will make available to the University and will grant an
irrevocable, paid-up, royalty-free nonexclusive license to the University to
make and use for purposes of performing work for and on behalf of the U.S.
government any improvements or developments to the TECHNOLOGY made by Licensee.
3. SUBLICENSES
3.1 The University grants to Licensee the right to grant sublicenses to third
parties to make, have made, use and sell LICENSED INVENTIONS in which the
Licensee has current limited exclusive rights under this License Agreement.
(a) Sublicenses granted under this clause must contain all of the conditions,
restrictions and reservations of this License Agreement, except for those
provisions related too the fees and royalties, and shall preserve the rights and
reservations of the University and the U.S. Government existing under this
License Agreement.
3.2 Licensee shall provide the University with a copy of each sublicense by at
least thirty (30) days prior to its execution.
3.3. Licensee must pay to the University the payments prescribed in Appendix C,
and deliver all reports due the Licensor from sublicensees. With respect to any
sublicense, this obligation continues as long as a sublicense granted by
Licensee is in effect, and is an obligation of the Licensee whether or not
royalty payments are actually received by Licensee from its sublicensee(s).
3.4 Termination of this License Agreement automatically operates as an
assignment by Licensee to the University of all Licensee's right, title and
interest in and to each sublicense granted by Licensee. If this License
Agreement is terminated by either Party, any sublicensee(s) not in default of
the terms and conditions of its sublicense agreement with Licensee, may make a
written election to continue such sublicense agreement as a license agreement
with the University. Licensee will give its' sublicensee(s) written notice
thirty (30) days prior to the effective date of termination of this License
Agreement. Sublicensee(s) must submit a written election to the University
within thirty (30) days thereafter.
4. FEES AND ROYALTIES
4.1 For the rights, privileges and license granted under this License
Agreement, Licensee shall pay to the University the fees and royalties specified
in Appendix C.
4.2 Notwithstanding Paragraph 4.1 above, Licensee has no obligation to pay
royalties on any SALE of any LICENSED INVENTION to the U.S. Government or any
agency thereof or any U.S. Government contractor who certifies that its purchase
of the LICENSED INVENTION is for or on behalf of the U.S. Government. Licensee
will not impose royalty charges on SALES of LICENSED INVENTION to U.S.
Government entities, and will refund to them any royalty collected on such
SALES.
4.3 The first royalty payment due under this License Agreement is based on
NET SALES by Licensee from the effective date of this License Agreement through
June 30" of the same calendar year, if the effective date is before June 30th,
or, through December 31st, if the effective date is after June 30th. Payment
<PAGE>
must be made within one month from the end of such period. Subsequent royalty
payments shall be calculated based on NET SALES by Licensee during the
semiannual periods extending from January lst through June 30th and from July
1st through December 31st of each year, for as long as this License Agreement
remains in effect. Royalty payments must be paid within one month from the end
of the respective semiannual period (i.e. July 30th and January 31st).
4.4 All payments due the University must be paid in United States currency to
the University of California, Los Alamos National Laboratory, at the address set
forth in Paragraph 19.1. Licensee must convert NET SALES invoiced in foreign
currencies into equivalent United States currency at the exchange rate for the
foreign currency prevailing as of the last day of the reporting period, as
reported in the Wall Street Journal.
5. DILIGENCE
5.1 Licensee shall use its best efforts to bring one or more LICENSED
INVENTION to market through a thorough, vigorous and diligent program for
exploitation of the PATENT RIGHTS and to continue active, diligent marketing
efforts for one or more LICENSED INVENTION throughout the life of this License
Agreement.
5.2 To be in compliance with Paragraph 5.1, Licensee must adhere to the
Milestones set out in Appendix D.
5.3 Article 5 is a material term of this Agreement, without which the license
grant under Article 2 would not have been made, and Licensee's failure to
perform in accordance with Paragraphs 5.1 and 5.2 above shall be grounds for the
University to terminate this License Agreement pursuant to Paragraph 9.1 of this
License Agreement.
6. REPORTS
6.1 Progress Reports. Licensee must submit semiannual Progress Reports
certified by an officer of the Licensee. Such reports are due on the date that
royalty payments are due (July 30th and January 31st), AND MUST BE SUBMITTED
REGARDLESS OF WHETHER ANY PAYMENT IS MADE. This report covers the Licensee's
activities related to the development of the TECHNOLOGY and the securing of
approvals necessary for commercialization of the TECHNOLOGY. The Progress
Reports must conform with the Progress Report Format set forth in Appendix E
hereof. Progress Reports marked by Licensee as proprietary financial or business
information of Licensee will be treated by the University as proprietary
information.
6.2 Financial Reports. Licensee must submit semiannual Financial Reports. Such
reports are due on the date that royalty payments are due (July 30th and January
31st), AND MUST BE SUBMITTED REGARDLESS OF WHETHER ANY PAYMENT IS ACTUALLY MADE.
Financial Reports must be certified by an officer of the Licensee, must conform
with the Financial Report Format set forth in Appendix F hereof, must cover the
period for which royalty payments are calculated, and must show total SALES or
commercial uses made of LICENSED INVENTION by Licensee and any sublicensee(s)
during the reporting period. IF NO SALE, SUBLICENSE, OR USE OF LICENSED PRODUCT
OR LICENSED METHOD HAS BEEN MADE DURING A REPORTING PERIOD, A STATEMENT TO THIS
EFFECT MUST BE MADE. Financial Reports marked by Licensee as proprietary
financial or business information of the Licensee will be treated as such by the
University. Licensee's failure to submit Financial Reports pursuant to this
<PAGE>
Paragraph shall be grounds for the University to terminate this License
Agreement pursuant to Paragraph 9.1.
7. BOOKS AND RECORDS
7.1 The Licensee must keep books and records according to Generally Accepted
Accounting Principles, accurately showing all SALES of LICENSED PRODUCTS or
practice of the LICENSED METHOD by Licensee or sublicensees under the terms of
this License Agreement. Such books and records must be open to inspection and
audit on a proprietary basis by representatives or agents of the University at
reasonable times, but in no event more than once for each calendar year, for the
purpose of verifying the accuracy of the semiannual Financial and Progress
Reports and the royalties due. Licensee may request that any such inspection and
audit be conducted by an independent auditor, in which event, Licensee will pay
the reasonable costs of such auditor.
7.2 The fees and expenses of the University's representatives performing the
inspection and audit will be borne by the University. However, if an error in
royalties owed the University of more than ten thousand U.S. Dollars
($10,000.00) is discovered by the representatives of the University, then
Licensee will pay the fees and expenses of said representatives within thirty
(30) days after receipt of invoice.
7.3 The books and records required by Article 7 must be preserved for at
least three (3) years from the date that the royalty payments were due.
8. TERM OF THE LICENSE AGREEMENT
8.1 This License Agreement is effective as of the later of the dates of
execution by the Parties and the University's receipt of the License Issue Fee
(as specified in Appendix C).
8.2 This License Agreement is in full force and effect from the effective
date and remains in effect until the expiration of the last to expire of the
patents included within the University's PATENT RIGHTS, unless sooner terminated
by operation of law or by acts of either of the Parties in accordance with the
terms of this License Agreement.
8.3 Licensee shall provide notice to University of its intention to file a
voluntary petition in bankruptcy or of another party's intention to file an
involuntary petition in bankruptcy for Licensee, said notice to be received by
University at least thirty (30) days prior to filing such petition. The
University may terminate this License Agreement upon receipt of such notice at
its sole discretion. Licensee's failure to provide such notice to University
will be deemed a material, pre-petition, incurable breach of this License
Agreement and the Agreement will terminate automatically on the date of filing
such voluntary or involuntary petition in bankruptcy.
9. TERMINATION BY THE UNIVERSITY
9.1 If the Licensee fails to deliver to the University any report when due, or
fails to pay any royalty or fee when due, or if the Licensee breaches any
material term of this License Agreement, including, but not limited to, Article
5. DILIGENCE, the University may give written notice of default to the Licensee.
If the Licensee fails to cure the default within thirty (30) days from the date
of delivery of notice to Licensee, the University has the right to terminate
this License Agreement. This License Agreement will terminate upon delivery of
<PAGE>
written notice of termination to the Licensee. Termination does not relieve the
Licensee of its obligation to pay any royalty or license fees due or owing at
the time of termination and does not impair any accrued right of the University.
Licensee will return all tangible property given to Licensee by the University
in support of the rights granted hereunder and return or destroy all intangible
property as directed by the University.
10. TERMINATION BY THE LICENSEE
10.1 The Licensee may terminate this License Agreement by giving written notice
to the University. Such termination will be effective ninety (90) days from the
date of delivery of the notice, and all the Licensee's rights under this License
Agreement will cease as of that date.
10.2 If Licensee exercises its option to terminate this License Agreement
without cause, then Licensee agrees to pay the University, the Annual License
Fee multiplied by the number of years remaining under this License Agreement
(from the date of notification of termination to the expiration of the last to
expire of the patents included within the University's PATENT RIGHTS) multiplied
by 0.70, in a lump sum as liquidated damages, on the effective date of
termination.
10.3 Termination pursuant to this Article does not relieve the Licensee of any
obligation or liability accrued by Licensee prior to the effective date of
termination or affect any rights of the University arising under this Agreement
prior to termination. Licensee will return all tangible property given to
Licensee by the University in support of the rights granted hereunder and return
or destroy all intangible property as directed by the University.
11. PATENT PROSECUTION AND MAINTENANCE
11.1 The University will diligently prosecute any U.S. patent applications
identified in Appendix A, and will maintain any U.S. patents identified in
Appendix A, using counsel of its choice. The University will provide the
Licensee, on request, with copies of relevant documentation relating to any such
patent prosecution. The Licensee will hold such documentation in confidence.
11.2 The University will use its best efforts to amend any patent application
to include claims reasonably requested by the Licensee and required to protect
the LICENSED INVENTION.
11.3 The Licensee acknowledges that Patent Rights in foreign countries are not
available under the University's PATENT RIGHTS.
12. USE OF NAMES, TRADENAMES, AND TRADEMARKS
12.1 Nothing contained in this License confers any right to use in advertising,
publicity, or other promotional activities any name, tradename, trademark, or
other designation of either Party hereto (including any contraction,
abbreviation, or simulation of any of the foregoing). Unless required by law,
the use of the name "the University of California" or the name of any facility
or campus of the University of California is expressly prohibited.
12.2 The University may disclose to third parties the existence of this License
Agreement and the extent of the grant in Article 2, but must not disclose
information identified as proprietary by Licensee under 12.4, except where the
<PAGE>
University is required to release the information under either the California
Public Records Act or other applicable law. A decision to release information
under applicable law will be at the sole discretion of the University.
12.3 Licensee may disclose to third parties the existence of this License
Agreement and the terms and conditions to the extent determined appropriate by
Licensee.
12.4 Licensee will mark those portions of a copy of this License Agreement
which Licensee believes contain proprietary business information of Licensee and
return such copy to the University within thirty (30) days of the effective date
of this License Agreement.
13. WARRANTY BY THE UNIVERSITY
13.1 The University warrants that it has the lawful right to grant this
license, subject to DOE assignment of rights in the TECHNOLOGY to the University
in the event such rights are not owned by the University, and that it has not
granted any rights under the University's PATENT RIGHTS to any other party that
diminish any right granted to Licensee, except as required by action of law or
by the University's prime contract with DOE.
13.2 This license is provided WITHOUT warranty of merchantability or fitness
for a particular purpose or any other warranty, express or implied. The
University makes no representation or warranty that the LICENSED PRODUCTS or
LICENSED METHODS will not infringe any patent or other proprietary right.
13.3 IN NO EVENT WILL THE UNIVERSITY BE LIABLEFORANY INCIDENTAL, SPECIAL, OR
CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF
LICENSED PRODUCTS OR LICENSED METHODS.
13.4 Nothing in this License Agreement shall be construed as:
a. a warranty or representation by the University as to the validity or
scope of University's PATENT RIGHTS;
b. an obligation to bring or prosecute actions or suits against third
parties for patent infringement, except as provided in Article 14
(infringement);
c. conferring by implication, estoppel, or otherwise any license or rights
under any patents of the University other than University's PATENT RIGHTS,
copyrights, or other intellectual property of the University; or
d. an obligation by University to furnish any know-how, technical
assistance, or technical data that is unrelated or unnecessary to the transfer
of the TECHNOLOGY to the Licensee for the purpose of implementing this License
Agreement.
14. INFRINGEMENT
14.1 In the event that either Party to this License Agreement learns of the
infringement of any of University's PATENT RIGHTS, that Party will inform the
other Party in writing and will provide the other Party with available evidence
of the infringement.
14.2 Both Parties will use their best efforts in cooperating with each other to
terminate the infringement without litigation.
<PAGE>
14.3 If the efforts of the Parties are not successful in abating the
infringement within ninety (90) days after the infringer has been formally
notified of infringement by the University, the University has the right to:
a. commence suit on its own account; or
b. commence suit jointly with the Licensee; or
c. refuse to participate in a suit.
The University shall give written notice to the Licensee, of its election,
within ten (10) working days after the expiration of the ninety (90) day period.
If the University elects not to commence suit on its own account or not to
commence suit jointly with the Licensee, then Licensee shall have the right to
commence suit on its own account, and, if required by law, University will join
the suit as nominal party plaintiff if the infringement occurred during the term
of this Agreement and in a country where the Licensee had exclusive rights under
this License Agreement.
14.4 The Party bringing suit under this Article will bear all expenses arising
from the action, including attorney fees and costs of both Parties and the
defense of any counter-claim brought by the infringer. If legal action is
brought by Licensee, the University will be entitled to [*] percent of any
damage recovery based on lost profits of Licensee or a reasonable royalty or
both. Legal action brought jointly by the University and the Licensee and fully
participated in by both will be at the joint expense of the Parties and all
recoveries will be shared jointly by them in proportion to the share of expenses
paid by each.
14.5 Each Party will cooperate with the other in proceedings instituted
hereunder, provided expenses are borne by the Party bringing suit. Litigation
will be controlled by the Party bringing suit, except that the University will
control the litigation if brought jointly. The University may be represented by
its choice of counsel in any suit brought by the Licensee.
14.6 Neither Party will settle or compromise any suit without the other Party's
written consent.
15. WAIVER
15.1 It is agreed that no waiver by either Party hereto of any breach or
default of any of the covenants or agreements herein set forth shall be deemed a
waiver as to any prior or subsequent and/or similar breach or default.
16. ASSIGNABILITY
16.1 This License Agreement is binding upon and shall inure to the benefit of
the University, its successors and assigns, but shall be personal to the
Licensee and assignable by Licensee to an AFFILIATE without the prior written
consent of the University, provided however, that such AFFILIATE is not.-
a) an entity-
(1) located in, doing business with, or being organized under the laws of a
country, which is considered a sensitive country by DOE based on DOE internal
policies and procedures at the time Licensee requests such assignment, or;
(ii) substantially controlled by an entity located in, doing business with,
or being organized under the laws of a country, which is considered a sensitive
country by DOE based on DOE internal policies and procedures at the time
Licensee requests such assignment.
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
This License Agreement is assignable by the Licensee to a non-AFFILIATE only
with the written consent of the University, which consent shall not be
unreasonably withheld.
16.2 In the event the University ceases to be the management and operating
contractor for the Los Alamos National Laboratory, the University may assign
this License Agreement to DOE or to the succeeding management and operating
contractor for LANL, as directed by DOE.
16.3 In the event that a foreign company or government acquires a controlling
interest in Licensee, the University, at its sole option and discretion, may
terminate this License Agreement in accordance with DOE policies. Licensee
agrees to notify the University of any change in its ownership that results in a
foreign company or government acquiring a controlling interest in Licensee,
within thirty (30) days prior to any such occurrence.
17. INDEMNIFICATION - PRODUCT LIABILITY
17.1 The Licensee will indemnify the U.S. Government and the University, and
their officers, employees, and agents, against any damages, costs and expenses,
including attorneys' fees, arising from the commercialization and utilization of
LICENSED PRODUCTS by Licensee and its' sublicensee(s), including but not limited
to the making, using, selling or exporting of products, processes, or services
derived therefrom. This indemnification will include, but will not be limited
to, product liability. To the maximum extent permitted by applicable state and
federal law, Licensee has the option to control the defense of any suit that may
result in Licensee's liability under this section.
17.2 Licensee will insure its activities relating to the License Agreement at
its own expense with an insurance company acceptable to the University or
provide a Certification of Self-Insurance acceptable to the University. Licensee
will obtain, keep in force, and maintain a minimum of [*] of Comprehensive or
Commercial Form General Liability Insurance (including contractual liability and
product liability) or an amount no less than [*], whichever amount is greater.
These coverages will not limit the liability of Licensee in any way. Licensee
will provide the University with certificates of insurance, if requested by the
University, including renewals, that show compliance with these requirements at
least thirty (30) days before the first commercial sale or distribution of
LICENSED PRODUCTS. Licensee's failure to maintain this insurance will be
considered a material breach of this License Agreement.
a. If such insurance is written on a claims-made form, coverage shall provide
for a retroactive date of placement prior to or coinciding with the effective
date of this License Agreement.
b. Licensee shall maintain the general liability insurance specified herein
during (a) the period that the LICENSED PRODUCT is being commercially
distributed or sold (other than for the purpose of obtaining regulatory
approvals) by Licensee or by a sublicensee, AFFILIATE, or agent of Licensee, and
(b) a reasonable period thereafter, but in no event less than five (5) years
from the effective date of this License Agreement.
17.3 Insurance coverage as required under Paragraph 17.2 above shall:
a. Provide for thirty (30) day advance written notice to the University of
cancellation or of any modification.
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
b. Indicate that DOE, The Regents of the University of California and its
officers, employees, students, and agents, have been endorsed thereon as
additional named insured.
c. Include a provision that the coverages will be primary and will not
participate with, nor will be excess over, any valid and collectible insurance
or program of self-insured carried or maintained by University.
18. LATE PAYMENTS
18.1 In the event royalty payments or fees are not received by the University
when due, the Licensee will pay to the University interest charges at the rate
of ten percent (10%) per annum on the amount of the royalty payments or fees
overdue. Such interest charges will be calculated from the date the payment or
fee was due to the date payment is actually received by the University.
19. NOTICES
19.1 Any payment, notice, or other communication required or permitted to be
given to either party hereto is properly given and effective on the date of
delivery if delivered in person or by first-class certified mail, postage paid,
or by facsimile transmission with confirmation, to the respective address or
facsimile number given below, or to any other address designated by written
notice to the other Party as follows:
In the case of the Licensee:
DCH Technology, Inc.
27811 Ave. Hopkins, Suite 6 Valencia, CA 91355
Attn.: David Walker
FAX Number: (805) 257-9398
In the case of the University:
Los Alamos National Laboratory
Civilian and Industrial Technology Program Office
P.O. Box 1663, Mail Stop C334
Los Alamos, New Mexico 87545
Attn: License Administrator
FAX Number: (505) 665-0154 or (505) 665-6127
20. FORCE MAJURE
20.1 Neither party is responsible for delay or failure in performance of any of
the obligations imposed by this License Agreement, if the failure is caused by
fire, flood, explosion, lightning, windstorm, earthquake, subsidence of soil,
court order or government interference, civil commotion, riot, war, or by any
cause of like or unlike nature beyond the control and without fault or
negligence of a party.
21. EXPORT CONTROL LAWS
21.1 Licensee acknowledges and understands that the export of certain goods or
technical data from the United States requires an export control license from
the United States Government, and that failure to obtain an export control
license may result in violation of U.S. laws.
22. PREFERENCE FOR UNITED STATES UINDUSTRY
<PAGE>
22.1 Licensee represents that it has a business that is located in the United
States that will conduct the Licensee's activities under this License Agreement.
Licensee further represents that it is not subject tot he control of a foreign
company or government.
22.2 Any product embodying LICENSED PRODUCTS or produced through the use of a
LICENSED METHOD will be manufactured substantially in the United States.
23. DISPUTE RESOLUTION
23.1 The Parties will use their best efforts to resolve disputes arising from
this Agreement. Any dispute that cannot be resolved by the Parties will be
resolved by non-binding arbitration in accordance with the rules and procedures
of the American Arbitration Association, acting in the state of New Mexico, and
shall be enforceable in accordance with New Mexico law.
24. CONFLICT OF INTEREST
24.1 Licensee represents that Licensee does not now employ and has made no
offers of employment to members of the University Licensing Team set out in
Appendix G herein. Licensee agrees to make no offers of employment to any member
of the University Licensing Team for a period of two years after the effective
date of this Agreement, without the express written permission of the
University. Licensee understands that this clause is a material undertaking by
Licensee without which the University would not enter into this Agreement. The
University has the option to terminate this Agreement for breach of this clause
by Licensee.
25. PATENT MARKING
25.1 Licensee agrees to mark, in accordance with the applicable patent marking
statute, all LICENSED PRODUCTS, and their containers, which have been made,
used, sold or otherwise transferred to a third party, under the terms of this
License Agreement.
26. SURVIVOR
26.1 When this License Agreement expires or is terminated in accordance with
the terms hereof, Paragraphs 3.3, 3.4, 7.3, 9.1, 10.3, 12.1, 17.1, 17.2, 17.3,
24.1, 26.1 shall survive said expiration or termination.
27. GOVERNMENT APPROVAL OR REGISTRATION
27.1 If this License Agreement or any associated transaction is required by the
law of any nation to be either approved, permitted or registered with any
governmental agency, Licensee will assume all legal obligations to do so.
Licensee will notify University if Licensee becomes aware that this License
Agreement is subject to a U.S. or foreign government reporting, permitting, or
approval requirement. Licensee will make all necessary findings and pay all
costs including fees, penalties and all other out-of-pocket costs associated
with such reporting, permitting or approval process.
28. DISPOSITION OF LICENSED PRODUCTS ON HAND UPON TERMINATION
28.1 Upon termination of this License Agreement by either Party the Licensee
shall provide the University with a written list of all LICENSED PRODUCTS in the
<PAGE>
process of being sold, sublicensed, or in use by Licensee, and shall destroy all
LICENSED PRODUCTS in the possession of Licensee unless otherwise directed by
University.
29. MISCELLANEOUS
29.1 The headings of the several sections of this Agreement are included for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this License Agreement.
29.2 No amendment or modification of this Agreement is binding on the Parties
unless made in a writing executed by duly authorized representatives of the
Parties.
29.3 This License Agreement embodies the entire understanding of the Parties
and shall supersede all previous communications, representations, or
understandings, either oral or written, between the Parties relating to this
License Agreement.
29.4 In the event any one or more of the provisions of this License Agreement
is held to be invalid, illegal, or unenforceable in any respect, the invalidity,
illegality, or unenforceability will not affect any other provisions hereof, and
this License Agreement will be construed as if such invalid or illegal or
unenforceable provisions had never been part of this License Agreement.
29.5 This License Agreement will be interpreted and construed in accordance
with the laws of the State of New Mexico.
IN WITNESS WHEREOF, both the University and the Licensee have executed this
License Agreement, in duplicate originals, by their respective officers on the
day and year hereinafter written.
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
/s/ JOHN C. BROWNE
By: John C. Browne, Director
Los Alamos National Laboratory
Date: March 10, 1999
DCH TECHNOLOGY, INC.
By: /s/ DAVID HABERMAN
Printed Name: David Haberman
Title: Vice President
Date: March 15, 1999
APPENDIX A PATENT RIGHTS
LANL Case No. S-80,409, U.S. Patent No. 5,514,486, issued on May 7,1996,
"ANNULAR FEED AIR BREATHING FUEL CELL STACK," by Mahlon S. Wilson; and
LANL Case No. S-84,928, U.S. Patent No. 5,595,834, issued on January 21, 1997,
"ANNULAR FEED AIR BREATHING FUEL CELL STACK," by Mahlon S. Wilson et al.
FIELD OF USE
Power generation for marine, aerospace, military, portable, and remote-area
applications.
APPENDIX B CONFIRMATORY LICENSE
<PAGE>
CONFIRMATORY LICENSE
Application for: ANNULAR FEED AIR BREATHING FUEL CELL STACK
Inventor(s): Mahlon S. Wilson
Serial No.: 08/522,885
Filing Date: September 1, 1995
Contract No.: W-7405-ENG-36
Contractor: THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
The invention identified above is a "Subject Invention" under the above-numbered
contract. A copy of the provisions of the above-numbered contract (certified on
January 12, 1996) governing patent rights in the Subject Invention at the time
the invention was made, has been submitted to the U.S. Department of Energy.
The contractor hereby confirms that under the provisions of the above-numbered
contract governing patent rights, it has granted to the Government a
nonexclusive, nontransferable, irrevocable, paid-up license to practice or have
practiced for or on behalf of the United States the Subject Invention throughout
the world. This license applies to the invention in the above-identified patent
application and any and all divisions or continuations thereof and any resulting
patent or reissue patent which may be granted thereon.
It is understood and agreed that this document does not preclude the Government
from asserting rights under the provisions of said contract or any other
agreement between the Government and the Contractor, or any other rights of the
Government with respect to the above-identified invention.
The Contract hereby grants the Government an irrevocable power to inspect and
make copies of the above-identified application.
Signed this 16th day of January, 1996,
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
William A. Eklund
Senior Counsel for Business and Patent Law
If the invention was made under a subcontract, please identify the Prime
Contractor:
Prime Contract No.
Rev. 01/03/96
DOE Docket No. S-84,928
CONFIRMATORY LICENSE
Application for: ANNULAR FEED AIR BREATHING FUEL CELL STACK
Inventor(s): Mahlon S. Wilson, Jay K. Neutzier
Serial No.: 08/587,430
Filing Date: January 17,1996
Contract No.: W-7405-ENG-36
Contractor: THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
The invention identified above is a "Subject Invention" under the above-numbered
contract. A copy of the provisions of the above-numbered contract (certified on
January 12, 1996) governing patent rights in the Subject Invention at the time
the invention was made, has been submitted to the U.S. Department of Energy.
<PAGE>
The contractor hereby confirms that under the provisions of the above-numbered
contract governing patent rights, it has granted to the Government a
nonexclusive, nontransferable, irrevocable, paid-up license to practice or have
practiced for or on behalf of the United States the Subject Invention throughout
the world. This license applies to the invention in the above-identified patent
application and any and all divisions or continuations thereof and any resulting
patent or reissue patent which may be granted thereon.
It is understood and agreed that this document does not preclude the Government
from asserting rights under the provisions of said contract or any other
agreement between the Government and the Contractor, or any other rights of the
Government with respect to the above-identified invention.
The Contract hereby grants the Government an irrevocable power to inspect and
make copies of the above-identified application.
Signed this 4th day of April, 1996,
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
William A. Eklund
Senior Counsel for Business and Patent Law
If the invention was made under a subcontract, please identify the Prime
Contractor:
Prime Contract No.
APPENDIX C
FEES AND ROYALTIES
1. FEES
a) License Issue Fee of [*], which is due on the effective date of this License
Agreement.
b) An Annual License Fee of [*], payable in advance, is due on January 31, 2000.
Subsequently, an Annual License Fee of [*], payable in advance, is due on
January 31, 2001. Thereafter, Licensee shall pay the University an Annual
License Fee of [*], which is payable in advance on January 31st of each year,
beginning on January 31, 2002. The University will credit thew Annual License
Fee for a particular year against any royalties earned during that same year.
c) In addition to royalties pursuant to Section 2 of this Appendix, [*] of other
payments, including, but not limited to, sublicense issue and annual fees
received from sublicensee(s) in consideration of the LICENSED INVENTION.
2. ROYALTIES
2.1 The Licensee will pay the University a royalty rate of [*] of NET SALES
during the term of this License Agreement.
APPENDIX D MILESTONES
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
[*]
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
Exhibit 6.3
i
LANL Control Number: 99-43-00531
NONEXCLUSIVE FIELD OF USE PATENT LICENSE AGREEMENT
Biz-TWEEN THE REGENTS OF THE UNIVERSITY OF CALIFORNIA AND DCH TECHNOLOGY, INC.
LANL Control Number: 99-43-00531
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
BACKGROUND .1
1 . DEFINITIONS 1
2. GRANT 3
3. FEES AND ROYALTIES 3
4. DILIGENCE 4
5. REPORTS 4
6. BOOKS AND RECORDS 5
7. TERM OF THE LICENSE AGREEMENT 5
8. TERMINATION BY THE UNIVERSITY 6
9. TERMINATION BY THE LICENSEE 6
10. PATENT PROSECUTION AND MAINTENANCE 7
11. USE OF NAMES, TRADENAMES, AND TRADEMARKS 7
12. WARRANTY BY THE UNIVERSITY 7
13. INFRINGEMENT 8
14. WAIVER 8
15. ASSIGNABILITY 9
16. INDEMNIFICATION - PRODUCT LIABILITY 9
17. LATE PAYMENTS 10
18. NOTICES 11
19. FORCE MAJEURE 11
20. EXPORT CONTROL LAWS 11
21. PREFERENCE FOR UNITED STATES INDUSTRY 11
22. DISPUTE RESOLUTION 12
23. PATENT MARKING 12
24. SURVIVOR 12
25. GOVERNMENT APPROVAL OR REGISTRATION 12
26. DISPOSITION OF LICENSED PRODUCTS 12
27. MISCELLANEOUS 13
Appendix A - PATENT RIGHTS AND FIELD OF USE 15
Appendix B - CONFIRMATORY LICENSE 16
Appendix C - FEES AND ROYALTIES 17
Appendix D - MILESTONES 18
Appendix E - PROGRESS REPORT FORMAT 19
Appendix F - FINANCIAL REPORT FORMAT 20
Appendix G - DESIGNATION OF LICENSING TEAM 21
</TABLE>
LIMITED NONEXCLUSIVE FIELD OF USE PATENT LICENSE AGREEMENT
DCH TECHNOLOGY, INC.
THIS LICENSE AGREEMENT is entered into by and between THE REGENTS OF THE
UNIVERSITY OF CALIFORNIA, a nonprofit educational institution and a public
corporation of the State of California, hereinafter referred to as the
"University;" and
<PAGE>
DCH Technology, Inc., 27811 Ave. Hopkins, Suite 6, Valencia, CA 91355, a
Colorado Corporation, hereinafter referred to as the "Licensee," the parties to
this License Agreement being referred to individually as a "Party," and
collectively as "Parties."
BACKGROUND
The University conducts research and development at the Los Alamos National
Laboratory (LANL) for the U.S. Government under Contract No. W-7405-ENG-36 with
the U.S. Department of Energy (DOE).
Rights in inventions and technical data made in the course of the University's
research and development at LANL are governed by the terms and conditions of the
Contract.
Certain TECHNOLOGY relating to an Annular Feed Air Breathing Fuel Cell Stack has
been developed in the course of the University's research and development at
LANL and is covered by the University's PATENT RIGHTS as defined hereinbelow.
The University desires that such TECHNOLOGY be developed and utilized to the
fullest extent possible so as to enhance the accrual of economic and
technological benefits to the U.S. domestic economy and to provide the benefit
of federally sponsored research to U.S. industrial competitiveness.
The University is therefore willing to grant to Licensee, and the Licensee
desires to obtain from the University certain exclusive rights for the
commercial development, manufacture, use, and sale of the TECHNOLOGY.
NOW, THEREFORE, the Parties agree as follows-:
1. DEFINITIONS
1.1 "TECHNOLOGY" means technical information, know-how, data and PATENT
RIGHTS owned or controlled by the University and relating to Annular Feed Air
Breathing Fuel Cell Stacks.
1.2 "PATENT RIGHTS" means the University's rights arising from U.S. patents
or applications, including any continuing applications, divisionals, and
reissues thereof (but not including continuations-in-part); and any patents
issuing on said applications where elected by Licensee and identified in
Appendix A, attached hereto.
1.3 "LICENSED METHOD" means any method, procedure or process whose use would
constitute, but for the license granted to Licensee herein, an infringement of
any subsisting claim of any patent or patent application identified in Appendix
A.
1.4 "LICENSED PRODUCT" means any article of manufacture, machine or
composition of matter whose manufacture, use, sale, or offer for sale would
constitute, but for the license granted to Licensee herein, an infringement of
any subsisting claim of any patent or patent application identified in Appendix
A, and any article of manufacture, machine or composition of matter produced
through the practice of LICENSED METHOD or whose only substantial use is to
practice LICENSED METHOD.
1.5 "LICENSED INVENTION" means any LICENSED PRODUCT or LICENSED METHOD.
<PAGE>
1.6 "SALES" means disposing of LICENSED PRODUCTS by sale, lease, or other
delivery or practicing LICENSED METHOD. A Sale occurs when LICENSED PRODUCTS are
invoiced, or when delivered to a third person, whichever occurs first.
1.7. "SALES PRICE" means the invoice prices for SALES or, if LICENSED
INVENTIONS are not sold but otherwise disposed of, the selling price at which
products of similar kind and quality, sold in similar quantities in which
LICENSED INVENTIONS are being disposed of, are being offered for sale by
Licensee. Where such LICENSED PRODUCTS are not currently being offered for Sale
by Licensee, the SALES PRICE for purposes of computing royalties is the average
selling price at which similar kind and quality, sold in similar quantities, are
then currently being offered for sale by other companies. If such products are
not currently sold or offered for sale by others, then the SALES PRICE, for
purposes of computing royalties, is Licensee's cost of manufacture determined by
Licensee's customary accounting procedures, plus Licensee's standard mark-up.
1.8 "NET SALES" means the gross amounts for SALES at SALES PRICE by Licensee,
less the following deductions where applicable: (a) SALES returns; (b) normal
and customary allowances; (c) trade discounts; (d) SALES to the U.S. Government
pursuant to Paragraph 3.2 and (e) transportation charges, duties and tariffs
only if separately stated on an invoice; but before deduction of sales and
excise taxes, costs of insurance, and agents' commissions.
1.9 "AFFILIATE" means:
a) any business entity that owns fifty (50%) percent or more of Licensee's
outstanding stock; or
b) any business entity of which Licensee owns fifty (50%) or more of such
entity's outstanding stock.
1.10 "FIELD OF USE" means a limitation of the application or utilization of
PATENT RIGHTS and is defined in Appendix A.
2. GRANT
2.1 The University grants to the Licensee, subject to Paragraphs 2.2 and 2.3,
a nonexclusive license to make, have made, use, import, sell and offer to sell
LICENSED INVENTION under the PATENT RIGHTS, limited to the FIELD OF USE recited
in Appendix A.
2.2 Rights not expressly granted to Licensee herein are expressly reserved to
the University.
2.3 The Licensee will make available to the University and will grant an
irrevocable, paid-up, royalty-free nonexclusive license to the University to
make and use for any purpose permitted under the Contract any improvements or
developments to the TECHNOLOGY made by Licensee.
2.4 The Licensee will make available to the University and will grant an
irrevocable, paid-up, royalty-free nonexclusive license to the University to
make and use for purposes of performing work for and on behalf of the U.S.
government any improvements or developments to the TECHNOLOGY made by Licensee.
3. FEES AND ROYALTIES
<PAGE>
3.1 For the rights, privileges and license granted under this License
Agreement, Licensee shall pay to the University the fees and royalties specified
in Appendix C.
3.2 Notwithstanding Paragraph 4.1 above, Licensee has no obligation to pay
royalties on any SALE of any LICENSED INVENTION to the U.S. Government or any
agency thereof or any U.S. Government contractor who certifies that its purchase
of the LICENSED INVENTION is for or on behalf of the U.S. Government. Licensee
will not impose royalty charges on SALES of LICENSED INVENTION to U.S.
Government entities, and will refund to them any royalty collected on such
SALES.
3.3 The first royalty payment due under this License Agreement is based on
NET SALES by Licensee from the effective date of this License Agreement through
June 30th of the same calendar year, if the effective date is before June 30th
or, through December 31st, if the effective date is after June 30th. Payment
must be made within one month from the end of such period. Subsequent royalty
payments shall be calculated based on NET SALES by Licensee during the
semiannual periods extending from January 1st through June 30th and from July
1st through December 31st of each year, for as long as this License Agreement
remains in effect. Royalty payments must be paid within one month from the end
of the respective semiannual period (i.e. July 30th and January 31st).
3.4 All payments due the University must be paid in United States currency to
the University of California, Los Alamos National Laboratory, at the address set
forth in Paragraph 19.1. Licensee must convert NET SALES invoiced in foreign
currencies into equivalent United States currency at the exchange rate for the
foreign currency prevailing as of the last day of the reporting period, as
reported in the Wall Street Journal.
4. DILIGENCE
4.1 Licensee shall use its best efforts to bring one or more LICENSED
INVENTION to market through a thorough, vigorous and diligent program for
exploitation of the PATENT RIGHTS and to continue active, diligent marketing
efforts for one or more LICENSED INVENTION throughout the life of this License
Agreement.
4.2 To be in compliance with Paragraph 4.1, Licensee must adhere to the
Milestones set out in Appendix D.
4.3 Article 4 is a material term of this Agreement, without which the license
grant under Article 2 would not have been made, and Licensee's failure to per-
form in accordance with Paragraphs 4.1 and 4.2 above shall be grounds for the
University to terminate this License Agreement pursuant to Paragraph 8.1 of this
License Agreement.
5. REPORTS
5.1 Progress Reports. Licensee must submit semiannual Progress
Reports certified by an officer of the Licensee. Such reports are due on the
date that royalty payments are due (July 30th and January 31st), AND MUST BE
SUBMITTED REGARDLESS OF WHETHER ANY PAYMENT IS MADE. This report covers the
Licensee's activities related to the development of the TECHNOLOGY and the
securing of approvals necessary for commercialization of the TECHNOLOGY. The
Progress Reports must conform with the Progress Report Format set forth in
<PAGE>
Appendix E hereof. Progress Reports marked by Licensee as proprietary financial
or business information of Licensee will be treated by the University as
proprietary information.
5.2 Financial Reports. Licensee must submit semiannual Financial Reports.
Such reports are due on the date that royalty payments are due (July 30th and
January 31st), AND MUST BE SUBMITTED REGARDLESS OF WHETHER ANY PAYMENT IS
ACTUALLY MADE. Financial Reports must be certified by an officer of the
Licensee, must conform with the Financial Report Format set forth in Appendix F
hereof, must cover the period for which royalty payments are calculated, and
must show total SALES or commercial uses made of LICENSED INVENTION by Licensee
and any sublicensee(s) during the reporting period. IF NO SALE, SUBLICENSE, OR
USE OF LICENSED PRODUCT OR LICENSED METHOD HAS BEEN MADE DURING A REPORTING
PERIOD, A STATEMENT TO THIS EFFECT MUST BE MADE. Financial Reports marked by
Licensee as proprietary financial or business information of the Licensee will
be treated as such by the University. Licensee's failure to submit Financial
Reports pursuant to this Paragraph shall be grounds for the University to
terminate this License Agreement pursuant to Paragraph 8.1.
6. BOOKS AND RECORDS
6.1 The Licensee must keep books and records according to Generally Accepted
Accounting Principles, accurately showing all SALES of LICENSED PRODUCTS or
practice of the LICENSED METHOD by Licensee under the terms of this License
Agreement. Such books and records must be open to inspection and audit on a
proprietary basis by representatives or agents of the University at reasonable
times, but in no event more than once for each calendar year, for the purpose of
verifying the accuracy of the semiannual Financial and Progress Reports and the
royalties due. Licensee may request that any such inspection and audit be
conducted by an independent auditor, in which event, Licensee will pay the
reasonable costs of such auditor.
6.2 The fees and expenses of the University's representatives performing the
inspection and audit will be borne by the University. However, if an error in
royalties owed the University of more than [*] is discovered by the
representatives of the University, then Licensee will pay the fees and expenses
of said representatives within thirty (30) days after receipt of invoice.
6.3 The books and records required by Article 6 must be preserved for at
least three (3) years from the date that the royalty payments were due.
7. TERM OF THE LICENSE AGREEMENT
7.1 This License Agreement is effective as of the later of the dates of
execution by the Parties and the University's receipt of the License Issue Fee
(as specified in Appendix C).
7.2 This License Agreement is in full force and effect from the effective
date and remains in effect until the expiration of the last to expire of the
patents included within the University's PATENT RIGHTS, unless sooner terminated
by operation of law or by acts of either of the Parties in accordance with the
terms of this License Agreement.
7.3 Licensee shall provide notice to University of its intention to file a
voluntary petition in bankruptcy or of another party's intention to file an
involuntary petition in bankruptcy for Licensee, said notice to be received by
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
University at least thirty (30) days prior to filing such petition. The
University may terminate this License Agreement upon receipt of such notice at
its sole discretion. Licensee's failure to provide such notice to University
will be deemed a material, pre-petition, incurable breach of this License
Agreement and the Agreement will terminate automatically on the date of filing
such voluntary or involuntary petition in bankruptcy.
8. TERMINATION BY THE UNIVERSITY
8.1 If the Licensee fails to deliver to the University any report when due,
or fails to pay any royalty or fee when due, or if the Licensee breaches any
material term of this License Agreement, including, but not limited to, Article
4. DILIGENCE, the University may give written notice of default to the Licensee.
If the Licensee fails to cure the default within thirty (30) days from the date
of delivery of notice to Licensee, the University has the right to terminate
this License Agreement. This License Agreement will terminate upon delivery of
written notice of termination to the Licensee. Termination does not relieve the
Licensee of its obligation to pay any royalty or license fees due or owing at
the time of termination and does not impair any accrued right of the University.
Licensee will return all tangible property given to Licensee by the University
in support of the rights granted hereunder and return or destroy all intangible
property as directed by the University.
9. TERMINATION BY THE LICENSEE
9.1 The Licensee may terminate this License Agreement by giving written
notice to the University. Such termination will be effective ninety (90) days
from the date of delivery of the notice, and all the Licensee's rights under
this License Agreement will cease as of that date.
9.2 If Licensee exercises its option to terminate this License Agreement
without cause within [*] years from the date of execution of this License
Agreement, then Licensee agrees to pay the University [*] in a lump sum as
liquidated damages, on the effective date of termination. Licensee shall not be
subject to the payment of liquidated damages should Licensee exercise its option
to terminate this License Agreement without cause following the completion of
this [*] year period.
9.3 Termination pursuant to this Article does not relieve the Licensee of any
obligation or liability accrued by Licensee prior to the effective date of
termination or affect any rights of the University arising under this Agreement
prior to termination. Licensee will return all tangible property given to
Licensee by the University in support of the rights granted hereunder and return
or destroy all intangible property as directed by the University.
10. PATENT PROSECUTION AND MAINTENANCE
10.1 The University will diligently prosecute any U.S. patent applications
identified in Appendix A, and will maintain any U.S. patents identified in
Appendix A, using counsel of its choice. The University will provide the
Licensee, on request, with copies of relevant documentation relating to any such
patent prosecution. The Licensee will hold such documentation in confidence.
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
10.2 The University will use its best efforts to amend any patent application
to include claims reasonably requested by the Licensee and required to protect
the LICENSED INVENTION.
10.3 The Licensee acknowledges that Patent Rights in foreign countries are not
available under the University's PATENT RIGHTS.
11. USE OF NAMES, TRADENAMES, AND TRADEMARKS
11.1 Nothing contained in this License confers any right to use in
advertising, publicity, or other promotional activities any name, tradename,
trademark, or other designation of either Party hereto (including any
contraction, abbreviation, or simulation of any of the foregoing). Unless
required by law, the use of the name "the University of California" or the name
of any facility or campus of the University of California is expressly
prohibited.
11.2 The University may disclose to third parties the existence of this
License Agreement and the extent of the grant in Article 2, but must not
disclose information identified as proprietary by Licensee under 11.4, except
where the University is required to release the information under either the
California Public Records Act or other applicable law. A decision to release
information under applicable law will be at the sole discretion of the
University.
11.3 Licensee may disclose to third parties the existence of this License
Agreement and the terms and conditions to the extent determined appropriate by
Licensee.
11.4 Licensee will mark those portions of a copy of this License Agreement
which Licensee believes contain proprietary business information of Licensee and
return such copy to the University within thirty (30) days of the effective date
of this License Agreement.
12. WARRANTY BY THE UNIVERSITY
12.1 The University warrants that it has the lawful right to grant this
license, subject to DOE assignment of rights in the TECHNOLOGY to the University
in the event such rights are not owned by the University, and that it has not
granted any rights under the University's PATENT RIGHTS to any other party that
diminish any right granted to Licensee, except as required by action of law or
by the University's prime contract with DOE.
12.2 This license is provided WITHOUT warranty of merchantability or fitness
for a particular purpose or any other warranty, express or implied. The
University makes no representation or warranty that the LICENSED PRODUCTS or
LICENSED METHODS will not infringe any patent or other proprietary right.
12.3 IN NO EVENT WILL THE UNIVERSITY BE LIABLE FOR ANY INCIDENTAL, SPECIAL, OR
CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF
LICENSED PRODUCTS OR LICENSED METHODS.
12.4 Nothing in this License Agreement shall be construed as:
a. a warranty or representation by the University as to the validity or
scope of University's PATENT RIGHTS;
b. an obligation to bring or prosecute actions or suits against third
parties for patent infringement, except as provided in Article 13
(infringement);
<PAGE>
c. conferring by implication, estoppel, or otherwise any license or rights
under any patents of the University other than University's PATENT RIGHTS,
copyrights, or other intellectual property of the University; or
d. an obligation by University to furnish any know-how, technical
assistance, or technical data that is unrelated or unnecessary to the transfer
of the TECHNOLOGY to the Licensee for the purpose of implementing this License
Agreement.
13. INFRINGEMENT
13.1 In the event the Licensee shall learn of the infringement of any of the
University's PATENT RIGHTS by a third party, Licensee shall inform the
University and shall provide the University with available evidence of such
infringement. The University shall use its best efforts to terminate such
infringement without litigation, and may in its sole discretion initiate
litigation at its own expense, but shall be under no obligation under this
License Agreement to bring any such legal action.
14. WAIVER
14.1 It is agreed that no waiver by either Party hereto of any breach or
default of any of the covenants or agreements herein set forth shall be deemed a
waiver as to any prior, subsequent and/or similar breach or default.
15. ASSIGNABILITY
15.1 This License Agreement is binding upon and shall inure to the benefit of
the University, its successors and assigns, but shall be personal to the
Licensee and assignable by Licensee to an AFFILIATE without the prior written
consent of the University, provided however, that such AFFILIATE is not-
a) an entity-.
(i) located in, doing business with, or being organized under the laws of a
country, which is considered a sensitive country by DOE based on DOE internal
policies and procedures at the time Licensee requests such assignment, or;
(ii) substantially controlled by an entity located in, doing business with,
or being organized under the laws of a country, which is considered a sensitive
country by DOE based on DOE internal policies and procedures at the time
Licensee requests such assignment.
This License Agreement is assignable by the Licensee to a non-AFFILIATE only
with the written consent of the University, which consent shall not be
unreasonably withheld.
15.2 In the event the University ceases to be the management and operating
contractor for the Los Alamos National Laboratory, the University may assign
this License Agreement to DOE or to the succeeding management and operating
contractor for LANL, as directed by DOE.
15.3 In the event that a foreign company or government acquires a controlling
interest in Licensee, the University, at its sole option and discretion, may
terminate this License Agreement in accordance with DOE policies. Licensee
agrees to notify the University of any change in its ownership that results in a
foreign company or government acquiring a controlling interest in Licensee,
within thirty (30) days prior to any such occurrence.
<PAGE>
16. INDEMNIFICATION - PRODUCT LIABILITY
16.1 The Licensee will indemnify the U.S. Government and the University, and
their officers, employees, and agents, against any damages, costs and expenses,
including attorneys' fees, arising from the commercialization and utilization of
the LICENSED PRODUCTS by Licensee, including but not limited to the making,
using, selling or exporting of products, processes, or services derived
therefrom. This indemnification will include, but will not be limited to,
product liability. To the maximum extent permitted by applicable state and
federal law, Licensee has the option to control the defense of any suit that may
result in Licensee's liability under this section.
16.2 Licensee will insure its activities relating to the License Agreement at
its own expense with an insurance company acceptable to the University or
provide a Certification of Self-Insurance acceptable to the University. Licensee
will obtain, keep in force, and maintain a minimum of [*] of Comprehensive or
Commercial Form General Liability Insurance (including contractual liability and
product liability) or an amount no less than [*], whichever amount is greater.
These coverages will not limit the liability of Licensee in any way. Licensee
will provide the University with certificates of insurance, if requested by the
University, including renewals, that show compliance with these requirements at
least thirty (30) days before the first commercial sale or distribution of
LICENSED PRODUCTS. Licensee's failure to maintain this insurance will be
considered a material breach of this License Agreement.
a. If such insurance is written on a claims-made form, coverage shall provide
for a retroactive date of placement prior to or coinciding with the effective
date of this License Agreement.
b. Licensee shall maintain the general liability insurance specified herein
during (a) the period that the LICENSED PRODUCT is being commercially
distributed or sold (other than for the purpose of obtaining regulatory
approvals) by Licensee, an affiliate, or agent of Licensee, and (b) a reasonable
period thereafter, but in no event less than five (5) years from the effective
date of this License Agreement.
16.3 Insurance coverage as required under Paragraph 16.2 above shall:
a. Provide for thirty (30) day advance written notice to the University of
cancellation or of any modification.
b. Indicate that DOE, The Regents of the University of California and its
officers, employees, students, and agents, have been endorsed thereon as
additional named insured.
c. Include a provision that the coverages will be primary and will not
participate with, nor will be excess over, any valid and collectible insurance
or program of self-insured carried or maintained by University.
17. LATE PAYMENTS
17.1 In the event royalty payments or fees are not received by the University
when due, the Licensee will pay to the University interest charges at the rate
of ten percent (10%) per annum on the amount of the royalty payments or fees
overdue. Such interest charges will be calculated from the date the payment or
fee was due to the date payment is actually received by the University.
18. NOTICES
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
18.1 Any payment, notice, or other communication required or permitted to be
given to either party hereto is properly given and effective on the date of
delivery if delivered in person or by first-class certified mail, postage paid,
or by facsimile transmission with confirmation, to the respective address or
facsimile number given below, or to any other address designated by written
notice to the other Party as follows..
In the case of the Licensee:
DCH Technology, Inc.
27811 Ave. Hopkins, Suite 6 Valencia, CA 91355
Attn.: David Walker
FAX Number: (805) 257-9398
In the case of the University:
Los Alamos National Laboratory
Civilian and Industrial Technology Program Office
P.O. Box 1663, Mail Stop C334
Los Alamos, New Mexico 87545
Attn.: License Administrator
FAX Number: (505) 665-0154 or (505) 665-6127
19. FORCE MAJEURE
19.1 Neither party is responsible for delay or failure in performance of any
of the obligations imposed by this License Agreement, if the failure is caused
by fire, flood, explosion, lightning, windstorm, earthquake, subsidence of soil,
court order or government interference, civil commotion, riot, war, or by any
cause of like or unlike nature beyond the control and without fault or
negligence of a party.
20. EXPORT CONTROL LAWS
20.1 Licensee acknowledges and understands that the export of certain goods or
technical data from the United States requires an export control license from
the United States Government, and that failure to obtain an export control
license may result in violation of U.S. laws.
21. PREFERENCE FOR UNITED STATES INDUSTRY
21.1 Licensee represents that it has a business unit that is located in the
United States that will conduct Licensee's activities under this License
Agreement. Licensee further represents that it is not subject to the control of
a foreign company or government.
21.2 Any products embodying LICENSED PRODUCTS or produced through the use of a
LICENSED METHOD will be manufactured substantially in the United States.
22. DISPUTE RESOLUTION
22.1 The Parties will use their best efforts to resolve disputes arising from
this Agreement. Any dispute that cannot be resolved by the Parties will be
resolved by non-binding arbitration in accordance with the rules and procedures
of the American Arbitration Association, acting in the state of New Mexico, and
shall be enforceable in accordance with New Mexico law.
23. PATENT MARKING
<PAGE>
23.1 Licensee agrees to mark, in accordance with the applicable patent marking
statute, all LICENSED PRODUCTS, and their containers, which have been made,
used, sold or otherwise transferred to a third party, under the terms of this
License Agreement.
24. SURVIVOR
24.1 When this License Agreement expires or is terminated in accordance with
the terms hereof, Paragraphs 6.3, 8.1, 9.3, 11.1, 16.1, 16.2, 16.3, and 24.1
shall survive said expiration or termination.
25. GOVERNMENT APPROVAL OR REGISTRATION
25.1 If this License Agreement or any associated transaction is required by
the law of any nation to be either approved, permitted or registered with any
governmental agency, Licensee will assume all legal obligations to do so.
Licensee will notify University if Licensee becomes aware that this License
Agreement is subject to a U.S. or foreign government reporting, permitting, or
approval requirement. Licensee will make all necessary findings and pay all
costs including fees, penalties and all other out-of-pocket costs associated
with such reporting, permitting or approval process.
26. DISPOSITION OF LICENSED PRODUCTS ON HAND UPON TERMINATION
26.1 Upon termination of this License Agreement by either Party the Licensee
shall provide the University with a written list of all LICENSED PRODUCTS in the
process of being sold, or in use by Licensee, and shall destroy all LICENSED
PRODUCTS in the possession of Licensee unless otherwise directed by University.
27. MISCELLANEOUS
27.1 The headings of the several sections of this Agreement are included for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this License Agreement.
27.2 No amendment or modification of this Agreement is binding on the Parties
unless made in a writing executed by duly authorized representatives of the
Parties.
27.3 This License Agreement embodies the entire understanding of the Parties
and shall supersede all previous communications, representations, or
understandings, either oral or written, between the Parties relating to this
License Agreement.
27.4 In the event any one or more of the provisions of this License Agreement
is held to be invalid, illegal, or unenforceable in any respect, the invalidity,
illegality, or unenforceability will not affect any other provisions hereof, and
this License Agreement will be construed as if such invalid or illegal or
unenforceable provisions had never been part of this License Agreement.
27.5 This License Agreement will be interpreted and construed in accordance
with the laws of the State of New Mexico.
IN WITNESS WHEREOF, both the University and the Licensee have executed this
License Agreement, in duplicate originals, by their respective officers on the
day and year hereinafter written.
<PAGE>
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
/s/ JOHN C. BROWNE
By: John C. Browne, Director
Los Alamos National Laboratory
Date: March 10, 1999
DCH TECHNOLOGY, INC.
By: /s/ DAVID HABERMAN
Printed Name: David Haberman
Title: Vice President
Date: March 15, 1999
APPENDIX A PATENT RIGHTS
LANL Case No. S-80,409, U.S. Patent No. 5,514,486, issued on
May 7,1996, "ANNULAR FEED AIR BREATHING FUEL CELL STACK," by Mahlon S. Wilson;
and
LANL Case No. S-84,928, U.S. Patent No. 5,595,834, issued on
January 21,1997, "ANNULAR FEED AIR BREATHING FUEL CELL STACK," by Mahlon S.
Wilson et al.
FIELD OF USE
All fields of use except for the following: Power generation for marine,
aerospace, military, portable, and remote-area applications.
APPENDIX B CONFIRMATORY LICENSE
Rev. 01/03/96
DOE Docket No. S-80,409
CONFIRMATORY LICENSE
Application for: ANNULAR FEED AIR BREATHING FUEL CELL STACK
Inventor(s): Mahlon S. Wilson
Serial No: 08/522,885
Filing Date: September 1, 1995
Contract No: W-7405-ENG-36
Contractor: THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
The invention identified above is a "Subject Invention" under the above-numbered
contract. A copy of the provisions of the above-numbered contract (certified on
January 12, 1996) governing patent rights in the Subject Invention at the time
the invention was made, has been submitted to the U.S. Department of Energy.
The contractor hereby confirms that under the provisions of the above-numbered
contract governing patent rights, it has granted to the Government a
nonexclusive, nontransferable, irrevocable, paid-up license to practice or have
practiced for or on behalf of the United States the Subject Invention throughout
the world. This license applies to the invention in the above-identified patent
application and any and all divisions or continuations thereof and any resulting
patent or reissue patent which may be granted thereon.
<PAGE>
It is understood and agreed that this document does not preclude the Government
from asserting rights under the provisions of said contract or any other
agreement between the Government and the Contractor, or any other rights of the
Government with respect to the above-identified invention.
The Contract hereby grants the Government an irrevocable power to inspect and
make copies of the above-identified application.
Signed this 16th day of January, 1996,
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
William A. Eklund
Senior Counsel for Business and Patent Law
If the invention was made under a subcontract, please identify the Prime
Contractor:
Prime Contract No:
Rev. 01/03/96
DOE Docket No. S-84,928
CONFIRMATORY LICENSE
Application for: ANNULAR FEED AIR BREATHING FUEL CELL STACK
Inventor(s): Mahlon S. Wilson, Jay K. Neutzier
Serial No: 08/587,430
Filing Date: January 17,1996
Contract No: W-7405-ENG-36
Contractor: THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
The invention identified above is a "Subject Invention" under the above-numbered
contract. A copy of the provisions of the above-numbered contract (certified on
January 12, 1996) governing patent rights in the Subject Invention at the time
the invention was made, has been submitted to the U.S. Department of Energy.
The contractor hereby confirms that under the provisions of the above-numbered
contract governing patent rights, it has granted to the Government a
nonexclusive, nontransferable, irrevocable, paid-up license to practice or have
practiced for or on behalf of the United States the Subject Invention throughout
the world. This license applies to the invention in the above-identified patent
application and any and all divisions or continuations thereof and any resulting
patent or reissue patent which may be granted thereon.
It is understood and agreed that this document does not preclude the Government
from asserting rights under the provisions of said contract or any other
agreement between the Government and the Contractor, or any other rights of the
Government with respect to the above-identified invention.
The Contract hereby grants the Government an irrevocable power to inspect and
make copies of the above-identified application.
Signed this 4th day of April, 1996,
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
William A. Eklund
Senior Counsel for Business and Patent Law
<PAGE>
If the invention was made under a subcontract, please identify the Prime
Contractor:
Prime Contract No.
APPENDIX C
FEES AND ROYALTIES
1. FEES
a) License Issue Fee of [*], which is due on the effective date of this License
Agreement.
b) Annual License Fees of [*], payable in advance, are due on January 31, 2000
and January 31, 2001. Thereafter, Licensee will pay the University an Annual
License Fee of [*], which is payable in advance on January 31" of each year,
beginning on January 31, 2002. The University will credit the Annual License Fee
for a particular year against any royalties earned during that same year.
1. ROYALTIES
2.1 The Licensee will pay the University a royalty rate of [*] of NET SALES
during the term of this License Agreement.
APPENDIX D MILESTONES
[*]
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
Exhibit 6.4
Last Revision Date: June 18, 1998
LANL MODULAR CRADA STEVENSON-WYDLER (15 USC 3710) COOPERATIVE RESEARCH AND
DEVELOPMENT AGREEMENT (hereinafter "CRADA") NO. LA98CIO384
BETWEEN
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA under its U.S. Department of Energy
Contract
No. W@-7405-ENG-36 (hereinafter "University") and DCH Technology, Inc.,
(hereinafter "Participant") both being hereinafter jointly referred to as the
"Parties"
ARTICLE 1: DEFINITIONS
A. "Government" means the United States of America and agencies thereof.
B. "DOE" means the Department of Energy, an agency of the United States of
America.
C. "Contracting Officer" means the DOE employee administering the University's
DOE contract.
D. "Generated Information" means information produced in the performance of
this CRADA.
E. "Proprietary Information" means information which embodies (1) trade
secrets or (ii) commercial or financial information which is privileged or
confidential under the Freedom of-Information Act (5 USC 552 (b)(4)), either of
which is developed at private expense outside of this CRADA and which is marked
as Proprietary Information.
F. "Protected CRADA Information" means Generated Information which is marked
as being Protected CRADA Information by a Party, to this CRADA and which would
have been Proprietary Information had it been obtained from a non-federal
entity.
G. "Subject Invention" means any invention of the University or Participant
conceived or first actually reduced to practice in the performance of work under
this CRADA.
H. "Intellectual Property" means patents, trademarks, copyrights mask works,
and other forms of comparable property rights protected by Federal Law and other
foreign counterparts.
I. "Trademark" means a distinctive mark, symbol, or emblem used in commerce by
a producer or manufacturer to identify and distinguish its goods or services
from those of others.
J. "Service Mark" means a distinctive word, slogan, design, picture, symbol or
any combination thereof, used in commerce by a person to identify and
distinguish its services from those of others.
K. "Mask Work" means a series of related images, however fixed or encoded,
having or representing the predetermined three-dimensional pattern of metallic,
<PAGE>
insulating or semiconductor material present or removed from the layers of a
semiconductor chip product, and in which series the relation of the images to
one another is that each image has the pattern of the surface Of one form of the
semiconductor chip product.
L. "RD&D" means research, development, and demonstration performed by the
University and the Participant under this CRADA, including works performed by
consultants or other contractors and subcontractors under this CRADA.
M. "Background Intellectual Property" means the Intellectual Property rights
in the items identified by the Parties in Appendix C, Background Intellectual
Property, which were in existence prior to or are first produced outside of this
CRADA, except that in the case of inventions in those identified items, the
inventions must have been conceived outside of this CRADA and not first actually
reduced to practice under this CRADA to qualify as Background Intellectual
Property. Licensing of Background Intellectual Property, if agreed to by the
Parties, shall be the subject of separate licensing agreements between the
Parties. Background Intellectual Properties are not Subject Inventions.
N. "Agent" means any consultant, subcontractor, affiliate, or other
individual, with respect to whom a Participant is entitled to assert or acquire
ownership of Intellectual Property generated by such individual and for whom the
Participant warrants compliance with the terms of this CRADA.
ARTICLE II: STATEMENT OF WORK
Appendix A, Statement 'of Work, is hereby incorporated into this CRADA by
reference.
ARTICLE III: TERM, FUNDING AND COSTS
A. The effective date of this CRADA shall be the latter date of (1) the date
on which it is signed by the last of the Parties hereto or, (2) the date on
which it is approved by DOE. The work to be performed under this CRADA shall be
completed within 24 months from the effective date. The term of this CRADA may
be extended by mutual, written agreement of the Parties. A copy of this time-
only extension, signed by both Parties, shall be provided to DOE by the
University.
B. The Participant's estimated total contribution is [*]. The Government's
estimated total contribution, which is provided through the University's
contract with DOE, is [*], and includes [*] for the University, subject to
available funding. The total value of this CRADA is estimated to be $1,200K.
C. Neither Party shall have an obligation to continue or complete performance
of its work at a contribution in excess of its estimated contribution as
contained in Article III B above, including any subsequent amendment.
D. Each Party agrees to provide at least thirty (30) days notice to the other
Party if the actual cost to complete performance will exceed its estimated cost.
ARTICLE IV: PERSONAL PROPERTY
All tangible personal property Produced or acquired under this CRADA shall
become the property of the Participant or the Government depending upon whose
funds were used to obtain it. Such property is identified in Appendix A,
Statement of Work. Personal Property shall be disposed of as directed by the
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
owner at the owner's expense. All jointly funded property shall be owned by the
Government.
ARTICLE V: DISCLAIMER
THE GOVERNMENT, THE PARTICIPANT, AND THE"UNIVERSITY MAKE NO EXPRESS OR IMPLIED
WARRANTY AS TO THE CONDITIONS OF THE RESEARCH OR ANY INTELLECTUAL PROPERTY,
GENERATED INFORMATION, OR PRODUCT MADE, OR DEVELOPED UNDER THIS CRADA, OR THE
OWNERSHIP, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE RESEARCH
OR RESULTING PRODUCT. NEITHER THE GOVERNMENT THE PARTICIPANT, NOR THE UNIVERSITY
SHALL BE LIABLE FOR SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES ATTRIBUTED TO
SUCH RESEARCH OR RESULTING PRODUCT INTELLECTUAL PROPERTY, GENERATED INFORMATION,
OR PRODUCT MADE OR DEVELOPED UNDER THIS CRADA.
ARTICLE VI: PRODUCT LIABILITY
Except for liability resulting from any negligent acts or omissions of the
University, Participant indemnities the Government and the University for all
damages, costs and expenses, including attorney's fees, arising from personal
injury or property damage occurring as a result of the making, using or selling
of a product, process or service by or on behalf of the Participant, its
assignees or licensees, which was derived from the work performed under this
CRADA. In respect to this Article, neither the Government nor the University
shall be considered assignees or licensees of the Participant, as a result of
reserved Government and University rights. The indemnity set forth in this
paragraph shall apply only if Participant shall have been informed as soon and
as completely as practical by the University and/or the Government of the action
alleging such claim and shall have been given an opportunity, to the maximum
extent afforded by applicable laws, rules, or regulations, to participate in and
control its defense, and the University and/or Government shall have provided
all reasonably available information and reasonable assistance requested by
Participant. No settlement for which Participant would be responsible shall be
made without Participant's consent unless required by final decree of a court of
competent jurisdiction.
ARTICLE VII: OBLIGATIONS AS TO PROPRIETARY INFORMATION
A. If Proprietary Information is orally disclosed to a Party, it shall be
identified as such, orally, at the time of disclosure and confirmed in a written
summary thereof, appropriately marked by the disclosing Party, within thirty
(30) days as being Proprietary Information.
B. Each Party agrees to not disclose Proprietary information provided by
another Party to anyone other than the CRADA Participant and University without
written approval of the providing Party, except to Government employees who are
subject to the statutory provisions against disclosure of confidential
information set forth in the Trade Secrets Act (18 USC 1905).
C. All Proprietary Information shall be returned to the provider thereof at
the conclusion of this CRADA at the provider's expense.
D. All Proprietary Information shall be protected for a period of five (5)
years, unless and until such Proprietary Information becomes publicly known
without the fault of the recipient, comes into recipient's possession without
breach of any of the obligations set forth herein by the recipient, or is
independently developed by recipient's employees who did not have access to such
Proprietary Information.
<PAGE>
ARTICLE VIII: OBLIGATIONS AS TO PROTECTED CRADA INFORMATION
A. Each Party may designate as Protected CRADA Information, as defined in
Article 1, any Generated Information produced by its employees and, with the
written agreement of the other Party, designate any Generated Information
produced by the other Party's employees. All such designated Protected CRADA
Information shall be appropriately marked.
B. For a period of five (5) years from the date Protected CRADA Information is
produced, Parties agree not to further disclose such Information except:
(1) as necessary to perform this CRADA;
(2) as provided in Article XI [REPORTS AND ABSTRACTS];
(3) as requested by the DOE Contracting Officer to be provided to other DOE
facilities for use only at those DOE facilities with the same protection in
place;
(4) to existing or potential licensees, affiliates, customers or suppliers of
the, Parties in support of commercialization of the technology with the same
protection in place. Disclosure of Protected CRADA Information under this
subparagraph shall only be done with both Parties' consent; or
(5) as mutually agreed by the Parties in advance.
C. The obligations of (B) above shall end sooner for any Protected CRADA
Information which shall become publicly known without fault of either Party,
shall come into a Party's possession without breach by that Party of the
obligations of (B) above, or shall be independently developed by a Party's
employees who did not have access to the Protected CRADA Information.
ARTICLE IX: RIGHTS IN GENERATED INFORMATION
The Parties agree that they shall have no obligations of non-disclosure or
limitations on their use of, and the Government shall have unlimited rights in,
all Generated Information, all Protected CRADA Information after the expiration
of the period set forth in Article VIII (B) above and information provided to
the Government or University under this CRADA which is not marked as being
copyrighted (subject to Article XIII) or as Protected CRADA Information (subject
to Article VIII B) or Proprietary information (subject to Article VII B), or
which is an invention disclosure which may later be the subject of a U.S. or
foreign patent application.
ARTICLE X: EXPORT CONTROL
THE PARTIES UNDERSTAND THAT MATERIALS AND INFORMATION RESULTING FROM THE
PERFORMANCE OF THIS CRADA MAY BE SUBJECT TO EXPORT CONTROL LAWS AND THAT EACH
PARTY IS RESPONSIBLE FOR ITS OWN COMPLIANCE WITH SUCH LAWS.
ARTICLE XI: REPORTS AND ABSTRACTS
A. The Parties agree to produce the following deliverables:
(1) an initial abstract suitable for public release at the time the CRADA is
approved by DOE (see Appendix A);
(2) other abstracts (final when work is complete, and others as substantial
changes in scope and dollars occur);
(3) a final report, upon completion or termination of this CRADA, to include a
list of Subject Inventions;
(4) other topical/periodic reports where the nature of research and magnitude
of dollars justify; and
<PAGE>
(5) computer software in source and executable object code format as defined
within the Statement of Work or elsewhere within the CRADA documentation.
B. It is understood that the University has the responsibility to provide the
above information at the time of its completion to the DOE Office of Scientific
and Technical Information.
C. Participant agrees to provide the above information to the University to
enable full compliance with paragraph B of this Article.
D. It is understood that the University and the Department of Energy have a
need to document the long-term economic benefit of the cooperative research
being done under this agreement. Therefore, the Participant acknowledges a
responsibility to respond to reasonable requests, during the term of this CRADA
and for a period of three (3) years thereafter, from the University for
information relating to such economic benefit.
ARTICLE XII: PRE-PUBLICATION REVIEW
A. The Parties agree to secure pre-publication approval from each other which
shall not be unreasonably withheld or denied beyond thirty (30) days. The
proposed publication shall be deemed not objectionable, unless the proposed
publication contains Proprietary Information, Protected CRADA Information, or
material that would create potential statutory bars to filing United States or
corresponding foreign patent applications, in which case express written
permission shall be required for publication.
B. The Parties agree that neither will use the name of the other Party or its
employees in any promotional activity, such as advertisements, with reference to
any product or service resulting from this CRADA, without prior written approval
of the other Party.
ARTICLE XIII: COPYRIGHTS
A. The Parties may assert copyright in any of their Generated Information.
Assertion of copyright generally means to enforce or give any indication of an
intent or right to enforce such as by marking or securing Federal registration.
B- Each Party shall own title to copyrights in works as determined by U.S,
Copyright Law, 17 USC 101 et seq. Copyrights in jointly created works shall be
jointly owned. If either Party decides not to retain ownership of copyright in a
work created by its employee(s), that Party agrees to assign such copyright to
the other Party, at the other Party's request. Participant agrees to notify the
University if it decides not to retain ownership of copyright in any work
created by its employee(s); the University agrees to notify DOE if neither the
Participant nor the University decides to retain ownership of copyright in any
work created by their employee(s). The Parties agree to assign to the DOE, upon
request, copyrights not retained by either Party.
C. For Generated Information, the Parties acknowledge that the Government has
for itself and others acting on its behalf, a royalty-free, non-transferable,
non-exclusive, irrevocable worldwide copyright license to reproduce, prepare
derivative works, distribute copies to the public, and perform publicly and
display publicly, by or on behalf of the Government, all copyrightable works
produced in the performance of this CRADA, subject to the restrictions this
CRADA places on publication of Proprietary Information and Protected CRADA
Information.
<PAGE>
D. For all copyrighted computer software produced in the performance of this
CRADA, the Party owning the copyright will provide the source code, an expanded
abstract as described in Appendix B, the executable object code and the minimum
support documentation needed by a competent user to understand and use the
software to DOE's Energy Science and Technology Software Center, P.O. Box 1020,
Oak Ridge, TN 37831.
The expanded abstract will be treated in the same manner as Generated
Information in paragraph C of this Article.
E. The University and the Participant agree that, with respect to any
copyrighted computer software produced in the performance of this CRADA, DOE has
the right, at the end of the period set forth in paragraph B of Article VIII
hereof and at the end of each two-year interval thereafter, to request the
University and the Participant and any assignee or exclusive licensee of the
copyrighted software to grant a non-exclusive, partially exclusive, or exclusive
license to a responsible applicant upon terms that are reasonable under the
circumstances, provided such grant does not cause a termination of any
licensee's right to use the copyrighted computer software. If the University or
the Participant or any assignee or exclusive licensee refuses such request, the
University and the Participant agree that DOE has the right to grant the license
if DOE determines that the University, the Participant, assignee, or licensee
has not made a satisfactory demonstration that it is actively pursuing
commercialization of the copyrighted computer software.
Before requiring licensing under this paragraph E, DOE shall furnish the
University/Participant written notice of its intentions to require the
University/Participant to grant the stated license, and the
University/Participant shall be allowed thirty (30) days (or such longer period
as may be authorized by the cognizant DOE Contracting Officer for good cause
shown in writing by the University/Participant) after such notice to show cause
why the license should not be required to be granted.
The University/Participant shall have the right to appeal the decision by the
DOE to the grant of the stated license to the Invention Licensing Appeal Board
as set forth in paragraphs (b)-(g) of 10 CFR 781.65, "Appeals."
F. The Parties agree to place Copyright and other notices, as appropriate for
the protection of Copyright, in human readable form onto all physical media, and
in digitally encoded form in the header of machine readable information recorded
on such media such that the notice will appear in human readable form when the
digital data are off loaded or the data are accessed for display or printout.
ARTICLE XIV: REPORTING SUBJECT INVENTIONS
A. The Parties agree to disclose to each other each and every Subject
Invention, which may be patentable or otherwise protectable under the Patent
Act. The Parties acknowledge that the University and Participant will disclose
their respective Subject Invention to the DOE within two (2) months after the
inventor first discloses the Subject Invention in writing to the person(s)
responsible for patent matters of the disclosing Party.
B. These disclosures should be in sufficiently complete technical detail to
convey a clear understanding, to the extent known at the time of the disclosure,
of the nature, purpose and operation of the Subject Invention. The disclosure
shall also identify any known actual or potential statutory bars, i.e., printed
<PAGE>
publications describing the Subject Invention or the public use or on sale of
the Subject Invention in this country. The Parties further agree to disclose to
each other any subsequent known actual or potential statutory bar that occurs
for a Subject Invention disclosed but for which a patent application has not
been filed. All Subject Invention disclosures shall be marked as confidential
under 35 USC 205.
ARTICLE XV: TITLE TO INVENTIONS
Whereas the Participant and the University have been granted the right to elect
to retain title to Subject Inventions:
A. Each Party shall own title to any Subject Invention made solely by its
employees or Agents. Title to jointly made Subject Inventions shall be jointly
owned. If either Party elects not to retain its interest in the title to a
Subject Invention, the other Party shall have the first option to acquire by
assignment the exclusive title to such invention. The DOE may obtain title to
any Subject Invention that is not retained by any Party.
B. The Parties acknowledge that the DOE may obtain title to each Subject
Invention reported under Article XIV for which a patent application or
applications are not filed pursuant to Article XVI and for which any issued
patents are not maintained by any Party to this CRADA.
C. The Parties acknowledge that the Government retains a non-exclusive, non-
transferable, irrevocable, paid-up license to practice or to have practiced for
or on behalf of the United States every Subject Invention under this CRADA
throughout the world.
ARTICLE XV.I: SPECIAL LICENSE TERMS AND CONDITIONS
The Parties agree to enter into a separate Option Agreement in which the
Participant is granted an option to obtain an exclusive license in a specified
field of use and upon mutually agreed terms and conditions to Intellectual
Property generated by University employees under this CRADA. The Parties
understand that rights in Intellectual Property generated under subcontracts for
tasks under this CRADA are treated in accordance with the terms of the
subcontracts. Accordingly, neither Party will enter into any subcontract for
tasks under this CRADA without the prior written approval of the other Party.
ARTICLE XVI: FILING PATENT APPLICATIONS
A. The Parties agree that the Party initially indicated as having an ownership
interest in any Subject Inventions (Inventing Party) shall have the first
opportunity to file U.S. and foreign patent applications. If the Participant
does not file such applications within one year after election, or if the
University does not file such applications within the filing time specified in
its prime contract, then the other Party to this CRADA exercising an option
pursuant to Article XV may file patent applications on such Subject Inventions.
If a patent application is filed by the other Party (Filing Party), the
Inventing Party shall reasonably cooperate and assist the Filing Party, at the
Filing Party's expense, in executing a written assignment of the Subject
Invention to the Filing Party and in otherwise perfecting the patent
application, and the Filing Party shall have the right to control the
prosecution of the patent application. The Parties shall agree between
themselves as to who will file patent applications on any joint Subject
Invention.
<PAGE>
B. The Parties agree that DOE has the right to file patent applications in any
country if neither Party desires to file a patent application for any Subject
Invention. Notification of such negative intent shall be made in writing to the
DOE Contracting Officer within three (3) months of the decision of the non-
inventing party to not file a patent application for the Subject Invention
pursuant to Article XV, or not later than 60 days prior to the time when any
statutory bar might foreclose filing of a U.S. patent application.
ARTICLE XVII: TTRADEMARKS
'Me Parties may seek to obtain Trademark/Service Mark protection on products or
services generated under this agreement in the United States or foreign
countries. Each Party shall own title -to Trademarks/Service Marks developed
solely by its employees or Agents. Jointly developed Trademarks/Service Marks
shall be jointly owned. The Parties hereby acknowledge that the Government shall
have the right to indicate on any similar goods or services produced by or for
the Government that such goods or services were derived from and are a DOE
version of the goods or services protected by such Trademark/Service Mark with
the Trademark and the owner thereof being specifically identified. In addition,
the Government shall have the right to use such Trademark/Service Mark in print
or communications media.
ARTICLE XVIII: MASK WORKS
The Parties may seek to obtain legal protection for Mask Works fixed in
semiconductor products generated under this agreement as provided by Chapter 9
of Title 17 of the United States Code. Each Party shall own title to Mask Works
developed solely by its employees or Agents. Jointly developed Mask Works shall
be jointly owned. The Parties hereby acknowledge that the Government or others
acting on its behalf shall retain a non-exclusive, paid-up, worldwide,
irrevocable, Nontransferable license to reproduce, import, or distribute the
covered semiconductor product by or on behalf of the Government, and to
reproduce and use the Mask Work by or on behalf of the Government.
ARTICLE XIX: COST OF INTELLECTUAL PRO PERT VPR LTFCTI@ @ON
Each Party shall be responsible for payment of all costs relating to Copyright,
Trademark and Mask Work filing, U.S. and foreign patent application filing and
prosecution, and all costs relating to maintenance fees for U.S. and foreign
patents hereunder which are filed or registered by that Party. Government/DOE
laboratory funds contributed as DOE's cost share to a CRADA cannot be given to
Participant for payment of Participant's costs of filing and maintaining patents
or filing for Copyrights, Trademarks, and Mask Works.
ARTICLE XX: REPORTS OF INTELLECTUAL PROPERTY USE
Participant agrees to submit for a period of three (3) years, upon request of
DOE, a non-proprietary report no more frequently than annually on efforts to
utilize any Intellectual Property arising under the CRADA.
ARTICLE XXI: DOE MARCH-IN RIGHTS
The Parties acknowledge that the DOE has certain march-in rights to any Subject
Inventions in accordance with 48 CFR 27.304-1(g) and 15 USC 3710a(b)(1)(B) and
(C).
<PAGE>
ARTICLE XXII: U.S. COMPETITIVENESS
The Parties agree that a purpose of this CRADA is to provide substantial benefit
to the U.S. economy.
A. In exchange for the benefits received under this CRA-DA, the Participant
therefore agrees to the following:
(1) Products embodying Intellectual Property developed under this CRADA shall
be substantially manufactured in the United States; and
(2) Processes, services, and improvements thereof which are covered by
Intellectual Property developed under this CRADA shall be incorporated into the
Participant's manufacturing facilities in the United States either prior to or
simultaneously with implementation outside the United States. Such processes,
services, and improvements, when implemented outside the United States, shall
not result in reduction of the use of the same processes, services, or
improvements in the United States.
A. The University agrees to a U.S. Industrial Competitiveness clause in
accordance with its prime contract with respect to any licensing and assignments
of its Intellectual Property arising from this CRADA, except that any licensing
or assignment of its Intellectual Property rights to the Participant shall be in
accordance with the terms of Paragraphs A. (1) and A. (2) of this Article.
ARTICLE XXIII: ASSIGNMENT OF PERSONNEL,
A. It is contemplated that each Party may assign personnel to the other
Party's facility as part of this CRADA to participate in or observe the research
to be performed under this CRADA. Such personnel assigned by the assigning Party
shall not during the period of such assignments be considered employees of the
receiving Party for any purposes.
B The receiving Party shall have the right to exercise routine administrative
and technical supervisory control of the occupational activities of such
personnel during the assignment period and shall have the right to approve the
assignment of such personnel and/or to later request their removal by the
assigning Party.
C. The assigning Party shall bear any and all costs and expenses with regard
to its personnel assigned to the receiving Party's facilities under this CRADA.
The receiving Party shall bear facility costs of such assignments.
ARTICLE XXIV: FORCE MAJEURE
No failure or omission by the University or Participant in the performance of
any obligation under this CRADA shall be deemed a breach of this CRADA or create
any liability if the same shall arise from any cause or causes beyond the
control of the University or Participant, including but not limited to the
following, which, for the purpose of this CRADA, shall be regarded as beyond the
control of the Party in question: Acts of God, acts or omissions of any
government or agency thereof, compliance with requirements, rules, regulations,
or orders of any governmental authority or any office, department, agency, or
instrumentality thereof, fire, storm, flood, earthquake, accident, acts of the
public enemy, war, rebellion, insurrection, riot, sabotage, invasion,
quarantine, restriction, transportation embargoes, or failures or delays in
transportation.
ARTICLE XXV: ADMINISTRATIO OF THE CRADA
<PAGE>
It is understood and agreed that this CRADA is entered into by the University
under the authority of its prime contract with DOE. The University is authorized
to and will administer this CRADA in all respects unless otherwise specifically
provided for herein. Administration of this CRADA may be transferred from the
University to DOE or its designee with notice of such transfer to the
Participant, and the University shall have no further responsibilities except
for the confidentiality, use and/or non- disclosure obligations of this CRADA.
ARTICLE XXVI: RECORDS AND ACCOUNTING FOR GOVERNMENT PROPERTY
The Participant shall maintain records of receipts, expenditures, and the
disposition of all Government property in its custody related to the CRADA.
ARTICLE XXVII: NOTICES
A. Any communications required by this CRADA, if given by postage prepaid
first class U.S. Mail or other verifiable means addressed to the Party to
receive the communication, shall be deemed made as of the day of receipt of such
communication by the addressee, or on the date given if by verified facsimile.
Address changes shall be given in accordance with this Article and shall be
effective thereafter. All such communications, to be considered effective, shall
include the number of this CRADA.
B. The addresses, telephone numbers and facsimile numbers for the Parties are
as follows:
1. For the University:
a. FORMAL NOTICES AND COMMUNICATIONS
Russell N. Miller
Telephone: (505) 665-3089
Facsimile: (505)665-6127
For Fed. Ex., UPS, Freight:
Los Alamos National Laboratory
Civilian and Industrial Technology Program Office
2237 Trinity Drive
Mail Stop C334
Los Alamos Business Park
Los Alamos, NM 87544
For U.S. Mail Only:
Los Alamos National Laboratory
Civilian and Industrial Technology Program Office
P.O. Box 1663
Mail Stop C334
Los Alamos, NM 87545
b. TECHNICAL CONTACT, REPORTS, AND COPIES, OF FORMAL NOTICES AND
COMMUNICATIONS
Mahlon S. Wilson
Telephone: (505)667-9178
Facsimile: (505)665-4292
For Fed. Ex., UPS, Freight:
<PAGE>
Los Alamos National Laboratory
MST- I 1, Mail Stop D429
TA-3 Bldg. SM-43, Room No. D37
Los Alamos, NM 87545
For U.S. Mail Only:
Los Alamos National Laboratory
P.O. Box 1663
MST- I 1, Mail Stop D429
Los Alamos, NM 87545
2. For DCH Technology, Inc.
a. FORMAL NOTICES AND COMMUNICATIONS
David A. Walker
Telephone: (818) 385-0400
Facsimile: (818) 385-0849
For Fed. Ex., UPS, Freight: DCH Technology, Inc.
14241 Ventura Boulevard, Suite 208
Sherman Oaks, CA 91423
For U.S. Mail Only:
DCH Technology, Inc.
14241 Ventura Boulevard, Suite 208
Sherman Oaks, CA 91423
b. TECHICAL CONTACT, REPORTS, AND COPIES OF FORMAL NOTICES AND COMMUNICATIONS
Dr. Mark A. Daugherty
Telephone: (608) 831-6675
Facsimile: (Phone Number)
For Fed Ex., UPS, Freight: DCH Technology, Inc.
14241 Ventura Boulevard, Suite 208
Sherman Oaks, CA 91423
For U.S. Mail Only:
DCH Technology, Inc.
14241 Ventura Boulevard, Suite 208
Sherman Oaks, CA 91423
ARTICLE XXVIII: DISPUTES
The Parties shall attempt to jointly resolve all disputes arising from this
CRADA. If the Parties are unable to jointly resolve a dispute within a
reasonable period of time, they agree to have the dispute decided by the DOE
Contracting Officer, who shall reduce his decision to writing within sixty (60)
days of receiving in writing the request for a decision by either Party to this
CRADA. The DOE Contracting Officer shall mail or otherwise furnish a copy of the
decision to the Parties. The decision of the DOE Contracting Officer is final
unless, within one hundred twenty (120) days, the Participant brings an action
for adjudication in a court of competent jurisdiction. To the extent that there
<PAGE>
is no applicable U.S Federal law, this CRADA and performance thereunder shall be
governed by the law of the State of New Mexico.
ARTICLE XXIX: ENTIRE CRADA AND MODIFICATIONS
A. It is expressly understood and agreed that this CRADA with its Appendices
contains the entire agreement between the Parties with respect to the subject
matter hereof and that all prior representations or agreements relating hereto
have been merged into this document and are thus superseded in totality by this
CRADA.
B. Any agreement to materially change any terms or conditions of this CRADA or
the Appendices shall be valid only if the change is made in writing, executed by
the Parties hereto, and approved by DOE.
ARTICLE XXX: TERMINATION
This CRADA may be terminated by either Party upon thirty (30) days written
notice to the other Party. This CRADA may also be terminated by the University
in the event of failure by the Participant to provide the necessary advance
funding, as agreed in Article III.
In the event of termination by either Party, each Party shall be responsible for
its share of the costs incurred through the effective date of termination, as
well as its share of the costs incurred after the effective date of termination,
and which are related to the termination. The confidentiality, use, and/or non-
disclosure obligations of this CRADA shall survive any termination of this
CRADA.
I hereby represent that I have the requisite authority to sign, this instrument
on behalf of-
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
Signature: /s/ JOHN C. BROWNE
Name: John C. Browne
Title: Director
Date: 10/14/98
PARTICIPANT:
Signature: /s/ DAVID A. WALKER
Name: David A. Walker
Title: Vice President Business Operaitons
Date: 10/30/98
STATEMENT OF WORK
A. PURPOSE [*]
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
C. SCOPE OF WORK
[*]
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
EXHIBIT 6.5
Ratification and Amendment A
to
COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT
(hereinafter "CRADA") No. ORNL96-0454
By and Between
Lockheed Martin Energy Research Corporation (hereinafter "Contractor")
And
DCH Technology, Inc. (hereinafter "Participant")
This Ratification and Amendment A to CRADA No. ORNL96-0454 by and between the
Contractor and the Participant is made effective upon approval by the DOE. The
Contractor and the Participant will hereinafter jointly be referred to as the
"Parties."
WITNESS:
The Parties hereby desire to ratify and amend said CRADA.
THEREFORE, the Parties hereto agree to be bound as follows:
Revise Article III: FUNDING AND COSTS, as follows:
-----------------
Replace Paragraph A with: "The Participant's estimated in-kind
contribution is [*]. The Government's estimated contribution, which is
provided through the Contractor's contract with DOE, is [*], subject
to available funding."
Replace the last sentence of Paragraph D with: "The work to be
performed under this CRADA shall be completed within thirty-six (36) months
from the effective date.
Revise Appendix A, STATEMENT OF WORK as follows:
At page A-2, Revise the date of completion for Task 2 from six months to 18
-----------
months.
Revise the date of completion for Task 3 from 12 to 30 months.
Revise the date of completion for Task 4 from 12 to 36 months.
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
At page A-3, Estimated Cost and Source of Support, replace the entire
-----------
section with:
The total cost of this project is $1,170,000. The Government's estimated
in-kind contribution, which is provided through the Contractor's contract
with DOE, is [*] from the Energy Efficiency and Renewable Energy
Program; the Participant's in-kind contribution is [*].
<TABLE>
<CAPTION>
<S> <C>
Contribution Break Down
-----------------------
[*]
</TABLE>
At page A-3, Schedule, replace, "The duration of this project is 12
months." With "The duration of this project is thirty-six (36) months."
IN WITNESS WHEREOF, the Parties hereto have caused this ratification and
amendment to be duly executed in their respective names by their duly authorized
representatives.
FOR THE CONTRACTOR:
By: /s/ Alvin W. Trivelpiece
----------------------------------------------
Name: Alvin W. Trivelpiece, President
----------------------------------------------
Lockheed Martin Energy Research Corporation,
Title: and Director, Oak Ridge National Laboratory
----------------------------------------------
Date: 10/23/97
----------------------------------------------
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
2
<PAGE>
By: /s/ Sylvester Scott for
--------------------------------------
Name: Dean A. Waters, Acting Director
--------------------------------------
Title: Technology Transfer
--------------------------------------
Date: 10/27/97
--------------------------------------
FOR THE PARTICIPANT
By: /s/ David A. Walker
--------------------------------------
Name: David A. Walker
--------------------------------------
Title: Vice President
--------------------------------------
Date: 10/31/97
--------------------------------------
3
<PAGE>
STEVENSON-WYDLER (15 USC 3710)
COOPERATIVE RESEARCH AND DEVELOPMENT
AGREEMENT (hereinafter "CRADA") No. ORNL 96-0454
BETWEEN
Lockheed Martin Energy Research Corporation
under its U.S. Department of Energy Contract
No. DE-AC05-96OR22464 (hereinafter "Contractor")
AND
DCH Technology, Inc. (hereinafter "Participant"),
both being hereinafter jointly referred to as the "Parties"
ARTICLE I: DEFINITIONS
-----------
A. "Government" means the United States of America and agencies thereof.
B. "DOE" means the Department of Energy, an agency of the United States of
America.
C. "Contracting Officer" means the DOE employee administering the
Contractor's DOE contract.
D. "Generated Information" means information produced in the performance of
this CRADA.
E. "Proprietary Information" means information which embodies (i) trade
secrets or (ii) commercial or financial information which is privileged
or confidential under the Freedom of Information Act (5 USC 552 (b)(4)),
either of which is developed at private expense outside of this CRADA
and which is marked as Proprietary Information.
F. "Protected CRADA Information" means Generated Information which is
marked as being Protected CRADA Information by a Party to this CRADA and
which would have been Proprietary Information had it been obtained from
a non-federal entity.
G. "Subject Invention" means any invention of the Contractor or Participant
conceived or first actually reduced to practice in the performance of
work under this CRADA.
H. "Intellectual Property" means patents, Trademarks, copyrights, Mask
Works, Protected CRADA Information and other forms of comparable
property rights protected by Federal Law and other foreign counterparts.
I. "Trademark" means a distinctive mark, symbol or emblem used in commerce
by a producer or manufacturer to identify and distinguish its goods or
services from those of others.
J. "Mask Work" means a series of related images, however fixed or encoded,
having or representing the predetermined, three-dimensional pattern of
metallic, insulating or semiconductor material present or removed from
the layers of a semiconductor chip product; and in which series the
relation of the images to one another is that each image has the pattern
of the surface of one form of the semiconductor chip product. (17 USC
901(a)(2)).
K. "RD&D" means research, development and demonstration performed by the
Contractor and the Participant under this CRADA.
<PAGE>
L. "Background Intellectual Property" means the Intellectual Property
rights in the items identified by the Parties in Appendix C, Background
Intellectual Property, which were in existence prior to or are first
produced outside of this CRADA, except that in the case of inventions in
those identified items, the inventions must have been conceived outside
of this CRADA and not first actually reduced to practice under this
CRADA to qualify as Background Intellectual Property. Licensing of
Background Intellectual Property, if agreed to by the Parties, shall be
the subject of separate licensing agreements between the Parties.
Background Intellectual Properties are not Subject Inventions.
ARTICLE II: STATEMENT OF WORK
-----------------
Appendix A, Statement of Work, is hereby incorporated into this CRADA by
reference.
ARTICLE III: FUNDING AND COSTS
-----------------
A. The Participant's estimated contribution is [*]. The Government's
estimated contribution, which is provided through the Contractor's contract
with DOE, is [*], subject to available funding.
B. Neither Party shall have an obligation to continue or complete performance
of its work at a cost in excess of its estimated cost as contained in
Article III A above, including any subsequent amendment.
C. Each Party agrees to provide at least thirty (30) days notice to the other
Party if the actual cost to complete performance will exceed its estimated
cost.
D. The effective date of this CRADA shall be the latter date of (1) the date
on which it is signed by the last of the Parties hereto or (2) the date on
which it is approved by DOE. The work to be performed under this CRADA
shall be completed within twelve (12) months from the effective date.
ARTICLE IV: PERSONAL PROPERTY
-----------------
All tangible personal property produced under this CRADA shall become the
property of the Participant or the Government depending upon whose funds were
used to obtain it. Such property is identified in Appendix A, Statement of Work.
Personal property shall be disposed of as directed by the owner at the owner's
expense. All jointly funded property shall be owned by the Government.
ARTICLE V: DISCLAIMER
----------
THE GOVERNMENT, THE PARTICIPANT, AND THE CONTRACTOR MAKE NO EXPRESS OR IMPLIED
WARRANTY AS TO THE CONDITIONS OF THE RESEARCH OR ANY INTELLECTUAL PROPERTY OR
PRODUCT MADE, OR DEVELOPED UNDER THIS CRADA, OR THE OWNERSHIP, MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OF THE RESEARCH OR RESULTING PRODUCT.
NEITHER THE GOVERNMENT, THE PARTICIPANT, NOR THE CONTRACTOR SHALL BE LIABLE FOR
SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES ATTRIBUTED TO SUCH RESEARCH OR
RESULTING PRODUCT, INTELLECTUAL PROPERTY, OR PRODUCT MADE OR DEVELOPED UNDER
THIS CRADA.
ARTICLE VI: PRODUCT LIABILITY
-----------------
Except for any liability resulting from any negligent acts or omissions of
Contractor, Participant indemnifies the Government and the Contractor for all
damages, costs and expenses, including attorney's fees, arising from personal
injury or property damage occurring as a result of the making, using or selling
of a product, process or service by or on behalf of the Participant, its
assignees or
[*] Omitted pursuant to a request for confidentiality filed with the Securities
and Exchange Commission.
2
<PAGE>
licensees, which was derived from the work performed under this CRADA. In
respect to this Article, neither the Government nor the Contractor shall be
considered assignees or licensees of the Participant, as a result of reserved
Government and Contractor rights. The indemnity set forth in this paragraph
shall apply only if Participant shall have been informed as soon and as
completely as practical by the Contractor and/or the Government of the action
alleging such claim and shall have been given an opportunity, to the maximum
extent afforded by applicable laws, rules, or regulations, to participate in and
control its defense, and the Contractor and/or Government shall have provided
all reasonably available information and reasonable assistance requested by
Participant. No settlement for which Participant would be responsible shall be
made without Participant's consent unless required by final decree of a court of
competent jurisdiction.
ARTICLE VII: OBLIGATIONS AS TO PROPRIETARY INFORMATION
-----------------------------------------
A. If Proprietary Information is orally disclosed to a Party, it shall be
identified as such, orally, at the time of disclosure and confirmed in a
written summary thereof within ten (10) days as being Proprietary
Information.
B. Each Party agrees to not disclose Proprietary Information provided by
another Party to anyone other than the CRADA Participant and Contractor
without written approval of the providing Party, except to Government
employees who are subject to the statutory provisions against disclosure of
confidential information set forth in the Trade Secrets Act (18 USC 1905).
C. All Proprietary Information shall be returned to the provider thereof, upon
request by the disclosing Party at the conclusion of this CRADA at the
provider's expense.
D. All Proprietary Information shall be protected for a period of three (3)
years from the date of execution of this CRADA, unless and until such
Proprietary Information shall become publicly known without the fault of
the recipient, shall come into recipient's possession without breach of any
of the obligations set forth herein by the recipient, or shall be
independently developed by recipient's employees who did not have access to
such Proprietary Information.
E. In no case shall the Contractor provide Proprietary Information of
Participant to any person or entity for commercial purposes, unless
otherwise agreed to in writing by such Participant.
ARTICLE VIII: OBLIGATIONS AS TO PROTECTED CRADA INFORMATION
---------------------------------------------
A. Each Party may designate as Protected CRADA Information, as defined in
Article 1, any Generated Information produced by its employees and, with
the agreement of the other Party, may mark any Generated Information
produced by the other Party's employees. All such designated Protected
CRADA Information shall be appropriately marked.
B. For a period of three (3) years from the date Protected CRADA Information
is produced, Parties agree not to further disclose such Protected CRADA
Information except:
(1) as necessary to perform this CRADA;
(2) as provided in Article XI [REPORTS AND ABSTRACTS];
(3) as requested by the DOE Contracting Officer to be provided to other
DOE facilities for use only at those DOE facilities with the same
protection in place; or
(4) as mutually agreed by the Parties in advance.
C. The obligations of (B) above shall end sooner for any Protected CRADA
Information which
3
<PAGE>
shall become publicly known without fault of either Party, shall come into
a Party's possession without breach by that Party of the obligations of (B)
above, or shall be independently developed by a Party's employees who did
not have access to the Protected CRADA Information.
ARTICLE IX: RIGHTS IN GENERATED INFORMATION
-------------------------------
The Parties agree that they shall have no obligations of non-disclosure or
limitations on their use of, and the Government shall have unlimited rights in,
all Generated Information, all Protected CRADA Information after the expiration
of the period set forth in Article VIII B above and information provided to the
Government or Contractor under this CRADA which is not marked as being
copyrighted (subject to Article XIII) or as Protected CRADA Information (subject
to Article VIII B) or Proprietary Information (subject to Article VII B), or
which is a Subject Invention disclosure which may later be the subject of a U.S.
or foreign patent application.
ARTICLE X: EXPORT CONTROL
--------------
A. THE PARTIES UNDERSTAND THAT MATERIALS AND INFORMATION RESULTING FROM THE
PERFORMANCE OF THIS CRADA MAY BE SUBJECT TO EXPORT CONTROL LAWS AND THAT
EACH PARTY IS RESPONSIBLE FOR ITS OWN COMPLIANCE WITH SUCH LAWS.
ARTICLE XI: REPORTS AND ABSTRACTS
---------------------
A. The Parties agree to produce the following deliverables:
(1) an initial abstract suitable for public release;
(2) other abstracts (final when work is complete, and others as
substantial changes in scope and dollars occur);
(3) a final report, to include a list of Subject Inventions;
(4) other topical/periodic reports where the nature of research and
magnitude of dollars justify; and
(5) computer software in source and object code format as defined within
the Statement of Work.
B. It is understood that the Contractor has the responsibility to provide the
above information at the time of its completion to the DOE Office of
Scientific and Technical Information.
ARTICLE XII: PRE-PUBLICATION REVIEW
----------------------
A. The Parties agree to secure pre-publication approval from each other which
shall not be unreasonably withheld or denied beyond thirty (30) days.
B. The Parties agree that neither will use the name of the other Party or its
employees in any promotional activity, such as advertisements, with
reference to any product or service resulting from this CRADA, without
prior written approval of the other Party.
ARTICLE XIII: COPYRIGHTS
----------
A. The Parties may assert copyright in any of their Generated Information.
B. Copyrights arising under this CRADA which are authored solely by employees
of Participant
4
<PAGE>
shall be owned by Participant.
Copyrights which are authored solely by employees of Contractor and which
are obtained by Contractor shall be owned by Contractor.
For copyrights arising under this CRADA authored by employees of both
Parties, each Party shall have undivided rights in ownership of such
copyrights, provided the copyrights are generated with the intention that
the Parties' contributions be merged into inseparable or independent parts
of a unitary whole. Jointly owned rights in copyrights shall be without
accounting.
For a period of up to six (6) months from the date of completion or
termination of this CRADA, Contractor agrees to offer an option to
Participant to negotiate a nonexclusive Copyright License Agreement for any
Copyright arising under this CRADA and obtained by Contractor. The U.S.
Competitiveness Clause shall apply to all such Agreements.
C. For Generated Information, the Parties acknowledge that the Government has
for itself and others acting on its behalf, a royalty-free,
nontransferable, nonexclusive, irrevocable worldwide copyright license to
reproduce, prepare derivative works, distribute copies to the public, and
perform publicly and display publicly, by or on behalf of the Government,
all copyrightable works produced in the performance of this CRADA, subject
to the restrictions this CRADA places on publication of Proprietary
Information and Protected CRADA Information.
D. For all copyrighted computer software produced in the performance of this
CRADA the Party owning the copyright will provide source code, an expanded
abstract as described in Appendix B, and the object code and the minimum
support documentation needed by a competent user to understand and use the
software to DOE's Energy Science and Technology Software Center, P. 0. Box
1020, Oak Ridge, TN 37831. The expanded abstract will be treated in the
same manner as Generated Information in subparagraph C of this Article.
E. The Contractor and the Participant agree that, with respect to any
copyrighted computer software produced in the performance of this CRADA,
DOE has the right, at the end of the period set forth in paragraph B of
Article VII hereof and at the end of each two-year interval thereafter, to
request the Contractor and the Participant and any assignee or exclusive
licensee of the copyrighted software to grant a nonexclusive, partially
exclusive, or sole commercial license to a responsible applicant upon terms
that are reasonable under the circumstances, provided such grant does not
cause a termination of any licensee's right to use the copyrighted computer
software. If the Contractor or the Participant or any assignee or exclusive
licensee refuses such request, the Contractor and the Participant agree
that DOE has the right to grant the license if DOE determines that the
Contractor, the Participant, assignee, or licensee has not made a
satisfactory demonstration that it is actively pursuing commercialization
of the copyrighted computer software.
Before requiring licensing under this paragraph E, DOE shall furnish the
Contractor/Participant written notice of its intentions to require the
Contractor/Participant to grant the stated license, and the
Contractor/Participant shall be allowed thirty (30) days (or such longer
period as may be authorized by the cognizant DOE Contracting Officer for
good cause shown in writing by the Contractor/Participant) after such
notice to show cause why the license should not be required to be granted.
The Contractor/Participant shall have the right to appeal the decision by
the DOE to the grant of the stated license to the Invention Licensing
Appeal Board as set forth in paragraphs (b)- (g) of 10 CFR 781.65,
"Appeals".
F. The Parties agree to place copyright and other notices, as appropriate for
the protection of
5
<PAGE>
copyright, in human readable form onto all physical media, and in digitally
encoded form in the header of machine readable information recorded on such
media such that the notice will appear in human readable form when the
digital data are off-loaded or the data are accessed for display or
printout.
ARTICLE XIV: REPORTING SUBJECT INVENTIONS
----------------------------
A. The Parties agree to disclose to each other each and every Subject
Invention which may be patentable or otherwise protectable under the Patent
Act. The Parties acknowledge that the Contractor will disclose all Subject
Inventions to the DOE within two (2) months after the inventor first
discloses the Subject Invention in writing to the person(s) responsible for
patent matters of the disclosing Party.
B. These disclosures should be in such detail as to be capable of enabling one
skilled in the art to make and use the Subject Invention under 35 USC 112.
The disclosure shall also identify any known actual or potential statutory
bars, i.e., printed publications describing the Subject Invention or the
public use or on sale of the Subject Invention in this country. The Parties
further agree to disclose to each other any subsequently known actual or
potential statutory bar that occurs for a Subject Invention disclosed but
for which a patent application has not been filed. All Subject Invention
disclosures shall be marked as confidential under 35 USC 205.
ARTICLE XV: TITLE TO SUBJECT INVENTIONS
---------------------------
Whereas DOE has granted rights to Subject Inventions to the Participant and to
the Contractor:
A. Each Party shall have the first option to elect to retain title to any
Subject Invention made by its employees. If a Party elects not to retain
title to any Subject Invention of its employees, then the other Party shall
have the second option to elect to retain title to such Subject Invention.
The DOE shall retain title to any Subject Invention which is not retained
by any Party. Each Party shall have the option to elect to retain title to
its undivided rights in any Subject Invention made jointly by employees of
Contractor and employees of Participant.
B. The Parties acknowledge that the DOE may obtain title to each Subject
Invention reported under Article XIV for which a patent application or
applications are not filed pursuant to Article XVI and for which any issued
patents are not maintained by any Party to this CRADA.
C. The Parties acknowledge that the Government retains a nonexclusive,
nontransferable, irrevocable, paid-up license to practice or to have
practiced for or on behalf of the United States every Subject Invention
throughout the world.
D. Participant has entered into a Sole Commercial Patent License Agreement
with Contractor having an effective date of September 30, 1996, subject to
Participant executing this CRADA, for Contractor's Background intellectual
Property listed in Appendix C of this CRADA in the "Licensed Field" defined
by the use of sensors and systems in:
(a) Production, storage and transportation of hydrogen for use in the
generation of power;
(b) Use of hydrogen in fuel cells and high yield energy storage not
including commercial batteries;
(c) Safety applications in the chemical industry where hydrogen is a by-
product of a chemical manufacturing process; and
(d) Safety applications in the petroleum industry.
6
<PAGE>
For a period of 1) up to six (6) months from the date of filing of any
patent application Contractor or 2) up to six (6) months from the date of
completion or termination of this CRADA, whichever period expires first,
Contractor agrees to offer to license to Participant in the "Licensed
Field" any patents or patent applications resulting from Subject Inventions
developed under this CRADA made solely by employees of Contractor and for
the undivided rights of Contractor in any patents or patent applications
resulting from joint Subject Inventions developed under this CRADA made by
employees of Contractor and employees of Participant. Such offer shall be
effective for a period of 1) up to six (6) months from the date of filing
of any patent application by Contractor or 2) up to six (6) months from the
date of completion or termination of this CRADA, whichever period expires
first. If Participant accepts such offer, Participant's existing Sole
Commercial Patent License Agreement with Contractor in the "Licensed Field"
shall be amended to include such patents or patent applications and to
include the U.S. Competitiveness Clause in such Sole Commercial Patent
License Agreement. If Participant does not accept such offer and execute
such Sole Commercial Patent License Agreement within a period of 1) up to
six (6) months from the date of filing of any patent application by
Contractor or 2) up to six (6) months from the date of completion or
termination of this CRADA, whichever period expires first, such offer will
be withdrawn and Contractor shall be free to license such Subject
Inventions or such joint Subject Inventions in the "Licensed Field" to any
party. The U.S. Competitiveness Clause shall apply to all such Agreements.
ARTICLE XVI: FILING PATENT APPLICATIONS
--------------------------
A. The Parties agree that the Party initially indicated as having an ownership
interest in any Subject Inventions shall have the first opportunity to file
U.S. and foreign patent applications; but if such Party does not file such
applications within six (6) months after disclosure, then the other Party
to this CRADA may file patent applications on such Subject Inventions and
the Party initially having ownership interests shall fully cooperate in
this effort. The Parties shall share equally in the costs for the
prosecution, filing and maintenance of joint Subject Inventions where both
Parties elect to retain title to their undivided rights.
B. The Parties agree that DOE has the right to file patent applications in any
country if neither Party desires to file a patent application for any
Subject Invention. Notification of such negative intent shall be made in
writing to the DOE Contracting Officer within nine (9) months after the
initial disclosure of such Subject Invention or not later than sixty (60)
days prior to the time when any statutory bar might foreclose filing of a
U.S. patent application.
C. A Party electing title or filing a patent application in the United States
or in an foreign country shall advise the other Party and the DOE if it no
longer desires to continue prosecution or retain title in the United States
or any foreign country. The other Party and then the DOE will be afforded
the opportunity to take title and retain the patent rights in the United
States or any such foreign country.
D. Every twelve (12) months from the date of the CRADA, each Party shall
deliver to the other Party interim reports listing the Subject Inventions,
if any, it has produced during the preceding twelve (12) month period. If a
Party has produced no Subject Invention for any twelve (12) month period,
the Party's interim report for that period will explicitly state so.
ARTICLE XVII: TRADEMARKS
----------
A. The Parties may seek to obtain Trademark/service mark protection on
products or services generated under this CRADA in the United States or
foreign countries. The Parties hereby acknowledge that the Government shall
have the right to indicate on any similar goods or services produced by or
for the Government that such goods or services were derived from and are a
DOE version of the goods or services protected by such Trademark/service
mark with the Trademark/service mark and the owner thereof being
specifically identified. In
7
<PAGE>
addition, the Government shall have the right to use such Trademark/service
mark in print or communications media.
B. For a period of up to six (6) months from the date of completion or
termination of this CRADA, Contractor agrees to offer an option to
Participant to negotiate a nonexclusive Trademark License Agreement for any
Trademark arising under this CRADA and obtained by Contractor. The U.S.
Competitiveness Clause shall apply to all such Agreements.
ARTICLE XVIII: MASK WORKS
----------
A. The Parties may seek to obtain legal protection for Mask Works fixed in
semiconductor products generated under this CRADA as provided by Chapter 9
of Title 17 of the United States Code. The Parties hereby acknowledge that
the Government or others acting on its behalf shall retain a nonexclusive,
paid-up, worldwide, irrevocable, nontransferable license to reproduce,
import, or distribute the covered semiconductor product by or on behalf of
the Government, and to reproduce and use the Mask Work by or on behalf of
the Government.
B. For a period of up to six (6) months from the date of completion or
termination of this CRADA, Contractor agrees to offer an option to
Participant to negotiate a nonexclusive Mask Works License Agreement for
any Mask Works arising under this CRADA and obtained by Contractor. The
U.S. Competitiveness Clause shall apply to all such Agreements.
ARTICLE XIX: COST OF INTELLECTUAL PROPERTY PROTECTION
----------------------------------------
Each Party shall be responsible for payment of all costs relating to copyright,
Trademark and Mask Work filing, U.S. and foreign patent application filing and
prosecution, and all costs relating to maintenance fees for U.S. and foreign
patents hereunder which are owned by that Party. Government/DOE laboratory funds
contributed as DOE's cost share to a CRADA cannot be given to Participant for
payment of Participant's costs of filing and maintaining patents or filing for
copyrights, Trademarks and Mask Works.
ARTICLE XX: REPORTS OF SUBJECT INVENTION USE
--------------------------------
Participant agrees to submit, upon request of DOE, a nonproprietary report no
more frequently than annually on efforts to utilize any Subject Invention.
ARTICLE XXI: DOE MARCH-IN RIGHTS
-------------------
The Parties acknowledge that the DOE has certain march-in rights to any Subject
Inventions in accordance with 48 CFR 27.304-1(g).
ARTICLE XXII: U.S. COMPETITIVENESS
--------------------
The Parties agree that a purpose of this CRADA is to provide substantial benefit
to the U.S. economy.
In exchange for the benefits received under this CRADA, the Parties therefore
agree to the following:
A. Products embodying Intellectual Property developed under this CRADA shall
be substantially manufactured in the United States;
B. Processes, services, and improvements thereof which are covered by
Intellectual Property developed under this CRADA shall be incorporated into
the Participant's manufacturing facilities in the United States either
prior to or simultaneously with implementation outside the United States.
Such processes, services, and improvements, when implemented outside the
U.S., shall not result in reduction of the use of the same processes,
services, or improvements in the United States.
8
<PAGE>
ARTICLE XXIII: ASSIGNMENT OF PERSONNEL
-----------------------
A. Each Party may assign personnel to any other Party's facility as part of
this CRADA to participate in or observe the research to be performed under
this CRADA. Such personnel assigned by the assigning Party shall not during
the period of such assignments be considered employees of the receiving
Party for any purpose.
B. The receiving Party shall have the right to exercise routine administrative
and technical supervisory control of the occupational activities of such
personnel during the assignment period and shall have the right to approve
the assignment of such personnel and/or to later request their removal by
the assigning Party.
C. The assigning Party shall bear any and all costs and expenses with regard
to its personnel assigned to the receiving Party's facilities under this
CRADA. The receiving Party shall bear facility costs of such assignments.
ARTICLE XXIV: FORCE MAJEURE
-------------
No failure or omission by Contractor or Participant in the performance of any
obligation under this CRADA shall be deemed a breach of this CRADA or create any
liability if the same shall arise from any cause or causes beyond the control of
Contractor or Participant, including but not limited to the following, which,
for the purpose of this CRADA, shall be regarded as beyond the control of the
Party in question: Acts of God, acts or omissions of any government or agency
thereof, compliance with requirements, rules, regulations, or orders of any
governmental authority or any office, department, agency, or instrumentality
thereof, fire, storm, flood, earthquake, accident, acts of the public enemy,
war, rebellion, insurrection, riot, sabotage, invasion, quarantine, restriction,
transportation embargoes, or failures or delays in transportation.
ARTICLE XXV: ADMINISTRATION OF CRADA
-----------------------
It is understood and agreed that this CRADA is entered into by the Contractor
under the authority of its prime contract with DOE. The Contractor is authorized
to and will administer this CRADA in all respects unless otherwise specifically
provided for herein. Administration of this CRADA may be transferred from the
Contractor to DOE or its designee with notice of such transfer to the
Participant, and the Contractor shall have no further responsibilities except
for the confidentiality, use and/or nondisclosure obligations of this CRADA.
ARTICLE XXVI: RECORDS AND ACCOUNTING FOR GOVERNMENT PROPERTY
----------------------------------------------
The Participant shall maintain records of receipts, expenditures, and the
disposition of all Government property in its custody related to the CRADA.
ARTICLE XXVII: NOTICES
-------
A. Any communications required by this CRADA, if given by postage prepaid
first class U.S. Mail addressed to the Party to receive the communication,
shall be deemed made as of the day of receipt of such communication by the
addressee, or on the date given if by verified facsimile. Address changes
shall be given in accordance with this Article and shall be effective
thereafter. All such communications, to be considered effective, shall
include the number of this CRADA.
9
<PAGE>
B. The addresses, telephone numbers and facsimile numbers for the Parties are
as follows:
Contractor:
Mr. James E. Ferguson Telephone:
Business Manager (423) 241-2353
Lockheed Martin Energy Research Corp. Facsimile:
P. 0. Box 2009 (423) 576-9465
Oak Ridge, Tennessee 37831-8242
Participant:
Mr. David P. Haberman Telephone:
DCH Technology, Inc. (818) 385-0400
14241 Ventura Boulevard, Suite 208 Facsimile:
Sherman Oaks, CA 91423 (818) 385-0849
ARTICLE XXVIII: DISPUTES
--------
The Parties shall attempt to jointly resolve all disputes arising from this
CRADA. If the Parties are unable to jointly resolve a dispute within a
reasonable period of time, the dispute shall be decided by the DOE Contracting
Officer, who shall reduce his/her decision to writing within sixty (60) days of
receiving, in writing, the request for a decision by either Party to this CRADA.
The DOE Contracting Officer shall mail or otherwise furnish a copy of the
decision to the Parties. The decision of the DOE Contracting Officer is final
unless, within one hundred and twenty (120) days, the Participant brings an
action for adjudication in a court of competent jurisdiction in the State of
Tennessee. To the extent that there is no applicable U.S. Federal law, this
CRADA and performance thereunder shall be governed by the law of the State of
Tennessee.
ARTICLE XXIX: ENTIRE CRADA AND MODIFICATIONS
------------------------------
A. It is expressly understood and agreed that this CRADA with its Appendices
contains the entire agreement between the Parties with respect to the
subject matter hereof and that all prior representations or agreements
relating hereto have been merged into this document and are thus superseded
in totality by this CRADA. This CRADA shall not be effective until approved
by DOE.
B. Any agreement to materially change any terms or conditions of this CRADA or
the Appendices shall be valid only if the change is made in writing,
executed by the Parties hereto, and approved by DOE.
ARTICLE XXX: TERMINATION
-----------
This CRADA may be terminated by either Party upon ninety (90) days written
notice to the other Party. The terminating Party shall provide the other Party a
clear rationale for termination prior to final termination.
In the event of termination by either Party, each Party shall be responsible for
its share of the costs incurred through the effective date of termination, as
well as its share of the costs incurred after the effective date of termination,
and which are related to the termination. The confidentiality, use, and/or
nondisclosure obligations of this CRADA shall survive any termination of this
CRADA.
10
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FOR CONTRACTOR:
By: /s/ Alvin W. Trivelpiece
----------------------------------------------
Name: Alvin W. Trivelpiece, President
--------------------------------------------
Lockheed Martin Energy Research Corporation, and
Title: Director, Oak Ridge National Laboratory
-------------------------------------------
Date: 9/4/96
--------------------------------------------
By: /s/ James E. Fergusson
----------------------------------------------
Name: for William R. Martin
--------------------------------------------
Title: Vice President, Technology Transfer
-------------------------------------------
Date: 9/6/96
-------------------------------------------
FOR PARTICIPANT:
By: /s/ David A. Walker
----------------------------------------------
Name: David A. Walker
--------------------------------------------
Title: Vice President, Operations
-------------------------------------------
Date: 9/26/96
--------------------------------------------
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Appendix A
Statement of Work
for
CRADA No. ORNL 96-0454
with
DCH Technology, Incorporated
for
Development of Low Cost Hydrogen Sensors and Detectors
Purpose and Background
The purpose of this Cooperative Research and Development Agreement (CRADA)
between Lockheed Martin Energy Research Corporation (Contractor) and DCH
Technology, Incorporated (Participant), is to develop and commercialize hydrogen
sensor prototypes for the Department of Energy (DOE) Hydrogen Program. The
Contractor and the Participant are hereinafter jointly referred to as the
"Parties". Current hydrogen sensor prototypes, developed and patented at the
Contractor are monolithic, thick-film devices that are inherently robust with
respect to temperature and humidity and cost very little to manufacture. The
sensors have demonstrated a good response to hydrogen at the lower explosive
limit and preliminary tests also indicate a fast enough response and sufficient
hardiness for many applications relevant to hydrogen production, storage, and
transport. The technical challenges that must be met to commercialize this
device involve materials optimization; detector electronics and packaging design
that enable inexpensive and reliable manufacture, as well as ease of deployment;
and comprehensive evaluation of the device performance for identified
application areas.
Technical Objectives [*]
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
A-1
<PAGE>
Scope of Work
[*]
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
A-2
<PAGE>
Estimated Cost and Source of Support
The total estimated cost of this CRADA is $1,500,000. The Government's estimated
contribution, which is provided through the Contractor's contract with DOE, is
[*] from the Energy Efficiency and Renewable Energy Program Office. The
Participant's in-kind contribution is [*]. The amount of funds, in thousands of
dollars, is summarized below for each project year.
[*]
Deliverables
[*]
Schedule
[*]
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
A-3
<PAGE>
Program Management
The principal investigators for this CRADA are B. S. Hoffheins (Contractor), and
D. P. Haberman (Participant).
The principal investigators for the Parties will meet as needed to review the
program and to ensure that the project continues on schedule. Brief quarterly
status reports will be jointly issued by the 15th day of the month following the
end of the reporting period. A more detailed final report for the project will
be prepared for wider distribution after full review by the Parties.
A-4
<PAGE>
EXHIBIT 6.6
9/9/96 AC
SOLE COMMERCIAL PATENT LICENSE AGREEMENT
THIS AGREEMENT, by and between LOCKHEED MARTIN ENERGY RESEARCH CORPORATION
(hereinafter "LMER"), a corporation organized and existing under the laws of the
State of Delaware and whose address for notices is Post Office Box 2009, Oak
Ridge, Tennessee 37831-8242, and DCH Technology, Inc., (hereinafter "Licensee"),
a corporation organized and existing under the laws of the State of California
and whose address for notices is 14241 Ventura Boulevard, Suite 208, Sherman
Oaks, California, 91423, made effective on the 30th day of September, 1996,
subject to the execution of Cooperative Research and Development Agreement No.
ORNL96-0454 by DCH Technology, Inc.
W I T N E S S:
A. LMER, pursuant to Contract No. DE-AC05-96OR22464 (hereinafter "Prime
Contract") with the United States Government as represented by the Department of
Energy (hereinafter "DOE") has developed and/or obtained rights to Proprietary
Rights relating to Products subject to the DOE nonexclusive, nontransferable,
irrevocable, paid-up license for the United States Government and certain march-
in rights and any other conditions of waivers granted by the DOE; and
B. Licensee desires to obtain rights under LMER Proprietary Rights.
THEREFORE, in consideration of the foregoing premises, covenants and agreements
contained herein, the parties hereto agree to be bound as follows:
1 . Definitions
1.1 "Proprietary Rights" shall mean LMER's U.S. patents and patent
applications listed in Exhibit A attached hereto and hereby incorporated into
this Agreement by reference and all the United States patents issuing from such
United States patent applications including all continuations, continuations-in-
part, divisions, reissues, reexaminations and temporal extensions of any of the
foregoing.
1.2 "Products" shall mean any and all products manufactured, used, sold or
transferred by Licensee covered by one or more claims of the Proprietary Rights
licensed hereunder.
1.3 "Net Sales" shall mean the total amounts invoiced to purchasers during
the accounting period in question for Products sold by Licensee, less allowances
for returns of Products, discounts, commissions, freight, and excise or other
taxes on Products. Net Sales in the case of Products used or transferred by
Licensee shall mean the fair market value of Products as if they were sold to an
unrelated third party in similar quantities.
1.4 "Licensed Field" shall mean the use of sensors and systems in:
(a) Production, storage and transportation of hydrogen for use in the generation
of power
<PAGE>
(b) Use of hydrogen in fuel cells and high-yield energy storage not including
commercial batteries (c) Safety applications in the chemical industry where
hydrogen is a by-product of a chemical manufacturing process
(d) Safety applications in the petroleum industry.
2 . Grants
2.1 Subject to the terms and conditions of this Agreement, LMER hereby
grants to Licensee the sole commercial right and license to manufacture, use,
sell or offer for sale the Products in the Licensed Field.
2.2 LMER hereby agrees not to grant to any other party right and license
to Proprietary Rights in accordance with the grant hereinabove as long as
Licensee abides by the terms and conditions of this Agreement, unless required
to so grant such right and license in accordance with Federal Statutory or
Regulatory enactments conditioning the waiver of rights to LMER by the DOE,
particularly as set forth in 41 CFR 9-9.109-(6)i; 10 CFR Part 781; or 37 CFR
Part 404.
2.3 Licensee agrees that any Products for use or sale in the United States
shall be manufactured substantially in the United States.
2.4 Should Licensee fail to meet the required commercial use provisions,
LMER shall have the option, to be exercised on thirty (30) days written notice
anytime during the next succeeding calendar year, to convert this license grant
to a nonexclusive license. Such nonexclusive license shall have the same field
of use restrictions, if any, and the same royalty rates and minimum royalties as
this license.
2.5 Licensee agrees to affix appropriate markings of the applicable LMER
proprietary rights (and the fact that LNER was the source of these rights) upon
or in association with Licensee's Products or licensed services and Licensee
agrees to use its best efforts to follow any guidance from LMER concerning such
markings.
3 . Royalties And Commercialization Plan
3.1 In consideration of the right and license granted herein, Licensee
agrees to the provisions of Exhibit B and Exhibit C attached hereto and hereby
incorporated herein by reference.
3.2 No royalties shall be owing on any Products produced for or under any
Federal governmental agency contract pursuant to the DOE nonexclusive license
for Federal governmental purposes but only to the extent that Licensee can show
that the Federal government received a discount on Product sales which discount
is equivalent to or greater than the amount of any such royalty that would
otherwise be due. Any sales for Federal governmental purposes shall be reported
under the Records and Reports Section hereinbelow by providing: (a) a Federal
government contract number; (b) identification of the Federal government agency;
and (c) a description as to how the benefit of the royalty free sale was passed
onto the Federal government.
3.3 'Me royalty provisions of Exhibit B shall be offset by any advances
made by Licensee in the Infringement by Third Parties Section hereinbelow.
<PAGE>
3.4 Upon termination of this Agreement for any reason whatsoever, any
royalties that remain unpaid shall be properly reported and paid to LMER within
thirty (30) days of any such termination.
4 . Records and Reports
4.1 Licensee agrees to keep adequate records in sufficient detail to
enable royalties payable hereunder to be determined and to provide such records
for inspection by authorized representatives of LUER at any time during regular
business hours of Licensee. Licensee agrees that any additional records of
Licensee, as LMER may reasonably determine are necessary to verify the above
records, shall also be provided to LMER for inspection.
4.2 Within thirty (30) calendar days after the close of each calendar
half-year during the term of this Agreement (i.e., January 31 and July 31),
Licensee will furnish LMER a written report providing: (a) all domestic Net
Sales in U.S. Dollars during the preceding calendar half-year period including
any Federal governmental agency under section 3.2 hereinabove and all export Net
Sales, if none so indicate; (b) amount of royalties due in U.S. Dollars for the
preceding calendar half-year period pursuant to the provisions hereof-, and (c)
payment of the royalties due in U.S. Dollars payable to the order of Lockheed
Martin Energy Research Corporation pursuant to the report to be transmitted in
accordance with the Notices Section of this Agreement hereinbelow.
4.3 Should Licensee fail to make any payment to LMER within the time
period prescribed for such payment, then the unpaid amount shall bear interest
at the rate of one and one half percent (1.5%) per month from the date when
payment was due until payment in full, with interest, is made.
5 . Technical Assistance
5.1 LMER agrees, upon the written request of Licensee, to assist Licensee
in obtaining necessary DOE approvals for technical assistance at LMER facilities
under appropriate agreements. The cost of such technical assistance shall be
paid for by the Licensee.
5.2 LMER agrees to permit its employees, within LMER corporate policy
guidelines then in effect and subject to DOE requirements then in effect, to
provide consulting services to Licensee with reference to Licensee's use and
commercial exploitation of the Proprietary Rights as contemplated herein.
Licensee shall make payment directly to the individual consultant(s) for all
such services.
6 Infringement by Third Parties
6.1 Licensee shall give notice of any discovered third party infringement
to LMER. In the event that LNIER does not take appropriate action to stop or
prevent such infringement within ninety (90) days after receiving such notice
and diligently pursue such action, Licensee has the right to take appropriate
action to stop and prevent the infringement, including the right to file suit.
6.2 In the event that Licensee files suit to stop infringement or defends
any action against the validity of the patent, Licensee shall indemnify and hold
LMER harmless against all liability, expense and costs, including attorneys'
fees incurred as a result of any such suit.
<PAGE>
6.3 Licensee may, however, apply all such costs as a reduction of any
royalties due and payable to LMER under the terms of this Agreement at such time
as verified bills of costs actually incurred are reported to LMER in accordance
with the Records and Reports Section hereinabove.
6.4 In the event Licensee secures a judgment against any third party
infringer, after accounting for and paying all of Licensee's costs associated
with prosecution of such action as well as paying LMER for any reduction of
royalties pursuant to this section, Licensee shall pay LMER its royalties as set
forth hereinabove on any balance of proceeds actually received and Licensee
shall retain any such remaining balance of proceeds.
6.5 The parties hereby agree to cooperate with each other in the
prosecution of any such legal actions or settlement actions undertaken under
this section and each will provide to the other all pertinent data in its
possession which may be helpful in the prosecution of such actions; provided,
however, that the party in control of such action shall reimburse the other
party for any and all costs and expenses in providing data and other information
necessary to the conduct of the action.
6.6 The party having filed such action shall be in control of such action
and shall have the right to dispose of such action in whatever reasonable manner
it determines to be the best interest of parties hereto, except that any
settlement which affects or admits issues of patent validity shall require the
advance written approval of LMER.
7. Representations and Warranties
7.1 LMER represents and warrants that Exhibit A contains a complete and
accurate listing of all the Proprietary Rights licensed and that LMER has the
right to grant the rights, licenses, and privileges granted herein.
7.2 LMER represents and warrants that LMER has no knowledge of any claims
of infringement filed against LA4ER for practicing the Exhibit A Proprietary
Rights anywhere in the world.
7.3 Except as set forth hereinabove, LMER makes NO REPRESENTATIONS OR
WARRANTIES, express or implied, with regard to the infringement of proprietary
rights of any third party.
7.4 Licensee acknowledges that the export of any of the Proprietary Rights
from the United States or the disclosure of any of the Proprietary Rights to a
foreign national may require some form of license from the U.S. Government.
Failure to obtain any required export licenses by Licensee may result in
Licensee subjecting itself to criminal liability under U.S. laws.
8 . Disclaimers
8.1 Neither LMER, the DOE, nor persons acting on their behalf will be
responsible for any injury to or death of persons or other living things or
damage to or destruction of property or for any other loss, damage, or injury of
any kind whatsoever resulting from Licensee's manufacture, use, or sale of
materials, information, or Proprietary Rights hereunder.
8.2 EXCEPT AS SET FORTH HEREINABOVE, NEITHER LMER, THE DOE, NOR PERSONS
ACTING ON THEIR BEHALF MAKE ANY WARRANTY, EXPRESS OR MWLIED: (1) WITH RESPECT TO
THE MERCHANTABILITY, ACCURACY, COMPLETENESS, OR USEFULNESS OF ANY SERVICES,
<PAGE>
MATERIALS, OR INFORMATION FURNISHED HEREUNDER; (2) THAT THE USE OF ANY SUCH
SERVICES, MATERIALS, OR INFORMATION WILL NOT INFRINGE PRIVATELY OWNED RIGHTS;
(3) THAT THE SERVICES MATERIALS, OR INFORMATION FURNISHED HEREUNDER WILL NOT
RESULT IN INJURY OR DAMAGE WHEN USED FOR ANY PURPOSE; OR (4) THAT THE SERVICES,
MATERIALS, OR INFORMATION FURNISHED HEREUNDER WILL ACCOMPLISH THE INTENDED
RESULTS OR ARE SAFE FOR ANY PURPOSE, INCLUDING THE INTENDED OR PARTICULAR
PURPOSE. FURTHERMORE, LMER AND THE DOE HEREBY SPECIFICALLY DISCLAIM ANY AND ALL
WARRANTIES, EXPRESS OR IMPLIED, FOR ANY PRODUCTS MANUFACTURED, USED, OR SOLD BY
LICENSEE. NEITHER LMER NOR THE DOE SHALL BE LIABLE FOR CONSEQUENTIAL OR
INCIDENTAL DAMAGES IN ANY EVENT.
8.3 Licensee agrees to indemnify LMER, the DOE, and persons acting on
their behalf for all damages, costs, and expenses, including attorney's fees,
arising from, but not limited to, Licensee's making, using, selling, or
exporting of any Proprietary Rights, information, or Products, in whatever form
furnished hereunder.
9 . Term of Agreement and Early Termination
9.1 This Agreement shall run for a period of five (5) years from the
effective date of this Agreement subject to early termination as set forth
hereinbelow and the terms and conditions set forth in Exhibit B and Exhibit C
attached hereto and hereby incorporated into this Agreement by reference
thereto. At the end of the first five (5) year period and every five (5) year
period thereafter, LMER shall review Licensee's progress in the Development and
Commercialization plan outlined in Exhibit C and the royalty payments outlined
in Exhibit B. If said review indicates that Licensee has satisfied substantially
all the terms of the Development and Commercialization plan outlined in Exhibit
C and has paid all royalties due until the date of the review and is able to
satisfy the worldwide demand for Products, in the Licensed Field at the time of
the review, LMER shall grant an automatic extension of this Agreement for an
additional five (5) year period until the end of the life of the last-to expire
Proprietary Rights of Exhibit A, or until the time period for prosecution and
appeal on the merits for issue of all U.S. Patents on the Proprietary Rights is
exhausted at which time this Agreement is terminated. If Licensee is not able to
satisfy the Development and Commercialization plan outlined in Exhibit C at the
time of such review, the grant of the Agreement shall convert irrevocably from a
sole commercial grant to a non-exclusive grant in the same Licensed Field
maintaining the same royalty rates and annual minimum royalties as outlined in
Exhibit B of this Agreement and Article 6. Infringement by Third Parties et seq.
shall be replaced by Article 6. Infringement by Third Parties et seq. as set
forth in Exhibit D. attached hereto.
9.2 Either party shall have the right to terminate this Agreement without
judicial resolution upon written notice to the other after a breach of any
provision by the other party has gone uncorrected for sixty (60) days after the
other party has been notified in writing of such breach.
9.3 This Agreement shall terminate automatically upon the extinguishment
of all of the Exhibit A Proprietary Rights, for any reason, but only after the
time for appealing said extinguishment has expired.
9.4 The Parties agree that LMER, at its sole discretion, may immediately
terminate this Agreement upon any attempted transfer of Licensee's interest, in
whole or in part, in this Agreement to any other party, including but not
limited to any receiver, trustee, or creditor; except a transfer to a party
succeeding to substantially all of the assets of Licensee's business which
<PAGE>
relate to the subject matter of this Agreement, upon the written approval of
LMER based on verification of the scope of the transfer.
9.5 Licensee shall provide notice to LMER of its intention to file a
voluntary petition in bankruptcy or of another party's intention to file an
involuntary petition in bankruptcy for Licensee, said notice to be received by
LMER at least thirty (30) days prior to filing such a petition. Licensee's
failure to provide such notice to LMER of such intentions shall be deemed a
material, pre-petition, incurable breach of this Agreement.
9.6 Licensee agrees that this Agreement shall automatically terminate upon
any attempt by Licensee to offer Licensee's rights under this Agreement as
collateral to a third party.
9.7 Licensee may terminate this Agreement upon sixty (60) days notice to LMER
upon paying LMER all royalties due or the succeeding two years of minimum
royalties under Exhibit B which ever is the greatest.
10. Rights of Parties After Termination
10.1 Neither party shall be relieved of any obligation or liability under
this Agreement arising from any act or omission committed prior to the effective
date of such termination.
10.2 From and after any termination of this Agreement, Licensee shall have
the right to sell any Products that Licensee had already manufactured prior to
termination, provided that all royalties and reports required hereinabove shall
be timely submitted to LMER.
10.3 From and after any termination of this Agreement, Licensee shall not
manufacture nor have manufactured any Products pursuant to this Agreement.
10.4 The rights and remedies granted herein, and any other rights or
remedies which the parties may have, either at law or in equity, are cumulative
and not exclusive of others. On any termination, Licensee shall duly account to
LMER and transfer to it all rights to which LMER may be entitled under this
Agreement.
11. Force Majeure
11.1 No failure or omission by LMER or by Licensee in the performance of
any obligation under this Agreement shall be deemed a breach of this Agreement
or create any liability if the same shall arise from acts of God, acts or
omissions of any government or agency thereof, compliance with requests,
recommendations, rules, regulations, or orders of any governmental authority or
any office, department, agency, or instrumentality thereof, fire, storm, flood,
earthquake, accident, acts of the public enemy, war, rebellion, insurrection,
riot, sabotage, invasion, quarantine, restriction, transportation embargoes, or
failures or delays in transportation.
12. Notices
12.1 All notices and reports shall be addressed to the parties hereto as
follows:
If to LMER:
Business Manager, Technology Transfer Telephotocopy No.
<PAGE>
Lockheed Martin Energy Research Corp. (423) 576-9465
Post Office Box 2009 Verify No.
Oak Ridge, Tennessee 37831-8242 (423) 241-2353
If to Licensee:
Mr. David P. Haberman Telephotocopy No.
DCH Technology, Inc. (818) 385-0849
14241 Ventura Boulevard, Suite 208 Verify No.
Sherman Oaks, California 91423 (818) 385-0400
12.2 All minimum and royalty payments due LUER shall be sent to:
Lockheed Martin Energy Research Corp.
Royalty Account
P. 0. Box 888071
Knoxville, Tennessee 37995-8071
12.3 Any notice, report or any other communication required or permitted
to be given by one party to the other party by this Agreement shall be in
writing and either (a) served personally on the other party, (b) sent by
express, registered or certified first-class mail, postage prepaid, addressed to
the other party at its address as indicated above, or to such other address as
the addressee shall have previously furnished to the other party by proper
notice, (c) delivered by commercial courier to the other party, or (d) sent by
facsimile to the other party at its facsimile number indicated above or to such
other facsimile number as the party shall have previously furnished to the other
party by proper notice, with machine confirmation of transmission.
13. Non-Abatement of Royalties
13.1 LMER and Licensee acknowledge that certain of the Proprietary Rights
may expire prior to the conclusion of the term of this Agreement; however, LMER
and Licensee agree that the royalty rates provided for hereinabove shall be
uniform and undiminished except pursuant to this Agreement.
14. Waivers
14.1 The failure of LMER at any time to enforce any provisions of this
Agreement or to exercise any right or remedy shall not be construed to be a
waiver or such provisions or of such rights or remedy or the right of LMER
thereafter to enforce each and every provision, right or remedy.
15. Modifications
15.1 It is expressly understood and agreed by the parties hereto that this
instrument contains the entire agreement between the parties with respect to the
subject matter hereof and that all prior representations, warranties, or
agreements relating hereto have been merged into this document and are thus
superseded in totality by this Agreement. This Agreement may be amended or
modified only by a written instrument signed by the duly authorized
representatives of both of the parties.
16. Headings
16.1 The headings for the sections set forth in this Agreement are
strictly for the convenience of the parties hereto and shall not be used in any
<PAGE>
way to restrict the meaning or interpretation of the substantive language of
this Agreement
17. Law
17.1 This Agreement shall be construed according to the laws of the State
of Tennessee and the United States of America.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed in their respective names by their duly authorized representatives.
"LMER"
LOCKHEED MARTIN ENERGY RESEARCH CORPORATION
By: /s/ WILLIAM R. MARTIN
---------------------------------------
Name: William R. Martin
Title: Vice President, Technology Transfer
Date: 9/16/96
"Licensee"
By: /s/ DAVID A. WALKER
------------------------------
Name: David A. Walker
Title: Vice President, Operations
Date: 9/26/96
<PAGE>
EXHIBIT 6.7
EXCLUSIVE LICENSE AGREEMENT
THIS AGREEMENT ("the Agreement") is effective as of the 15th day of May 1998
(the "Effective Date"),
BETWEEN:
SIMON FRASER UNIVERSITY, a university duly continued under the University Act of
British Columbia with its principal offices at 8888 University Drive, Burnaby,
British Columbia, Canada V5A IS6
("Licensor") AND:
DCH TECHNOLOGY, INC., a California (USA) corporation, with its principal office
at 14241 Ventura Blvd., Suite 208, Herman Oaks, California, U.S.A. 91423
("Licensee")
WITNESSETH THAT WHEREAS,
A. Licensor has applied for certain Patent Rights (as later defined herein)
relating to an invention called the "Universal Gas Sensor" created by Dr. Bijan
Miremadi, as further described in Schedule A hereto, and has the right to grant
licenses under said Patent Rights;
B. Licensor desires to have the Patent Rights developed and commercialized to
benefit the public and is willing to grant a license thereunder;
C. Licensor and Licensee have entered into an Option Agreement dated March 31,
1998, under which Licensee paid a fee of [*] for an option to exclusively
license the Patent Rights;
D. Licensee has represented to Licensor, to induce Licensor to enter into this
Agreement, that Licensee shall commit itself to a thorough, vigorous, and
diligent program of exploiting the Patent Rights and exercising good business
judgment, so that public utilization shall result therefrom; and
E. Licensee desires to obtain a license to the Patent Rights on the terms and
conditions hereinafter set forth, and contribute funds to Licensor to support
further research and development pursuant to the Patent Rights.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
SECTION I - DEFINITIONS AND TERMS
For the purposes of this Agreement, the following words and phrases shall have
the following meanings.
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
1.1 Agreement Term shall mean the period from the Effective Date hereof, until
the end of the term for which the Patent Rights are granted, unless this
Agreement shall be sooner terminated according to the terms hereof.
1.2 Field of Use shall mean any use.
1.3 Know-How shall mean all present and future technical and other information
and specifications relating to the development, implementation and use of the
technology pursuant to the Patent Rights, whether conveyed orally or in writing,
including without limitation any and all technical data encompassed by the
Patent Rights;
1.4 Licensed Product shall mean any product or part thereof which:
(a) is covered in whole or in part by an issued, unexpired claim or a pending
claim contained in the Patent Rights; or
(b) is manufactured by using a process or is employed to practice a process
which is covered in whole or in part by an issued, unexpired claim or a pending
claim contained in the Patent Rights.
1.5 Net Sales shall mean Licensee's and its sublicensees' billings for
Licensed Products produced hereunder less the sum of the following:
(a) discounts allowed in amounts customary in the trade- .1
(b) sales, tariff duties and/or use taxes directly imposed and with reference
to particular sales;
(c) outbound transportation prepaid or allowed; and
(d) amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals whether they be
with independent sales agencies or regularly employed by Licensee and on its
payroll, or for cost of collections. Licensed Products shall be considered
"sold" when billed out or invoiced.
1.6 Patent Rights shall mean all of the following Licensor intellectual
property:
(a) the United States provisional and/or non-provisional patent applications
listed in Schedule A;
(b) patents issued from the United States applications listed in Schedule A
and from divisionals and continuations of these applications;
(c) claims of continuation-in-part applications, and of the resulting
patents, which are directed to subject matter specifically described in the
applications listed in Schedule A;
(d) claims of Canadian or foreign patent applications, and of the resulting
patents, which are directed to subject matter specifically described in the
United States patents and/or patent applications described in (a), (b) or (c)
above;
(e) any reissues of United States patents described in (a), (b) or (c) above;
and
1.7 Territory shall be defined as the World.
SECTION 2 - GRANT OF LICENSE
2.1 Licensor hereby grants to Licensee the exclusive right and license in the
Territory for the Field of Use to practice under the Patent Rights and Know-How,
and to the extent not prohibited by other patents, to make, have made, use,
maintain, execute, copy, market, lease and sell Licensed Products during the
Agreement Term.
<PAGE>
2.2 Licensor shall retain ownership of the Patent Rights and all other rights
in and to the Patent Rights and reserves the right to practice under the Patent
Rights for research, educational and other non-commercial purposes.
2.3 Each party and its respective employees shall have the right to publish
material about research relating to the Patent Rights.
2.4 Licensee shall have the right to enter into sublicensing agreements for the
rights, privileges and licenses granted hereunder " provided, however, that
Licensee shall not assign, transfer, sublicense, mortgage, charge, or otherwise
dispose of any of the rights granted to it under this Agreement without the
prior written consent of the Licensor, such consent not to be unreasonably
withheld.
2.5 Licensee agrees that any sublicenses granted by it shall provide that the
obligations to Licensor of Sections 2, 5, 7, 8, 10, 13, 14 and 16 of this
Agreement shall be binding upon the sublicensee as if it were a party to this
Agreement. Licensee further agrees to attach copies of these Sections to
sublicense agreements.
2.6 Licensee agrees to forward to Licensor a copy of any and all sublicense
agreements promptly upon execution by the parties.
2.7 The license granted hereunder shall not be construed to confer any rights
upon Licensee by implication, estoppel or otherwise as to any technology not
specifically set forth in Schedule A hereof.
SECTION 3 - ROYALTIES I COMPENSATION
3.1 In consideration for the rights, privileges and license granted
hereunder, Licensee shall pay to Licensor royalties in an amount equal to:
(a) [*] of Net Sales of the Licensed Products used, leased or sold by and/or
for Licensee and/or its sublicensees in Territory; and
(b) [*] of any additional payments, including but not limited to, sublicense
issue fees, received from sublicensees in consideration for the sublicense.
3.2 Licensee shall pay to Licensor a development grant of [*] to support the
performance of the work described in Schedule B hereto and the delivery of a
report on the results of the work. The work shall be undertaken by Western
Pacific Research Corporation on behalf of Licensor. The grant shall be paid
according the following schedule:
(a) [*] on or before execution of this Agreement; and (b) [*] on or before
August 15, 1998.
3.3 All payments due hereunder shall be paid in full, without deduction of
taxes or other fees which may be imposed by any government and which shall be
paid by Licensee.
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
3.4 Royalty payments shall be paid in United States dollars to the Licensor
at its address designated at subsection 15.1 of this Agreement, or at such other
place as Licensor may reasonably designate consistent with the laws and
regulations controlling in any foreign country. If any currency conversion shall
be required in connection with the payment of royalties hereunder, such
conversion shall be made by using the exchange rate prevailing at the Bank of
Canada on the last business day of the reporting period to which such royalty
payments relate.
SECTION 4 - DUE DILIGENCE
4.1 Licensee shall use its best efforts and good business judgment to bring
Licensed Products to market through a thorough, vigorous and diligent program
for exploitation of the Patent Rights and to continue active, diligent marketing
efforts for one or more Licensed Products throughout the life of this Agreement.
4.2 Licensee's failure to perform in accordance with Paragraph 4.1 above, over
a period of three (3) years from the Effective Date, shall be grounds for
Licensor to terminate this Agreement pursuant to Paragraph 14.3 hereof, and in
case of such termination the parties shall use their best efforts to negotiate a
new non-exclusive license agreement with similar terms and conditions as are
contained herein.
SECTION 5 - REPORTS AND RECORDS
5.1 Licensee shall keep full, true and accurate books of account containing all
particulars that may be necessary for the purpose of showing the amounts payable
to Licensor hereunder. Said books of account shall be kept at Licensee's
principal place of business or the principal place of business of the
appropriate division of Licensee to which this Agreement relates. Said books and
the supporting data shall be open during normal working hours for five (5) years
following the end of the fiscal year to which they pertain, to the inspection of
Licensor or its agents for the purpose of verifying Licensee's royalty statement
or compliance in other respects with this Agreement. Should such inspection lead
to the discovery of a greater than ten percent (10%) discrepancy in reporting to
Licensor's detriment, Licensee agrees to pay the full cost of such inspection.
5.2 Within sixty (60) days after March 31 of each year, Licensee shall
deliver to Licensor true and accurate reports, giving such particulars of the
business conducted by Licensee and its sublicensees during the preceding twelve-
month period under this Agreement as shall be pertinent to a royalty accounting
hereunder. These reports shall include at least the following:
(a) number of Licensed Products manufactured and sold by Licensee and all
sublicensees in Territory;
(b) total billings for Licensed Products sold by Licensee and all
sublicensees;
(c) deductions applicable as provided in Paragraph 1.5;
(d) royalties due on additional payments from sublicensees under Paragraph
3.1(b);
(e) total royalties due; and
(f) names and addresses of all sublicensees of Licensee.
<PAGE>
5.3 With each such report submitted, Licensee shall pay to Licensor the
royalties due and payable under this Agreement. If no royalties shall be due,
Licensee shall so report.
5.4 The royalty payments set forth in this Agreement and amounts due under
Section 6 shall, if overdue, bear interest until payment at a per annum rate two
percent (2%) above the prime rate in effect at the Bank of Canada on the due
date. The payment of such interest shall not foreclose Licensor from exercising
any other rights it may have as a consequence of the lateness of any payment.
SECTION 6 - PATENT PROSECUTION
6.1 Licensor shall apply for, prosecute and seek prompt issuance of the United
States non-provisional patent application listed in Schedule A.
6.2 The costs of filing, prosecution, and issuance of Patent Rights pursuant to
the United States non-provisional patent application listed in Schedule A shall
be the responsibility of Licensor.
6.3 Payment of all fees and costs relating to the maintenance of Patent Rights
pursuant to the United States non-provisional patent application listed in
Schedule A shall be the responsibility of Licensee.
6.4 Payment of all fees and costs relating to the filing, prosecution,
issuance and maintenance of additional patents which fall under Patent Rights
shall be the responsibility of Licensee.
SECTION 7 - INFRINGEMENT
7.1 Licensee or Licensor shall promptly inform the other in writing of any
patent infringement by a third party and provide available evidence of
infringement.
7.2 During the Agreement Term, Licensor shall have the right, but shall not
be obligated, to prosecute at its own expense all infringements of the Patent
Rights and, in furtherance of such right, Licensee hereby agrees that Licensor
may include Licensee as a party plaintiff in any such suit, without expense to
Licensee. The total cost of any such infringement action commenced or defended
solely by Licensor shall be borne by Licensor and Licensor shall keep any
recovery or damages for past infringement derived therefrom.
7.3 If within six (6) months after having been notified of any alleged
infringement, Licensor shall have been unsuccessful in persuading the alleged
infringer to desist and shall not have brought an infringement action, or if
Licensor shall notify Licensee at any time prior thereto of its intention not to
bring suit against any alleged infringer, then, and in those events only,
Licensee shall have the right, but shall not be obligated, to prosecute at its
own expense any infringement of the Patent Rights, and Licensee may.. for such
purposes, use the name of Licensor as party plaintiff; provided 'however, that
such right to bring such an infringement action shall remain in effect only for
so long as the license granted herein remains exclusive. No settlement, consent
judgment or other voluntary final disposition of the suit may be entered into
without the consent of Licensor, which consent
<PAGE>
shall not unreasonably be withheld. Licensee shall indemnify Licensor against
any order for costs that may be made against Licensor in such proceedings.
7.4 Any recovery of damages from any suit shall be retained by the party who
funded and prosecuted at its expense the infringement of the Patent Rights
pursuant to 7.2 or 7.3 herein.
7.5 In the event that a declaratory judgment action alleging invalidity or
non-infringement of any of the Patent Rights shall be brought against Licensee,
Licensor, at its option, shall have the right, within thirty (30) days after
commencement of such action, to intervene and take over the sole defense of the
action at its own expense.
7.6 In any infringement suit as either party may institute to enforce the
Patent Rights pursuant to this Agreement, the other party hereto shall, at the
request and expense of the party initiating such suit, cooperate in all respects
and, to the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like.
7.7 Licensee, during the period of this Agreement, shall have the sole right
in accordance with the terms and conditions herein to sublicense any alleged
infringer for future use of the Patent Rights. Any up-front fees as part of such
a sublicense shall be shared equally between Licensee and Licensor; other
royalties shall be treated per Section 3.
SECTION 8 - INDEMNIFICATION AND INSURANCE
8.1 Licensee shall at all times during the Agreement Term and thereafter,
indemnify, defend and hold Licensor, its trustees, directors, officers,
employees and affiliates, harmless against all claims, proceedings, demands and
liabilities of any kind whatsoever, including legal expenses and reasonable
attorneys' fees, arising out of the exercise by Licensee of any of its rights
under the license, and/or out of the death of or injury to any person or persons
or out of any damage to property resulting from the production, manufacture,
sale, use, lease, consumption or advertisement of the Licensed Product(s), or
arising from any obligation of Licensee hereunder.
8.2 Prior to execution of the first sublicense agreement or transfer in any way
of all or any part of the Licensed Product, the Licensee will give notice to the
Licensor of the terms and amount of the public liability, infringement and
product liability insurance which the Licensee has placed in respect of the
Licensed Product, which in no case shall be less comprehensive or lesser in
amount than the insurance which a reasonable and prudent business person
carrying on a similar type of business would acquire.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR, ITS
TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES MAKE NO REPRESENTATIONS
AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING, AND THE ABSENCE OF LATENT
OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING IN THIS AGREEMENT SHALL
BE CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY
<PAGE>
LICENSOR THAT THE PRACTICE BY LICENSEE OF THE LICENSE GRANTED HEREUNDER SHALL
NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY. IN NO EVENT SHALL LICENSOR,
ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES AND AFFILIATES BE LIABLE FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR
INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER LICENSOR SHALL BE
ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE
POSSIBILITY.
SECTION 9 -FORCE MAJEURE
9.1 Neither party shall be held liable for failure to fulfill its obligations
hereunder due to a natural calamity, act of government, or similar cause beyond
the control of such party.
SECTION 10 - NON-USE OF NAMES
10.1 Licensee shall not use the names or trademarks of Simon Fraser University,
nor any adaptation thereof, nor the names of any of its employees, in any
advertising, promotional or sales literature without prior written consent
obtained from an authorized representative of Licensor, in each case, except
that Licensee may state that it is licensed by Licensor under one or more of the
patents and/or applications comprising the Patent Rights.
SECTION 11 - PUBLICATION AND CONFIDENTIALITY
11.1 For the purpose of this Agreement, each party will have the right to
disclose or publish material about the Patent Rights following the filing of a
United States patent application by Licensor.
11.2 Licensor agrees to maintain in confidence all proprietary and market
information provided by Licensee unless written permission is obtained from
Licensee or such information becomes part of the public domain without breach of
this Agreement.
SECTION 12 - ASSIGNMENT
12.1 This Agreement is not assignable by Licensee and any attempt to do so shall
be void, unless Licensee has obtained the prior written consent of an authorized
representative of Licensor.
12.2 This Agreement may be assigned by Licensor.
SECTION 13 - DISPUTE RESOLUTION
13.1 It is the intention of the parties to settle any dispute relating to this
Agreement among themselves, but if at any time during the term of this
Agreement, or after its termination, any dispute arises between the parties
respecting any matter which they cannot settle among themselves, then the
dispute will be settled by a single arbitrator appointed by agreement between
both parties, under the provisions of the Commercial Arbitration Act (British
Columbia) and the rules of the British Columbia International Commercial
Arbitration Centre, as from time to time
<PAGE>
amended or substituted. If the parties cannot agree on an arbitrator within 10
days after referral of a matter to arbitration, then the single arbitrator shall
be appointed by the British Columbia International Commercial Arbitration
Centre. The decision of the arbitrator will be final and binding on the parties.
The costs of the arbitration will be apportioned between the parties, or against
any one or more of the parties, as the arbitrator may decide.
13.2 Notwithstanding the foregoing, nothing in this Section shall be construed
to waive any rights or timely performance of any obligations existing under this
Agreement.
SECTION 14 - TERMINATION
14.1 Licensee shall immediately notify Licensor if Licensee shall cease to carry
on its business, or goes into or is threatened with bankruptcy. On the
occurrence of any of these events, Licensor shall be entitled to terminate this
Agreement by giving five (5) days written notice to Licensee.
14.2 Should Licensee fail to make any payment whatsoever due and payable to
Licensor hereunder, Licensor shall have the right to terminate this Agreement
effective on thirty (30) days notice, unless Licensee shall make all such
payments to Licensor within said thirty (30) day period.
14.3 Upon any material breach or default of this Agreement by Licensee
(including, but not limited to, breach or default under Paragraph 4.2), other
than those occurrences set out in Paragraphs 14.1 and 14.2 herein above, which
shall always take precedence in that order over any material breach or default
referred to in this Paragraph 14.3, Licensor shall have the right to terminate
this Agreement and the rights, privileges and license granted hereunder
effective on ninety (90) days notice to Licensee. Such termination shall become
automatically effective unless Licensee shall have cured any such material
breach or default prior to the expiration of the ninety (90) day period.
14.4 Upon termination of this Agreement for any reason, nothing herein shall be
construed to release either party from any obligation that matured prior to the
effective date of such termination; and Sections 1, 8, 10, 14.5, and 16 shall
survive any such termination. Licensee and any sublicensee thereof may, however,
after the effective date of such termination, sell all Licensed Products, and
complete Licensed Products in the process of manufacture at the time of such
termination and sell the same, provided that Licensee shall make the payments to
Licensor as required by Section 3 of this Agreement and shall submit the reports
required by Section 5 hereof.
14.5 Upon termination of this Agreement for any reason, any sublicensee not then
in default shall have the right to seek a license from Licensor. Licensor agrees
to negotiate such licenses in good faith under reasonable terms and conditions.
SECTION 15 - PAYMENTS. NOTICES AND OTHER COMMUNICATIONS
15.1 Any payment, notice or other communication pursuant to this Agreement shall
be sufficiently made or given on the date of mailing if sent to such party by
certified first class mail, postage prepaid, addressed to it at its address
below, or if sent by fax on the day after the date the communication was sent:
<PAGE>
In the case of Licensor:
Director
University/Industry Liaison Office
2100 North Strand Hall
8888 University Drive
Burnaby, British Columbia, Canada V5A IS6
Fax No. (604) 291-3477
In the case of Licensee:
President
DCH Technology, Inc
27811 Avenue Hopkins, Suite #6
Valencia, CA 91355
Fax No. (818) 385-0849
SECTION 16 - MISCELLANEOUS PROVISIONS
16.1 This Agreement shall be construed, governed, interpreted and applied in
accordance with the laws of the Province of British Columbia, except that
questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
16.2 The parties hereto acknowledge that this Agreement sets forth the entire
Agreement and understanding of the parties hereto as to the subject matter
hereof, and shall not be subject to any change or modification except by the
execution of a written instrument subscribed to by the parties hereto.
16.3 The provisions of this Agreement are severable, and in the event that any
provisions of this Agreement shall be determined to be invalid or unenforceable
under any controlling body of the law, such invalidity or unenforceability shall
not in any way affect the validity or enforceability of the remaining provisions
hereof.
16.4 The failure of either party to assert a right hereunder or to insist upon
compliance with any term or condition of this Agreement shall not constitute a
waiver of that right or excuse a similar subsequent failure to perform any such
term or condition by the other party.
16.5 Nothing contained herein shall be deemed to create between the parties a
partnership or joint venture. Except as provided specifically herein, neither
party shall have the authority to act on behalf of the other party, or to commit
the other party in any manner or cause whatsoever or to use the other party's
name in any way. Neither party shall be liable for any act, omission,
representation, obligation, or debt of the other party, even if informed of such
act, omission, representation, obligation, or debt.
<PAGE>
16.6 Subject to the limitations expressed herein, this Agreement shall enure to
the benefit and be binding upon the parties and their respective successors.
IN WITNESS WHEREOF the parties have duly executed this Agreement on the day and
year set forth below.
SIMON FRASER UNIVERSITY DCH TECHNOLOGY INC.
By /s/ M. VOUCER By /s/ W. L. FIRESTONE
Name M. Voucer Name William L. Firestone
Title Director, UILO Title President
Date 98 05 27 Date 7/28/98
SCHEDULE A
Universal Gas Sensor: Patent Application Filed
Non-provisional United States patent application entitled A Universal Gas Sensor
for the Selective Detection of Toxic Chemicals and Combustable Gases filed March
27, 1998. Inventor: Bijan Miremadi.
Priority claimed by United States Provisional Application 60/041,653 of the same
title filed March 27,1997.
SCHEDULE B Grant Work Plan
[*]
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
Exhibit 6.8
STEVENSON-WYDLER (15 USC 3710)
COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT (hereinafter "CRADA")
NO. _____
BETWEEN
MIDWEST RESEARCH INSTITUTE, Operator of THE NATIONAL RENEWABLE ENERGY
LABORATORY under its U.S. Department of Energy Contract No. DE-AC36-83CH10093,
1617
Cole Blvd., Golden, CO 80401 (hereinafter "Contractor")
AND
AMERISEN 14540 West Greenfield Avenue Brookfield, Wisconsin 53005
(hereinafter "Participant"),
both being hereinafter jointly referred to as the "Parties"
ARTICLE 1: DEFINITIONS
-----------
A., "Government" means the United States of America and agencies thereof.
B. "DOE" means the Department of Energy, an agency of the United States of
America.
C. "Contracting Officer" means the DOE employee administering the Contractor's
DOE contract.
D. "Generated Information" means information produced in the performance of
this CRADA.
E. "Proprietary Information" means information which embodies trade secrets
developed at private expense outside of this Agreement and commercial or
financial information which is privileged or confidential under the Freedom of
Information Act (5 USC 552 (B)(4)); and which is marked as Proprietary
Information.
F. "Protected CRADA Information" means Generated Information which is marked
as being Protected CRADA Information by a Party to this Agreement and which
would have been Proprietary Information had it been obtained from a non-federal
entity.
G. "Subject Invention", as used in this Agreement, means any invention of the
Contractor or Participant conceived or first actually reduced to practice in the
performance of work under this CRADA.
H. "Intellectual Property" means Patents, Trademarks, Copyrights, Mask
Works, Protected CRADA Information and other forms of comparable property rights
protected by Federal Law and other foreign counterparts.
<PAGE>
ARTICLE II: STATEMENT OF WORK
-----------------
Appendix A, "Joint Work Statement", is attached hereto and hereby incorporated
into this CRADA by reference.
ARTICLE III: FUNDING & COSTS
---------------
A. The Participant's estimated contribution is [*]. The Government's estimated
contribution, which is provided through the Contractor's contract with DOE, is
[*] subject to available funding from DOE's Office of Energy Efficiency and
Renewable Energy.
B. Neither Party shall have an obligation to continue or complete
performance of its work at a cost in excess of its estimated cost as contained
in Article III A above, including any subsequent amendment.
C. Each Party agrees to provide at least sixty (60) days advance notice to
the other Party if the actual cost to complete performance will exceed its
estimated cost. If the Parties mutually agree to continue the project, the
estimated cost shall be appropriately amended and the Parties shall agree on the
share of each Party of such increase in estimated cost by duly executed
amendments to this CRADA.
ARTICLE IV: PROPERTY
--------
All tangible personal property produced under this CRADA shall become the
property of the Participant or the Government depending upon whose funds were
used to obtain it. Such property is identified in Appendix B, Property List.
Personal Property shall be disposed of as directed by the owner at the owner's
expense. All jointly funded property shall be owned by the Government.
ARTICLE V: DISCLAIMER
----------
THE GOVERNMENT, THE PARTICIPANT, AND THE CONTRACTOR MAKE NO EXPRESS OR IMPLIED
WARRANTY AS TO THE CONDITIONS OF THE RESEARCH OR ANY INTELLECTUAL PROPERTY OR
PRODUCT MADE OR DEVELOPED UNDER THIS CRADA, OR THE OWNERSHIP, MERCHANTABILITY OR
F=SS FOR A PARTICULAR PURPOSE OF THE RESEARCH OR RESULTING PRODUCT. NEITHER THE
GOVERNMENT, THE PARTICIPANT, NOR THE CONTRACTOR SHALL BE LIABLE FOR LOST
PROFITS, LOST SAVINGS, SPECIAL, CONSEQUENTIAL, INCIDENTAL OR OTHER INDIRECT
DAMAGES, EVEN IF SUCH PARTY IS MADE AWARE OF THE POSSIBILITY THEREOF.
ARTICLE VI: PRODUCT LIABILITY
-----------------
Except for any liability resulting from any negligent or intentional acts or
omissions of Contractor, Participant indemnities the Government and the
Contractor for all damages, costs and expenses, including attorney's fees,
arising from personal injury or property damage occurring as a result of
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
the making, using or selling of a product, process or service by or on behalf of
the Participant, its assignees or licensees, which was derived from the work
performed under this CRADA. With respect to this Article, neither the Government
nor the Contractor shall be considered assignees or licensees of the
Participant, as a result of reserved Government and Contractor rights. The
indemnity set forth in this Paragraph shall apply only if Participant shall have
been informed as soon and as completely as practical by the Contractor and/or
the Government of the action alleging such claim and shall have been given an
opportunity, to the extent afforded by applicable laws, rules, or regulations,
to participate in and control its defense, and the Contractor and/or Government
shall have provided reasonably available information and reasonable assistance
requested by Participant. No settlement for which Participant would be
responsible shall be made without Participant's consent unless required by final
decree of a court of competent jurisdiction.
ARTICLE VII: OBLIGATIONS REGARDING PROPRIETARY INFORMATION
---------------------------------------------
A. If Proprietary Information is orally disclosed to a Party, it shall be
identified as such, orally, at the time of disclosure and confirmed in a written
summary sent to the recipient within ten (10) days of such disclosure, and
marked as being Proprietary Information.
B. The Parties agree to use Proprietary Information only in the performance of
this CRADA and not to further disclose such information to others without the
provider's prior written approval, except that Contractor may disclose such
information to Government employees who are subject to the statutory provisions
against disclosure of confidential information set forth in the Trade Secrets
Act (18 USC 1905).
C. All Proprietary Information shall be returned to the provider thereof at
the conclusion of this CRADA at the provider's expense unless otherwise agreed
in writing.
D. The foregoing provisions do not apply to Proprietary Information which 1)
is or becomes publicly known without recipient's breach of this Agreement, 2)
was known by the recipient prior to its disclosure hereunder, 3) comes into the
recipient's possession, other than from a Party hereto or pursuant to this
CRADA, without recipient's breach of this Agreement, or 4) is independently
developed by any employee, independent consultant, or subcontractor of the
recipient or the Government to which such Proprietary Information was not
disclosed.
ARTICLE VIII: OBLIGATIONS REGARDING PROTECTED CRADA INFORMATION
-------------------------------------------------
A. Each Party may designate as Protected CRADA Information, as defined in
Article 1, any Generated Information produced by its employees, and with the
agreement of the other Party, mark or have marked any Generated Information
produced by the other Party's employees. All such designated Protected CRADA
Information shall be appropriately marked.
B. The Parties and DOE agree not to license or otherwise disclose Protected
CRADA Information to any third party for a period of five (5) years from the
date it was produced (except as provided in Paragraphs C, D and E immediately
below). Such information shall be reduced to writing and marked as Protected
CRADA Information within 10 days of such production, at which point the five-
year period begins.
<PAGE>
C. Further, the Parties shall protect from disclosure to third parties
(excluding DOE) any Protected CRADA Information describing a Subject Invention
for a reasonable period in order to file a U.S. patent application thereon and
to preserve foreign filing rights.
D. The obligations of nondisclosure set forth in Article VIII, Paragraph B
above shall apply except 1) upon request by the DOE Contracting Officer that
such Information be provided to other DOE facilities with the same protections
in place, 2) disclosure of Protected CRADA Information contained in a Subject
Invention is permitted after the patent has issued, or 3) as mutually agreed by
the Parties and DOE in advance. The Contractor may at all times use Protected
CRADA Information internally for its own purposes and those of the Government,
except as specified in Article VIII, Paragraph B above.
E. The foregoing provisions of this Article VIII do not apply to Protected
CRADA Information which 1) is or becomes publicly known without a Party's breach
of this Agreement, 2) was known by a Party prior to its disclosure hereunder, 3)
comes into the receiving Party's possession, other than from another Party
hereto or pursuant to this CRADA, without the receiving Party's breach of this
Agreement, or 4) is independently developed by any employee, independent
consultant, or subcontractor of a Party or the Government to which such
Protected CRADA Information was not disclosed.
ARTICLE IX: RIGHTS IN GENERATED INFORMATION
-------------------------------
The Parties agree that they shall have no obligations of non-disclosure or
limitations on their use of, and the Government shall have unlimited rights in,
all Generated Information or information provided to the Parties or the
Government under this CRADA which is not marked as being copyrighted (in
accordance with Article XIII) or as Protected CRADA Information (in accordance
with Article VIII, Paragraph B) or Proprietary Information (in accordance with
Article VII, Paragraph B), as well as Protected CRADA Information after the
expiration of the five-year period set forth in Article VIII, Paragraph B.
ARTICLE X: EXPORT CONTROL
--------------
THE PARTIES UNDERSTAND THAT MATERIALS AND INFORMATION RESULTING FROM THE
PERFORMANCE OF THIS CRADA MAY BE SUBJECT TO EXPORT CONTROL LAWS AND THAT EACH
PARTY IS RESPONSIBLE FOR ITS OWN COMPLIANCE WITH SUCH LAWS.
ARTICLE XI: REPORTS AND ABSTRACTS
---------------------
A. The Parties agree to produce the following deliverables:
(1) initial abstracts suitable for public release;
(2) other abstracts (final when work is complete, and others as substantial
changes in scope and dollars occur):
(3) a final report to include a list of Subject Inventions;
<PAGE>
(4) other reports as required in Section 4, "Task Descriptions", in Appendix
A, Joint Work Statement.
(5) computer software in source and object code format as defined within the
Statement of Work.
B. It is understood that the Contractor has the responsibility to provide
the above information at the time of its completion to the DOE Office of
Scientific and Technical Information.
ARTICLE XII: PRE-PUBLICATION REVIEW
-----------------------
A. Except for the non-proprietary abstract described in Article XI above, the
Parties agree to secure pre-publication approval from the other Party of any
document, article, press release or other written material relating to the work
performed hereunder, which shall not be unreasonably withheld or delayed beyond
thirty (30) days.
B. The Parties agree that neither will use the name of the other Party or its
employees in any promotional activity, such as advertisements, with reference to
any product or service resulting from this CRADA, without prior written approval
of the other Party.
ARTICLE XIII: COPYRIGHTS
----------
A. The Parties may assert copyright in any of their Generated Information.
B. For Generated Information, the Parties acknowledge that the Government has
for itself and others acting on its behalf, a royalty-free, nonexclusive,
irrevocable worldwide copyright license to reproduce, prepare derivative works,
distribute copies to the public, and perform publicly and display publicly, by
or on behalf of the Government, all copyrightable works produced in the
performance of this CRADA, subject to the restrictions this CRADA places on
publication of Proprietary Information and Protected CRADA Information.
ARTICLE XIV: REPORTING INVENTIONS
--------------------
A. The Parties agree to disclose to each other each and every Subject
Invention and any improvements thereon, whether or not patentable or otherwise
protectable under the Patent Act (Title 35 of the United States Code), within
two (2) months after the inventor discloses it in writing to the personnel
responsible for patent matters of that Party, but in any event no later than
three (3) months after its conception or first actual reduction to practice. The
Contractor shall be responsible for disclosing Participant's Subject Inventions
to DOE within two (2) months of the Participant's disclosure to the Contractor.
B. These disclosures should be in such detail as to be capable of teaching one
skilled in the art how to make and use the invention as required for patent
applications under the Patent Act (35 USC 112). The disclosure shall also
identify any known, actual or potential statutory bars (i.e., printed
publications describing the invention or the public use or on sale of the
invention in this country) affecting the filing or prosecuting of Subject
Inventions in patent applications, and there shall be a continuing obligation on
the Parties to further disclose any impending or actual future statutory bar
promptly following receipt of knowledge thereof. All invention disclosures shall
be
<PAGE>
marked as confidential, and if so marked shall be treated as such by the
Participant and Contractor, and shall not be disclosed by the Government pending
the filing of the patent application as provided in 35 USC 205.
ARTICLE XV: TITLE TO INVENTIONS
-------------------
A. Each Party shall have the first option to elect to retain title to any
invention made by its employees. If a Party elects not to retain title to any
invention of its employees, then the other Party shall have the second option to
elect to retain title to such invention under this CRADA. The DOE shall retain
title to any invention which is not retained by any Party.
B. The Parties acknowledge that the DOE may obtain title to each Subject
Invention reported under Article XIV for which a patent application or
applications are not filed and for which any issued patents are not maintained
by any Party to this CRADA. Participant agrees to notify the Contractor in
writing whether or not it intends to file a patent application on any such
Subject Inventions within twelve (12) months of its disclosure under Article
XIV, Paragraph A above, but in any event not later than sixty (60) days prior to
the time when any statutory bar might foreclose filing of a U.S. patent
application.
C. The Parties acknowledge that, except for Subject Inventions in which the
Government retains title, the Government retains a non-exclusive, non-
transferable, irrevocable, paid- up license to practice or to have practiced for
or on behalf of the United States every Subject Invention under this CRADA
throughout the world.
ARTICLE XVI: FILING PATENT APPLICATIONS
--------------------------
A. The Parties agree that the Party initially indicated as having an ownership
interest in any Subject Inventions shall have the responsibility for filing and
prosecuting any U.S. and foreign patent application(s) thereon.
B. The Parties agree that if neither Party desires to file a patent
application for any invention, notification of such negative intent shall be
made to the DOE within twelve (12) months after the initial disclosure of such
invention, but not later than sixty (60) days prior to the time when any
statutory bar might foreclose filing of a U.S. patent application. The
Participant further agrees to notify the Contractor promptly if it decides not
to continue the prosecution of any application for, to pay the maintenance fees
on, or defend in a re- examination or opposition proceeding on, a patent on a
Subject Invention. The purpose of the foregoing notification is to allow the
Government to file patent applications and/or continue prosecution, maintenance
or defense of a patent in its own name if it so chooses, and each of the Parties
agrees to provide the necessary documents to enable the Government to do so. The
obligation contained in Article VIII, Paragraph B prohibiting licensing shall
extinguish upon a decision by Participant not to file, prosecute, maintain or
defend a patent application hereunder.
ARTICLE XVII: COST OF INTELLECTUAL PROPERTY PROTECTION
<PAGE>
Each Party shall be responsible for payment of all costs relating to copyright,
U.S. and foreign patent application filing and prosecution, and all costs
relating to maintenance fees for U.S. and foreign patents hereunder which are
owned by that Party.
ARTICLE XVIII: REPORTS OF INVENTION USE
------------------------
The Parties agree to submit, upon request of DOE, reports no more frequently
than annually on the efforts to obtain utilization of any Subject Invention in
accordance with DOE patent regulations set forth in 41 CFR 9-9.
ARTICLE XIX: DOE MARCH-IN RIGHTS
-------------------
The Parties acknowledge that the DOE has certain march-in rights to any Subject
Inventions in accordance with 48 CFR 27.304- 1 (G).
ARTICLE XX: U.S. COMPETITIVENESS AND SMALL BUSINESS REPRESENTATION
------------------------------------------------------
The Parties agree that a purpose of this CRADA is to provide substantial benefit
to the U.S. economy.
In exchange for the benefits received under this CRADA, the Parties therefore
agree to the following:
A. Products embodying Intellectual Property developed under this CRADA shall
be substantially manufactured in the United States;
B. Processes, services, and improvements thereof which are covered by
Intellectual Property developed under this CRADA shall be incorporated into the
Participant's manufacturing facilities in the United States either prior to or
simultaneously with implementation outside the United States. Such processes,
services, and improvements, when implemented outside the U.S., shall not result
in reduction of the use of the same processes, services, or improvements in the
United States; and
By execution of this Agreement, the Participant certifies that, as of the
execution date of this Agreement, it is a "small business concern" as defined in
Section 2 of Public Law 85-536 (15 USC 632) and implementing regulations of the
administrator of the Small Business Administration.
ARTICLE XXI: ASSIGNMENT OF PERSONNEL
-----------------------
A. It is contemplated that each Party may assign personnel to the other
Party's facility as part of this CRADA. Such personnel assigned by the assigning
Party, to participate in or observe the research to be performed under this
CRADA shall not during the period of such assignments be considered employees of
the receiving Party for any purposes, including but not limited to any
requirements to provide workers' compensation, liability insurance coverage,
payment of salary or other benefits, or withholding of taxes.
<PAGE>
B. The receiving Party shall have the right to exercise routine administrative
and technical supervisory control of the occupational activities of such
personnel during the assignment period and shall have the right to approve the
assignment of such personnel and/or to later request their removal by the
assigning Party.
C. The assigning Party shall bear any and all costs and expenses with regard
to its personnel assigned to the receiving Party's facilities under this CRADA.
The receiving Party shall bear the costs of providing an appropriate work space,
access to a telephone, use of laboratory, manufacturing or other work areas as
appropriate, and any other utilities and facilities related to such assignments.
D. Each Party agrees to use due care while on the other's premises, to comply
with all posted environmental, safety and health rules and regulations during
the visit, to perform work in a safe manner, and to enter only those areas
previously designated by those in charge of its visit.
E. Each Party agrees to comply with all applicable municipal, state and
federal laws and regulations regarding the safety and health of the personnel
assigned to the receiving Party's facilities under this CRADA.
ARTICLE XXII: FORCE MAJEURE
-------------
No failure or omission by Contractor or Participant in the performance of any
obligation under this CRADA shall be deemed a breach of this CRADA or create any
liability if the same shall arise from any cause or causes beyond the control of
Contractor or Participant, including but not limited to the following, which,
for the purpose of this CRADA, shall be regarded as beyond the control of the
Party in question: Acts of God, acts or emissions of any government or agency
thereof, compliance with requirements, rules, regulations, or orders of any
governmental authority or any office, department, agency, or instrumentality
thereof, fire, storm, flood, earthquake, accident, acts of the public enemy,
war, rebellion, insurrection, riot, sabotage, invasion, quarantine, restriction,
transportation embargoes, or failures or delays in transportation.
ARTICLE XXIII: ADMINISTRATION OF THE CRADA
---------------------------
It is understood and agreed that this CRADA is entered into by the Contractor
under the authority of its prime Contract with DOE. The Contractor is authorized
to and will administer this CRADA in all respects unless otherwise specifically
provided for herein. This CRADA and Contractor's intellectual property rights
contained herein may be transferred from the Contractor to DOE or its designee
(including but not limited to a successor operator of the National Renewable
Energy Laboratory) with notice of such transfer to the Participant, and the
Contractor shall have no further responsibilities except for the confidentiality
obligations of this CRADA.
ARTICLE XXIV: RECORDS AND ACCOUNTING SYSTEM
-----------------------------
The Participant shall maintain records of receipts, expenditures, and the
disposition of all Government property in its custody, related to this CRADA.
The Contractor will maintain records satisfactory to DOE and in accordance with
generally accepted accounting principles, and the
<PAGE>
Participant will maintain its accounting system in accordance with generally
accepted accounting principles, and shall be subject to reasonable inspection
during Participant's business hours.
ARTICLE XXV: NOTICES
-------
A. Any communications required by this CRADA, if given by postage prepaid
first class U.S. Mail addressed to the Party to receive the communication, shall
be deemed made as of the day of receipt of such communication by the addressee,
or on the date given if by verified facsimile. Address changes shall be given in
accordance with this Article and shall be effective thereafter. All such
communications, to be considered effective, shall include this CRADA Number .
B. The addresses, telephone numbers and facsimile numbers for the Parties are
as follows:
Participant:
AMERISEN
14540 West Greenfield Avenue Brookfield, WI 53005 (414) 821-5250
Fax:, (414) 821-5054
Contractor:
National Renewable Energy Laboratory, division of Midwest Research Institute
1617 Cole Boulevard
Golden, CO 80401-3393 (303) 275-4000
Fax: (303) 275-3097
ARTICLE XXVI: DISPUTES
---------
At the request of either Party, after reasonable attempt to settle without
mediation, any controversy or claim arising out of or relating to the CRADA
shall be settled by mediation conducted in the State of Colorado in accordance
with the then current and applicable rules of the American Arbitration
Association.
ARTICLE XXVII: ENTIRE CRADA AND MODIFICATIONS
------------------------------
A. It is expressly understood and agreed that this CRADA with its Appendices
contains the entire agreement between the Parties with respect to the subject
matter hereof and that all prior representations or agreements relating hereto
have been merged into this document and are thus superseded in totality by this
CRADA. This CRADA shall not be effective until approved by DOE.
B. Any agreement to change any terms or conditions of this CRADA or the
Appendices shall be valid only if the change is made in writing, executed by the
Parties hereto, and approved by DOE.
ARTICLE XXVIII: TERM AND TERMINATION
--------------------
A. The term of this CRADA shall be twenty-four (24) months from the effective
date hereof unless extended by mutual agreement of the Parties, with the
approval of DOE, or terminated in accordance with the provisions that follow.
This CRADA may be terminated by either Party if the
<PAGE>
other Party fails to cure a material breach of this CRADA within thirty (30)
days after written notice to the other Party, or may be terminated by mutual
consent. In the event of termination, each Party shall be responsible for its
costs incurred through the effective date of termination, as well as its costs
incurred after the effective date of termination which are related to the
termination.
B. The provisions contained in Articles V, VI, VII, VIII, IX, X, XII, XIII,
XIV, XV, XVI, XVII, XVIII, XIX and XX(A) and (B) shall survive the expiration or
termination of this Agreement.
C. Contractor may terminate this Agreement with thirty (30) days' written
notice if its government funding associated herewith is not available or
sufficient in subsequent fiscal years, or if DOE program management support is
otherwise limited or terminated.
ARTICLE XXIX: ORDER OF PRECEDENCE
--------------------
In the event of a conflict between the provisions of the Appendices and those of
this Agreement, this Agreement shall prevail.
ARTICLE XXX: PERFORMANCE
------------
The Contractor and the Participant agree to exert reasonable efforts to perform
the work under this Agreement in accordance with the schedule as provided in
Appendix A, Joint Work Statement.
ARTICLE XXXI: HEADINGS
---------
The headings for the sections set forth in this Agreement are strictly for the
convenience of the parties hereto and shall not be used in any way to restrict
the meaning or interpretation of the substantive language of this Agreement.
ARTICLE XXXII: WAIVER
-------
The failure of Contractor or Participant at any time to enforce any provisions
of this Agreement or to exercise any right or remedy shall not be construed to
be a waiver of such provisions or of
such right or remedy or of the right of Contractor or Participant thereafter to
enforce each and every provision, right or remedy.
ARTICLE XXXIII: INDEPENDENT CONTRACTORS
-----------------------
Under the terms of this Agreement, the Contractor and the Participant are
independent contractors. Neither Party is an employee, agent, partner or
representative of the other Party. Nothing contained herein shall be deemed to
create a joint venture relationship between the Contractor and the Participant.
Each Party specifically acknowledges that it does not have authority to incur
any obligations or responsibilities on behalf of the other Party.
The Parties have indicated their acceptance of this Agreement by execution below
by an authorized representative. This Agreement is effective this 21st day of
March 1996.
<PAGE>
FOR CONTRACTOR: FOR PARTICIPANT:
/s/ DAWN M. ADAMS
BY BY Dawn M. Adams
TITLE TITLE Director
DATE DATE March 21, 1996
DOE APPROVAL: BY
TITLE
DATE
APPENDIX A
----------
JOINT WORK STATEMENT
[*]
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
APPENDIX B
-----------
Property List
Property to be Obtained With Participant Funds
- -----------------------------------------------
To be determined
Property to be Obtained with Government Funds
- ----------------------------------------------
To be determined
<PAGE>
EXHIBIT 6.9
This agreement between DCH Technology, Inc. (hereinafter known as "DCH") with
its offices located at Valencia, California, USA and Horiba, Ltd. (hereinafter
known as "Horiba, Ltd.") with its office located in Kyoto, Japan, is entered
into this 18th day of January 1999.
It is agreed as follows-
1 . Scope. Horiba, Ltd. shall serve as the exclusive representative and agent of
DCH in Japan and other Asian countries as may be identified at a later date by
agreement of both parties. Horiba, Ltd. agrees to actively market and sell
products supplied and/or manufactured by DCH in the territories covered as
agreed.
2. Term. Horiba shall serve as the exclusive agent for DCH for a period of one
year following the date noted above. During that time, Horiba agrees to sell DCH
equipment utilizing fifty (50) sensors. Should Horiba meet its goal of selling
the indicated number of sensors, this contract will automatically be extended
for a period of five years from the date noted above. Should Horiba be
unsuccessful in selling sell DCH equipment utilizing fifty (50) sensors in the
one year period, DCH and Horiba agree to negotiate in good faith to determine
the best course of action to follow. For the purposes of this agreement, a
"sale" is described as an order from Horiba to DCH Technology that (1) has been
received by DCH, (2) are for product that has been, or will be, delivered by DCH
to Horiba and (3) has been or will be paid by Horiba within 30 days of receipt
of the products ordered. Orders that are subsequently cancelled by Horiba will
not be considered "sales" for the purposes of this agreement.
In addition to the above, DCH agrees to sell its standard products (such as the
Hand Held Unit) to Horiba for resale at a special discount of 33% off the DCH
list price.
For example, if the DCH list price is $3,500.00, DCH will sell the product to
Horiba for $2,345.00.
DCH will also provide favorable OEM pricing to Horiba for "integration kits"
which consist of DCH hardware.
It should be noted that both parties are desirous of succeeding in this market
place and both parties view this as a potentially significant opportunity.
Therefore, both parties agree that each will take whatever reasonable action
might be necessary to attain success.
3. Non-compete and Confidentiality. Both parties agree not to compete directly
or indirectly with one another in the sensor market in the territories noted
above. Both parties (DCH and Horiba, Ltd.) agree to exchange proprietary
information (and label this as "Proprietary" or "Confidential") as necessary and
not to disseminate this information without the prior, written consent of the
other party. Both parties agree to protect each others' confidential information
with the same care they use to protect their own.
<PAGE>
4. Support. DCH agrees to provide all necessary support including, but not
limited to, brochures, data sheets, training, service and warranty
administration and hereby authorizes Horiba, Ltd. to provide such data and
services locally.
Agreed to the first date written above.
/s/ KOZO ISHIDA /s/ DAVID A. WALKER
Horiba, Ltd. DCH Technology, Inc.
Dr. Kozo Ishida David Walker
<PAGE>
Exhibit 6.10
EMPLOYMENT AGREEMENT
Employment Agreement, between DCH Technology (the "Company") and David A.
Walker (the "Employee").
1. For good consideration, the Company employs the Employee on the following
terms and conditions.
2. Term of Employment. Subject to the provisions for termination set forth
below this agreement will begin on January 1, 1995 and terminate on December 31,
2000 unless earlier terminated.
3. Salary. The Company shall pay Employee an annual salary, payable at regular
payroll periods, as agreed for Employee's services.
4. Duties and Position. the Company hires Employee as Vice President -
Operations (position), which duties may be reasonably modified at the Company's
discretion.
5. Employee to Devote Full Time to the Company. Employee will devote full
time, attention, and energies to the business of the Company and, during this
employment, will not engage in any other business activity, regardless of
whether such activity is pursued for profit, gain or other pecuniary advantage.
Employee is not prohibited from making personal investments in any other
businesses provided those investments do not require active involvement in the
operation of said companies.
6. Confidentiality of Proprietary Information. Employee agrees, during or
after the term of employment, not to reveal trade secrets or confidential
information, or any part of it, to any person, firm, corporation or entity.
Should Employee reveal, or threaten to reveal, this information, the Company
shall be entitled to an injunction restraining Employee from disclosing same, or
from rendering any services to any entity to whom said information has been or
is threatened to be disclosed. The right to secure an injunction is not
exclusive, and the Company may pursue any other remedies it has against Employee
for a breach or threatened breach of this condition, including the recovery of
damages from Employee.
7. Reimbursement of Expenses. The Employee may incur reasonable expenses for
furthering the Company's business, including expenses for entertainment, travel,
and similar items. The Company shall reimburse Employee for all authorized
business expenses after Employee presents an itemized account of his
expenditures, pursuant to Company policy.
8. Disability. If Employee cannot perform his duties because of illness or
incapacity for a period of more than six months, the compensation due him during
his illness or capacity will be reduced by 50 percent. The Employee's full
compensation will be reinstated upon return to work.
<PAGE>
9. Termination of Agreement. Without cause, the Employee may terminate
employment upon thirty (30) days' written notice to the Company. Employee may be
required to perform his or her duties and will be paid the regular salary to
date of termination but shall not receive severance allowance. Notwithstanding
anything to the contrary contained in this agreement, the Company may terminate
the Employee's employment upon thirty (30) days' notice to the Employee should
any of the following events occur:
a) The sale of substantially (ninety [90] percent or more) all of the
Company's assets to a single purchaser or group of associated purchasers; or
b) The sale, exchange, or other disposition, in one transaction of the
majority of the Company's outstanding corporate shares; or
c) The Company's decision to terminate its business and liquidate its
assets;
d) Bankruptcy or chapter 11 reorganization.
11. Death Benefit. Should Employee die during the term of employment, the
Company shall pay to Employee's estate all compensation due through the end of
the month in which the death occurred and half of the amount due through the end
of the contract.
12. Restriction on Post Employment Compensation. For a period of one (1)
year after the end of employment, the Employee shall not control, consult to or
be employed by any business similar to that conducted by the company, either by
soliciting any of its accounts or by operating within Employer's general trading
area.
13. Assistance in Litigation. Employee shall upon reasonable notice,
furnish such information and proper assistance to the Company as it may
reasonably require in connection with any litigation in which it is, or may
become, a party either during or after employment.
14. Effect or Prior Agreements. This Agreement supersedes any prior
agreement between the Company or any predecessor of the Company and the
Employee, except that this agreement shall not affect or operate to reduce any
benefit or compensation inuring to the Employee of a kind elsewhere provided and
not expressly provided in this agreement.
15. Settlement by Arbitration. Any claim or controversy that arises out of
or relates to this agreement, or the breach of it, shall be settled by
arbitration in accordance with the rules of the American Arbitration
Association. Judgement upon the award rendered may be entered in any court with
jurisdiction.
16. Limited Effect of Waiver by Company. Should Company waive breach of
any
<PAGE>
provision of this agreement by the Employee, that waiver will not operate or be
construed as a waiver of further breach by the Employee.
17. Severability. If, for any reason, any provision of this agreement is
held invalid, all other provisions of this agreement shall remain in effect. If
this agreement is held invalid or cannot be enforced, then to the full extent
permitted by law any prior agreement between the Company (or any predecessor
thereof) and the Employee shall be deemed reinstated as if this agreement had
not been executed.
18. Assumption of Agreement by Company's Successors and Assignees. The
Company's rights and obligations under this agreement will inure to the benefit
and be binding upon the company's successors and assignees.
19. Oral Modifications Not Binding. This instrument is the entire
agreement of the Company and the Employee. Oral changes have no effect. It may
be altered only by a written agreement signed by the party against whom
enforcement of any waiver, change, modification, extension, or discharge is
sought.
Signed this 31 day of December 1994.
/s/ David P Haberman /s/ David A. Walker
- ----------------------------- ----------------------------
DCH Technology, Inc. David A. Walker
(Seal) Johnny K. King
Comm. # 1024314
NOTARY PUBLIC CALIFORNIA
Los Angeles County
My Comm Expires Apr. 24, 1998
<PAGE>
Exhibit 6.11
EMPLOYMENT AGREEMENT
Employment Agreement, between DCH Technology (the "Company") and David P.
Haberman (the "Employee").
1. For good consideration, the Company employs the Employee on the following
terms and conditions.
2. Term of Employment. Subject to the provisions for termination set forth
below this agreement will begin on January 1, 1995 and terminate on December 31,
2000 unless earlier terminated.
3. Salary. The Company shall pay Employee an annual salary, payable at regular
payroll periods, as agreed for Employee's services.
4. Duties and Position. the Company hires Employee as Vice President -
Engineering (position), which duties may be reasonably modified at the Company's
discretion.
5. Employee to Devote Full Time to the Company. Employee will devote full
time, attention, and energies to the business of the Company and, during this
employment, will not engage in any other business activity, regardless of
whether such activity is pursued for profit, gain or other pecuniary advantage.
Employee is not prohibited from making personal investments in any other
business provided those investments do not require active involvement in the
operation of said companies.
6. Confidentiality of Proprietary Information. Employee agrees, during or
after the term of employment, not to reveal trade secrets or confidential
information, or any part of it, to any person, firm, corporation or entity.
Should Employee reveal, or threaten to reveal, this information, the Company
shall be entitled to an injunction restraining Employee from disclosing same, or
from rendering any services to any entity to whom said information has been or
is threatened to be disclosed. The right to secure an injunction is not
exclusive, and the Company may pursue any other remedies it has against Employee
for a breach or threatened breach of this condition, including the recovery of
damages from Employee.
7. Reimbursement of Expenses. The Employee may incur reasonable expenses for
furthering the Company's business, including expenses for entertainment, travel,
and similar items. The Company shall reimburse Employee for all authorized
business expenses after Employee presents an itemized account of his
expenditures, pursuant to Company policy.
8. Disability. If Employee cannot perform his duties because of illness or
incapacity for a period of more than six months, the compensation due him during
his illness or capacity will be reduced by 50 percent. The Employee's full
compensation will be reinstated upon return to work.
<PAGE>
9. Termination of Agreement. Without cause, the Employee may terminate
employment upon thirty (30) days' written notice to the Company. Employee may be
required to perform his or her duties and will be paid the regular salary to
date of termination but shall not receive severance allowance. Notwithstanding
anything to the contrary contained in this agreement, the Company may terminate
the Employee's employment upon thirty (30) days' notice to the Employee should
any of the following events occur:
a) The sale of substantially (ninety [90] percent or more) all of the
Company's assets to a single purchaser or group of associated purchasers; or
b) The sale, exchange, or other disposition, in one transaction of the
majority of the Company's outstanding corporate shares; or
c) The Company's decision to terminate its business and liquidate its
assets;
d) Bankruptcy or chapter 11 reorganization.
11. Death Benefit. Should Employee die during the term of employment, the
Company shall pay to Employee's estate compensation due through the end of the
contract.
12. Restriction on Post Employment Compensation. For a period of one (1)
year after the end of employment, the Employee shall not control, consult to or
be employed by any business similar to that conducted by the company, either by
soliciting any of its accounts or by operating within Employer's general trading
area.
13. Assistance in Litigation. Employee shall upon reasonable notice,
furnish such information and proper assistance to the Company as it may
reasonably require in connection with any litigation in which it is, or may
become, a party either during or after employment.
14. Effect or Prior Agreements. This Agreement supersedes any prior
agreement between the Company or any predecessor of the Company and the
Employee, except that this agreement shall not affect or operate to reduce any
benefit or compensation inuring to the Employee of a kind elsewhere provided and
not expressly provided in this agreement.
15. Settlement by Arbitration. Any claim or controversy that arises out of
or relates to this agreement, or the breach of it, shall be settled by
arbitration in accordance with the rules of the American Arbitration
Association. Judgement upon the award rendered may be entered in any court with
jurisdiction.
16. Limited Effect of Waiver by Company. Should Company waive breach of
any provision of this agreement by the Employee, that waiver will not operate or
be construed as a waiver of further breach by the Employee.
17. Severability. If, for any reason, any provision of this agreement is
held invalid, all other provisions of this agreement shall remain in effect. If
this agreement is held invalid or cannot be enforced, then to the full extent
permitted by law any prior agreement between the Company (or
<PAGE>
any predecessor thereof) and the Employee shall be deemed reinstated as if this
agreement had not been executed.
18. Assumption of Agreement by Company's Successors and Assignees. the
Company's rights and obligations under this agreement will inure to the benefit
and be binding upon the Company's successors and assignees.
19. Oral Modifications Not Binding. This instrument is the entire
agreement of the Company and the Employee. Oral changes have no effect. It may
be altered only by a written agreement signed by the party against whom
enforcement of any waiver, change, modification, extension, or discharge is
sought.
Signed this 31 day of December 1994.
-- -------- --
/s/ David A Walker /s/ David P. Haberman
- ------------------------- -------------------------
DCH Technology, Inc. David P. Haberman
(Seal) JOHNNY K. NG
Comm. 1024314
NOTARY PUBLIC . CALIFORNIA
Los Angeles County
My Comm. Expires Apr. 24, 1998
<PAGE>
1
Exhibit 6.12
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
RENEWABLE ENERGIES GROUP LLC
THIS OPERATING AGREEMENT ("Agreement') is entered into as of this 31/st/ day of
July, 1998, among TECHNOLOGY TRANSITION CORPORATION ("TTC"), a District of
Columbia corporation DCH TECHNOLOGY, INC. ("DCH"), a California corporation and
RODE & ASSOCIATES LLC ("RODE"), a Connecticut limited liability company,
collectively "Members'.
WHEREAS, Technology Transition Corporation, is in the business of developing new
projects, partnerships and business ventures for renewable systems worldwide;
and
WHEREAS, DCH Technology Inc. is in the business of providing technical expertise
and gas sensing technologies that help to prevent accidents through the early
detection of any gas leaks; and
WHEREAS, Rode & Associates is in the business of providing technical and
engineering expertise with renewable technologies, risk quantification and
mitigation, and assessment of project design harmonization; and
WHEREAS, the parties wish to form and become Members of a limited liability
company to be called Renewable Energy Group, LLC (the "Company), under and
pursuant to Connecticut -Public Act No. 93-267, the Connecticut Limited
Liability Company Act. As amended; and
WHEREAS, The Members desire to form the Company for the purpose of providing
technical and engineering consulting services (the "Purpose"), and to engage in
any and all activities authorized under the Act (as hereinafter defined) that
are generally consistent with the Purpose for which the Company was formed; and
WHEREAS, The parties agree that their respective rights, powers, duties and
obligations as Members of the Company, and the management, operations and
activities of the Company, shall be governed by this Agreement;
NOW, THEREFORE, in consideration of the mutual terms, covenants and conditions
contained herein, the parties hereto hereby agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
The following terms used in this Operating Agreement shall have the following
meanings (unless otherwise expressly provided herein):
<PAGE>
2
"Articles of Organization" shall mean the Articles of Organization of Renewable
------------------------
Energies Group, LLC as filed with the Secretary of State of Connecticut, as the
same may be amended from time to time. A copy of the Articles of Organization
are attached hereto Exhibit A.
"Capital Account" as of any given date shall mean the capital Contribution of
---------------
the Company by a Member as adjusted up to the date in question pursuant to
Article VII.
"Capital Contribution" shall mean any agreed contribution to the capital of the
--------------------
Company in cash, property or services by a Member, whenever made.
"Code" shall mean the Internal Revenue Code of 1986 or corresponding provisions
----
of subsequent superseding federal revenue laws.
"Company" shall refer to Renewable Energies Group, LLC
-------
"Company Interest" shall mean with respect to each Member, such Member's
----------------
percentage interest in the profits, losses and distributions of the Company as
set forth on Exhibit B attached hereto.
"Connecticut Act" shall mean the Connecticut Limited Liability Company Act (P.A.
---------------
93-267 and revisions of P.A. 94-217).
"Deficit Capital Account" shall mean, with respect to any Member, the deficit
-----------------------
balance, if any, in such Member's Capital Account as of the end of the taxable
year.
"Distributable Cash" shall means all cash, revenues and funds received by the
------------------
Company from Company operations, less the sum of the following to the extent
paid or set aside by the Company: (i)all principal and interest payments on
indebtedness of the Company and all other sums paid to lenders; (ii) all cash
expenditures incurred incident to the normal operation of the Company's
business; (iii) such Reserves as the Managers deem reasonable and necessary to
the proper operation of the Company's business.
"Economic Interest" shall mean a Member's Economic Interest in the Company's Net
-----------------
Profits, Net Losses and distributions of the Company's assets pursuant to this
Operating Agreement and the Connecticut Act, but shall not include any right to
participate in the management or affairs of the Company, including the right to
vote on, consent to or otherwise participate in any decision of the Members of
Managers.
"Economic Interest Owner" shall mean the owner of an Economic Interest who is
-----------------------
not a Member.
"Entity" shall mean a general partnership, a limited partnership, a domestic or
------
foreign limited liability company, a trust, an estate, an association, a
corporation or another legal or commercial entity.
<PAGE>
3
"Event of Dissociation" means an event that causes a person to cease to be a
---------------------
Member, as provided in Section 41 of the Connecticut Act.
"Fiscal Year" shall mean the Company's fiscal year, which shall be the calendar
-----------
year.
"Gifting Member" shall mean any Member or Economic Interest Owner who gifts,
- ---------------
bequeaths or otherwise transfers for no consideration (by operation of law or
otherwise, except with respect to bankruptcy) all or any part of its Membership
Interest or Economic Interest.
"Initial Capital Contribution" shall mean the initial contribution to the
----------------------------
capital of the Company pursuant to this Operating Agreement as set forth on
Exhibit B attached hereto.
"Majority Interest" shall mean one or more Company Interests of Members which
-----------------
taken together exceed 50% of the aggregate of all Company Interests.
"Manager" shall mean one or more Managers designated in the manner provided in
-------
this Agreement.
"Member" shall mean each of the parties who executes a counterpart of this
------
Operating Agreement as a Member and each of the parties who may hereafter become
a Member as permitted herein. To the extent a Manager has acquired a Membership
Interest in the Company, he will have all the rights of a Member with respect to
such Membership Interest, and the term 'Member" as used herein shall include a
Manager to the extent he has acquired such Membership Interest in the Company.
If a Person is a Member immediately prior to the purchase or other acquisition
by such Person of an Economic Interest, such Person shall have all rights of a
Member with respect to such purchased or otherwise acquired Membership Interest
or Economic Interest, as the case may be.
"Membership Interest" shaft mean, a Member's entire interest in the Company
-------------------
including such Member's Economic Interest and the right to participate in the
management of the business and affairs of the Company, including the right to
vote on, consent to, or otherwise participate in any decision or action of or by
the Members granted pursuant to this Operating Agreement or the Connecticut Act.
"Net Profits" and "Net Losses" shall mean the income, gain, loss, deductions and
----------------------------
credits of the Company in the aggregate or separately stated, as appropriate,
determined in accordance with the method of accounting selected by the Managers
at the close of each fiscal year on the Company's information tax return filed
for federal income tax purposes.
"Operating Agreement" shall mean this Operating Agreement as amended from time
-------------------
to time.
"Person" shall mean an individual or Entity, and the heirs, executors,
------
administrators, legal representatives, successors, and assigns of such "Person"
where the context so permits.
<PAGE>
4
"Reserves" shall mean with respect to any fiscal period, funds set aside or
--------
amounts allocated during such period to reserves which shall be maintained in
amounts deemed sufficient by the Managers for capital expenditures, working
capital and to pay taxes, insurance, debt service or other costs or expenses
incident to the ownership or operation of the Company's business.
"Selling Member" shall mean any Member or Economic Interest Owner which sells,
--------------
assigns, or otherwise transfers for consideration all to any portion of its
Membership Interest of Economic Interest.
"Transferring Member" shall collectively mean a Selling Member and a Gifting
-------------------
Member.
"Treasury Regulations" shall include proposed, temporary and final regulations
--------------------
promulgated under the Code in effect as of the date of filing the Articles of
Organization and the corresponding sections of any regulations subsequently
issued that amend or supersede such regulations.
ARTICLE II
----------
FORMATION OF COMPANY
--------------------
Section 2.1 Formation - The Company was formed as a limited liability company
- ---------------------
under the Connecticut Act by the filing of its Articles of Organization with the
Secretary of the State of Connecticut on July 3l, 1998.
ARTICLE III
-----------
BUSINESS OF COMPANY
-------------------
Section 3.1 Permitted Business - The business of the Company shall be as set
- ------------------------------
forth in its Articles of Organization.
ARTICLE IV
----------
NAMES ADDRESSES OF MEMBERS
--------------------------
The names and addresses of the initial Members are as set forth on Exhibit B
attached hereto and incorporated herein by reference.
<PAGE>
5
ARTICLE V
---------
RIGHTS AND DUTIES OF MANAGERS
-----------------------------
Section 5.1 Management - The business and affairs of the Company shall be
- ----------------------
managed by its Managers. The Managers shall direct, manage and control the
business of the Company to the best of their ability. Except for situations in
which the approval of the Members expressly required by this Operating Agreement
or by nonwaivable provisions of applicable law, the Managers shall have full and
complete authority, power and discretion to manage and control the business,
affairs and properties of the Company, to make all decisions regarding those
matters and to perform any and all other acts or activities customary or
incident to the management of the Company's business. At any time when there is
more than one Manager, any one Manager may exercise all of the powers delegated
to the Managers herein and may take any action permitted to be taken by the
Managers, unless the approval of more than one of the Managers is expressly
required pursuant to this Operating Agreement.
Section 5.2 Number, Identity, Tenure and Qualifications of Managers - The
- -------------------------------------------------------------------
Company shall initially have the following Managers:
. Robert Mauro - TTC Corp.
. Dave Haberman - DCH Technology
. Douglas Rode - Rode & Associates
The number of Managers of the Company shall be fixed from time to time by the
affirmative vote or written consent of Members holding at least two-thirds of
all Company Interests, but in no instance shall there be fewer than one Manager.
Each Manager shall hold office until his successor shall have been elected and
qualified or such earlier time as he may resign or be removed as provided
herein. Managers shall be elected by the affirmative vote or written consent of
Members holding at least a Majority Interest. A Manager need not be a Member.
Section 5.3 Certain Powers of Managers - Without limiting the generality of
- --------------------------------------
Section 5.01, the Managers shall have power and authority on behalf of the
Company.
(a) To acquire property from any person as any Manager may determine.
(b) To borrow money for the Company from banks, other lending institutions, the
Managers, Members or affiliates of the Managers or Members on such terms as any
of the Managers deem appropriate and in connection therewith, to mortgage,
hypothecate, encumber and grant security interest in the assets of the Company
to secure repayment of the borrowed sums.
(c) To purchase liability and other insurance to protect the Company's property
an business.
(d) To hold and own any Company real and/or personal properties in the name of
the Company.
<PAGE>
6
(e) To invest any Company funds temporarily (by way of example but not
limitation) in time deposits, short-term governmental obligations, commercial
paper or other investments.
(f) Upon the affirmative vote or written consent Members holding at least two-
thirds of all Company Interests, to sell or otherwise dispose of all or
substantially all of the assets of the Company as part of the single transaction
or plan;
(g) To execute on behalf of the Company all instruments and documents,
including, without limitation, checks, drafts, notes and other negotiable
instruments, mortgages or deeds of trust- security agreements, financing
statements, documents providing for the acquisition, mortgage or disposition of
the Company's property, assignments, bills of sale, leases, partnership
agreements, operating agreements of other limited liability companies- and any
other instruments or documents necessary or appropriate, in the opinion of the
Managers, to the business of the Company.
(h) To employ accountants, legal counsel, managing agents or other experts to
perform services for the Company and to compensate them from Company funds.
(i) To enter into any and all other agreements on behalf of the Company, with
any other Person for any purpose, in such forms as any Managers may approve; and
(j) To do and perform all other acts as may be necessary or appropriate to the
conduct of the Company's business.
Unless authorized to so do by this Operating Agreement or by written
authorization of a Manager or Managers of the Company, no attorney-in-fact,
employee or another agent of the Company shall have any power or authority to
bind the Company in any way, to pledge its credit or to render it liable for any
purpose. No Member (other than a Member who is also a Manager) shall have any
power or authority to bind the Company unless the Member has been authorized by
the Manager to act as an agent of the Company in accordance with the previous
sentence.
Section 5.4 Managers Have No Exclusive Duty to Company - The Managers shall not
- ------------------------------------------------------
be required to manage the Company as their sole and exclusive function and they
may have other business interests and may engage in other activities in addition
to those relating to the Company.
Section 5.5 Bank Accounts - The Managers may from time to time open bank
- -------------------------
accounts in the name of the Company, and the Managers shall be the sole
signatories thereon, unless the Managers determine otherwise.
Section 5.6 Company Books - In accordance with Section 9.02 herein, the Managers
- -------------------------
shall maintain and preserve, during the term of the Company, and for five (5)
years thereafter, A accounts, books and other relevant Company documents. Upon
reasonable request, each Member and Economic Interest Owner shall have the right
during ordinary business hours, to inspect and copy such Company documents at
the requesting Member's and Economic Interest Owner's expense.
<PAGE>
7
Section 5.7 Indemnity of Managers - The Company shall indemnify the Managers
- ---------------------------------
from and against any claim by any third party seeking monetary damages against
such Manager arising our of such Manager's performance of his duties in good
faith in accordance with Section 22 of the Connecticut Act.
Section 5.8 Resignation - Any Manager of the Company may resign at any time by
- -----------------------
giving written notice to the Members of the Company. The resignation of any
Manager shall take effect upon receipt of notice thereof or at such later time
as shall be specified in such notice; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
The resignation of a Manager who is also a Member shall not constitute a
withdrawal of a Member.
Section 5.9 Removal - Any Manager may be removed at any time, with or without
- -------------------
cause, by the affirmative vote or written consent of Members holding a Majority
Interest. The removal of a Manager who is also a Member shall not, by itself,
affect the Managers rights as a Member and shall not constitutes a withdrawal of
a Member.
Section 5.10 Vacancies - Any vacancy occurring for any reason in the number of
- ----------------------
Managers of the Company may be filled by the affirmative vote or written consent
of Members holding a Majority Interest.
Section 5.11 Compensation of Managers - The Managers shall receive no
- -------------------------------------
compensation for their services, as such.
ARTICLE VI
----------
RIGHTS AND OBLIGATION OF MEMBERS
--------------------------------
Section 6.1 Limitation of Liability - Each Member's liability shall be limited
- -----------------------------------
as set forth in this Operating Agreement, the Connecticut Act and other
applicable laws.
Section.6.2 List of Members - Upon written request of any Member, the Managers
- ---------------------------
shall provide a list showing the names, addresses and Membership Interests and
Economic Interests of all Members.
Section 6.3 Priority and Return of Capital - Except as may be expressly provided
- ------------------------------------------
in Article VIU, no Member or Economic Interest Owner shall have priority over
any other Member or Economic Interest Owner, either as to the return of Capital
Contributions or as to Net Profits, Net Losses or distributions; provided that
this Section shall not apply to repayment of loans (as distinguished from
Capital Contributions) which a Member has made to the Company.
<PAGE>
8
ARTICLE VII
-----------
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
-------------------------------------------------
Section 7.1 Members' Capital Contributions - Each Member shall contribute such
- ------------------------------------------
cash, property or services as is set forth in Exhibit B hereto as its share of
the Initial Capital Contribution.
Section 7.2 Additional Contributions - Except as set forth in Section 7. 1, no
- ------------------------------------
Member shall be required to make any Capital Contribution. The Managers may
determine from time to time that additional Capital Contributions are necessary
of appropriate in connection with the conduct of the Company's business
(including without limitation, expansion or diversification or to meet operating
deficits). In such event, the Members shall have the opportunity (but no the
obligations to participate in such additional Capital Contributions on a pro-
rate basis in accordance with their respective Company Interests.
Section 7.3 Failure to Contribute After Notice - In the event any Member shall
- ----------------------------------------------
fail to contribute his full, pro-rate share of any additional capital
contribution, then the company interests of all Members shall be adjusted by the
Managers to reflect such capital contributions as have been actually made.
Section 7.4 Capital Accounts
- -----------------------------
(a) A separate Capital Account will be maintained for each Member. In general,
each Member's Capital Account will be- (1) increased by (a) the amount of
money contributed by such Member to the Company; (b) the agreed fair market
value of property of services contributed by such Member to the Company
(net of liabilities secured by such contributed property that the Company
is considered to assume or take subject to under Section 752 of the Code;
(c) allocations to such Member of Net Profits and; (H) decreased by (a) the
amount of money distributed to such Member by the Company, (b) the fair
market value of property distributed to such Member by the Company (net of
liabilities secured by such distributed property that such Member is
considered to assume or take subject to under Section 752 of the Code)- and
(c) allocations to the account of such Member Net Losses. Capital Accounts
will be maintained in accordance with the requirements of 704(b) of the
Code and Treasury Regulations promulgated thereunder.
(b) In the event of a permitted sale or exchange of a Membership Interest or an
Economic Interest in the Company, the Capital Account of the transferor
shall become the Capital Account of the Transferee to the extent it relates
to the transferred Membership Interest of Economic Interest in accordance
with Section 1.704-1 (b)(2)(iv) of the Treasury Regulations.
(c) Upon liquidation of the Company (or the Member's Membership Interest or
Economic Interest Owner's Economic Interest), liquidation distributions
will be made in accordance with the positive Capital Account balances of
the Members and Economic Interest Owners, as determined after taking into
account all Capital Account adjustments for the Company's taxable year
during which the liquidation occurs.
<PAGE>
9
Liquidation proceeds will be paid within sixty days of the end of the
taxable year (or, if later, within 120 days after the date of the
liquidation). The Company may offset damages for breach of this Operating
Agreement by a Member or Economic Interest Owner whose interest is
liquidated (either upon the withdrawal of the Member of the liquidation of
the Company against the amount otherwise distributable to such Member.
(d) Except as otherwise required in the Connecticut Act (and subject to Section
7.1 and 7.2), no Member or Economic Interest Owner shall have any liability
to restore all or any portion of a deficit balance in such Member's or
Economic Interest Owner's Capital Account.
ARTICLE VIII
------------
ALLOCATTONS, INCOME TAX AND DISTRIBUTIONS
-----------------------------------------
Section 8.1 Allocations of Profits and Losses-The Net Profits and Net Losses of
- ---------------------------------------------
the Company for each Fiscal Year will be allocated to the Members in the manner
determined by the Managers to reasonably reflect the Members' interests in
accordance with the percentage allocations set forth in Exhibit B attached
hereto and in compliance with applicable tax law.
Section 8.2 Distributions - Except as provided in Section 7.4(c), all
- -------------------------
distributions of cash or other property shall be made to the Members pro rate in
proportion to the respective Capital Interests of the Members on the record date
of such distribution. Except as provided in Section 8.4, all distributions of
Distributable Cash and property shall be made at such time as determined by the
Manager. No Member shall have the right to demand and receive property other
than cash irrespective of the nature of its Capital Contribution. AR amounts
withheld pursuant to the Code or any provisions of the state or local tax law
with respect to any payment or distribution to the Members from the Company
shall be treated as amounts distributed to the relevant Member or Members
pursuant to this Section 8.2
Section 8.3 Limitation Upon Distributions - No distributions shall be declared
- -----------------------------------------
and paid unless, after the distribution is made, the assets of the Company are
in excess of all liabilities of the Company, except liabilities to Members on
account of their contributions.
Section 8.4 Interest on and Return of Capital Contributions - No Member shall be
- -----------------------------------------------------------
entitled to interest on its Capital Contribution or to return of its Capital
Contribution, except as otherwise specifically provided for herein.
Section 8.5 Loans to Company - Nothing in this Operating Agreement shall prevent
- ----------------------------
any Member from making secured or unsecured loans to the Company by agreement
with the Company.
<PAGE>
10
Section 8.6 No Right to Distribution - Anything in this Agreement or in Section
- ------------------------------------
30 of the Connecticut Act to the contrary notwithstanding, no Member shall be
entitled to receive any distribution of money or other property in excess of
$1.00 by reason of such persons ceasing to be a Member, except (i) upon
dissolution of the Company, or (ii) upon affirmative vote or written consent of
Members holding a Majority Interest.
ARTICLE IX
----------
ACCOUNTING, REPORTS
-------------------
Section 9.1 Accounting Period - The Company's accounting period shall be the
- -----------------------------
calendar year.
Section 9.2 Records, Audits and Reports - The Managers shall maintain records
- ---------------------------------------
and accounts of d operations and expenditures of the Company. At a minimum the
Company shall keep at its principal place of business the following records:
(a) A current and a past list setting forth in alphabetical order the full name
and last known business, residence or mailing address of each Member,
Economic Interest Owner and Manager, both past and present;
(b) A copy of the Articles of Organization of the Company and all amendments
thereto, together with executed copies of any powers of attorney pursuant
to which any articles of amendment have been executed;
(c) Copies of the company's federal, state and local income tax returns and
financial statements for the three most recent years, or, if such returns
or statements were not prepared for any reason, copies of the information
and statements provided to, or which should have been provided to, the
Members to enable them to prepare their federal, state and local tax
returns for such period;
(d) Copies of the Company's current effective written Operating Agreement and
all amendments thereto and copies of any written operating agreements no
longer in effect;
(e) A writing setting forth the amount of cash, if any, and a statement of the
agreed value of other property or services contributed by each Member and
the times at which or the events upon the happening of which any additional
contributions are to be made by each Member;
(f) A writing stating events, if any, upon the happening of which the Company
is to be dissolved and its affairs wound up;
(g) Other writings, if any, prepared pursuant to a requirement in this
Operating Agreement;
Section 9.3 Returns and Other Elections - The Managers shall cause the
- ---------------------------------------
preparation and timely filing of all returns required to be filed by the Company
pursuant to the Code and all other tax returns deemed necessary and required in
each jurisdiction in which the Company does business. Copies of such returns, or
pertinent information therefrom, shall be furnished to the Members as soon as
practical after the end of the Company's fiscal year
<PAGE>
11
but in any event prior to the date upon which Federal and Connecticut State tax
returns are required to be filed by Members;
All elections permitted to be made by the Company under federal or state laws
shall be made by the Managers in their sole discretion, provided that the
Managers shall make any tax election requested by Members owning a Majority
Interest.
ARTICLE X
---------
TRANSFERABILITY
---------------
Section 10.1 General
- --------------------
(a) No Member shall have the right to sell, assign, transfer, pledge,
hypothecate, exchange or otherwise transfer for consideration,
(collectively, "sell'), or gift, bequeath or otherwise transfer for no
consideration (whether or not by operation of law, except in the case of
bankruptcy) all or any part of its Membership Interest or Economic
Interest, except in accordance with this Article X.
(b) In the event of either the sale of the Selling Member's interest in the
Company to a third party purchaser or the gift of an interest in the
Company (including an Economic Interest), and as a condition to recognizing
one or more of the effectiveness and binding nature of any such sale or
gift and (subject to Section 10.2, below) substitution of a new Member as
against the Company or otherwise, the remaining Members may require the
Selling Member or Gifting Member and the proposed purchases, donee or
successor-in-interest, as the case may be, to execute, acknowledge and
deliver to the remaining Members such 'instruments of transfer, assignment
and assumption and such other certificates, representations and documents,
and to perform all such other acts which the remaining Members may deem
necessary or desirable to:
i. constitute such purchaser, as a Member, donee or successor-in-
interest as such;
ii. confirm that the person desiring to acquire an interest or
interests in the Company, or to be admitted as a Member, has
accepted, assumed and agreed to be subject and bound by all the
terms, obligations and conditions of the Operating Agreement, as
the same may have been further amended (whether such Person is to
be admitted as a new Member or will merely be an Economic Interest
Owner);
iii. preserve the Company after the completion of such sale, transfer,
assignment, or substitution under the law of each jurisdiction in
which the Company is qualified, organized or does business;
iv. maintain the status of the Company as a partnership for federal tax
purposes; and
v. assure compliance with any applicable state and federal laws
including securities laws and regulation.
(c) Any sale or gift of a Membership interest or Economic Interest or admission
of a Member in compliance with ties Article X shall be deemed effective as
of the last day of the calendar month in which the, remaining Members'
consent thereto was given.
<PAGE>
12
(d) The Selling Member hereby indemnifies the Company and the remaining Members
against any and all loss, damage, or expense (including, without
limitation, tax liabilities or loss of tax benefits) arising directly or
indirectly as a result of any transfer or purported transfer in violation
of the Article X.
Section 10.2 Transferee Not Member in Absence of Consent of Holder of Majority
- ------------------------------------------------------------------------------
Interest
- --------
(a) Except as provided in Section 10.2(b) below, notwithstanding anything
contained herein to the contrary, if Members, other than the Transferring
Member, holding more than 50% of the Company Interests held by Members
other than the Transferring Member do not approve, by written consent, of
the proposed sale or gift, then the proposed transferee or donee shall no
right to participate in the management of the business and affairs of the
Company or to become a Member. The transferee or donee shall be merely an
Economic Interest Owner. No transfer of a Member's interest in the Company
(including any transfer of the Economic Interest or any other transfer
which has not been approved by written consent of the Members holding a
Majority Interest) shall be effective unless and until written notice
(including the name and address of the proposed transferee or donee and the
date of such transfer) has been provided to the Company and the non-
transferring Members.
(b) A Transferring Member may gift all or any portion of its Membership
Interest and Economic Interest without regard to Section 10.2(a) provided
that the donee or other successor-in-interest (collectively, "donee")
complies with Section 10.2(b) and further provided that the donee is either
the Gifting Member's spouse, former spouse, or lineal descendent (including
adopted children). In the event of the gift of all or any portion of a
Gifting Member's Membership Interest or Economic Interest to one or more
donees who are under 25 years of age, one or more trusts shall be
established to hold the gifted interest for the benefit of such donees
until all of the donees reach the age of at least 25 years.
(c) Upon and contemporaneously with any sale or gift of a Transferring Members
Economic Interest in the Company which does not at the same time transfer
the balance of the rights associated with the Economic Interest transferred
by the Transferring Member (including, without limitation, the rights of
the transferring Member to participate in the management of the business
and affairs of the Company), the Company shall purchase from the
Transferring Member, and the Transferring Member shall sell to the Company
for a purchase price of $1 00. 00, all remaining rights and interest
retained by the Transferring Member which immediately prior to such sale or
gift were associated with the transferred Economic Interest/
<PAGE>
13
ARTICLE XI
----------
ADDITIONAL MEMBERS
------------------
From the date of the formation of the Company, any person acceptable to Members
holding a Majority Interest by their written consent may become a Member in the
Company either by the issuance by the Company of Membership Interests for such
consideration as Members holding a Majority Interest by their written consent
shall determine, or as a transferee of a Member's Membership Interest or any
portion thereof subject to the terms and condition of this Operating Agreement.
No new Members shall be entitled to any retroactive allocation of losses, income
or expense deductions incurred by the Company. The Managers may, at their
option, at the time a Member is admitted, close the Company books (as though the
Company's tax year had ended) or make pro-rate allocations of loss, income and
expense deductions to a new Member only for that portion of the Company's tax
year in which a Member was admitted in accordance with the provisions of Section
706(d) of the Code and Treasure Regulations promulgated thereunder.
ARTICLE XII
-----------
DISSOLUTION AND TERMINATION
---------------------------
Section 12.1 Dissolution
- ------------------------
(a) The Company shall be dissolved and its affairs shall be wound up upon the
happening of any of the first to occur of the following:
i. at the time specified in its Articles of Organization;
ii. upon written consent of Members holding at least a Majority
Interest; or
iii. following an Event of Dissociation of a Member, unless there are at
least two remaining Members and the business of the Company is
continued by the written consent of remaining Members holding a
Majority Interest within 90 days after the Event of Dissociation;
and
iv. upon the entry of a decree of final dissolution under Section 43 of
the Connecticut Act.
(b) As soon as possible following the occurrence of any of the events specified
in this Section 12.1 effecting the dissolution of the Company, the Managers
shall proceed to wind up the Company's business in accordance with the
Section 45 of the Connecticut Act.
(c) Except as expressly permitted in this Operating Agreement, a Member shall
not voluntarily resign or take any other voluntary action which directly
causes an event of Dissociation. Unless otherwise approved in writing by
Members owning a Majority Interest, a Member who resigns (a "Resigning
Member") or whose Membership Interest is otherwise terminated by virtue of
an Event of Dissociation, regardless of whether such Event of Dissociation
was the result of voluntary act by such Member, shall not be entitled to
receive any distributions to which such Member would not have been entitled
had such Member remained a Member. Except as otherwise expressly provided
hereir4 a Resigning Member shall become an Economic Interest Owner.
<PAGE>
14
Damages for breach of this Section 11.1(c) shall be monetary damages only (and
not specific performance), and such damages may be offset against distributions
by the Company to which the Resigning Member would otherwise be entitle.
ARTICLE XIII
------------
MISCELLANEOUS PROVISIONS
------------------------
Section 13.1 Notices - Any notice, demand or communication required to permitted
- --------------------
to be given by any provision of this Operating Agreement shall be deemed to have
been sufficiently given or served for all purposes if delivered personally to
the party or to an executive office of the party to whom the same is directed
or, if sent by registered or certified mail, postage and charges prepaid,
addressed to the Member's and/or Company's address, as appropriate, which is set
forth in this Operating Agreement. Except as otherwise provided herein, any such
notice shall be deemed to be given three business days after the date on which
the same was deposited in a regularly maintained receptacle for the deposit of
United States mail, addressed and set as aforesaid.
Section 13.2 Application of Connecticut Law - This Operating Agreement, and the
- -------------------------------------------
application of interpretation hereof, shall be governed exclusively by its terms
and the laws of the State of Connecticut, and specifically the Connecticut Act.
Section 13.3 Waiver of Action for Partition - Each Member and Economic Interest
- -------------------------------------------
Owner irrevocably waives during the term of the Company any right that it may
have to maintain any action for partition with respect to the property of the
Company.
Section 13.4 Amendments - This Operating Agreement may not be amended except by
- -----------------------
the unanimous written agreement of all the Member.
Section 13.5 Execution of Additional Instruments - Each Member hereby agrees to
- ------------------------------------------------
execute such other and further statement of interest and holdings, designations,
powers of attorney and other instruments necessary to comply with any laws,
rules or regulations.
Section 13.6 Construction - Whenever the singular number is used in this
- -------------------------
Operating Agreement and when required by the context, the same shall include the
plural and vice versa, and the masculine gender shall include the feminine and
neuter genders and vice versa.
Section 13.7 Headings - The headings in this Operation Agreement are inserted
- ---------------------
for convenience only and are in no way intended to describe, interpret, define
or limit the scope, extent or intent of this Operating Agreement or any
provision hereof
Section 13.8 Waivers - The failure of any party to seek redress for violation of
- --------------------
or to insist upon the strict performance of any covenant or condition of this
Operating Agreement
<PAGE>
15
shall not prevent a subsequent act, which would have originally constituted a
violation, from having the effect of an original violation.
Section 13.9 Rights and Remedies Cumulative - The rights and remedies provided
- -------------------------------------------
by this Operating Agreement are cumulative and the use of any one right or
remedy by any party shall not preclude or waive the right to use any or all
other remedies. Said rights and remedies are given in addition to any other
rights the parties may have be law, statute, ordinance or otherwise.
Section 13. 10 Severability - If any provision of this Operating Agreement or
- ---------------------------
the application thereof to any person or circumstance shall be invalid, illegal
or unenforceable to any extent, the remainder of this Operating Agreement and
the application thereof shall not be affected and shall be enforceable to the
fullest extent permitted by law.
Section 13.11 Heirs,. Successors and Assigns - Each and all of the covenants,
- --------------------------------------------
terms, provisions and agreement herein contained shall be binding upon the inure
to the benefit of the parties hereto and, to the extent permitted by this
Operating Agreement, their respective heirs, legal representatives, successors
and assigns.
Section 13.12 Creditors - None of the provisions of this Operating Agreement
- -----------------------
shall be for the benefit of or enforceable by any creditor of the Company.
Section 13.13 Counterparts - This Operating Agreement may be executed in
- --------------------------
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
Section 13.14 Rule Against Perpetuities - The parties hereto intend that the
- ---------------------------------------
Rule against Perpetuities (and any similar rule of law) not be applicable to any
provisions of this Operating Agreement. However, notwithstanding anything to the
contrary in this Agreement would be invalid or unenforceable because of the Rule
against Perpetuities or any similar rule of law but for this Section 13.14, the
parties hereto hereby agree that any future interest which is created pursuant
to said provision shall cease if it is not vested within twenty-one years after
the death of the survivor of the group composed of the initial Members who are
individuals and their issue who are living on the date of this Operating
Agreement and their issue, if any, who are living on the effective date of this
Operating Agreement.
<PAGE>
16
IN WITNESS WHEREOF, the undersigned Member has hereunto set his hard or caused
this instrument to be executed as of the day of July, 1998.
/s/ ROBERT MAURO
- ------------------------------------
Robert Mauro
TTC Corp.
/s/ DAVID HABERMAN
- ------------------------------------
David Haberman
DCH Technology Inc.
/s/ DOUGLAS RODE
- ------------------------------------
Douglas Rode
Rode & Associates LLC
<PAGE>
17
Exhibit A
---------
Articles of Organization as Filed with the Secretary of State in Connecticut
<PAGE>
18
Exhibit B
---------
Initial Members
of
Renewable Energies Group, LLC
Name & Address Agreed Agreed Percentage
Contribution Value of Interest in
Contribution Profits, Losses &
Distributions
Technology Transition Corp 33.33%
1800 M Street NW, Suite 300
Washington, DC 20036-5802
DCH Technology, Inc. 33.33%
27811 Avenue Hopkins, Suite 6
Valencia, CA 91355
Rode & Associates 33.33%
66 Cedar Street Suite 104
Newington, CT 06111
<PAGE>
EXHIBIT 6.13
OPERATING AGREEMENT
OF
INFRASOL LLC
THIS OPERATING AGREEMENT (this "Agreement"), dated and effective as of July 31,
1998, is by and among TECHNOLOGY TRANSITION CORPORATION, a District of Columbia
corporation ("TTC'), and DCH TECHNOLOGY, INC., a Colorado corporation ("DCH"),
as Members.
RECITALS:
WHEREAS, TTC is engaged in, among other activities, project development and
commercialization services, as well as standards development and certification,
and desires to make its expertise available to the Company (as defined
hereinbelow) for as long as TTC owns 20% of the interests of the Company and for
a period of up to two years thereafter;
WHEREAS, DCH is engaged in, among other activities, the development and
application of hydrogen sensor technology and desires to make such technology,
applications, and resulting products available to the Company;
WHEREAS, TTC and DCH desire to form INFRASOL LLC (the "Company") as a limited
liability company under the laws of the State of Maryland for the purposes set
forth herein and, accordingly, desire to enter into this Agreement in order to
establish the manner in which the business and affairs of the Company shall be
managed and to determine their respective rights, duties and obligations with
respect to the Company.
NOW THEREFORE, the parties hereto agree that the operating agreement of INFRASOL
LLC shall be as follows:
ARTICLE I
---------
DEFINITIONS
-----------
Capitalized terms that are not otherwise defined in the body of this Agreement
shall have the following meanings:
Available Cash: for any fiscal period, Available Cash to the Members, of
whatever source or nature, which the Board of Managers determines in the
exercise of its sole discretion is available for distribution and is not
necessary to pay expenses and obligations of the Company, to fund reasonable
reserves, or to make any other expenditure by the Company.
Board of Managers or Managers: the individuals selected by the Members in
accordance with this Agreement who have the continuing, exclusive authority,
pursuant to this Agreement, to manage the Company.
<PAGE>
Capital Contribution: with respect to each Member, the total amount of cash, the
principal amount of any promissory note, or the agreed fair market value of any
property contributed by such Member (net of any liabilities assumed by the
Company and any liabilities to which such property is subject) in accordance
with this Agreement.
Capital Transaction: means the sale of all or substantially all of the assets of
the Company.
Code: the Internal Revenue Code of 1986, as amended from time to time, at the
time of reference thereto.
Fair Market Value: for any Unit means (a) the Fair Market Value of the Unit
agreed to by the selling Unit holder and the member having the right to purchase
such Unit; or (b) if the parties are unable to agree to the Fair Market Value
within 15 days after the notice giving rise to such sale, then the Fair Market
Value of the Unit shall be determined by the average of two appraisals of the
Company conducted as of the date of such notice by independent appraisers
generally recognized as experts in the valuation of business entities, with one
appraiser chosen by each of the selling Unit holder and the member having the
right to purchase, with the Company bearing the cost of the appraisals. The
appraisals shall take into account discounts for minority and nonvoting
interests or lack of marketability.
Invested Capital. means the amount of cash and the fair market value of assets
contributed to the Company by any Member reduced by any prior distribution of
Available Cash to such Member pursuant to Section 4. I.C(i).
Net Income and Net Loss: for any fiscal year means the net income or net loss of
the Company for federal income tax purposes for such year as determined by the
accountants for the Company without regard to any adjustments to basis pursuant
to Sections 734 or 743 of the Code, but subject to the following adjustments:
(i) Any income of the Company that is exempt from federal income tax shall be
added to such taxable income or loss.
(ii) Any expenditures of the Company described in Code Section 705(a)(2)(B),
or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury
Regulations (S)1.704- I (b)(2)(iv)(i), shall be subtracted from such taxable
income or loss.
(iii) If the fair market value on the date that an asset is contributed to the
Company (or if the basis of such asset for book purposes is adjusted under the
Treasury Regulations, such adjusted "book" basis) differs from its adjusted
basis for federal income tax purposes at the beginning of such year or other
period, in lieu of the depreciation, amortization and other cost recovery
deductions taken into account for computing such taxable income or loss, the
amount for depreciation, amortization and other cost recovery deductions shall
be equal to an amount which bears the same ratio to such beginning fair market
value (or adjusted "book" basis) as the federal income tax deduction for such
year or other period bears to such beginning adjusted tax basis.
<PAGE>
(iv) If the value at which an asset is carried on the books of the Company
differs from its adjusted tax basis and gain or loss is recognized from a
disposition of such asset, the gain or loss shall be computed by reference to
the asset's "book" basis rather than its adjusted tax basis.
Officers: the persons elected by the Board of Managers to serve as officers of
the Company.
Percentage Interest: with respect to each Member, such Member's percentage of
certain specified rights, benefits, duties and obligations by virtue of being a
Member of the Company and holding Units in the Company as set forth on Schedule
A of this Agreement.
Substitute Member: any person who, in accordance with the provisions of this
Agreement, acquires Units in the Company by Transfer from an existing Member and
is admitted to the Company as a Substitute Member with respect to the Units so
acquired.
Transfer: means to endorse, sell, give, pledge, encumber, assign, transfer or
otherwise dispose of, voluntarily or involuntarily or by operation of law, the
subject right, interest, or document.
Unit(s): has the meaning set forth in Section 3.4. 3 -
ARTICLE II
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FORMATION; NAME; PRINCIPAL OFFICE;
----------------------------------
PURPOSE; TERM
-------------
Section 2.1 Formation.
The parties have formed INFRASOL LLC as a limited liability company under the
Maryland Limited Liability Company Act, MD. CORPS. & ASSNS CODE ANN., (S) 4A-101
et seq. (the "LLCAct").
Section 2.2 Principal Office and Resident Agent.
The present address of the principal office of the Company in the State of
Maryland is 11 East Chase Street, Baltimore, Maryland 21202. The name and
address of the resident agent of the Company in the State of Maryland is CSC-
Lawyers Incorporating Service Company, 11 East Chase Street, Baltimore, Maryland
21202. Said resident agent is a Maryland corporation.
Section 2.3 Purpose.
The purposes for which the Company is formed and the business and objects to be
carried on and promoted by it are as follows:
(i) To develop technology solutions in connection with infrastructure
assessment, expansion, evolution, and safety applications, to own, use, license,
purchase, and sell related technology and technology rights, and to provide
other project and technology services;
<PAGE>
(ii) To obtain financing for the ownership of the property and assets of the
Company and the operation of its business;
(iii) To do and perform all acts necessary or desirable to carry out any of
the foregoing purposes; and
(iv) To engage in any one or more businesses or transactions, or to acquire
all or any portion of any entity engaged in any one or more businesses or
transactions which the Board of Managers may from time to time authorize or
approve, whether or not related to the business described elsewhere in this
Section 2.3 or to any other business at the time or theretofore engaged in by
the Company.
The foregoing enumerated purposes shall be in addition to and not in limitation
of the general powers of limited liability companies under the LLC Act.
Section 2.4 Articles of Organization.
The Members have caused articles of organization of the Company (the "Articles
of Organization") to be executed by an authorized person (within the meaning of
Section 4A- 101(c) of the LLC Act) and filed for record with the Maryland State
Department of Assessments and Taxation (the "SDAT") before the date of this
Agreement. The Officers and Managers shall take all necessary action to maintain
the Company in good standing as a limited liability company under the LLC Act,
including (without limitation) the filing of any certificates of correction,
articles of amendment and such other applications and certificates as may be
necessary to protect the limited liability of the Members and to cause the
Company to comply with the applicable laws of any jurisdiction in which the
Company owns property or does business.
Section 2.5 Term.
The Company shall have perpetual existence beginning on the date that the
Articles of Organization are filed and received by the SDAT; provided, however,
that the Company may be dissolved in accordance with Section 8.1 of this
agreement.
Section 2.6 Liability of the Members
No Member shall be liable under a judgment, decree or order of a court, or in
any other manner for the debts or any other obligations or liabilities of the
Company solely by reason of being a Member of the Company. A Member shall be
liable only to make the contributions described in Section 3.1 hereof, and shall
not be required to lend any funds to the Company, or to make any other
contributions, assessments or payments to the Company.
Section 2.7 Classification of the Company for Tax Purposes
The Members hereby acknowledge their intention that the Company be classified,
for federal and state income tax purposes, as a partnership and not as an
association taxable as a corporation pursuant to Section 7701(a)(2) of the Code
and the Income Tax Regulations promulgated
<PAGE>
thereunder (the "Treasury Regulations"). Each Member hereby covenants and agrees
that, without the consent of all other Members, he will not file on behalf of
the Company a Form 8832 to change the tax classification of the Company or take
any other action inconsistent with such intent.
ARTICLE III
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MEMBERS; INTERESTS IN THE COMPANY;
----------------------------------
CAPITAL CONTRIBUTIONS
---------------------
Section 3.1 Members and capital contributions
A. The respective names, addresses for notice, number of Units, Capital
Contributions and Percentage Interests of the Members are as set forth in
Schedule A. Schedule A shall be amended from time to time to reflect any changes
to the information set forth therein.
B. Each Member (other than a Member who solely holds Class B Units, as defined
in Section 3.4), prior to or simultaneously with its execution and delivery of
this Agreement, has made its initial Capital Contribution to the Company in the
amount appearing next to its name in Schedule A, and (i) with respect to TTC, in
accordance with the terms of the form of promissory note attached hereto as
Exhibit I and (ii) with respect to DCH, in accordance with the provisions of
Section 7.1 below.
Section 3.2 Additional Capital Contributions.
A. Other than the capital contributions of the Members required under Section
3.1, no Member shall be required to make any further capital contributions to
the Company or to lend any funds to the Company.
B. The Board of Managers, on behalf of the Company, may from time to time seek
and accept from one or more Members selected by the Board of Managers additional
capital contributions of cash or in-kind contributions of property on such terms
and subject to such conditions as may be determined by the Board of Managers in
its sole discretion.
Section 3.3 Additional Members.
A. One or more persons may be admitted to the Company from time to time as
additional Members or as Substitute Members upon such terms and subject to such
conditions as may be determined by the Board of Managers.
B. In addition to any other requirements set forth in this Agreement, no
person shall be admitted to the Company as an additional or Substitute Member
unless and until such person has accepted and agreed to all the provisions of
this Agreement by executing a counterpart signature page hereto or an amendment
to this Agreement.
Section 3.4 Issuance and Classification of Units.
<PAGE>
A. Each Member's ownership interest in the Company shall be represented by
units of membership interest (each, a "Unit," and in the plural, "Units"). An
unlimited number of Units are authorized. Units may, but need not be,
certificated. The Units shall be divided into two classes: "Class A Units" and
"Class B Units." Unless otherwise expressly provided in this Agreement to the
contrary, (i) all Units shall be classified as Class A Units; (ii) any reference
to "Units" shall include Class A Units and Class B Units; and (iii) any
reference to "Members" or a "Member" shall include the holders of Class A Units
and the holders of Class B Units, except as expressly limited by the terms of
the following Subsection 3.4(B). Each Member's share of the profits and losses
of the Company, right to receive distributions from the Company and voting
powers shall be in proportion to the number and class of Units held by that
Member.
B. The Class B Units are ownership interests in the Company that will be
granted pursuant to the INFRASOL LLC Equity Participation Plan (the "Plan"),
attached hereto as Exhibit 2, and which shall entitle the holder thereof only to
the rights and obligations expressly set forth in this Agreement. The Class B
Units are intended to constitute solely profits interests at and as of the time
of their issuance. The following is a description (which is qualified in its
entirety by the other provisions of this Agreement) of the particular
distinctions and limitations applicable to the Class B Units: (i) the Class B
Units shall be issued in accordance with the Plan and each recipient shall make
a Capital Contribution of Ten Dollars ($10.00) per Unit to the Company with
respect to the Class B Units issued to him or her; and (ii) except as may be
expressly provided in this Agreement or as required by the LLC Act, the holders
of Class B Units, in their capacities as such, shall not be entitled to
participate in the business and affairs of the Company or to vote on any matters
requiring the consent or approval of the Members. The Board of Managers is
hereby authorized to issue Class B Units pursuant to the Plan.
Section 3.5 Capital Accounts.
A. An individual capital account (the "Capital Account") shall be maintained
for each Member. The Capital Account of a Member shall consist of the Capital
Contribution made by such Member and shall be increased by (a) the amount of any
additional Capital Contributions by such Member and (b) the amount of all Net
Income (and any item thereof) allocated to such Member, and decreased by (c) the
amount of all distributions to such Member and (d) the amount of all Net Loss
(and any item thereof) allocated to such Member. The Capital Accounts shall be
determined, maintained and adjusted in accordance with the Code and the Treasury
Regulations promulgated thereunder, including the capital account maintenance
rules in Treasury Regulations (S)1.704-(1)(b)(2)(iv).
B. If any Member shall advance or lend any monies to the Company, the amount
of any such loan shall not increase the Member's Capital Account or affect in
any way its Units or its allocation of the profits, losses or distributions of
the Company.
Section 3.6 General Rules Relating to Capital of the Company.
A. No Member shall be personally liable for the return of the capital
contributions of the Members, or any portion thereof, it being expressly
understood that any such return of contributions shall be made solely from the
Company assets.
<PAGE>
B. Except as expressly provided herein, no Member shall have the right to
withdraw or receive a return of all or any part of such Member's capital
contributions. No Member shall have any right to demand or receive property
(other than cash) in return of capital contributions.
ARTICLE IV
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ALLOCATIONS AND DISTRIBUTIONS
-----------------------------
Section 4.1 Distributions Prior to Dissolution and Termination.
A. Except as provided in Section 4.1.C, Prior to the dissolution and
termination of the Company, Available Cash shall be distributed at such times
and in such amounts as shall be determined by the Board of Managers in it sole
and absolute discretion as follows: (i) twenty percent (20%) to the persons (the
"Management Team") listed in Schedule B attached hereto, in such proportions as
set forth therein, and (ii) eighty percent (80%) to the Members in proportion to
the number of Units held by each Member.
B. Schedule B may be amended from time to time by the Board of Managers in its
sole and absolute discretion. With respect to any person whose name appears in
Schedule B, the Company, its Officers, and Directors shall have no liability
arising out of the deletion of such person's name from Schedule B or the
modification of such person's percentage of distributions as set forth therein,
and the appearance of any person's name in Schedule B and the designation of
such percentage shall create no right or presumption of membership in such
person in the Company or of employment in such person with the Company and no
right to, expectation of, or presumption regarding any distributions by the
Company with respect to such person, other than distributions in accordance with
the provisions of this Section 4.1. Notwithstanding any provision contained
herein to the contrary, to the extent the amount of distributions in any given
calendar year is insufficient to cover the tax liability of any Member arising
out of such person or entity's being a Member of the Company, the Board of
Managers shall cause the Company to distribute Available Cash to such Member to
make up the deficit.
C. Notwithstanding Section 4.1.A, if the Available Cash is produced by a
Capital Transaction, the eighty percent (80%) of Available Cash not distributed
to the Management Team listed on Schedule B shall be distributed as follows:
(i) First, to the holders of the Class A Units, in the amount of and in
proportion to their respective amounts of Invested Capital; and
(ii) Second, the balance, if any, to the Members, in proportion to the number
of Units held by each Member.
Section 4.2 Allocations of Profits and Losses.
Profits and losses for each fiscal year (or other portion thereof) of the
Company shall be allocated among the Members as set forth in Sections 4.2A and
4.2B.
<PAGE>
A. Profits shall be allocated among the Members in the following order:
(i) First, to the Members, in the amount of and in proportion to the losses
previously allocated to such Members pursuant to Section 4.2.B(i) and not
previously reversed by an allocation of profits under this Section 4.2.A(i);
(ii) Second, the balance of profits, if any, to the Members, in proportion to
the number of Units held by each Member.
B. Loss shall be allocated among the Members in the following order:
(i) First, to the Members in proportion to and in the amount of their positive
Capital Account balances; and
(ii) Second, the balance of loss, if any, to the Members, in proportion to the
number of Units held by each Member.
Section 4.3 Allocation of Taxable Income and Taxable Loss.
A. Except as may be otherwise required under the Code or the applicable
Treasury Regulations, each item of taxable income, gain, loss, deduction,
preference or recapture entering into the computation of profits or losses
hereunder shall be allocated to each Member in the same proportion as profits or
losses are allocated.
B. In accordance with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax purposes, be
allocated among the Members so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax purposes
and its initial fair market value (as used by the Company as the book value of
the property).
C. In the event the book value of any Company property is adjusted upon: (i)
acquisition of Units by any person in exchange for a Capital Contribution, (ii)
any non-pro rata distribution to Members of Company property other than cash, or
(iii) a termination of the Company for federal income tax purposes under Code
Section 708(b)(1)(B), subsequent allocation of income, gain, loss, and deduction
with respect to such asset shall take account of any variation between the
adjusted basis of such asset for federal income tax purposes and its book value
in accordance with Code Section 704(c) and the Treasury Regulations thereunder,
using such method as may be determined by the Board of Directors.
D. Allocations pursuant to Section 4.3.B and 4.3.C are solely for purposes of
federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, any Member's Capital Account or share of profits or
loss, other items, or distributions pursuant to any provision of this Agreement.
<PAGE>
Section 4.4 Distributions Upon Dissolution and Termination.
Upon the dissolution and termination of the Company, the assets remaining after
satisfaction (whether by payment or by establishment of reserves therefor) of
creditors, including Members who are creditors, shall be distributed to the
Members in accordance with the positive balances in their respective Capital
Accounts, subject to the provisions of Section 8.2 below. If assets are to be
distributed in kind, the Members' Capital Accounts shall be appropriately
adjusted, in accordance with Section 4.2, before any such distribution to
reflect any profits and losses which would have been allocated if the property
distributed in kind had been sold for its fair market value (net of liabilities)
by the Company prior to dissolution.
Section 4.5 No Deficit Restoration Obligation.
No Member shall be obligated to contribute additional capital to the Company in
order to restore a deficit balance in such Member's Capital Account except to
the extent of a negative capital account caused by a Member's receipt of
distributions of Available Cash in excess of the profits allocated to such
Member net of the losses allocated to such Member, except to the extent that
such deficit Capital Account results from the Member's receipt of Available cash
in excess of the aggregate profits (reduced by aggregate losses) allocated to
such Member.
ARTICLE V
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MANAGEMENT OF BUSINESS AND AFFAIRS OF THE COMPANY
-------------------------------------------------
Section 5.1 Management of Business and Affairs of the Company.
A. The exclusive authority to manage, control and operate the Company shall be
vested in the Board of Managers of the Company, consisting of individuals who
need not be members and who are elected by the members as Managers in accordance
with the Articles of Organization and this Agreement. All powers of the Members
(except for those powers exclusively reserved for the Members under this
Agreement or the LLC Act) shall be exercised by or through the authority of the
Managers serving on the Board of Managers. The number of Managers of the Company
initially shall be two (2), which number may be increased or, if more than one
(1), decreased by action of the Board of Managers; provided that TTC and DCH
shall have the right to elect an equal number of Managers. Initially, each of
TTC and DCH will have the right to elect one (1) Manager. At any time and for
any reason, each of TTC or DCH may remove the Manager so elected by it and elect
a successor Manager with the reasonable concurrence of the other party. The
authority of the Board of Managers expressly includes (without limitation) the
authority to authorize or take any actions described in Section 4A-401 (d) of
the LLC Act without the requirement of any consent or vote of the Members. The
names of the Managers who will serve until their successors are elected and
qualified are Robert L. Mauro (TTC Manager) and David Haberman (DCH Manager).
B. Notwithstanding the foregoing provisions of Section 5.1(A), and subject to
the oversight of the Board of Managers, the Officers of the Company (as set
forth in Section 5.3 below) shall have the day-to-day authority to manage,
control and operate the Company. By way of example and not by way of limitation
of the foregoing, the appropriate Officer or Officers are authorized to take the
<PAGE>
following actions to the extent that such actions are necessary to permit such
Officer or Officers to carry on in the ordinary course the business of the
Company: (i) authorize the Company to incur expenses and make advances, subject
to any dollar limitation set by the Board of Managers; and (ii) take any other
action and make any other decision that is routine and incidental to the day-to-
day conduct of the business and affairs of the Company.
Section 5.2 Operations of the Board of Managers
For purposes of carrying out the business of the Board of Managers, the
following shall apply:
(i) Regular Meetings. Regular meetings of the Board of Managers may be held
at such time and at such place as shall from time to time be determined by
resolution of the Board of Managers. Notice of the time and place of regular
meetings shall be delivered to each Manager at least ten (10) days in advance of
such meetings.
(ii) Special Meetings. Special meetings of the Board of Managers may be
called by any Manager of the Company on three day's notice to each Manager,
either personally or by mail, fax, or telegram.
(iii) Quorum and Voting. At all meetings of the Board of Managers, all the
Managers (or a majority of all the Managers, if the number of Managers is
increased from two) then in office shah constitute a quorum for transaction of
business. All matters and decisions coming to the Board of Managers for
consideration shall require the approval of all Managers (or a majority of all
of the Managers, if the number of Managers is increased from two) at any duly
constituted meeting, and any action taken at any meeting at which there is a
quorum shall be the act of the Board of Managers, except as may be otherwise
specifically provided by this Agreement. If a quorum shall not be present at any
meeting of the Board of Managers, the Manager(s) present thereat may adjourn the
meeting.
(iv) Written Action. Unless otherwise restricted herein, any action required
or permitted to be taken at any meeting of the Board of Managers, or any
committee thereof, may be taken without a meeting if all Managers then in office
consent thereto in writing, and the writing or writings are filed with the
minutes or proceedings of the Board of Managers or committee.
(v) Participation in Meetings by Conference Telephone. Members of the Board
of Managers, or any committee designated by the Board of Managers, may
participate in a meeting of the Board of Managers, or any committee, by means of
a telephone conference call or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
(vi) Chairman of the Board of Managers. The Chairman of the Board of Managers
shall preside at all meetings and proceedings of the Board of Managers and of
the Members at which he or she shall be present. The Chairman of the Board of
Managers shall be an Officer designated by the Board of Managers as set forth
below in Section 5.3.
<PAGE>
(vii) Proxies. Any Manager of the Board of Managers may grant a proxy to any
other Manager, or to any Officer, which proxy may be general (provided such
general proxy can only be for a specific meeting) or specific. All proxies must
be in writing.
(viii) Waiver of Notice. In the event that all of the members of the Board of
Managers are present at a meeting of the Board of Managers, and all such members
in writing waive notice of such meeting, then any action properly taken at such
meeting shall be the action of the Board of Managers, notwithstanding that
notice of such meeting under Sections 5.2.C(i) or (ii) shall not have been
provided.
Section 5.3. Officers.
A. The Board of Managers shall appoint Officers of the Company for the purpose
of managing, controlling, and operating the Company on a day-to-day basis. The
Officers shall be elected and shall have powers in accordance with the
following:
(i) Officers. The Officers of the Company shall include a Chairman of the
Board of Managers, President, Secretary and Treasurer. The Board of Managers may
also appoint one or more Vice Presidents, and one or more Assistant Secretaries
and Assistant Treasurers. Any number of offices may be held by the same person.
(ii) Succession. The Officers of the Company shall hold office until their
successors are chosen and qualified. Any Officer elected or appointed by the
Board of Managers may be removed at any time by the affirmative vote of all of
the Managers (or a majority of all the Managers, if the number of Managers is
increased from two). Any vacancy occurring in any office of the Company shall be
filled by the Board of Managers.
(iii) Authority. The Officers of the Company shall have such authority and
shall perform such duties as are customarily incident to their respective
offices, or as may be specified from time to time by the Board of Managers
regardless of whether such authority and duties are customarily incident to such
office.
B. The names of the Officers initially serving the Company, who shall serve
until their successors are duly elected by the Board of Managers and qualified,
and the capacities in which they will serve are as follows:
Name Office(s)
Robert L. Mauro Chairman of the Board
David Haberman President
Karen I. Miller Secretary
David Walker Treasurer
Section 5.4 No Participation of Members in the Business and Affairs of the
Company.
No Member, in its capacity as such, shall have any authority or right to act for
or bind the Company or to participate in or have any control over Company or its
business, except for (i) such rights to consent to or approve of the actions and
decisions of the Board of Managers as are expressly
<PAGE>
provided for in this Agreement, in the Articles of Organization, or under the
LLC Act and (ii) such authority to act for and bind the Company as the Board of
Managers may, from time to time and in the exercise of its sole discretion,
delegate to such Member in writing.
Section 5.5 Noncompetition; Other Businesses of Members.
No Member (including any affiliate of the Company that is controlled by any
Member) shall compete with the business of the Company and the Company shall not
compete with the business of any Member or with such affiliates. Except as set
forth in the preceding sentence and except as may otherwise be agreed in
writing, any Member and any such affiliate of any Member may engage in or
possess an interest in other business ventures of any nature or description
independently or with others, and neither the Company nor any Member shall have
any rights in or to such independent ventures or the income or profits derived
therefrom, and such activities shall not be construed as a breach of any duty of
loyalty or other duty to the other Members or the Company.
Section 5.6 Dealings with Affiliates.
The Company may acquire property from or lease or sell property to, borrow money
from or lend money to, enter into any agreement or contract with, or reimburse
for reasonable out-of-pocket expenses incurred in connection with the business
of the Company, any (i) Member or (ii) affiliate of a Member, on such terms and
conditions as the Board of Managers shall determine to be appropriate. The
Company's entry into the agreements with the Members set forth in Article VII is
hereby specifically authorized.
Section 5.7 Mediation.
A. If a Management Deadlock (as that term is defined in Section 5.8) occurs,
(i) the Managers shall use their good-faith efforts to resolve the dispute by
participating in non-binding mediation on the terms set forth in this Section
5.7 and (ii) no Member shall have the right to invoke the mandatory buy-sell
procedures of Section 5.8 (the "Buy-Sell Procedures") before the end of the
thirty (30) day mediation period provided in this Section 5.7.
B. Any Manager may initiate (the "Initiating Manager") the dispute resolution
procedures of this Section 5.7 by delivering written notice to the other
Manager(s) (singularly or collectively, the "Responding Manager") describing the
decision on which the Managers have not taken action, which written notice shall
include a brief summary of the decision, the differences between the Managers
with respect to the decision, and the material facts regarding the steps that
have been taken by the Managers to resolve their differences. Within ten (10)
days after the receipt of such notice, the Responding Manager shall identify in
writing three (3) individuals with knowledge and experience in businesses
similar to the business of the Company, each of whom would be willing to serve
as a mediator in resolving the dispute. Except as agreed by the Managers in
writing, (i) the mediation shall be held in Washington, DC, or at another
location agreed to by the parties; (ii) the mediator shall be an individual
selected by the Initiating Manager from the list of names submitted by the
Responding Manager or, if none of the individuals identified by the Responding
Manager is acceptable to the Initiating Manager, by Endispute, Inc., or by any
other third-party dispute
<PAGE>
resolution service that is mutually agreed to by the Managers; (iii) the cost of
the mediation shall be bome by the Company; and (iv) the mediation shall be
concluded within thirty (30) days after the Responding Manager has delivered the
list of names in writing to the Initiating Manager. If the Managers are unable,
despite their good-faith efforts, to agree upon an acceptable mediator or to
resolve the Management Deadlock within the thirty (30) day mediation period, any
Member may invoke the Buy-Sell Procedures of Section 5.8.
Section 5.8 Mandatory Buy-Sell Procedures.
A. The Buy-Sell Procedures may be initiated by any Member upon the
occurrence of a Management Deadlock. A "Management Deadlock" shall be deemed to
have occurred if (x) a Manager brings an issue to the Board of Managers to be
voted on within ten (10) days after its introduction and a resolution of the
issue is not obtained because a majority of Managers cannot agree or because one
or two of the Managers refuse(s) to vote on the issue; and (y) the same issue is
brought to the Board of Managers on one additional occasion and, on such
occasion, no resolution of the issue is obtained. The Member initiating the Buy-
Sell Procedures shall be referred to herein as the "Offering Member" and the
Member(s) other than the Offering Member shall be referred to herein as the
"Offeree Member."
B. In order to initiate the Buy-Sell Procedures, the Offering Member shall
deliver written notice (the "Buy-Sell Notice") to the Offeree Member stating
that the Offering Member intends to initiate the Buy-Sell Procedures and the
amount that the Offering Member is willing to pay as the purchase price for all
of the Offeree Member's Units (the "Offer Price"). Upon receipt of the Buy-Sell
Notice, the Offeree Member shall have the option either:
(i) To elect to sell all of its Units to the Offering Member for an amount
equal to the Offer Price (with the Offer Price to be divided among the Offeree
Members in proportion to their respective Percentage Interests if more than one
Offeree Member); or
(ii) To elect to purchase all of the Units of the Offering Member for an
amount equal to the Offer Price.
C. The Offeree Member shall have sixty (60) days from the date of the Buy-
Sell Notice to notify the Offering Member of its election hereunder. If the
Offerce Member fails to notify the Offering Member of its election within said
sixty (60) days, then, as of the day following the expiration of such 90-day
period, the Offeree Member shall be conclusively deemed to have elected to sell
all, but not less than all, of its Units to the Offering Member at the Offer
Price.
D. If, following an election by the Offeree Member to purchase all of the
Units of the Offering Member 'or to sell all of its Units to the Offering
Member, such purchase does not close due to the fault of the Member obligated to
sell its Units, from and after the date fixed for such closing, the defaulting
Member shall have no further rights or interests under this Agreement or in the
Company other than to receive the purchase price required hereunder.
E. The closing of the sale of a Member's Units pursuant to this Section 5.8
shall be held at the principal office of the Company, or at such other place as
agreed to in writing by the parties, and shall occur within ninety (90) days
following the date on which the selling Member becomes bound
<PAGE>
to sell and the purchasing Member become bound to purchase such Units pursuant
to this Section 5.8.
Section 5.9 Indemnification.
A. The Company shall indemnify (i) its Managers and Officers to the fullest
extent permitted or authorized by the laws of the State of Maryland now or
hereafter in force applied as if the Company were a Maryland corporation,
including (without limitation) the advance of expenses under the procedures and
to the full extent permitted by law, and (ii) other employees and agents of the
Company to such extent as shall be authorized by the Board of Managers and is
permitted by law. The foregoing rights of indemnification shall not be exclusive
of any other rights to which those seeking indemnification may be entitled. The
Board of Managers may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
arnend from time to time such resolutions or contracts implementing such
provisions or such further indemnification arrangements as may be permitted by
law. No amendment of the Articles of Organization or this Agreement or repeal of
any of the provisions thereof shall limit or eliminate the right to
indemnification provided hereunder with respect to acts or omissions occurring
prior to such amendment or repeal. The indemnification shall be payable solely
from the assets of the Company and no Member shall have any personal or
corporate liability therefor.
B. To the fullest extent permitted by Maryland statutory or decisional law,
as amended or interpreted, no Manager or Officer of the Company shall be
personally liable to the Company or any Members for money damages. No amendment
of the Articles of Organization or this Operating Agreement, or repeal of any of
their respective provisions, shall limit or eliminate the limitation on
liability provided to Managers and Officers hereunder with respect to any act or
omission occurring prior to such amendment or repeal.
ARTICLE VI
----------
TRANSFERABILITY OF UNITS
------------------------
Section 6.1 Transfer of Units.
No Member shall Transfer all or any part of such Member's Units, except upon
receiving the prior written consent of the Board of Managers and each other
Member, which consent may be withheld for any reason, or otherwise in accordance
with the terms of this Agreement.
Section 6.2 Right of First Refusal; Tag-Along and Drag- Along.
If any Member (in this capacity, a "Selling Member") desires to engage in a
Transfer of all or any portion of its Units (the " Transferable Units") by any
means whatsoever, he shall first comply with the following:
A. Notice. The Selling Member shall give written notice (the "Selling
Member Is Notice") to the other Member(s), (singularly and collectively, the "
Offeree Member") stating the date thereof, the number of Transferable Units, the
percentage of the total number of Units owned by the Selling
<PAGE>
Member represented by the Transferable Units (the "Applicable Percentage"), and
the ten-ns and conditions of the proposed Transfer including, without
limitation, the name and address of the proposed transferee, and the price, if
any, per Transferable Units (the "Notice Price") offered by the proposed
transferee.
B. Right of Purchase; Tag-Along. The Offeree Member shall have the right
and option to:
(i) purchase all or any of the Transferable Units or
(ii) require the proposed transferee to purchase no greater than the
Applicable Percentage of the Offeree Member's Units ("tag-along rights")
on the same terms as the proposed Transfer, subject to Section 6.2(E) below. The
Offeree Member's option may be exercised only in writing delivered to the
Selling Member within fifteen (15) days after the date of the Selling Member's
Notice, stating the number of Transferable Units which the Offeree Member
desires to purchase (if proceeding under B(i) of this paragraph) or the number
of the Offeree Member's Units that the Offeree Member desires to sell (if
proceeding under B(ii) of this paragraph). Any Transfer of Units under this
Section 6.2(B) shall be consummated within ninety (90) days after the date of
the Selling Member's Notice.
C. Sale to Proposed Transferee. If all of the Transferable Units are not
purchased by the Offeree Member or if the Offeree Member has not exercised its
tag-along rights, then the Selling Member may take either or both of the
following actions:
(i) transfer such unpurchased Transferable Units to the proposed transferee
(ii) require the Offeree Member to tender to the proposed transferee the
Applicable Percentage of the Offeree Member's Units
all on terms not more favorable to the proposed transferee than those described
to the Offeree Member in the Selling Member's Notice and subject to the
remaining provisions of this Agreement; provided, however, that the proposed
transferee shall become a party to this Agreement.
D. Re-offer on Failure to Sell. If the Selling Member fails to consummate a
Transfer to the proposed transferee on the terms and conditions set forth in the
Selling Member's Notice within ninety (90) days after the date of the Selling
Member's Notice, then no Transfer of Transferable Shares may be made thereafter
to the proposed transferee or to any other transferee without again complying
with the provisions of this Section 6.2.
E. Purchase Price; Sale Price. The per Unit purchase price for any Units
purchased by the Offeree Member under this Section 6.2 shall be equal to the
lesser of. (i) the per Unit Fair Market Value multiplied by ninety percent
(90%); and (ii) if the proposed Transfer is a sale, the Notice Price. The per
Unit sale price for any Units sold by the Offeree Member under this Section 6.2
shall be equal to the greater of. (i) the per Unit Fair Market Value; and (ii)
if the proposed Transfer is a sale, the Notice Price.
Section 6.3 Option Upon Involuntary Transfer.
<PAGE>
If any Units are transferred by operation of law to any person other than a
Member, or if (a) any Member shall be adjudicated as bankrupt or make an
assignment for the benefit of creditors; (b) bankruptcy proceedings in which a
Member is alleged to be insolvent or unable to pay its debts as they mature are
instituted by or against it, and the Member consents thereto or admits in
writing the material allegations of the petitions filed in those proceedings;
(c) a Member's Units are attached; (d) any judgment is obtained in any legal or
equitable proceeding against a Member and the sale of its Units is contemplated
or threatened under legal process as a result of that judgment; (e) any
execution process is issued against a Member's Units; or (f) any other form of
legal proceeding or process is instituted by which a Member's Units may be sold
or transferred voluntarily or involuntarily and the same remains undismissed for
sixty (60) days, then such transfer or event shall be deemed to be the giving of
a Selling Member's Notice under Section 6.2(A) hereof, whereupon the Offeree
Member may purchase such Units or exercise tag- along rights upon the same terms
as set forth in Section 6.2.
Section 6.4 Effect of Bankruptcy, Dissolution or Termination of a Member.
The bankruptcy, dissolution, liquidation or termination of a Member shall not
cause the termination or dissolution of the Company and the business of the
Company shall continue. Except as otherwise provided in this Article 6, (i) upon
any such occurrence, the trustee, receiver, executor, administrator, committee
or conservator of such Member shall have all the rights of such Member for the
purpose of settling or managing its estate or property; and (ii) the Transfer by
such trustee, receiver, executor, administrator, committee or conservator of any
Member of any Units shall be subject to all of the restrictions hereunder to
which such Transfer would have been subject if such Transfer had been made by
such bankrupt, dissolved, liquidated or terminated Member.
ARTICLE VII
-----------
ADDITIONAL REPRESENTATIONS, COVENANTS AND UNDERSTANDINGS
--------------------------------------------------------
Section 7.1 DCH's Initial Capital Contribution.
DCH represents and warrants that all of the shares of common stock of DCH that
comprise the initial Capital Contribution of DCH (the "Shares") were validly
issued and are fully paid and nonassessable and are being issued to the Company
pursuant to one or more valid exemptions from registration under the Securities
Act of 1933 (the "Securities Act") and pursuant to similar state exemptions from
state registration requirements (collectively, the "Securities Laws"); that DCH
has made all filings, if any, required by the Securities Laws in connection with
the issuance of the Shares; and that DCH is not subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. The
Company represents and warrants that it is acquiring the Shares for its account
for investment and not with a view to any public resale or other distribution
thereof, and that it has received, or has had access to, all information which
it considers necessary or advisable to enable it to make a decision concerning
its acceptance of the Shares.
Section 7.2 Piggyback and Demand Registration Rights.
<PAGE>
A. If DCH at any time proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own account or for the
account of other security holders or both (other than offerings pursuant to
employee plans, or noncash offerings in connection with a proposed acquisition,
exchange offer, recapitalization or similar transaction), DCH will give written
notice thereof to the Company not less than 30 days prior to the filing of its
registration statement and will, at DCH's sole expense, include in such
registration all Shares with respect to which the Company requests in writing to
be so included within 20 days after the receipt of DCH's notice. If such
registration is subject to underwriter cutbacks, then the Shares that the
Company proposes to sell shall be included in such registration in preference to
all other securities of DCH.
B. At any time after the first anniversary of the date of this Agreement,
the Company may request DCH to register under the Securities Act all or any
portion of the Shares held by the Company for sale in the manner specified in
such notice. Following receipt of any notice under this Section 7.2(B), the
Company shall use its best efforts to register under the Securities Act, for
public sale in accordance with the method of disposition specified in such
notice from the Company, the number of Shares specified in such notice. If such
method of disposition shall be an underwritten public offering, the Company may
designate the managing underwriter of such offering, subject to the approval of
the Company, which approval shall not be unreasonably withheld or delayed. DCH
shall be obligated to register Shares pursuant to this Section 7.2(B) on two
occasions only, provided, however, that such obligation shall be deemed
satisfied only when a registration statement covering all Shares specified in
notices received as aforesaid, for sale in accordance with the method of
disposition specified by the Company, shall have become effective and, if such
method of disposition is a firm commitment underwritten public offering, all
such Shares shall have been sold thereto. Except for registration statements on
Form S-4, S-8 or any successor thereto, DCH will not file with the Securities
and Exchange Commission any other registration statement with respect to its
common stock, whether for its own account or that of other stockholders, from
the date of receipt of a notice from the Company pursuant to this Section 7.2(B)
until the completion of the period of distribution of the registration
contemplated thereby.
Section 7.3 Payment for Services.
Until determined otherwise by the Board of Managers, the Company will have no
employees. Services provided by the Members to the Company will be billed on an
hourly rate in accordance with any terms and subject to any conditions adopted
by the Board of Managers and agreed to by the respective Members (in their
capacities not as Members but as the other parties to such agreements). Except
as explicitly provided in this Agreement, no Member or Manager, in its capacity
as such, shall receive any fee, salary, reimbursement, or other compensation or
remuneration for serving as a Member or Manager.
ARTICLE VIII
------------
DISSOLUTION OF THE COMPANY
--------------------------
Section 8.1 Dissolution
A. The Company shall be dissolved upon the occurrence of any of the
following events:
<PAGE>
(i) the election by all of the Members holding Class A Units to dissolve and
terminate the Company; or
(ii) the election by the Board of Managers to dissolve and terminate the
Company.
B. The Company shall not be dissolved upon the occurrence, with respect to
any Member, of any of the events specified under Section 4A-606 of the LLC Act.
Section 8.2 Liquidation and Termination.
A. Upon the dissolution of the Company, the Officers and Managers of the
Company shall cause the Company to liquidate by converting the assets of the
Company to cash or its equivalent and arranging for the affairs of the Company
to be wound up with reasonable speed but with a view towards obtaining -fair
value for Company assets, and, after satisfaction (whether by payment or by
establishment of reserves therefor) of creditors, including Members who are
creditors, shall distribute the remaining assets to and among the Members, in
accordance with the provisions of Section 4.4 hereof.
B . Each Member shall look solely to the assets of the Company for all
distributions with respect to the Company and such Member's capital contribution
thereto and share of profits, gains and losses thereof and shall have no
recourse therefor (upon dissolution or otherwise) against any other Member,
except to the extent of such Member's obligation to restore a deficit Capital
Account balance pursuant to Section 4.5 hereof.
ARTICLE IX
----------
BOOKS AND RECORDS; ACCOUNTING TAX ELECTIONS, ETC.
-------------------------------------------------
Section 9.1 Books, Records and Reports.
A. The Company shall keep correct and complete books and records of its
accounts and transactions and minutes of the proceedings of its Members and
Board of Managers and of any executive or other committee when exercising any of
the powers of the Board of Managers. The books and records of the Company may be
in written form or in any other form which can be converted within a reasonable
time into written form for visual inspection. Minutes shall be recorded in
written form, but may be maintained in the form of a reproduction. The original
or a certified copy of this Operating Agreement shall be kept at the principal
office of the Company. The books and records of the Company shall be maintained
by the Secretary of the Company and shall be available for examination by any
Member, or its duly authorized representatives, during regular business hours.
B. The President or chief financial officer shall prepare or cause to be
prepared and shall furnish to the Members within ninety (90) days of the end of
each fiscal year (i) a balance sheet and report of the receipts, disbursements,
profits or Loss of the Company, and each Member's share of such items for the
fiscal year, and (ii) information sufficient for the Members to report their
respective
<PAGE>
shares of the profits and losses of the Company for income tax purposes. The
cost of such financial and tax reports shall be an expense of the Company.
Section 9.2 Bank Accounts Checks, Drafts, Etc.
The bank accounts of the Company shall be maintained in accounts in the name of
and under the tax identification number for the Company in such banking
institutions as the Board of Managers or the appropriate officers shall
determine. All checks, drafts and orders for the payment of money, notes and
other evidences of indebtedness, issued in the name of the Company, shall be
signed by such Officers or other persons as may be authorized by the Board of
Managers from time to time.
Section 9.3 Fiscal Year; Methods of Accounting.
The fiscal year of the Company shall be the year ending December 3 1, unless
otherwise determined by the Board of Managers. The method of accounting to be
used in keeping the books of the Company shall be determined by the Board of
Managers in accordance with applicable law.
Section 9.4 Tax Matters Member.
The Board of Managers shall designate, in accordance with the provisions of the
Code, one of the Members to act as the "Tax Matters Partner" of the Company for
federal income tax purposes. Robert L. Mauro shall serve initially as the Tax
Matters Partner of the Company.
ARTICLE X
---------
GENERAL PROVISIONS
------------------
Section 10.1 Binding Provisions.
The covenants and agreements contained herein shall be binding upon and inure to
the benefit of the heirs, personal representatives, successors and assigns of
the respective parties hereto.
Section 10.2 Separability of Provisions.
Each provision of this Agreement shall be considered separable and if for any
reason any provision or provisions herein are determined to be invalid and
contrary to any existing or future law, such invalidity shall not impair the
operation of or affect any other provisions of this Agreement.
Section 10.3 Rules of Construction.
Unless the context clearly indicates to the contrary, the following rules apply
to the construction of this Agreement: (i) references to the singular include
the plural, and references to the plural include the singular; (ii) words of the
masculine gender include correlative words of the feminine and neuter genders;
(iii) the headings or captions used in this Agreement are for convenience of
reference and do not constitute a part of this Agreement, nor affect its
meaning, construction, or effect; (iv) references to a person include any
individual, corporation, partnership, limited liability
<PAGE>
company, joint venture, association, joint stock company, trust, unincorporated
organization or government or agency or political subdivision thereof; (v) any
reference in this Agreement to a particular "Article," "Section" or other
subdivision shall be to such Article, Section or subdivision of this Agreement
unless the context shall otherwise require; (vi) any use of the word "including"
in this Agreement shall not be construed as limiting the phrase so modified to
the particular items or actions enumerated; and (vii) when any reference is made
in this document or any of the schedules or exhibits attached to the Agreement,
it shall mean this Agreement, together with all other schedules and exhibits
attached hereto, as though one document.
Section 10.4 Entire Agreement; Amendments.
A. This Agreement constitutes the entire agreement of the parties hereto
with respect to the subject matter hereof.
B. This Agreement and the Articles of Organization may be modified or
amended only pursuant to a written amendment adopted by the Board of Managers
and approved by Members holding a majority of the Units; provided, however, no
amendment shall be effective with respect to any Member without the prior
written consent of such Member if the effect of the amendment would be to
increase the capital contributions required to be made by the Member or
otherwise to increase the liabilities of the Member. Once an amendment to this
Agreement and/or the Articles of Organization has been adopted, the proper
Officers of the Company shall authorize the preparation and filing, if
necessary, of a written amendment to this Agreement and/or the Articles of
Organization, as applicable.
Section 10.5 Applicable Law.
This Agreement shall be construed and enforced in accordance with the laws of
the State of Maryland, without regard to conflict of law principles.
Section 10.6 Counterparts.
This Agreement may be executed in several counterparts and all so executed shall
constitute one agreement binding on all parties hereto, notwithstanding that all
the parties have not signed the original or the same counterpart. Any
counterpart hereof signed by a party against whom enforcement of this Agreement
is sought shall be admissible into evidence as an original hereof to prove the
contents hereof.
IN WITNESS WHEREOF, the parties have executed the Operating Agreement of
INFRASOL LLC on the year and date first above written.
WITNESS/ATTEST: MEMBERS:
TECHNOLOGY TRANSITION CORPORATION
/s/ KAREN MILLER
/s/ ROBERT L. MAURO
Karen Miller
By: Robert L. Mauro
Vice President
<PAGE>
DCH TECHNOLOGY, INC.
/s/ DAVID A. WALKER
/s/ DAVID HABERMAN
David A. Walker
By: David Haberman
Vice President
List of Schedules and Exhibits
Schedule A Names, Capital Contributions, and Percentage Interests of Members
Schedule B Management Team
Exhibit I TTC Promissory Note
Exhibit 2 INFRASOL LLC Non-Qualifed Option Plan
OPERATING AGREEMENT
OF
INFRASOL LLC
<TABLE>
<CAPTION>
Names, Capital Contributions and Percentage Interests of Members
<S> <C> <C> <C>
Schedule A
Initial Capital
Contributions for Percentage Class and Number
Name Class A Units Interest of Units
Technology Transition Promissory Note in the 50.0% 80 Class A Units
Corporation principal amount of
$ 60,000
DCH Technology, Inc. 40,000 shares of the 50.0% 80 Class A Units
Common stock of DCH
Valued at $60,000
TOTALS $120,000 100.0% 160 Class A Units
</TABLE>
Forty (40 ) Class B Units have been reserved for issuance pursuant to the terms
of the INFRASOL LLC Non-Qualifed Option Plan.
OPERATING AGREEMENT OF INFRASOL LLC
Management Team
Schedule B
Name Percent of 20% Distribution
<PAGE>
Robert L. Mauro 25%
David Haberman 25%
Karen I. Miller 25%
David Walker 25%
<PAGE>
EXHIBIT 6.14
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, April
28, 1998, is made by and between BRADMORE REALTY INVESTMENT COMPANY, LTD.
("Lessor") and DCH TECHNOLOGY, INC., a Colorado 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 27811 Avenue Hopkins, Unit 6, located in
the City of Santa Clarita, County of Los Angeles, State of California, with the
zip code 91355,as outlined on Exhibit A & B attached hereto ("Premises"). The
"Building" Is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building): building 3 in a 3
building concrete tilt-up multi-tenant industrial complex known as the Bradmore
Business Center. The Premises are a Type 6 unit of approximately 3,152.8 square
feet.
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: six (6) total. Three (3) unreserved vehicle parking spaces
("Unreserved Parking Spaces"); and three (3) reserved vehicle parking spaces
("Reserved Parking Spaces"). (Also see Paragraph 2.6.)
1.3 Term: three(3) years and zero (O) months ("Original Term") commencing
June 1, 1998 ("Commencement Date") and ending May 31, 2001 ("Expiration Date").
(Also see Paragraph 3.)
1.4 Early Possession. Upon execution of Lease, with check for $6,150.00.
"Early Possession Date"). (Also see Paragraphs 3.2 and 3.3.)
1.5 Base Rent: $2.050.00 . per month ("Base Rent"), payable on the 1st day of
each month commencing June 1, 1998. (Also see Paragraph 4.)
If this box is checked, this Lease provides for the Base Rent to be adjusted per
Addendum 54 attached hereto.
1.6(a) Base Rent Paid Upon Execution: $2.050.00 as Base Rent for the period June
1, 1998 through June 30, 1998.
1.6(b) Lessee's Share of Common Area Operating Expenses: five point three-five
percent (5.35 %) ("Lessee's Share") as determined by prorata square footage of
the Premises as compared to the total square footage of the Industrial Center;
not to exceed $0.05/sq ft for term of lease.
1.7 Security Deposit: $4,100 00 ("Security Deposit"). (Also see Paragraph 5).
<PAGE>
1.8 Permitted Use: Assembly of hydrogen gas sensors and offices in
connection thereof ('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):
N/A represents Lessor exclusively ("Lessor's Broker");
N/A represents Lessee exclusively ("Lessee's Broker"); or
J. M. Pearson and Associates 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 N/A 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 58 and Exhibits "A" through "C" , 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. It 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
<PAGE>
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.
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.
<PAGE>
(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
<PAGE>
(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 Lasses-, by the Early Possession Date, if one is specified it
Paragraph 1.4, or it 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.
<PAGE>
4.2 Common Area 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, drive- ways, landscaped
areas, striping, bumpers, irrigation systems, Common Area lighting facilities,
fences and gates, elevators and root.
(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 Rent Property Taxes, (as defined in Paragraph
10.2(b)) for the Building and the Common Areas. Per proposition 13, not due to
increase in assessment because of change of ownership.
(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 In provide the same or
some of them.
<PAGE>
(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 attar 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 of such over 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. It 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.
<PAGE>
(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 (1) 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,
<PAGE>
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 govern- mental 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, it 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 Lessors'
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 other- wise
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
<PAGE>
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 improvement's 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.l,
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 n6 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,
<PAGE>
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 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 nova 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 there 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 -nay, 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 open 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.
<PAGE>
(e) 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 proper' y 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 dam- age 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.
<PAGE>
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 oy 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. It the parties insert a dollar amount in Paragraph
1.9, such amount shall be considered the "Base Premium." 1f a dollar amount has
not been inserted in Paragraph 1.9 and if the Building has been previously
occupied during the twelve (1 2) month period immediately preceding the
Commencement Date, the "Base Premium" shall be the annual premium applicable to
such twelve (12) month period. It 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.
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8.3 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 'he coverage is available and commercially
appropriate, Lessor's policy or policies shall insure against at; 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
LJ.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, it 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.
(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
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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 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 t>e insured against under Paragraph S. The off act of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carded 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 indemnity, 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, lions, 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 art, 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 fore- going 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.
<PAGE>
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.
<PAGE>
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 earth- quake
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
writ- ten 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 with- in 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
<PAGE>
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.
(b) If Lessor shall be obligated to repair or restore the Premises under the
provisions o. this Paragraph 9 and shall not commence, in a substan a and ment
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. It
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 affect. "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
<PAGE>
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, ii
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 time 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
affect, during the term of this Lease, including but not limited to a change in
<PAGE>
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 lessee's 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, 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, 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
<PAGE>
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 per- cent
(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 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 relocation. at whichever time said Not 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 a-ler 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 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 beat 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 'n 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.
<PAGE>
(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 obligation- 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 '.or the Default or Breach by Lessee of
any of the terms, covenants or conditions of !his 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 @nay 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 pe,Fons from liability under
this Lease or the sublease.
(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 any- one
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 subleases, 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 IF 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 heroin to be observed or per-
formed 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-tbe-dghL-(but not the obligation) to require that the Security Deposit be
increased by an amount equal to six (6) times the tokamak and Lessor may make
the actual receipt by Lessor of the Security Deposit Increase a condition to
Lessor's consent to such transaction.
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(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment 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 subleases, 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
subleases 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 sub- lessee 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 Lessors 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.
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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 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
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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 (a) 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
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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 in such proceeding 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 is 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 statue 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
limi-tations on assignment and subletting in this Lease are reasonable. Acts of
maintenance or preservation, efforts to relat 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 allect, 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,
are 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 def)rned a waiver by Lessor of the provisions of
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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 lim4ed to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or dead of trust.@tovering 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 tan (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 thereafterdiii- gently 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
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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 not 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 This Paragraph has been intentionally omitted.
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
indemnity, 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 too title to the Premises. In the event
of
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a transfer of Lessor's title or interest in the Premises or iii 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 thereatterto 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. Severablility. 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 tan (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%)^pp@rqr)nurn, 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.
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.
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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 there- of, 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 doomed to ronder 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. This Paragraph has been intentionally omitted.-
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; Attarnment; Non-Disturbance.
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30.1 Subordination. This Lease and any Option granted hereby shall be subject
and subordinate to any ground lease, mortgage, dead 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 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 owner- ship
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, adornment 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
here- after 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.
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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, atid 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 applciable signage criteria established by 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 lessor 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 lessor 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
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<PAGE>
Security Deposit hold 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
reason-able 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
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 reason-
able 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 Guarantors may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in off
act,
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 lea-se other property of Lessor; (e) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first off or 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.
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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
<PAGE>
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility race- ways, 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 off actuate 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.
Assignment Of Parking By Lessor. In the event Lessor finds it necessary, in
Lessor's sole judgement, to assign or reassign vehicle spaces on those portions
of the Common Areas designated by Lessor for parking in order to prevent
disputes between tenants, then and in that event Lessor may do so and Lessee
agrees to abide by Lessor's decision on assigned spaces, and to park only in
such spaces and, in addition, to abide by Paragraph 2.6 of this Lease.
50. No Automotive Work To Be Performed In Parking Lot. Lessee agrees that no
parking spaces, parking areas, or other Common Areas will be used for conducting
automotive repair, overnight parking of vehicles, or storage of vehicles. Use of
<PAGE>
parking spaces in the Common Areas for conducting automotive repair, overnight
parking, or storage of vehicles shall be deemed to be a material breach of this
Lease and a violation of Lessor's Rules and Regulations. In the event that any
unauthorized automotive repair, overnight parking, or storage of vehicles 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 vehicle(s) at the
vehicle owner's expense.
51. No Outside Storage or Use of Common Area. Lessee agrees that Lessee will
not use the common area outside the building for storage or for work. All metal
scrap and waste storage, storage of parts, storage of materials, and work shall
take place inside the Premises.
52. Lessee Must Not Violate C. C. & R.'s. The covenants, conditions, and
restrictions ("C. C. & R.'s") for the industrial tract in which the Premises are
located are attached to this Lease as Exhibit "C. Lessee warrants that Lessee
has read, understands, and approves of the C. C. & R.'s. Furthermore, Lessee
agrees to abide by, adhere to, and obey all of these covenants, conditions, and
restrictions. Any failure of Lessee to abide by the covenants, conditions, and
restrictions will be conclusively deemed to be a material breach of this Lease.
53. Trash Container. Lessee is to supply trash containers for packaging
materials, wood scrap, sawdust, liquid wastes, metal scrap and other waste
materials which are to be disposed of. Lessee agrees that Lessee will, at
Lessee's sole expense, supply bins, and/or waste containers for these and other
wastes generated by Lessee's business operations. These bins and/or containers
will remain inside the Premises at all times. It is understood that the trash
bins provided in the trash enclosures in the Common Area are for office waste
only. No manufacturing, packaging, used parts, sawdust, wood scraps, metal
scrap, or waste products of any kind (except office wastes) are to be disposed
of in the Common Area bins or trash enclosures.
54. Rent Escalations During Lease Term. The Base Rent as set forth in Paragraph
1.5 of this Lease will increase to $2,111.50 per month at the beginning of the
13th month of the Lease term. At the beginning of the 25th month the Base Rent
will increase to $2,174.84 per month.
55. WAIVER OF COUNTERCLAIMS AND TRIAL BY JURY. LESSOR AND LESSEE EACH
WAIVES ITS RIGHT TO TRIAL BY JURY IN AN ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER AGAINST THE OTHER (EXCEPT FOR PERSONAL INJURY OR PROPERTY
DAMAGE) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH
THIS LEASE, THE RELATIONSHIP OF LESSOR AND LESSEE, LESSEE'S USE OR OCCUPANCY OF
THE PREMISES, AND ANY EMERGENCY STATUTORY OR ANY OTHER STATUTORY REMEDY. IF
LESSOR COMMENCES ANY ACTION OR PROCEEDING IN WHICH LESSOR SEEKS REPOSSESSION OF
THE PREMISES FROM LESSEE, LESSEE SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY
NATURE.
LESSOR'S LESSEE'S
INITIALS INITIALS
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.
<PAGE>
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 CONSE- QUENCES 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: Santa Monica, California Executed at: Sherman Oaks, CA
On: May 8, 1998 on: 5/4/98
Fed. ID # 95-4516364
<TABLE>
<S> <C>
By LESSOR: By LESSEE:
BRADMORE REALTY INVESTMENT COMPANY, LTD. DCH TECHNOLOGY, INC., a California
Corporation
By: /s/ John M. Bohn By: /s/ W. L. FIRESTONE
Name printed: John M. Bohn Name Printed: Bill Firestone
Title: General Partner Title: President
By: By: /s/ DAVID A. WALKER
Name Printed: Name Printed: David Walker
Title: Title: Vice President - Operations
Address: 721 Santa Monica Boulevard Address: 14241 Ventura Blvd #208
Santa Monica, CA 90401-2685 Sherman Oaks, CA 91423
Telephone: (310) 393-9688 Telephone: (818) 385-0400
Facsimile: (310) 393-6065 Facsimile: (818) 385-0849
BROKER: BROKER:
J.M. Pearson & Associates
Executed at: Valencia, CA Executed at:
On: 5-5-98 On:
By: /s/ STEPHEN B. ROBERTSON By:
Name Printed: Stephen B. Robertson Name Printed:
Title Senior Vice President Title:
Address: Address:
Telephone: (805) 255-3939 Telephone:
Facsimile: (805) 255-1134 Facsimile:
</TABLE>
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, 700 South Flower
Street, Suite WO, Los Angeles, CA 90017.(213) 687-8777.
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
DATE: April 28, 1997
BY AND BETWEEN: BRADMORE REALTY INVESTMENT COMPANY, LTD.,AS LESSOR,
AND DCH TECHNOLOGY, INC., a California corporation, AS LESSEE.
56. Lessor's Option to Cancel on Assignment or Sublease by Lessee
<PAGE>
(a) In the event that Lessee or any sublessee or assignee of Lessee (all
hereinafter referred to as "Lessee"), shall intend to sublet all or a portion of
the Premises (which portion is more than 40% of the square footage in any
building on the Premises or more than 40% of the entire Premises and which
sublease is for more than a one year term including options) or assign its
interest under this Lease then Lessee shall give to Lessor written notice of
such intent (hereinafter 'Notice of Intent") in strict accordance with the
procedures hereinafter set forth.
(b) Lessee's Notice of Intent shall set forth the date (hereinafter
"Termination Date") upon which it is intended that a proposed sublease or
assignment would become effective. The Termination Date shall not be less than
ninety days nor more than one hundred twenty days from the date that Lessor
receives the Notice of Intent. Within twenty days after Lessors receipt of the
Notice of Intent, Lessor may give written notice to Lessee that Lessor elects to
terminate this Lease effective as of the Termination Date. If Lessor shall elect
to terminate this Lease, then neither Lessor nor Lessee shall be liable to the
other for any reason having to do with this Lease from and after the Termination
Date except for matters which may have arisen prior to termination and
obligations of Lessee that exist upon termination.
(c) In the event that Lessor does not exercise its right to terminate this
Lease and in the event that Lessee does not in fact execute a final and binding
sublease or assignment within one hundred twenty days after said Termination
Date, then Lessee shall be obligated to give another Notice of Intent to Lessor
before Lessee may assign or sublease and the terms of this addendum shall
reapply. The failure of Lessor to exercise its right to terminate this Lease
under this paragraph shall not be deemed a waiver of the right to subsequently
terminate this Lease in accordance with the terms hereof, and this option to
cancel shall continue to exist during the entire term of this Lease and any
extension thereof.
(d) Lessor's failure to exercise its option to cancel this Lease, shall not
be deemed a waiver of Lessor's right to approve or disapprove of any assignment
or subletting as provided for in paragraph 12.1 of this Lease.
57. Additional HVAC Allowance. Lessor will provide Lessee with a "Additional
HVAC Allowance" of not to exceed $4,000.00,to be used for the installation of
additional heating, ventilating, and air conditioning ("Additional HVAC") in the
Premises. The Lessee will be responsible for employing and supervising all
contractors and subcontractors required to accomplish the Additional HVAC
installation. All costs of the Additional HVAC in excess of the Additional HVAC
Allowance will be paid by Lessee. The Additional HVAC Allowance will Include the
cost of any removal as well as the cost of now HVAC systems. Payment of the
Additional HVAC Allowance or parts thereof will be made by Lessor upon receipt
of approved invoices and mechanic lien releases from Lessee. Checks issued will
be jointly payable to Lessee and Lessee's contractor and/or material men.
ADDENDUM TO STANDARD INDUSTRIAL LEASE
DATE: April 28, 1997
BY AND BETWEEN: BRADMORE REALTY INVESTMENT COMPANY, LTD.,AS LESSOR,
AND DCH TECHNOLOGY, INC., a California corporation, AS LESSEE.
Paragraph 58.
A. OPTION(S) TO EXTEND:
<PAGE>
Lessor hereby grants to Lessee the option to extend the term of this Lease for 2
additional 36 month period(s) commencing when the prior term expires upon each
and all of the following terms and conditions:
(1) In order to exercise an option to extend, Lessee must give written notice
of such election to Lessor and Lessor must receive the same at least 6 but not
more than 9 months prior to the date that the option period would commence, time
being of the essence. If proper notification of the exercise of an option--is
not given and/or received, such option shall automatically expire. Options (if
there are more than one) may only be exercised consecutively.
(ii) The provisions of paragraph 39, including those relating to Lessee's
Default set forth in paragraph 39.4 of this Lease, are conditions of this
Option.
(iii) Except for the provisions of this Lease granting an option or options to
extend the term, all of the terms and conditions of this Lease except where
specifically modified by this option shall apply.
(iv) This Option is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the original
Lessee is in full possession of the Premises and without the intention of
thereafter assigning or subletting.
(v) The monthly rent for each month of the option period shall be calculated
as follows, using the method(s) indicated below: (Check Method(s) to be Used and
Fill in Appropriately)
1. Cost of Living Adjustment(s) (COLA)
a. On (Fill in COLA Dates): June 1, 2002, June 1, 2004, June 1, 2005 and at the
beginning of each twelve (12) month period thereafter the Base Rent shall be
adjusted by the change, if any, from the Base amount specified below, in the
Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of
Labor for CPI W , for (Fill in Urban Area): Los Anelege - Anaheim - Riverside
All Items (1982-1984 = 100), herein referred to as "CPI"
b. The monthly rent payable in accordance with paragraph A.I.a. of this Addendum
shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the
attached Lease, shall be multiplied by a fraction the numerator of which shall
be the CPI of the calendar months prior to the month(s) specified in paragraph
A.I.a. above during which the adjustment is to take effect, and the denominator
of which shall be the GPI of the calendar month which is two months prior to MRV
Adjustment Date. The sum so calculated shall constitute the new monthly rent
hereunder, but in no event, shall any such new rent be less than the rent
payable for the month immediately preceding the rent adjustment.
C. In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the CPI shall be used to
make such calculation. In the event that the Parties cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
Association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitration shall be paid equally by the Parties.
II. Market Rental Value Adjustment(s) (MRV)
<PAGE>
a. On (Fill in MRV Adjustment Date(s)) June 1 2001, June 1 2004 the Base
Rent shall be adjusted to t e "Market Rental Value" of the property as follows:
1) Four months prior to each Market Rental Value Adjustment Date described
above, the Parties shall attempt to agree upon what the new MRV will be on the
adjustment date. If agreement cannot be reached, within thirty days, then:
(a) Lessor and Lessee shall immediately appoint a mutually acceptable appraiser
or broker to establish the new MRV within the next thirty days. Any associated
costs will be split equally between the Parties, or
(b) Both Lessor and Lessee shall each immediately make a reasonable
determination of the MRV and submit such determination, in writing, to
arbitration in accordance with the following provisions:
(1) Within fifteen days thereafter, Lessor and Lessee shall each select an
appraiser ("Consultant") of their choice to act as an arbitrator. The two
arbitrators so appointed shall immediately select a third mutually acceptable
Consultant to act as a third arbitrator.
ADDENDUM TO STANDARD INDUSTRIAL LEASE
DATE: April 28, 1997
BY AND BETWEEN: BRADMORE REALTY INVESTMENT COMPANY, LTD.,AS LESSOR,
AND DCH TECHNOLOGY, INC., a California corporation, AS LESSEE.
(ii) The three arbitrators shall within thirty days of the appointment of the
third arbitrator reach a decision as to what the actual MRV for the Premises is,
and whether Lessors or Lessee's submitted MRV is the closest thereto. The
decision of a majority of the arbitrators shall be binding on the Parties. The
submitted MRV which is determined to be the closest to the actual MRV shall
thereafter be used by the Parties.
(111) If either of the Parties falls to appoint an arbitrator within the
specified fifteen days, the arbitrator timely appointed by one of them shall
reach a decision on his or her own, and said decision shall be binding on the
Parties.
(iv) The entire cost of such arbitration shall be paid by the patty whose
submitted MRV is not selected, la. the one that is NOT the closest to the actual
MRV.
2) Notwithstanding the foregoing, the new MRV shall not be less than the rent
payable for the month immediately preceding the rent adjustment.
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new 'Base Rent' for the purpose of calculating
any further Adjustments, and
2) the first month of each Market Rental Value term shall become the new 'Base
Month' for the purpose of calculating any further Adjustments.
B. NOTICE:
Unless specified otherwise herein, notice of any rental adjustments, other than
Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the
Lease.
ADDEMDUM TO STANDARD INDUSTRIAL LEASE
DATE: April 28, 1997
BY AND BETWEEN: BRADMORE REALTY INVESTMENT COMPANY, LTD.,AS LESSOR,
AND DCH TECHNOLOGY, INC., a California corporation, AS LESSEE.
EXHIBIT A
ADDEMDUM TO STANDARD INDUSTRIAL LEASE
DATE: April 28, 1997
BY AND BETWEEN: BRADMORE REALTY INVESTMENT COMPANY, LTD.,AS LESSOR,
<PAGE>
AND DCH TECHNOLOGY, INC., a California corporation, AS LESSEE.
EXHIBIT B
ADDEMDUM TO STANDARD INDUSTRIAL LEASE
DATE: April 28, 1997
BY AND BETWEEN: BRADMORE REALTY INVESTMENT COMPANY, LTD.,AS LESSOR,
AND DCH TECHNOLOGY, INC., a California corporation, AS LESSEE.
EXHIBIT C
C.C.&R.'S
NOTE: The following exhibit is a re-typed copy of the original recorded
documents. The recorder's stamp, signatures of the authorized agents of the
Valencia Company, and the notary's verification the signatures are scanned
copies of the original. The text of the document is retyped but otherwise
unchanged.
ADDEMDUM TO STANDARD INDUSTRIAL LEASE
DATE: April 28, 1997
BY AND BETWEEN: BRADMORE REALTY INVESTMENT COMPANY, LTD.,AS LESSOR,
AND DCH TECHNOLOGY, INC., a California corporation, AS LESSEE.
EXHIBIT D
VALENCIA INDUSTRIAL CENTER
DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS
PREAMBLE
This DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS is made and entered
into as of this 11th day of July, 1985, by VALENCIA,,COMPANY, a division of The
Newhall Land.and Farming Company (a California Limited Partnership), as owner,
of that certain real property located in the County of Los Angeles, State of
California, as more particularly described in Exhibit "A" attached hereto and
incorporated herein by this reference.
The real property described in Exhibit "A" is a part of a larger land area owned
by VALENCIA COMPANY, which is being developed as a planned community, named
Valencia. The real property which is the subject of this DECLARATION OF
COVENANTS, CONDITIONS, AND RESTRICTIONS is known as VALENCIA INDUSTRIAL CENTER.
VALENCIA INDUSTRIAL CENTER is being developed as a planned industrial complex
which will provided employment opportunities for the residents of Los Angeles
County and the surrounding areas. VALENCIA COMPANY intends that the design and
development as well as the continuing use and operations of the real property
subject to this DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS shall be
consistent with the aims and ideals of Valencia. It is the purpose of this
DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS to provide the means for
maintaining and controlling such development and use so that the design and
integrity and amicable environment of Valencia will be maintained. This
DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS, is designed to compliment
local government and municipal regulations and where conflicts occur, it is
intended that the most rigid requirements shall prevail. It is assumed that the
owners and users of industrial sites in the VALENCIA INDUSTRIAL CENTER will be
motivated to preserve these qualities through mutual cooperation and by
enforcing not only the letter but the spirit of this DECLARATION OF COVENANTS,
CONDITIONS AND RESTRICTIONS.
<PAGE>
IN WITNESS WHEREOF, VALENCIA COMPANY, has executed this DECLARATION OF
COVENANTS, CONDITIONS AND RESTRICTIONS the day and year first above written.
VALENCIA COMPANY@, A division of The Newhall Land and Farming Company
By
Authorized Agent
By
Authorized Agent
ADDEMDUM TO STANDARD INDUSTRIAL LEASE
DATE: April 28, 1997
BY AND BETWEEN: BRADMORE REALTY INVESTMENT COMPANY, LTD.,AS LESSOR,
AND DCH TECHNOLOGY, INC., a California corporation, AS LESSEE.
EXHIBIT D
STATE OF CALIFORNIA
COUNTY OF LOS ABGELES
On this 11th Day of July, 1985, before the undersigned a notary public in and
for the State of California personally appeared Thomas E. Dickman and Donald E.
Puente, the authorized agents, respectively of VALENCIA COKPANY a Division of
THE NEWHALL LAND AND FARMING COMPANY (a California Limited Partnership),
personally known to be (or proved to me on the basis of satisfactory evidence)
to be the persons who executed the within instrument on behalf of VALENCIA
COTAPANY, the division that executed the within instrument on behalf of said
partnership, and acknowledged to me that VALENCIA COMPANY executed the same on
behalf of said partnership and acknowledged to me that; said VALENCIA COMPANY
and said partnership executed the same pursuant to the Limited Partnership
Agreement of said partnership.
WITNESS MY HAND AND OFFICIAL SEAL
Debbi Landaker
NOTARY PUBLIC IN AND FOR SAID STATE
LCO ANCEUS COU#M
ADDEMDUM TO STANDARD INDUSTRIAL LEASE
DATE: April 28, 1997
BY AND BETWEEN: BRADMORE REALTY INVESTMENT COMPANY, LTD.,AS LESSOR,
AND DCH TECHNOLOGY, INC., a California corporation, AS LESSEE.
EXHIBIT D
ARTICLE I DEFINITIONS
Unless the context otherwise specifies or requires, the terms defined in this
Article I shall, for all purposes for this DECLARATION OF COVENANTS, CONDITIONS
AND RESTRICTIONS have the meanings herein specified.
ARCHITECT The term "Architect" shall mean a person holding a certificate to
practice architecture in the State of California under authority of Division 3,
Chapter 3 of the Business and Professions Code of the State of California, or
under such other sections as may hereafter regulate the practice of architecture
in the State of California.
BENEFICIARY The term "Beneficiary" shall mean a mortgagee under a mortgage, as
well as a beneficiary under a deed of trust.
<PAGE>
DECLARANT The term "Declarant" shall mean VALENCIA COMPANY, a division of The
Newhall Land and Farming Company (a California Limited Partnership), and all of
its successors, assigns, or designees who shall assume the obligations provided
for herein, and to whom Declarant shall specifically assign in writing the right
to enforce these restrictions provided for herein.
DECLARATION The term "Declaration" shall mean this DECLARATION OF COVENANTS,
CONDITIONS, AND RESTRICTIONS.
DEED OF TRUST The term "Deed of Trust" or "Trust Deed" shall mean a mortgage as
well as a deed of trust.
FILE The term "File" shall mean, with reference to any subdivision map, the
filing of said map in the Office of the Recorder of the County of Los Angeles,
State of California.
IMPROVEMENTS The term "Improvements" shall include buildings 'outbuildings,
roads, driveways, parking areas, fences, screening walls and barriers, retaining
walls, stairs, decks, hedges, windbreaks, plantings, planted trees and shrubs,
poles, signs, loading areas and all other structures or landscaping improvements
of every type and kind, and any replacements, additions, repairs or alterations
thereto of any kind whatsoever.
OWNER The term owner shall mean each and every owner of the real property or any
portion thereof or interest therein during the term of its ownership and each
lessee or other occupant in possession thereof as may be appropriate under the
context.
MORTGAGEE The term "Mortgagee" shall mean a beneficiary under, or a holder of a
deed of trust as well as a mortgage.
OFFICE BUILDING(S) AND HIGH-TECH BUILDING S) The term "Office Building(s) and
High-Tech Building(s)" shall mean buildings improved with a high percentage of
offices and/or suites, used primarily for non-warehousing types of purposes and
requiring a substantially greater amount of parking than buildings) used
primarily for warehousing types of purposes.
REAL PROPERTY The term "Real Property" shall mean all or any portion of the
property subject to the terms and provisions of the Declaration, including the
real property described in Exhibit "A" attached hereto and such additional
property that shall from time to time hereafter become subject to the
Declaration, in accordance with the provisions contained in Section 2.2
hereafter.
RECORD; RECORDED The term "Record" shall mean, with respect to any document, the
recordation of said document in the Office of the County Recorder of the County
of Los Angeles, State of California.
SITE The term "Site" shall mean an area of land shown as one lot on a recorded
subdivision map or so designated in a deed or lease in which Declarant is the
grantor or lessor included within the real property described in Exhibit "A" or
added thereof pursuant to Article 11 hereafter. If an easement or easements over
any portion or portions of a Site established by recorded plan or recorded
instrument is or are reserved by Declarant for any purpose whatsoever, the area
of such portion or portions shall be included in computing the area of that
Site. If subsequent to the establishment of a Site by recorded plan or recorded
instrument, any portion or portions thereof are, for railroad, street, highway,
<PAGE>
utility or public purpose, taken by right of eminent domain, or deed in lieu
thereof, or dedicated or conveyed pursuant to reservation by Declarant, the area
of such portion or portions shall continue to be included thereafter in
computing the area of that Site.
SUBDIVISION The term "Subdivision" shall mean the division of any Site or Sites
of improved or unimproved property, or any portion thereof, shown on the latest
equalized county assessment roll as a unit or as contiguous units, for the
purpose of sale, lease, or financing whether immediate or future, in accordance
with the terms and provision of the Subdivision Map Act contained in Section
6641 0 et seq of the California Government Code, and the Los Angeles County
Subdivision Ordinance enacted pursuant thereto.
VISIBLE FROM NEIGHBORING SITES The term "Visible from Neighboring Sites" shall
mean, with respect to any given object, that such object is or would be visible
to a person six feet tall, standing on any part of such neighboring Sites at an
elevation no greater than the elevation of the base of the object being viewed.
VALENCIA INDUSTRIAL CENTER The term "Valencia Industrial Center" shall mean all
of the real property now or hereafter made subject to the DECLARATION.
VALENCIA INDUSTRIAL CENTER RESTRICTIONS The term "Valencia Industrial Center
Restrictions" shall mean the covenants, conditions, and restrictions set forth
in this DECLARATION, as it may from time to time be amended and supplemented.
ARTICLE II
PROPERTY SUBJECT TO THE VALENCIA INDUSTRIAL CENTER RESTRICTIONS
SECTION 2.1 GENERAL DECLARATION CREATING VALENCIA
INDUSTRIAL CENTER
DECLARANT hereby declares that all of the real property located in the County of
Los Angeles, State of California, described in Exhibit "A", which is attached
hereto and incorporated herein by this reference, is and shall be, conveyed,
hypothecated, encumbered, leased, occupied, built upon or otherwise used,
improved or transferred in whole or in part subject to the VALENCIA INDUSTRIAL
CENTER RESTRICTIONS, meaning the covenants, conditions and restrictions set
forth in this DECLARATION. All of said covenants, conditions and restrictions
are declared and agreed to be in furtherance of a general plan for the
subdivision, improvement and sale of said real property and are established for
the purpose of enhancing and perfecting the value, desirability and
attractiveness of said real property and every part thereof. All of the VALENCIA
INDUSTRIAL CENTER RESTRICTIONS shall run with all of said real Property for all
purposes and shall be binding upon and inure to the benefit of DECLARANT and all
owners, lessees, licensees, occupants and their successors in interest as set
forth in this DECLARATION.
SECTION 2.2 ADDITION OF OTHER PROPERTY OWNED BY DECLARANT
A. DECLARANT'S POWER Declarant may at any time during the pendency of this
DECLARATION add all or any portion of any property now or hereafter owned by
DECLARANT to the real property which is covered by this DECLARATION, AND UPON
RECORDING OF A NOTICE OF ADDITION OF PROPERTY CONTAINING AT LEAST THE PROVISIONS
SET FORTH IN SECTION 2.2B OF THIS ARTICLE 11, THE PROVISIONS OF THIS DECLARATION
specified in said notice shall apply to such added property in the same manner
as if it were originally covered by this DECLARATION. Thereafter, to the extent
this DECLARATION is made applicable thereto, the rights, powers and
responsibilities of DECLARANT and the owners, lessees, licensees and occupants
<PAGE>
of Sites within such added property shall be the same in the case of the real
property described in Exhibit "A".
B. NOTICE OF ADDITION OF PROPERTY The notice of addition of real property
referred to in Section 2.2A above shall contain at least the following
provisions:
1. A reference to this DECLARATION stating the date of recording hereof and
the book or books of the records of Los Angeles County, California, and the page
numbers where this DECLARATION is recorded;
2. A statement that the provisions of this DECLARATION, or some specified part
thereof, shall apply to such added property;
3. An exact description of such added property, and
4. Such other or different covenants, conditions and restrictions as DECLARANT
shall, in its discretion, specify to regulate and control the use, occupancy and
improvement of such added property.
SECTION 2.3 SUBDIVISION OF SITES
There shall be no subdivision of any Site subject to the Valencia Industrial
Center Restrictions without the prior written consent to Declarant which consent
Declarant may withhold for any reason Declarant in its sole discretion deems
reasonable. In addition, further subdivision or division of any Site shall not
serve to make the parts into which such Site is subdivided themselves Sites for
the purposes hereof in such instances where the prior written approval of the
DECLARANT has not been received. The restrictions contained in the Valencia
Industrial Center Restrictions shall, in such events, remain applicable to the
entire Site as originally defined for the duration hereof.
ARTICLE III REGULATIONS OF IMPROVEMENTS
SECTION 3.1 APPROVAL OF PLANS
No Improvements of any nature whatsoever (including but not limited to any
alteration or addition to any Improvements existing from time to time) shall be
constructed, erected, placed, altered, maintained or permitted to remain on any
Site subject to this DECLARATION until final plans and specifications showing
the plot layout, all ingress and egress for persons and vehicles, all vehicle
parking, all exterior elevations with materials and colors therefor, exterior
signs, exterior hardscape, landscape, and irrigation, walls and fences, shall
have first been submitted to and approved in writing by DECLARANT. Such final
plans and specifications shall be submitted in writing in duplicate over the
authorized signature of the owner, lessee, licensee or other occupant of the
Site or his authorized agent. Under no circumstances shall the DECLARANT approve
metal-clad buildings of any type or design. All roof equipment including but not
limited to heating, air-conditioning and ventilation equipment, antennas and
communication equipment shall be so located or screened so as not to be visible
from neighboring sites and or adjacent streets. Changes in approved plans which
materially affect building size, placement or external appearances shall
similarly be submitted to and approved by DECLARANT.
SECTION 3.2 BASIS FOR APPROVAL
Architectural Guidelines as may be amended from time to time to assist in the
design and development of an individual Site within Valencia Industrial Center
<PAGE>
shall be made available from Declarant. Approval by Declarant of Plans and
Specifications shall be based, among other things on Site plot plan dimensions,
landscaped areas, and building design in conformity and harmony of external
design with neighboring structures; effect of location and use of proposed
improvements on neighboring Sites; the nature of improvements on neighboring
Sites and the types of operations and uses thereof; relation of topography,
grade and finish ground elevation of the Site being approved to that of
neighboring Sites; proper facing of main elevation with respect to nearby
streets and conformity of the plans and specifications to the purpose and
general plan and intent of this DECLARATION. DECLARANT shall not arbitrarily or
unreasonably withhold its approval of such plans and specifications.
SECTION 3.3 RESULT OF INACTION
If DECLARANT fails either to approve or disapprove such plans and specifications
within thirty (30) days after the same have been submitted to it, it shall be
conclusively presumed that DECLARANT has approved said plans and specifications;
provided, however, that if within said thirty (30) day period, DECLARANT gives
written notice of the fact that a reasonable additional period is required for
the approval of such plans and specifications, there shall be no presumption
that the same are approved until the expiration of the extended period set forth
in said notice.
SECTION 3.4 PROCEEDING WITH WORK
Upon receipt of approval of plans and specifications from DECLARANT pursuant to
this section, the owner or lessee to whom the same is given shall, as soon as
practicable, satisfy all conditions thereof and diligently proceed with the
commencement and completion of all approved construction, refinishing,
alterations and excavations. In all cases work shall be commenced within one
year from the date of such approval. If there is a failure to comply with this
paragraph, then the approval given pursuant to this section shall be deemed
revoked unless DECLARANT upon request made prior to the expiration of said one
year period extends the time for commencing work.
SECTION 3.5 COMPLETION OF WORK
In any event completion, reconstruction, refinishing or alteration of any such
improvement shall be within two years after commencement thereof except for so
long as such completion is rendered impossible or would result in great hardship
due to strikes, fires, national emergencies, natural calamities or other
supervening forces beyond the control of the owner, lessee, licensee or occupant
or his agents and of a non-financial nature. Failure to comply with this
paragraph shall constitute a breach of the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS and subject the defaulting party or parties to all enforcement
procedures set forth in this a DECLARATION and any other remedies provided by
law or in equity.
SECTION 3.6 ESTOPPEL CERTIFICATE
Within thirty (30) days after written demand is delivered to the DECLARANT and
upon payment of a reasonable fee established by DECLARANT, there shall be
recorded an estoppel certificate executed by DECLARANT and certifying that as of
the date thereof either (a) all improvements made or other work done on or
within a Site complies with the VALENCIA INDUSTRIAL CENTER RESTRICTIONS or (b)
such improvements or work do not comply in which event the certificate shall
identify the non-complying improvements or work and set forth with particularity
<PAGE>
the cause or causes for such non-compliance. Any lessee, purchaser or
encumbrancer in good faith for value shall be entitled to rely on said
certificate with respect to the matters set forth therein, such matters being
conclusive as between the DECLARANT and all such subsequent parties in interest.
SECTION 3.7 LIABILITY
DECLARANT shall not be liable for any damage, loss or prejudice suffered or
claimed on account of (a) the approval or disapproval of any plans, drawings and
specifications whether or not defective; (b) the construction or performance of
any work whether or not pursuant to approved plans, drawings and specifications;
(c) the development of any Site within the VALENCIA INDUSTRIAL CENTER; or (d)
the execution and filing of an estoppel certificate pursuant to the preceding
paragraph whether or not the facts therein are correct, provided that DECLARANT
has acted in good faith. In addition to the foregoing, Declarant makes no
representation, warranty or guarantee of any kind whatsoever as to the
propriety, feasibility or integrity of any plans, drawings and specifications
approved by Declarant pursuant to the provisions contained herein.
SECTION 3.8 REVIEW FEE
A reasonable architectural review fee shall be paid to DECLARANT at such time as
plans and specifications are submitted to it for approval. The determination of
the exact amount of such fee shall be made from time to time by Declarant.
ARTICLE IV LIMITATIONS ON IMPROVEMENTS
SECTION 4.1 MINIMUM SETBACK LINES AND BUILDING TYPES
No building or parking (except as expressly provided for in Sections 4.2 and 4.3
below) shall be maintained upon any Site within forty (40) feet of any Street,
and no building shall be maintained within fifteen (15) feet of the property
line of any other Site, nor have exterior walls constructed of other than
substantial construction including concrete and masonry, nor shall more than
fifty percent (50%), of the area of any Site be built upon; nor shall any
building be constructed upon any Site with a roof having a difference in
elevation of more than two (2) feet unless approved in the manner hereinafter
provided.
SECTION 4.2 OFFICE BUILDINGS AND "HIGH TECH" BUILDINGS
Notwithstanding anything to the contrary contained in Section 4.1 above, any
office buildings) and "high-tech" buildings) requiring a greater parking ratio
than standard industrial buildings and whose location on the Site has a
substantial setback from the street, may request a variance of the parking
restriction within the forty (40') feet setback area from any street, provided a
minimum of twenty-five (25') feet from the street curb is mounded or bermed to a
height of not less than four (4') feet and landscaped so as to assure that all
automobile parking within forty (40') feet setback area is hidden from view from
the street. Similarly, owners of Sites bordering dedicated streets on two sides
may likewise request a variance of the forty (40') feet setback area on one
street frontage (that being the street away from the buildings) or improvements)
front) provided a minimum of twenty-five (25') feet from the street curb is
mounded or bermed to a height of not less than four (4') feet and landscaped so
as to assure that all automobile parking within the forty (40') feet setback
area is hidden from view from the street. Nothing indicated herein shall be
construed so to permit the granting of a variance providing for a landscaped
<PAGE>
setback area of less than twenty-five (25') feet within the Valencia Industrial
Center.
SECTION 4.3 USE OF SETBACK AREAS
Within the required setback area from streets there shall be maintained on each
Site only paved walkways, paved driveways (hardscape), and lawns and
landscaping, with the surface of each Site not covered by improvements being at
all times maintained so as to be dust free. At least two-thirds (2/3) of the
surface of the required setback area from streets shall be maintained in
landscaping.
SECTION 4.4 LANDSCAPING
Every Site on which a building shall have been placed shall have landscape and
exterior hardscape constructed in accordance with plans and specifications
submitted to and approved by DECLARANT pursuant to Section 3.1 above. With the
exception of those areas planted in shrubs or trees, the landscaped areas shall
be maintained in grass lawn or approved ground cover. Landscaping and hardscape
as approved by DECLARANT shall be installed within thirty (30) days of occupancy
or completion of the building, whichever occurs first, unless DECLARANT approved
in writing another completion date. After completion such landscaping and
hardscape shall at all times be maintained in an attractive and well-kept
condition.
SECTION 4.6 DRAINAGE
No water shall be drained or discharged from any Site or Improvements thereon,
and no Owner shall interfere with the drainage established as of the date of
this Declaration, in or over the remainder of the real property or any other
property adjacent to such Site, except in accordance with plans therefor
approved by all public agencies having jurisdiction; provided that no water
shall be drained or discharged at any time onto or diverted from any adjacent
properties owned by the Declarant.
SECTION 4.6 SIGNS
A. No signs projecting above the highest point on the roof line of any
building or employing letters exceeding four (4) feet in height shall be used.
No more than two business identification signs shall be used on any Site and no
signs shall be painted on any structure. No flashing or moving lights shall be
used.
B. No signs shall be permitted other than those identifying the name, business
and products of the person or firm occupying the premises constructed on any
Site and those offering the premises for sale or for lease. The size and style
of sale or lease signs shall first be approved by DECLARANT in writing. No more
than one sign relating to the sale or leasing of the Site may be used, and such
sign shall not exceed fifteen (15) square feet. Monument signs identifying each
building shall be encouraged however, the design, colors, materials and size
shall first be approved by DECLARANT.
C. Notwithstanding anything to the contrary contained in this Section 4.6,
multi-tenant buildings shall be permitted one Tenant Directory sign for each
building. Said sign shall not exceed twelve (12) square feet and shall be
approved by DECLARANT in writing as to design, color and location of the sign on
each Site.
<PAGE>
D. The location of all signs shall first be approved by DECLARANT.
E. Signs and identifying markings on buildings or building Sites shall only be
of such size, design and color as is first specifically approved by DECLARANT in
writing.
SECTION 4.7 PARKING AREAS
Adequate off-street parking shall at all times be provided to accommodate all
parking needs for employee, visitor and company vehicles on the Site. The intent
of this provision is to eliminate the need for any on-street parking. No use
shall be made of any Site at anytime which will attract parking in excess of the
parking spaces then available thereon.
SECTION 4.8 STORAGE AND LOADING AREAS
A. Unless specifically approved by DECLARANT in writing, no materials,
supplies or equipment, including company- owned or operated trucks, mobile
homes, boats, trailers, or recreation vehicles, shall at any time be stored in
any area on a Site except inside a closed building, or behind a visual barrier
screening such areas so that they are not visible from the neighboring Sites or
public streets. Visual barrier screening to a height of not more than eight (8)
feet shall be permitted only with the prior written approval of DECLARANT.
B. Loading areas shall not encroach into setback areas.
C. Loading docks shall be set back and screened to minimize the effect of
their appearance from the street and so as not to be visible from neighboring
Sites. Docks shall not be closer than seventy (70) feet to the street property
line, unless specifically approved by DECLARANT in writing. Loading shall be
permitted to the rear of the setback line from that portion of a structure not
fronting a street.
SECTION 4.9 FENCING AND SCREENING OF STORAGE AREAS
All areas requiring fencing shall be enclosed with a minimum six foot (6') high
and maximum eight foot (8') high masonry wall, such as slumpstone, split face
block wall with cap or brick. Chain link fence shall be prohibited throughout
the VALENCIA INDUSTRIAL CENTER. Gate construction shall be of wrought iron or
other materials first approved by DECLARANT.
SECTION 4.10 SCREENING - TRASH AREA
All trash areas shall be enclosed with a minimum six foot (6') high masonry
wall, such as slumpstone, split face block wall with cap, or brick. All trash
enclosures shall have blinds or gates. Chain link gates shall only be permitted
if faced with wooden slats so as to obscure view of trash containers. No trash
containers or bins shall be maintained on any Site unless contained within a
masonry trash enclosure.
ARTICLE V
REGULATION OF OPERATIONS AND USES
SECTION 5.1 PERMITTED USES
<PAGE>
Each Site shall only be used for manufacturing, processing, storage, wholesale,
of f ice, laboratory, professional, research and development activities and/or
other like uses which are permitted by the applicable zoning designation; No
junk or salvage yard or any other use offensive to the neighborhood by reason of
order, fumes, dust, smoke, noise, or pollution or hazardous by reason of danger
of fire or explosion, radiation, electromagnetic disturbances, toxic or non-
toxic matter shall be permitted regardless of whether or not permitted by
applicable zoning laws or ordinances.
SECTION 5.2 RESTRICTIONS AND PROHIBITED USES
A. PROHIBITED USES The following are examples of operations and uses which
shall specifically not be permitted on any Site subject to the Valencia
Industrial Center Restrictions
1. Residential
2. Commercial
3. Restaurants of all types
4. Trailer Courts
5. Labor Camps -
6. Junk Yards
7. Drilling for and/or the removal of oil, gas or other hydrocarbon substances
(except that this provision shall not be deemed to prohibit the entry of subject
property below a depth of 500 feet for such purposes)
8. Commercial excavation of building or construction materials
9. Distillation of bones
10. Dumping, disposal, incineration or reduction of garbage, sewage, offal,
dead animals or refuse
11. Fat Rendering
12. Stockyard or Slaughter of Animals
13. Refining of Petroleum or of its Products
14. Smelting of Iron, Tin, Zinc, or other Ores
15. Cemeteries
16. Jail or Honor Farms
17. Any and all operations and uses not compatible or harmonious with the
establishment and maintenance of a high quality industrial park.
B. NUISANCES No rubbish or debris of any kind shall be placed or permitted to
accumulate upon or adjacent to any Site, and no orders shall be permitted to
arise therefrom so as to render any Site or portion thereof unsanitary,
unsightly, offensive or detrimental to any Site or property in the vicinity
thereof or to the occupants thereof. No nuisance shall be permitted to exist or
operate upon any Site so as to be offensive or detrimental to any property in
the vicinity thereof or to its occupants.
C. MAINTENANCE AND REPAIRS OF IMPROVEMENTS Each Site and all Improvements
thereon shall at all times be constructed, kept and maintained in first class
condition, repair and appearance similar to that maintained by DECLARANT and
other owners of high-class properties of similar class and construction in Los
Angeles County, ordinary wear and tear expected. All repairs, alterations,
replacements, or additions to Improvements shall be at least equal to the
original work in class and quality. The necessity and adequacy of such repairs
shall be measured by the same standard as set forth above for the original
construction and maintenance. Each owner shall also be responsible at all times
for determining that all Improvements and the plans and specifications therefor
shall conform and comply in all respects with the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS, all other restrictions of record, all applicable governmental
regulations, and all exterior architectural design, location and color
<PAGE>
specifications as may be approved by DECLARANT. Each Owner shall also adopt and
maintain such standards of property space maintenance, appearance, and
housekeeping as shall be reasonable and customary for similar operations or
enterprises and shall enforce compliance with such standards by all tenants,
occupants, or users of space. On request, DECLARANT shall be entitled to receive
copies of all such standards or similar rules or regulations in effect from time
to time. Notwithstanding anything to the contrary contained in the foregoing all
exterior surfaces shall be maintained in first-class condition and shall be
repainted at least once in every four (4) years.
D. MAINTENANCE OF UNIMPROVED SITES Each and every Site shall be maintained at
all times in a weed-free, clean and presentable condition prior to such Site
being improved with buildings and landscaping.
E. RIGHT OF ENTRY During reasonable hours, and subject to reasonable security
requirements, DECLARANT, or its authorized representative, shall have the right
to enter upon and inspect any Site and the improvements thereon embraced for the
purpose of ascertaining whether or not the provisions of the VALENCIA INDUSTRIAL
CENTER RESTRICTIONS have been or are presently being complied with and shall not
be deemed guilty of trespass by reason of such entry.
SECTION 5.3 OTHER OPERATIONS AND USES
Operations and uses which are neither specifically prohibited nor specifically
authorized by VALENCIA INDUSTRIAL CENTER RESTRICTIONS shall be permitted in a
specific case only if operational plans and specifications are first submitted
to and approved in writing by DECLARANT. Approval or disapproval of such
operational plans and specifications shall be based upon the effect of such
operations or uses on other Sites subject to these restrictions or upon the
occupants thereof, but shall be in the sole discretion of DECLARANT.
ARTICLE VI
DURATION, MODIFICATION AND REPEAL
SECTION 6.1 DURATION OF RESTRICTIONS
The VALENCIA INDUSTRIAL CENTER RESTRICTIONS shall continue and remain in full
force and effect at all times with respect to all Sites included in the VALENCIA
INDUSTRIAL CENTER and each part thereof, now or hereafter made subject thereto
(subject, however, to the right to amend and repeal as provided for herein)
until January 1, 2015. However, unless within one year prior to January 1, 2015,
there shall be recorded an instrument directing the termination of the VALENCIA
INDUSTRIAL CENTER RESTRICTIONS signed by owners of not less than two-thirds of
the area of the real property then subject to the VALENCIA INDUSTRIAL
RESTRICTIONS, (based on the number of square feet of real property subject to
the VALENCIA INDUSTRIAL CENTER RESTRICTIONS), the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS, as in effect immediately prior to the expiration date shall be
continued automatically without any further notice for an additional period of
ten (10) years and thereafter for successive periods of ten (10) years unless
within one (1) year prior to the expiration of any such period the VALENCIA
INDUSTRIAL CENTER RESTRICTIONS are terminated as set forth above in this
Section.
SECTION 6.2 TERMINATION AND MODIFICATION
<PAGE>
This DECLARATION, or any provision hereof, or any covenant, condition or
restriction contained herein, may be terminated, extended, modified or amended,
as to the whole of the real property or any portion thereof, with the written
consent of the owners of seventy-five (75%) of the area of the real property
subject to the VALENCIA INDUSTRIAL CENTER RESTRICTIONS, based on the number of
square feet of real property owned as compared to the total number of square
feet of real property subject to the VALENCIA INDUSTRIAL CENTER RESTRICTIONS,
provided, however, that so long as DECLARANT owns at least twenty-five percent
(25%) of the real property subject to the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS, or for a period of fifteen (15) years from the effective date
hereof, whichever period is longer, no-such termination, extension, modification
or amendment shall be. effective without the written approval of DECLARANT
thereto. No such termination, extension, modification or amendment shall be
effective until a proper instrument in writing has been executed and
acknowledged and recorded in the County where the real property affected thereby
is situated.
ARTICLE VII
ENFORCEMENT
SECTION 7.1 ABATEMENT AND SUIT
The conditions, covenants, restrictions and reservations herein contained shall
run with the real property, and shall be binding upon the inure to the benefit
of the DECLARANT, and the Owners of every Site on the real property. These
conditions, covenants, reservations and restrictions may be enforced as provided
hereinafter by DECLARANT acting for itself or as DECLARANT acting as trustee, on
behalf of all of the Owners of Sites. Each Owner by acquiring an interest in a
Site shall appoint irrevocably the DECLARANT as its attorney-in-fact for such
purposes; provided, however that if an Owner of a Site notified DECLARANT of a
claimed violation of these conditions, covenants, restrictions and reservations
in writing and DECLARANT fails to act within sixty (60) days after receipt of
such notification, then, and in that event only, an Owner may separately, at its
own cost and expense, enforce the conditions, covenants, restrictions and
reservations herein contained and have all of the remedies provided for in
Section 7.2 hereafter.
SECTION 7.2 DEFAULT ANID REMEDIES
In the event of any breach, violation or failure to perform or satisfy any of
the VALENCIA INDUSTRIAL CENTER RESTRICTIONS which has not been cured within
thirty (30) days after written notice from DECLARANT to do so, DECLARANT in its
sale option and discretion may enforce any one or more of the following remedies
or any other rights or remedies to which DECLARANT may be entitled by law or
equity, whether or not set forth herein. All remedies provided for herein or by
law or in equity shall be cumulative and not mutually exclusive.
A. DAMAGES DECLARANT may bring a suit for damages for any compensable breach
of or noncompliance with any of the VALENCIA INDUSTRIAL CENTER RESTRICTIONS, or
declaratory relief to determine the enforceability of any of the VALENCIA
INDUSTRIAL CENTER RESTRICTIONS.
B. EQUITY It is recognized that a violation by an Owner of one or more of the
foregoing restrictions may cause DECLARANT to suffer material injury or damage
not compensable in money and that DECLARANT shall be entitled to bring an action
in equity or otherwise for specific performance to enforce compliance with the
<PAGE>
VALENCIA INDUSTRIAL CENTER RESTRICTIONS or an injunction to enjoin the
continuance of any such breach or violation thereof.
C. ABATEMENT AND LIEN RIGHTS Any such breach or violation of the VALENCIA
INDUSTRIAL CENTER RESTRICTIONS or any provision hereof is hereby declared to be
a nuisance, and DECLARANT shall be entitled to enter the Site or any portion
thereof as to which the breach or violation exists and summarily abate and
remove, without further legal process to the maximum extent permitted by law,
any structure, thing or condition that may exist in violation of any of the
VALENCIA INDUSTRIAL CENTER RESTRICTIONS, or to prosecute any remedy allowed by
law or equity for the abatement of such nuisance against any person or entity
acting or failing to act in violation of the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS, all at the sole cost and expense of Owner or any person having
possession under Owner. Any costs or expenses paid or incurred by DECLARANT in
abating such nuisance or prosecuting any such remedy (including all reasonable
attorneys' fees and costs of collection), together with interest thereon at the
maximum rate permitted by law shall be a charge against the Site or any portion
thereof as to which the breach or violation exists, shall be a continuing lien
thereon until paid, and shall also be the personal obligation of that person or
entity who was Owner when such charges became due and committed such breach or
violation. In addition to any other rights or remedies hereunder, DECLARANT may
deliver to Owner and record with the Los Angeles County Recorder a certificate
or notice to claim of lien (which, among other things may but need not recite
the nature of the violation, the legal description of the Site or portion
thereof affected by such violation, the record or reputed Owner thereof,
DECLARANT'S name and address, and the remedies being pursued or the amount of
any such claim being changed). If the violation recited in such lien claim has
not been cured to DECLARANT'S satisfaction and any recited amounts so charged
have not been paid within 30 days thereafter, DECLARANT or DECLARANT'S
authorized representatives may foreclose such lien by a sale conducted pursuant
to Sections 2924, 2924b, and 2924c of the California Civil Code, as amended from
time to time, or such other statutes applicable to the exercise of powers of
sale in mortgages or deeds of trust, or in any other manner permitted by law.
DECLARANT, through its authorized representatives, may bid on and acquire any
Site or portion thereof subject to such lien at any such foreclosure sale. If
the violations recited in such lien claim are timely cured and any recited
amounts timely paid as provided above, an appropriate release of such lien shall
be recorded by DECLARANT at Owner's sole cost and expense.
SECTION 7.3 WAIVER
No waiver by DECLARANT of a breach of any of the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS and no delay or failure to enforce any of the VALENCIA INDUSTRIAL
CENTER RESTRICTIONS shall be construed or held to be a waiver of any succeeding
or preceding breach of the same or any other of the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS by that Owner of any other Owner of the Site, or any other Site. No
waiver by DECLARANT of any breach or default hereunder shall be implied from any
omission by DECLARANT to take any action on account of such breach or default if
such breach or default persists or is repeated, and no express waiver shall
affect a breach or default other than as specified in said waiver. The consent
or approval by DECLARANT to or of any act by an Owner requiring DECLARANT'S
consent or approval shall not be deemed to waive or render unnecessary
DECLARANT'S consent or approval to or of any subsequent similar acts by Owner.
SECTION 7.4 COSTS OF ENFORCEMENT
<PAGE>
In the event any legal or equitable action or proceeding shall be instituted to
enforce any provision of the VALENCIA INDUSTRIAL CENTER RESTRICTIONS, the party
prevailing in such action shall be entitled to recover from the losing party all
of its costs, including court costs and reasonable attorney's fees.
SECTION 7.5 RIGHTS OF LENDERS
No breach or violation of the VALENCIA INDUSTRIAL CENTER RESTRICTIONS shall
defeat or render invalid the lien of any mortgage, deed of trust or similar
instrument securing a loan made in good faith and for value with respect to the
development or permanent financing of and Site or portion thereof; provided,
however, all of the VALENCIA INDUSTRIAL CENTER RESTRICTIONS shall be binding
upon and effective against any subsequent Owner of the Site or any portion
thereof whose title is acquired by foreclosure, trustee's sale, deed in lieu of
foreclosure or otherwise pursuant to such lien rights, but such subsequent Owner
shall take title free and clear of any violations of the VALENCIA INDUSTRIAL
CENTER RESTRICTIONS occurring prior to such transfer of title.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 ASSIGNMENT OF RIGHTS AND DUTIES
Any and all of the rights, powers and reservations of DECLARANT herein contained
may be assigned to any person, corporation or association which will assume the
duties of DECLARANT pertaining to the particular rights, powers and reservations
assigned, and upon any such person, corporation or association's evidencing its
consent in writing to accept such assignment and assume such duties, he or it
shall, to the extent of such assignment, have the same rights and powers and be
subject to the same obligations and duties as are given to and assumed by
DECLARANT herein. The term DECLARANT as used herein includes all such assignees
and their heirs, successors and assigns. If at any time DECLARANT ceases to
exist and has not made such an assignment, a successor DECLARANT may be
appointed in the same manner as the VALENCIA INDUSTRIAL CENTER RESTRICTIONS may
be terminated, extended, modified or amended under Section 6.2 of Article Vi.
Any assignment or appointment made under this section shall be in recordable
form and shall be recorded in the County where the real property affected is
situated.
SECTION 8.2 CONSTRUCTIVE NOTICE AND ACCEPTANCE
Every person or other entity who now or hereafter owns or acquires any right,
title or interest in or to any portion of the real property made subject to the
VALENCIA INDUSTRIAL CENTER RESTRICTIONS is and shall be conclusively deemed to
have consented and agreed to every covenant, condition and restriction contained
herein, whether or not any reference to ties DECLARATION is contained in the
instrument by which such person or entity acquired an interest in said real
property.
SECTION 8.3 WAIVER
Neither DECLARANT nor its successors or assigns shall be liable to any owner,
lessee licensee, or occupant of a Site or of any portion of the real property
subject to the VALENCIA INDUSTRIAL CENTER RESTRICTIONS by reason of any mistake
in judgment, negligence, nonfeasance, action or inaction or for the enforcement
or failure to enforce any provision of this DECLARATION. Every owner, lessee,
<PAGE>
licensee or occupant of any of Sites or any portion of the real property by
acquiring his interest therein agrees that he will not bring any action or suit
against DECLARANT to recover any such damages or to seek equitable relief.
SECTION 8.4 MUTUALITY, RECIPROCITY; RUNS WITH LAND
All covenants, conditions, restrictions and agreements contained herein are made
for the direct, mutual and reciprocal benefit of each and every Site and portion
of the real property now or hereafter made subject to the DECLARATION; shall
create mutual, equitable servitudes upon each Site and portion of the real
property in favor of every other Site and portion of the real property; shall
create reciprocal rights and obligations between the respective owners of all
Sites and portions of the real property and privity of contract and estate
between all grantees of said Sites and portions of the real property, their
heirs, successors and assigns; and shall, as to the owner of each Site and
portions of the real property, his heirs, successors and assigns, operate as
covenants running with the land, for the benefit of all other Sites and portion
of the real property.
SECTION 8.5 NOTICES
All notices, consents, requests, demands and other communications provided for
herein shall be in writing and shall be deemed to have been duly given if and
when personally served or 24 hours after being sent by United States registered
or certified mail, return receipt requested, postage prepaid, to the intended
party at its last known address.
<PAGE>
EXHIBIT 6.15
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, April
2, 1999, is made by and between Valencia Gardens, a California Limited
Partnership ("Lessor") and DCH TECHNOLOGY, INC., a Colorado 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 27820 Fremont Court, Unit 3, located in
the City of Santa Clarita, County of Los Angeles, State of California, with the
zip code 91355,as outlined on Exhibit A attached hereto ("Premises"). The
"Building" Is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building): Approximately 3,085
square feet of industrial warehouse and office space in a multi-tenant
industrial complex.
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: six (6) unreserved vehicle parking spaces ("Unreserved Parking
Spaces"); and zero (0) reserved vehicle parking spaces ("Reserved Parking
Spaces"). (Also see Paragraph 2.6.)
1.3 Term: three(3) years and zero (O) months ("Original Term") commencing
June 1, 1999 ("Commencement Date") and ending May 31, 2002 ("Expiration Date").
(Also see Paragraph 3.)
1.4 Early Possession. Upon Lease execution ("Early Possession Date"). (Also
see Paragraphs 3.2 and 3.3.)
1.5 Base Rent: $1,912.70 per month ("Base Rent"), payable on the 1st day of
each month commencing June 1, 1999. (Also see Paragraph 4.)
If this box is checked, this Lease provides for the Base Rent to be adjusted per
Addendum Par 51 attached hereto.
1.6(a) Base Rent Paid Upon Execution: $1,912.70 as Base Rent for the period June
1, 1999 through June 30, 1999.
1.6(b) Lessee's Share of Common Area Operating Expenses: six point five percent
(6.5 %) ("Lessee's Share") as determined by prorata square footage of the
Premises as compared to the total square footage of the Building.
1.7 Security Deposit: $1,912.70 ("Security Deposit"). (Also see Paragraph 5).
<PAGE>
1.8 Permitted Use: Assembly and calibration of robust hydrogen sensor product
line ("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):
N/A represents Lessor exclusively ("Lessor's Broker");
N/A represents Lessee exclusively ("Lessee's Broker"); or
TOLD Partners Inc. 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 N/A 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 59 and Exhibits "A" through "B" , 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. It 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
<PAGE>
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.
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.
<PAGE>
(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
<PAGE>
(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 Lasses-, by the Early Possession Date, if one is specified it
Paragraph 1.4, or it 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.
<PAGE>
4.2 Common Area 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, drive- ways, landscaped
areas, striping, bumpers, irrigation systems, Common Area lighting facilities,
fences and gates, elevators and root.
(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 Rent Property Taxes, (as defined in Paragraph
10.2(b)) for the Building and the Common Areas. Per proposition 13, not due to
increase in assessment because of change of ownership.
(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 In provide the same or
some of them.
<PAGE>
(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 attar 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 of such over 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. It 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.
<PAGE>
(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 (1) 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,
<PAGE>
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 govern- mental 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, it 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 Lessors'
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 other- wise
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
<PAGE>
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 improvement's 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.l,
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 n6 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,
<PAGE>
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 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 nova 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 there 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 -nay, 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 open 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.
<PAGE>
(e) 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 proper' y 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 dam- age 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.
<PAGE>
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 oy 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. It the parties insert a dollar amount in Paragraph
1.9, such amount shall be considered the "Base Premium." 1f a dollar amount has
not been inserted in Paragraph 1.9 and if the Building has been previously
occupied during the twelve (1 2) month period immediately preceding the
Commencement Date, the "Base Premium" shall be the annual premium applicable to
such twelve (12) month period. It 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.
<PAGE>
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 'he coverage is available and commercially
appropriate, Lessor's policy or policies shall insure against at; 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
LJ.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, it 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.
(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
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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 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 t>e insured against under Paragraph S. The off act of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carded 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 indemnity, 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, lions, 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 art, 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 fore- going 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.
<PAGE>
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.
<PAGE>
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 earth- quake
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
writ- ten 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 with- in 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
<PAGE>
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.
(b) If Lessor shall be obligated to repair or restore the Premises under the
provisions o. this Paragraph 9 and shall not commence, in a substan a and ment
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. It
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 affect. "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
<PAGE>
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, ii
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 time 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
affect, during the term of this Lease, including but not limited to a change in
<PAGE>
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 lessee's 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, 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, 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
<PAGE>
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 per- cent
(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 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 relocation. at whichever time said Not 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 a-ler 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 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 beat 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 'n 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.
<PAGE>
(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 obligation- 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 '.or the Default or Breach by Lessee of
any of the terms, covenants or conditions of !his 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 @nay 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 pe,Fons from liability under
this Lease or the sublease.
(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 any- one
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 subleases, 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 IF 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 heroin to be observed or per-
formed 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-tbe-dghL-(but not the obligation) to require that the Security Deposit be
increased by an amount equal to six (6) times the tokamak and Lessor may make
the actual receipt by Lessor of the Security Deposit Increase a condition to
Lessor's consent to such transaction.
<PAGE>
(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 subleases, 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
subleases 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 sub- lessee 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 Lessors 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.
<PAGE>
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 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
<PAGE>
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 (a) 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
<PAGE>
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 in such proceeding 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 is 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 statue 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
limi-tations on assignment and subletting in this Lease are reasonable. Acts of
maintenance or preservation, efforts to relat 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 allect, 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,
are 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 def)rned a waiver by Lessor of the provisions of
<PAGE>
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 lim4ed to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or dead of trust.@tovering 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 tan (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 thereafterdiii- gently 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
<PAGE>
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 not 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 This Paragraph has been intentionally omitted.
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
indemnity, 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 too title to the Premises. In the event
of
<PAGE>
a transfer of Lessor's title or interest in the Premises or iii 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 thereatterto 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. Severablility. 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 tan (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%)_pp@rqr)nurn, 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.
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.
<PAGE>
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 there- of, 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 doomed to ronder 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. This Paragraph has been intentionally omitted.-
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; Attarnment; Non-Disturbance.
<PAGE>
30.1 Subordination. This Lease and any Option granted hereby shall be subject
and subordinate to any ground lease, mortgage, dead 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 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 owner- ship
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, adornment 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
here- after 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.
<PAGE>
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, atid 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 applciable signage criteria established by 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 lessor 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 lessor 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
<PAGE>
Security Deposit hold 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
reason- able 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
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 reason-
able 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 Guarantors may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in off
act,
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 lea-se other property of Lessor; (e) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first off or 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.
<PAGE>
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
<PAGE>
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility race- ways, 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 off actuate 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.
Assignment Of Parking By Lessor. In the event Lessor finds it necessary, in
Lessor's sole judgement, to assign or reassign vehicle spaces on those portions
of the Common Areas designated by Lessor for parking in order to prevent
disputes between tenants, then and in that event Lessor may do so and Lessee
agrees to abide by Lessor's decision on assigned spaces, and to park only in
such spaces and, in addition, to abide by Paragraph 2.6 of this Lease.
49. Calculation of Rentable Area. Lessor and Lessee acknowledge and agree that
the rentable area of the premises and of the building may actually be more or
less than the figures stated in Section 1.2 of the Lease, and, wherever else the
<PAGE>
Lease refers to the area of the building and/or premises. Lessor and Lessee
agree, however, that even though such figures may be inaccurate, that for the
purposes of the Lease, the figures stated in the Lease shall be conclusively
deemed to be the rentable area of the premises and of the building.
50. Assignment of Parking by Lessor. In the event the Lessor finds it
necessary, in Lessor's sole judgement to assign vehicle spaces on those portions
of the common area designated by the Lessor for parking in order to prevent
disputes between tenants, then and in that event, Lessor may do so and Lessee
agrees to abide by Lessor's decision on assigned spaces, and to park only in
such spaces, and in addition, to abide by Section 2.5 of this Lease.
51. Rent Adjustments. Addendum attached.
52. Option to Cancel. Addendum attached.
53. Restrictions and Use of Hazardous Materials. Addendum attached.
54. Hazardous Materials Warning and Liability Release. Addendum attached.
55. Notice of Owners and Prospective Tenants and Buyers of Real Property
Regarding the Americans with Disabilities Act. Please be advised that an owner
or tenant of real property may be subject tot he Americans with Disabilities Act
(the ADA), a Federal law codified at 42 USC Section 12101 et seq. Among other
requirements of the ADA that could affect your property. Title III of the ADA
requires owners and tenants of "public accomodations" to remove barriers to
access by disabled person and provide auxiliary aids and services for hearing,
vision, or speech impai4red persons by January 26, 1992. The regulations under
Title III of the ADA are codified at 28 CRR, Part 36.
56. Lessee Must Not Violate CC&R's. The Covenants, Conditions and Restrictions
(CC&R's) for the industrial tract in which the leased premises are located and
attached to this Lease as Exhibit "B". Lessee warrants that he has read,
understands and approves of the CC&R's. Furthermore, Lessee agrees to abide by,
adhere to and obey all of these covenants, conditions and restrictions. Any
failure of Lessee to abide by the CC&R's will be conclusively deemed to be a
material breach of this Lease.
57. Option to Extend. Addendum attached.
58. Lessee to be aware that Lessor holds a California Real Estate Broker's
License and is acting as a principal on his own behalf.
59. Articles of Incorporation, State of Colorado.
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,
<PAGE>
LEGAL EFFECT, OR TAX CONSE- QUENCES 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: Woodland Hills, California Executed at: Valencia, CA
On: May 6, 1999 on: 5/5/99
Fed. ID # 95-4516364
By LESSOR: By LESSEE:
Valencia Gardens, a California DCH Technology, Inc.
Limited Partnership a Colorado Corporation
By: /s/ DANIEL W. TENN By: /s/ DAVID A. WALKER
Name printed: Daniel W. Tenn Name Printed: David A. Walker
Title: Managing Partner Title: President
By: By: /s/ DAVID HABERMAN
Name Printed: Name Printed: David Haberman
Title: Title: Chairman
Address: 20501 Ventura Blvd., #220 Address: 27811 Avenue Hopkins, #6
Woodland Hills, CA 91364 Valencia, CA 91355
Telephone: (818) 715-9700 Telephone: (661) 775-8120
Facsimile: (818) 715-9214 Facsimile: (661) 257-9398
BROKER: TOLD Partners, Inc. BROKER: TOLD Partners, Inc.
Executed at: Executed at: Valencia, CA
On: On: 5-5-99
By: /s/ LEEANNE SICHEL By: /s/ STEPHEN B. ROBERTSON
Name Printed: LeeAnne Sichel Name Printed: Stephen B. Robertson
Title Broker Associate Title: Senior Vice President
Address: 27833 Avenue Hopkins, 1B Address: 27833 Avenue Hopkins, 1B
Valencia, CA 91355 Valencia, CA 91355
Telephone: (661) 255-3939 Telephone: (661) 255-3939
Facsimile: (661) 255-1134 Facsimile: (661) 255-1134
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.
RENT ADJUSTMENTS
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
DATE: April 2, 199
BY AND BETWEEN (Lessor) Valencia Gardens, a CA Limited Partnership
(Lessee) DCH TECHNOLOGY, INC., a California Corporation
Property Address: 27820 Fremont Court, Unit 3, Santa Clarita
Paragraph 51.
A. RENT ADJUSTMENTS:
<PAGE>
The monthly rent for each month of the adjustment period(s) specified below
shall be increased using the method(s) indicated below:
Fixed Rental Adjustment(s) (FRA)
The monthly rent payable under paragraphs 1.5 ("Bae Rent") of the attached Lease
shall be increased to the following amounts on the daytes set forth below:
On (Fill in FRA Adjustment Date(s)): The New Base Renta shall be:
May 1, 2000 $1,974.40 per month
May 1, 2001 $2,036.10 per month
B. NOTICE: Unless specified otherwise herein, notice of any escalations other
than Fixed Rental Adjustment(s) shall be made as specified in paragraph 23 of
the attached Lease.
C. BROKER'S FEE:
The Real Estate Brokers specified in paragraph 1.10 of the attached Lease shall
be paid a Brokerage Fee for each adjustment specified above in accordance with
paragraph 15 of the attached Lease.
Paragraph 52
Lessor's Option to Cancel on Assignment or Sublease by Lessee
(a) In the event that Lessee or any sublessee or assignee of Lessee (all
hereinafter referred to as "Lessee"), shall intend to sublet all or a portion of
the Premises (which portion is more than 40% of the square footage in any
building on the Premises or more than 40% of the entire Premises and which
sublease is for more than a one year term including options) or assign its
interest under this Lease then Lessee shall give to Lessor written notice of
such intent (hereinafter 'Notice of Intent") in strict accordance with the
procedures hereinafter set forth.
(b) Lessee's Notice of Intent shall set forth the date (hereinafter
"Termination Date") upon which it is intended that a proposed sublease or
assignment would become effective. The Termination Date shall not be less than
ninety days nor more than one hundred twenty days from the date that Lessor
receives the Notice of Intent. Within twenty days after Lessors receipt of the
Notice of Intent, Lessor may give written notice to Lessee that Lessor elects to
terminate this Lease effective as of the Termination Date. If Lessor shall elect
to terminate this Lease, then neither Lessor nor Lessee shall be liable to the
other for any reason having to do with this Lease from and after the Termination
Date except for matters which may have arisen prior to termination and
obligations of Lessee that exist upon termination.
(c) In the event that Lessor does not exercise its right to terminate this
Lease and in the event that Lessee does not in fact execute a final and binding
sublease or assignment within one hundred twenty days after said Termination
Date, then Lessee shall be obligated to give another Notice of Intent to Lessor
before Lessee may assign or sublease and the terms of this addendum shall
reapply. The failure of Lessor to exercise its right to terminate this Lease
under this paragraph shall not be deemed a waiver of the right to subsequently
terminate this Lease in accordance with the terms hereof, and this option to
cancel shall continue to exist during the entire term of this Lease and any
extension thereof.
<PAGE>
(d) Lessor's failure to exercise its option to cancel this Lease, shall not
be deemed a waiver of Lessor's right to approve or disapprove of any assignment
or subletting as provided for in paragraph 12.1 of this Lease.
Paragraph 57.
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this Lease for 2
additional 36 month period(s) commencing when the prior term expires upon each
and all of the following terms and conditions:
(i) Lessee gives Lessor, and Lessor actually receives on a date which is
prior to the date that each option period would commence (if exercised) by at
least 30 and not more than 120 months, a written notice of the exercise of the
option(s) to extend this lease for said additions term(s), time being of
essence. If said notification of the exercise of said option(s) is (are) not so
given and received, the option(s) shall automatically expire; said option(s) may
(if more than one) only be exercised consecutively;
(ii) The provisions of paragraph 39, including those relating to Lessee's
default set forth in paragraph 39.4 of this Lease, are conditions of this
Option.
(iii) All of the terms and conditions of this Lease except where specifically
modified by this option shall apply.
(iv) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below: (Check Method(s) to
be Used and Fill in Appropriately)
II. Market Rental Value Adjustment(s) (MRV) Not to exceed Three Percent
(3%) per annum.
a. On (Fill in MRV Adjustment Date(s)) May 2002, May 2003, May 2004, may
2005, May 2006 and May 2007 the Base Rent shall be adjusted to the "Market
Rental Value" of the property as follows:
1) Four months prior to each Market Rental Value Adjustment Date described
above, the Parties shall attempt to agree upon what the new MRV will be on the
adjustment date. If agreement cannot be reached, then:
(a) Lessor and Lessee shall immediately appoint a mutually acceptable
appraiser or broker to establish the new MRV within the next thirty days. Any
associated costs will be split equally between the Parties, or
(b) Both Lessor and Lessee shall each immediately select and pay the
appraiser or broker of their choice to establish a MRV within the next 30 days.
If, for any reason, either one of the appraisals is not completed within the
next 30 days, as stipulated, then the appraisal that is completed at that time
shall automatically become the new MRV. If both appraisals are completed and the
two appraisers/brokers cannot agree on a reasonable average MRV then they shall
immediately select a third mutually acceptable app5raier/broker to establish a
third MRV within the next 30 days. The average of the two appraisals closest in
value shall then become the new MRV. The cost of the third appraisal will be
split equally between the parties.
2) In any event, the new MRV shall not be less than the rent payable for
the month immediately preceding the date for rent adjustment.
<PAGE>
(b) Upon establishment of each New Market Rental; Value as described in aragraph
AII:
1) the monthly rental sum so calculated for each term as specified in paragraph
AII(a) will become the new "Base Rent" for the purpose of calculating any
further Cost of Living Adjustments as specified in paragraph AI(a) above and
2) the first month of each Market Rental Value term as specified in paragraph
AII(a) shall become the new "Base Rent" for the purpose of calculating any
further Cost of Living Adjustments as specified in paragraph AI(b).
B. NOTICE:
Unless specified otherwise herein, notice of any rental adjustments, other than
Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the
Lease.
C. BROKER'S FEE:
The Real Estate Brokers specified in paragraph 1.10 of the attached Lease shall
be paid a Brokerage Fee for each adjustment specified above in accordance with
paragraph 15 of the attached Lease.
ADDEMDUM TO STANDARD INDUSTRIAL LEASE
DATE: April 28, 1997
BY AND BETWEEN: BRADMORE REALTY INVESTMENT COMPANY, LTD.,AS LESSOR,
AND DCH TECHNOLOGY, INC., a California corporation, AS LESSEE.
EXHIBIT A
SITE PLAN OF DEMISED PREMISES
EXHIBIT B
C.C.&R.'S
VALENCIA INDUSTRIAL CENTER
DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS
PREAMBLE
This DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS is made and entered
into as of this 11th day of July, 1985, by VALENCIA COMPANY, a division of The
Newhall Land and Farming Company (a California Limited Partnership), as owner,
of that certain real property located in the County of Los Angeles, State of
California, as more particularly described in Exhibit "A" attached hereto and
incorporated herein by this reference.
The real property described in Exhibit "A" is a part of a larger land area owned
by VALENCIA COMPANY, which is being developed as a planned community, named
Valencia. The real property which is the subject of this DECLARATION OF
COVENANTS, CONDITIONS, AND RESTRICTIONS is known as VALENCIA INDUSTRIAL CENTER.
VALENCIA INDUSTRIAL CENTER is being developed as a planned industrial complex
which will provided employment opportunities for the residents of Los Angeles
County and the surrounding areas. VALENCIA COMPANY intends that the design and
development as well as the continuing use and operations of the real property
subject to this DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS shall be
consistent with the aims and ideals of Valencia. It is the purpose of this
<PAGE>
DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS to provide the means for
maintaining and controlling such development and use so that the design and
integrity and amicable environment of Valencia will be maintained. This
DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS, is designed to compliment
local government and municipal regulations and where conflicts occur, it is
intended that the most rigid requirements shall prevail. It is assumed that the
owners and users of industrial sites in the VALENCIA INDUSTRIAL CENTER will be
motivated to preserve these qualities through mutual cooperation and by
enforcing not only the letter but the spirit of this DECLARATION OF COVENANTS,
CONDITIONS AND RESTRICTIONS.
IN WITNESS WHEREOF, VALENCIA COMPANY, has executed this DECLARATION OF
COVENANTS, CONDITIONS AND RESTRICTIONS the day and year first above written.
VALENCIA COMPAN@, A division of The Newhall Land and Farming Company
By
Authorized Agent
By
Authorized Agent
ADDEMDUM TO STANDARD INDUSTRIAL LEASE
DATE: April 28, 1997
BY AND BETWEEN: BRADMORE REALTY INVESTMENT COMPANY, LTD.,AS LESSOR,
AND DCH TECHNOLOGY, INC., a California corporation, AS LESSEE.
EXHIBIT D
STATE OF CALIFORNIA
COUNTY OF LOS ABGELES
On this 11th Day of July, 1985, before the undersigned a notary public in and
for the State of California personally appeared Thomas E. Dickman and Donald E.
Puente, the authorized agents, respectively of VALENCIA COKPANY a Division of
THE NEWHALL LAND AND FARMING COMPANY (a California Limited Partnership),
personally known to be (or proved to me on the basis of satisfactory evidence)
to be the persons who executed the within instrument on behalf of VALENCIA
COTAPANY, the division that executed the within instrument on behalf of said
partnership, and acknowledged to me that VALENCIA COMPANY executed the same on
behalf of said partnership and acknowledged to me that; said VALENCIA COMPANY
and said partnership executed the same pursuant to the Limited Partnership
Agreement of said partnership.
WITNESS MY HAND AND OFFICIAL SEAL
Debbi Landaker
NOTARY PUBLIC IN AND FOR SAID STATE
LCO ANCEUS COU#M
ADDEMDUM TO STANDARD INDUSTRIAL LEASE
DATE: April 28, 1997
BY AND BETWEEN: BRADMORE REALTY INVESTMENT COMPANY, LTD.,AS LESSOR,
AND DCH TECHNOLOGY, INC., a California corporation, AS LESSEE.
EXHIBIT D
ARTICLE I DEFINITIONS
Unless the context otherwise specifies or requires, the terms defined in this
Article I shall, for all purposes for this DECLARATION OF COVENANTS, CONDITIONS
AND RESTRICTIONS have the meanings herein specified.
<PAGE>
ARCHITECT The term "Architect" shall mean a person holding a certificate to
practice architecture in the State of California under authority of Division 3,
Chapter 3 of the Business and Professions Code of the State of California, or
under such other sections as may hereafter regulate the practice of architecture
in the State of California.
BENEFICIARY The term "Beneficiary" shall mean a mortgagee under a mortgage, as
well as a beneficiary under a deed of trust.
DECLARANT The term "Declarant" shall mean VALENCIA COMPANY, a division of The
Newhall Land and Farming Company (a California Limited Partnership), and all of
its successors, assigns, or designees who shall assume the obligations provided
for herein, and to whom Declarant shall specifically assign in writing the right
to enforce these restrictions provided for herein.
DECLARATION The term "Declaration" shall mean this DECLARATION OF COVENANTS,
CONDITIONS, AND RESTRICTIONS.
DEED OF TRUST The term "Deed of Trust" or "Trust Deed" shall mean a mortgage as
well as a deed of trust.
FILE The term "File" shall mean, with reference to any subdivision map, the
filing of said map in the Office of the Recorder of the County of Los Angeles,
State of California.
IMPROVEMENTS The term "Improvements" shall include buildings 'outbuildings,
roads, driveways, parking areas, fences, screening walls and barriers, retaining
walls, stairs, decks, hedges, windbreaks, plantings, planted trees and shrubs,
poles, signs, loading areas and all other structures or landscaping improvements
of every type and kind, and any replacements, additions, repairs or alterations
thereto of any kind whatsoever.
OWNER The term owner shall mean each and every owner of the real property or any
portion thereof or interest therein during the term of its ownership and each
lessee or other occupant in possession thereof as may be appropriate under the
context.
MORTGAGEE The term "Mortgagee" shall mean a beneficiary under, or a holder of a
deed of trust as well as a mortgage.
OFFICE BUILDING(S) AND HIGH-TECH BUILDING S) The term "Office Building(s) and
High-Tech Building(s)" shall mean buildings improved with a high percentage of
offices and/or suites, used primarily for non-warehousing types of purposes and
requiring a substantially greater amount of parking than buildings) used
primarily for warehousing types of purposes.
REAL PROPERTY The term "Real Property" shall mean all or any portion of the
property subject to the terms and provisions of the Declaration, including the
real property described in Exhibit "A" attached hereto and such additional
property that shall from time to time hereafter become subject to the
Declaration, in accordance with the provisions contained in Section 2.2
hereafter.
RECORD; RECORDED The term "Record" shall mean, with respect to any document, the
recordation of said document in the Office of the County Recorder of the County
of Los Angeles, State of California.
<PAGE>
SITE The term "Site" shall mean an area of land shown as one lot on a recorded
subdivision map or so designated in a deed or lease in which Declarant is the
grantor or lessor included within the real property described in Exhibit "A" or
added thereof pursuant to Article 11 hereafter. If an easement or easements over
any portion or portions of a Site established by recorded plan or recorded
instrument is or are reserved by Declarant for any purpose whatsoever, the area
of such portion or portions shall be included in computing the area of that
Site. If subsequent to the establishment of a Site by recorded plan or recorded
instrument, any portion or portions thereof are, for railroad, street, highway,
utility or public purpose, taken by right of eminent domain, or deed in lieu
thereof, or dedicated or conveyed pursuant to reservation by Declarant, the area
of such portion or portions shall continue to be included thereafter in
computing the area of that Site.
SUBDIVISION The term "Subdivision" shall mean the division of any Site or Sites
of improved or unimproved property, or any portion thereof, shown on the latest
equalized county assessment roll as a unit or as contiguous units, for the
purpose of sale, lease, or financing whether immediate or future, in accordance
with the terms and provision of the Subdivision Map Act contained in Section
6641 0 et seq of the California Government Code, and the Los Angeles County
Subdivision Ordinance enacted pursuant thereto.
VISIBLE FROM NEIGHBORING SITES The term "Visible from Neighboring Sites" shall
mean, with respect to any given object, that such object is or would be visible
to a person six feet tall, standing on any part of such neighboring Sites at an
elevation no greater than the elevation of the base of the object being viewed.
VALENCIA INDUSTRIAL CENTER The term "Valencia Industrial Center" shall mean all
of the real property now or hereafter made subject to the DECLARATION.
VALENCIA INDUSTRIAL CENTER RESTRICTIONS The term "Valencia Industrial Center
Restrictions" shall mean the covenants, conditions, and restrictions set forth
in this DECLARATION, as it may from time to time be amended and supplemented.
ARTICLE II
PROPERTY SUBJECT TO THE VALENCIA INDUSTRIAL CENTER RESTRICTIONS
SECTION 2.1 GENERAL DECLARATION CREATING VALENCIA
INDUSTRIAL CENTER
DECLARANT hereby declares that all of the real property located in the County of
Los Angeles, State of California, described in Exhibit "A", which is attached
hereto and incorporated herein by this reference, is and shall be, conveyed,
hypothecated, encumbered, leased, occupied, built upon or otherwise used,
improved or transferred in whole or in part subject to the VALENCIA INDUSTRIAL
CENTER RESTRICTIONS, meaning the covenants, conditions and restrictions set
forth in this DECLARATION. All of said covenants, conditions and restrictions
are declared and agreed to be in furtherance of a general plan for the
subdivision, improvement and sale of said real property and are established for
the purpose of enhancing and perfecting the value, desirability and
attractiveness of said real property and every part thereof. All of the VALENCIA
INDUSTRIAL CENTER RESTRICTIONS shall run with all of said real Property for all
purposes and shall be binding upon and inure to the benefit of DECLARANT and all
owners, lessees, licensees, occupants and their successors in interest as set
forth in this DECLARATION.
SECTION 2.2 ADDITION OF OTHER PROPERTY OWNED BY DECLARANT
<PAGE>
A. DECLARANT'S POWER Declarant may at any time during the pendency of this
DECLARATION add all or any portion of any property now or hereafter owned by
DECLARANT to the real property which is covered by this DECLARATION, AND UPON
RECORDING OF A NOTICE OF ADDITION OF PROPERTY CONTAINING AT LEAST THE PROVISIONS
SET FORTH IN SECTION 2.2B OF THIS ARTICLE 11, THE PROVISIONS OF THIS DECLARATION
specified in said notice shall apply to such added property in the same manner
as if it were originally covered by this DECLARATION. Thereafter, to the extent
this DECLARATION is made applicable thereto, the rights, powers and
responsibilities of DECLARANT and the owners, lessees, licensees and occupants
of Sites within such added property shall be the same in the case of the real
property described in Exhibit "A".
B. NOTICE OF ADDITION OF PROPERTY The notice of addition of real property
referred to in Section 2.2A above shall contain at least the following
provisions:
1. A reference to this DECLARATION stating the date of recording hereof and the
book or books of the records of Los Angeles County, California, and the page
numbers where this DECLARATION is recorded;
2. A statement that the provisions of this DECLARATION, or some specified part
thereof, shall apply to such added property;
3. An exact description of such added property, and
4. Such other or different covenants, conditions and restrictions as DECLARANT
shall, in its discretion, specify to regulate and control the use, occupancy and
improvement of such added property.
SECTION 2.3 SUBDIVISION OF SITES
There shall be no subdivision of any Site subject to the Valencia Industrial
Center Restrictions without the prior written consent to Declarant which consent
Declarant may withhold for any reason Declarant in its sole discretion deems
reasonable. In addition, further subdivision or division of any Site shall not
serve to make the parts into which such Site is subdivided themselves Sites for
the purposes hereof in such instances where the prior written approval of the
DECLARANT has not been received. The restrictions contained in the Valencia
Industrial Center Restrictions shall, in such events, remain applicable to the
entire Site as originally defined for the duration hereof.
ARTICLE III REGULATIONS OF IMPROVEMENTS
SECTION 3.1 APPROVAL OF PLANS
No Improvements of any nature whatsoever (including but not limited to any
alteration or addition to any Improvements existing from time to time) shall be
constructed, erected, placed, altered, maintained or permitted to remain on any
Site subject to this DECLARATION until final plans and specifications showing
the plot layout, all ingress and egress for persons and vehicles, all vehicle
parking, all exterior elevations with materials and colors therefor, exterior
signs, exterior hardscape, landscape, and irrigation, walls and fences, shall
have first been submitted to and approved in writing by DECLARANT. Such final
plans and specifications shall be submitted in writing in duplicate over the
authorized signature of the owner, lessee, licensee or other occupant of the
Site or his authorized agent. Under no circumstances shall the DECLARANT approve
metal-clad buildings of any type or design. All roof equipment including but not
<PAGE>
limited to heating, air-conditioning and ventilation equipment, antennas and
communication equipment shall be so located or screened so as not to be visible
from neighboring sites and or adjacent streets. Changes in approved plans which
materially affect building size, placement or external appearances shall
similarly be submitted to and approved by DECLARANT.
SECTION 3.2 BASIS FOR APPROVAL
Architectural Guidelines as may be amended from time to time to assist in the
design and development of an individual Site within Valencia Industrial Center
shall be made available from Declarant. Approval by Declarant of Plans and
Specifications shall be based, among other things on Site plot plan dimensions,
landscaped areas, and building design in conformity and harmony of external
design with neighboring structures; effect of location and use of proposed
improvements on neighboring Sites; the nature of improvements on neighboring
Sites and the types of operations and uses thereof; relation of topography,
grade and finish ground elevation of the Site being approved to that of
neighboring Sites; proper facing of main elevation with respect to nearby
streets and conformity of the plans and specifications to the purpose and
general plan and intent of this DECLARATION. DECLARANT shall not arbitrarily or
unreasonably withhold its approval of such plans and specifications.
SECTION 3.3 RESULT OF INACTION
If DECLARANT fails either to approve or disapprove such plans and specifications
within thirty (30) days after the same have been submitted to it, it shall be
conclusively presumed that DECLARANT has approved said plans and specifications;
provided, however, that if within said thirty (30) day period, DECLARANT gives
written notice of the fact that a reasonable additional period is required for
the approval of such plans and specifications, there shall be no presumption
that the same are approved until the expiration of the extended period set forth
in said notice.
SECTION 3.4 PROCEEDING WITH WORK
Upon receipt of approval of plans and specifications from DECLARANT pursuant to
this section, the owner or lessee to whom the same is given shall, as soon as
practicable, satisfy all conditions thereof and diligently proceed with the
commencement and completion of all approved construction, refinishing,
alterations and excavations. In all cases work shall be commenced within one
year from the date of such approval. If there is a failure to comply with this
paragraph, then the approval given pursuant to this section shall be deemed
revoked unless DECLARANT upon request made prior to the expiration of said one
year period extends the time for commencing work.
SECTION 3.5 COMPLETION OF WORK
In any event completion, reconstruction, refinishing or alteration of any such
improvement shall be within two years after commencement thereof except for so
long as such completion is rendered impossible or would result in great hardship
due to strikes, fires, national emergencies, natural calamities or other
supervening forces beyond the control of the owner, lessee, licensee or occupant
or his agents and of a non-financial nature. Failure to comply with this
paragraph shall constitute a breach of the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS and subject the defaulting party or parties to all enforcement
procedures set forth in this a DECLARATION and any other remedies provided by
law or in equity.
<PAGE>
SECTION 3.6 ESTOPPEL CERTIFICATE
Within thirty (30) days after written demand is delivered to the DECLARANT and
upon payment of a reasonable fee established by DECLARANT, there shall be
recorded an estoppel certificate executed by DECLARANT and certifying that as of
the date thereof either (a) all improvements made or other work done on or
within a Site complies with the VALENCIA INDUSTRIAL CENTER RESTRICTIONS or (b)
such improvements or work do not comply in which event the certificate shall
identify the non-complying improvements or work and set forth with particularity
the cause or causes for such non-compliance. Any lessee, purchaser or
encumbrancer in good faith for value shall be entitled to rely on said
certificate with respect to the matters set forth therein, such matters being
conclusive as between the DECLARANT and all such subsequent parties in interest.
SECTION 3.7 LIABILITY
DECLARANT shall not be liable for any damage, loss or prejudice suffered or
claimed on account of (a) the approval or disapproval of any plans, drawings and
specifications whether or not defective; (b) the construction or performance of
any work whether or not pursuant to approved plans, drawings and specifications;
(c) the development of any Site within the VALENCIA INDUSTRIAL CENTER; or (d)
the execution and filing of an estoppel certificate pursuant to the preceding
paragraph whether or not the facts therein are correct, provided that DECLARANT
has acted in good faith. In addition to the foregoing, Declarant makes no
representation, warranty or guarantee of any kind whatsoever as to the
propriety, feasibility or integrity of any plans, drawings and specifications
approved by Declarant pursuant to the provisions contained herein.
SECTION 3.8 REVIEW FEE
A reasonable architectural review fee shall be paid to DECLARANT at such time as
plans and specifications are submitted to it for approval. The determination of
the exact amount of such fee shall be made from time to time by Declarant.
ARTICLE IV LIMITATIONS ON IMPROVEMENTS
SECTION 4.1 MINIMUM SETBACK LINES AND BUILDING TYPES
No building or parking (except as expressly provided for in Sections 4.2 and 4.3
below) shall be maintained upon any Site within forty (40) feet of any Street,
and no building shall be maintained within fifteen (15) feet of the property
line of any other Site, nor have exterior walls constructed of other than
substantial construction including concrete and masonry, nor shall more than
fifty percent (50%), of the area of any Site be built upon; nor shall any
building be constructed upon any Site with a roof having a difference in
elevation of more than two (2) feet unless approved in the manner hereinafter
provided.
SECTION 4.2 OFFICE BUILDINGS AND "HIGH TECH" BUILDINGS
Notwithstanding anything to the contrary contained in Section 4.1 above, any
office buildings) and "high-tech" buildings) requiring a greater parking ratio
than standard industrial buildings and whose location on the Site has a
substantial setback from the street, may request a variance of the parking
restriction within the forty (40') feet setback area from any street, provided a
minimum of twenty-five (25') feet from the street curb is mounded or bermed to a
height of not less than four (4') feet and landscaped so as to assure that all
<PAGE>
automobile parking within forty (40') feet setback area is hidden from view from
the street. Similarly, owners of Sites bordering dedicated streets on two sides
may likewise request a variance of the forty (40') feet setback area on one
street frontage (that being the street away from the buildings) or improvements)
front) provided a minimum of twenty-five (25') feet from the street curb is
mounded or bermed to a height of not less than four (4') feet and landscaped so
as to assure that all automobile parking within the forty (40') feet setback
area is hidden from view from the street. Nothing indicated herein shall be
construed so to permit the granting of a variance providing for a landscaped
setback area of less than twenty-five (25') feet within the Valencia Industrial
Center.
SECTION 4.3 USE OF SETBACK AREAS
Within the required setback area from streets there shall be maintained on each
Site only paved walkways, paved driveways (hardscape), and lawns and
landscaping, with the surface of each Site not covered by improvements being at
all times maintained so as to be dust free. At least two-thirds (2/3) of the
surface of the required setback area from streets shall be maintained in
landscaping.
SECTION 4.4 LANDSCAPING
Every Site on which a building shall have been placed shall have landscape and
exterior hardscape constructed in accordance with plans and specifications
submitted to and approved by DECLARANT pursuant to Section 3.1 above. With the
exception of those areas planted in shrubs or trees, the landscaped areas shall
be maintained in grass lawn or approved ground cover. Landscaping and hardscape
as approved by DECLARANT shall be installed within thirty (30) days of occupancy
or completion of the building, whichever occurs first, unless DECLARANT approved
in writing another completion date. After completion such landscaping and
hardscape shall at all times be maintained in an attractive and well-kept
condition.
SECTION 4.6 DRAINAGE
No water shall be drained or discharged from any Site or Improvements thereon,
and no Owner shall interfere with the drainage established as of the date of
this Declaration, in or over the remainder of the real property or any other
property adjacent to such Site, except in accordance with plans therefor
approved by all public agencies having jurisdiction; provided that no water
shall be drained or discharged at any time onto or diverted from any adjacent
properties owned by the Declarant.
SECTION 4.6 SIGNS
A. No signs projecting above the highest point on the roof line of any building
or employing letters exceeding four (4) feet in height shall be used. No more
than two business identification signs shall be used on any Site and no signs
shall be painted on any structure. No flashing or moving lights shall be used.
B. No signs shall be permitted other than those identifying the name, business
and products of the person or firm occupying the premises constructed on any
Site and those offering the premises for sale or for lease. The size and style
of sale or lease signs shall first be approved by DECLARANT in writing. No more
than one sign relating to the sale or leasing of the Site may be used, and such
sign shall not exceed fifteen (15) square feet. Monument signs identifying each
<PAGE>
building shall be encouraged however, the design, colors, materials and size
shall first be approved by DECLARANT.
C. Notwithstanding anything to the contrary contained in this Section 4.6,
multi-tenant buildings shall be permitted one Tenant Directory sign for each
building. Said sign shall not exceed twelve (12) square feet and shall be
approved by DECLARANT in writing as to design, color and location of the sign on
each Site.
D. The location of all signs shall first be approved by DECLARANT.
E. Signs and identifying markings on buildings or building Sites shall only be
of such size, design and color as is first specifically approved by DECLARANT in
writing.
SECTION 4.7 PARKING AREAS
Adequate off-street parking shall at all times be provided to accommodate all
parking needs for employee, visitor and company vehicles on the Site. The intent
of this provision is to eliminate the need for any on-street parking. No use
shall be made of any Site at anytime which will attract parking in excess of the
parking spaces then available thereon.
SECTION 4.8 STORAGE AND LOADING AREAS
A. Unless specifically approved by DECLARANT in writing, no materials, supplies
or equipment, including company- owned or operated trucks, mobile homes, boats,
trailers, or recreation vehicles, shall at any time be stored in any area on a
Site except inside a closed building, or behind a visual barrier screening such
areas so that they are not visible from the neighboring Sites or public streets.
Visual barrier screening to a height of not more than eight (8) feet shall be
permitted only with the prior written approval of DECLARANT.
B. Loading areas shall not encroach into setback areas.
C. Loading docks shall be set back and screened to minimize the effect of their
appearance from the street and so as not to be visible from neighboring Sites.
Docks shall not be closer than seventy (70) feet to the street property line,
unless specifically approved by DECLARANT in writing. Loading shall be permitted
to the rear of the setback line from that portion of a structure not fronting a
street.
SECTION 4.9 FENCING AND SCREENING OF STORAGE AREAS
All areas requiring fencing shall be enclosed with a minimum six foot (6') high
and maximum eight foot (8') high masonry wall, such as slumpstone, split face
block wall with cap or brick. Chain link fence shall be prohibited throughout
the VALENCIA INDUSTRIAL CENTER. Gate construction shall be of wrought iron or
other materials first approved by DECLARANT.
SECTION 4.10 SCREENING - TRASH AREA
All trash areas shall be enclosed with a minimum six foot (6') high masonry
wall, such as slumpstone, split face block wall with cap, or brick. All trash
enclosures shall have blinds or gates. Chain link gates shall only be permitted
if faced with wooden slats so as to obscure view of trash containers. No trash
<PAGE>
containers or bins shall be maintained on any Site unless contained within a
masonry trash enclosure.
ARTICLE V
REGULATION OF OPERATIONS AND USES
SECTION 5.1 PERMITTED USES
Each Site shall only be used for manufacturing, processing, storage, wholesale,
of f ice, laboratory, professional, research and development activities and/or
other like uses which are permitted by the applicable zoning designation; No
junk or salvage yard or any other use offensive to the neighborhood by reason of
order, fumes, dust, smoke, noise, or pollution or hazardous by reason of danger
of fire or explosion, radiation, electromagnetic disturbances, toxic or non-
toxic matter shall be permitted regardless of whether or not permitted by
applicable zoning laws or ordinances.
SECTION 5.2 RESTRICTIONS AND PROHIBITED USES
A. PROHIBITED USES The following are examples of operations and uses which shall
specifically not be permitted on any Site subject to the Valencia Industrial
Center Restrictions
1. Residential
2. Commercial
3. Restaurants of all types
4. Trailer Courts
5. Labor Camps -
6. Junk Yards
7. Drilling for and/or the removal of oil, gas or other hydrocarbon substances
(except that this provision shall not be deemed to prohibit the entry of subject
property below a depth of 500 feet for such purposes)
8. Commercial excavation of building or construction materials
9. Distillation of bones
10. Dumping, disposal, incineration or reduction of garbage, sewage, offal, dead
animals or refuse
11. Fat Rendering
12. Stockyard or Slaughter of Animals
13. Refining of Petroleum or of its Products
14. Smelting of Iron, Tin, Zinc, or other Ores
15. Cemeteries
16. Jail or Honor Farms
17. Any and all operations and uses not compatible or harmonious with the
establishment and maintenance of a high quality industrial park.
B. NUISANCES No rubbish or debris of any kind shall be placed or permitted to
accumulate upon or adjacent to any Site, and no orders shall be permitted to
arise therefrom so as to render any Site or portion thereof unsanitary,
unsightly, offensive or detrimental to any Site or property in the vicinity
thereof or to the occupants thereof. No nuisance shall be permitted to exist or
operate upon any Site so as to be offensive or detrimental to any property in
the vicinity thereof or to its occupants.
C. MAINTENANCE AND REPAIRS OF IMPROVEMENTS Each Site and all Improvements
thereon shall at all times be constructed, kept and maintained in first class
condition, repair and appearance similar to that maintained by DECLARANT and
other owners of high-class properties of similar class and construction in Los
<PAGE>
Angeles County, ordinary wear and tear expected. All repairs, alterations,
replacements, or additions to Improvements shall be at least equal to the
original work in class and quality. The necessity and adequacy of such repairs
shall be measured by the same standard as set forth above for the original
construction and maintenance. Each owner shall also be responsible at all times
for determining that all Improvements and the plans and specifications therefor
shall conform and comply in all respects with the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS, all other restrictions of record, all applicable governmental
regulations, and all exterior architectural design, location and color
specifications as may be approved by DECLARANT. Each Owner shall also adopt and
maintain such standards of property space maintenance, appearance, and
housekeeping as shall be reasonable and customary for similar operations or
enterprises and shall enforce compliance with such standards by all tenants,
occupants, or users of space. On request, DECLARANT shall be entitled to receive
copies of all such standards or similar rules or regulations in effect from time
to time. Notwithstanding anything to the contrary contained in the foregoing all
exterior surfaces shall be maintained in first-class condition and shall be
repainted at least once in every four (4) years.
D. MAINTENANCE OF UNIMPROVED SITES Each and every Site shall be maintained at
all times in a weed-free, clean and presentable condition prior to such Site
being improved with buildings and landscaping.
E. RIGHT OF ENTRY During reasonable hours, and subject to reasonable security
requirements, DECLARANT, or its authorized representative, shall have the right
to enter upon and inspect any Site and the improvements thereon embraced for the
purpose of ascertaining whether or not the provisions of the VALENCIA INDUSTRIAL
CENTER RESTRICTIONS have been or are presently being complied with and shall not
be deemed guilty of trespass by reason of such entry.
SECTION 5.3 OTHER OPERATIONS AND USES
Operations and uses which are neither specifically prohibited nor specifically
authorized by VALENCIA INDUSTRIAL CENTER RESTRICTIONS shall be permitted in a
specific case only if operational plans and specifications are first submitted
to and approved in writing by DECLARANT. Approval or disapproval of such
operational plans and specifications shall be based upon the effect of such
operations or uses on other Sites subject to these restrictions or upon the
occupants thereof, but shall be in the sole discretion of DECLARANT.
ARTICLE VI
DURATION, MODIFICATION AND REPEAL
SECTION 6.1 DURATION OF RESTRICTIONS
The VALENCIA INDUSTRIAL CENTER RESTRICTIONS shall continue and remain in full
force and effect at all times with respect to all Sites included in the VALENCIA
INDUSTRIAL CENTER and each part thereof, now or hereafter made subject thereto
(subject, however, to the right to amend and repeal as provided for herein)
until January 1, 2015. However, unless within one year prior to January 1, 2015,
there shall be recorded an instrument directing the termination of the VALENCIA
INDUSTRIAL CENTER RESTRICTIONS signed by owners of not less than two-thirds of
the area of the real property then subject to the VALENCIA INDUSTRIAL
RESTRICTIONS, (based on the number of square feet of real property subject to
the VALENCIA INDUSTRIAL CENTER RESTRICTIONS), the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS, as in effect immediately prior to the expiration date shall be
<PAGE>
continued automatically without any further notice for an additional period of
ten (10) years and thereafter for successive periods of ten (10) years unless
within one (1) year prior to the expiration of any such period the VALENCIA
INDUSTRIAL CENTER RESTRICTIONS are terminated as set forth above in this
Section.
SECTION 6.2 TERMINATION AND MODIFICATION
This DECLARATION, or any provision hereof, or any covenant, condition or
restriction contained herein, may be terminated, extended, modified or amended,
as to the whole of the real property or any portion thereof, with the written
consent of the owners of seventy-five (75%) of the area of the real property
subject to the VALENCIA INDUSTRIAL CENTER RESTRICTIONS, based on the number of
square feet of real property owned as compared to the total number of square
feet of real property subject to the VALENCIA INDUSTRIAL CENTER RESTRICTIONS,
provided, however, that so long as DECLARANT owns at least twenty-five percent
(25%) of the real property subject to the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS, or for a period of fifteen (15) years from the effective date
hereof, whichever period is longer, no-such termination, extension, modification
or amendment shall be. effective without the written approval of DECLARANT
thereto. No such termination, extension, modification or amendment shall be
effective until a proper instrument in writing has been executed and
acknowledged and recorded in the County where the real property affected thereby
is situated.
ARTICLE VII
ENFORCEMENT
SECTION 7.1 ABATEMENT AND SUIT
The conditions, covenants, restrictions and reservations herein contained shall
run with the real property, and shall be binding upon the inure to the benefit
of the DECLARANT, and the Owners of every Site on the real property. These
conditions, covenants, reservations and restrictions may be enforced as provided
hereinafter by DECLARANT acting for itself or as DECLARANT acting as trustee, on
behalf of all of the Owners of Sites. Each Owner by acquiring an interest in a
Site shall appoint irrevocably the DECLARANT as its attorney-in-fact for such
purposes; provided, however that if an Owner of a Site notified DECLARANT of a
claimed violation of these conditions, covenants, restrictions and reservations
in writing and DECLARANT fails to act within sixty (60) days after receipt of
such notification, then, and in that event only, an Owner may separately, at its
own cost and expense, enforce the conditions, covenants, restrictions and
reservations herein contained and have all of the remedies provided for in
Section 7.2 hereafter.
SECTION 7.2 DEFAULT ANID REMEDIES
In the event of any breach, violation or failure to perform or satisfy any of
the VALENCIA INDUSTRIAL CENTER RESTRICTIONS which has not been cured within
thirty (30) days after written notice from DECLARANT to do so, DECLARANT in its
sale option and discretion may enforce any one or more of the following remedies
or any other rights or remedies to which DECLARANT may be entitled by law or
equity, whether or not set forth herein. All remedies provided for herein or by
law or in equity shall be cumulative and not mutually exclusive.
<PAGE>
A.DAMAGES DECLARANT may bring a suit for damages for any compensable breach of
or noncompliance with any of the VALENCIA INDUSTRIAL CENTER RESTRICTIONS, or
declaratory relief to determine the enforceability of any of the VALENCIA
INDUSTRIAL CENTER RESTRICTIONS.
B. EQUITY It is recognized that a violation by an Owner of one or more of the
foregoing restrictions may cause DECLARANT to suffer material injury or damage
not compensable in money and that DECLARANT shall be entitled to bring an action
in equity or otherwise for specific performance to enforce compliance with the
VALENCIA INDUSTRIAL CENTER RESTRICTIONS or an injunction to enjoin the
continuance of any such breach or violation thereof.
C. ABATEMENT AND LIEN RIGHTS Any such breach or violation of the VALENCIA
INDUSTRIAL CENTER RESTRICTIONS or any provision hereof is hereby declared to be
a nuisance, and DECLARANT shall be entitled to enter the Site or any portion
thereof as to which the breach or violation exists and summarily abate and
remove, without further legal process to the maximum extent permitted by law,
any structure, thing or condition that may exist in violation of any of the
VALENCIA INDUSTRIAL CENTER RESTRICTIONS, or to prosecute any remedy allowed by
law or equity for the abatement of such nuisance against any person or entity
acting or failing to act in violation of the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS, all at the sole cost and expense of Owner or any person having
possession under Owner. Any costs or expenses paid or incurred by DECLARANT in
abating such nuisance or prosecuting any such remedy (including all reasonable
attorneys' fees and costs of collection), together with interest thereon at the
maximum rate permitted by law shall be a charge against the Site or any portion
thereof as to which the breach or violation exists, shall be a continuing lien
thereon until paid, and shall also be the personal obligation of that person or
entity who was Owner when such charges became due and committed such breach or
violation. In addition to any other rights or remedies hereunder, DECLARANT may
deliver to Owner and record with the Los Angeles County Recorder a certificate
or notice to claim of lien (which, among other things may but need not recite
the nature of the violation, the legal description of the Site or portion
thereof affected by such violation, the record or reputed Owner thereof,
DECLARANT'S name and address, and the remedies being pursued or the amount of
any such claim being changed). If the violation recited in such lien claim has
not been cured to DECLARANT'S satisfaction and any recited amounts so charged
have not been paid within 30 days thereafter, DECLARANT or DECLARANT'S
authorized representatives may foreclose such lien by a sale conducted pursuant
to Sections 2924, 2924b, and 2924c of the California Civil Code, as amended from
time to time, or such other statutes applicable to the exercise of powers of
sale in mortgages or deeds of trust, or in any other manner permitted by law.
DECLARANT, through its authorized representatives, may bid on and acquire any
Site or portion thereof subject to such lien at any such foreclosure sale. If
the violations recited in such lien claim are timely cured and any recited
amounts timely paid as provided above, an appropriate release of such lien shall
be recorded by DECLARANT at Owner's sole cost and expense.
SECTION 7.3 WAIVER
No waiver by DECLARANT of a breach of any of the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS and no delay or failure to enforce any of the VALENCIA INDUSTRIAL
CENTER RESTRICTIONS shall be construed or held to be a waiver of any succeeding
or preceding breach of the same or any other of the VALENCIA INDUSTRIAL CENTER
RESTRICTIONS by that Owner of any other Owner of the Site, or any other Site. No
waiver by DECLARANT of any breach or default hereunder shall be implied from any
omission by DECLARANT to take any action on account of such breach or default if
<PAGE>
such breach or default persists or is repeated, and no express waiver shall
affect a breach or default other than as specified in said waiver. The consent
or approval by DECLARANT to or of any act by an Owner requiring DECLARANT'S
consent or approval shall not be deemed to waive or render unnecessary
DECLARANT'S consent or approval to or of any subsequent similar acts by Owner.
SECTION 7.4 COSTS OF ENFORCEMENT
In the event any legal or equitable action or proceeding shall be instituted to
enforce any provision of the VALENCIA INDUSTRIAL CENTER RESTRICTIONS, the party
prevailing in such action shall be entitled to recover from the losing party all
of its costs, including court costs and reasonable attorney's fees.
SECTION 7.5 RIGHTS OF LENDERS
No breach or violation of the VALENCIA INDUSTRIAL CENTER RESTRICTIONS shall
defeat or render invalid the lien of any mortgage, deed of trust or similar
instrument securing a loan made in good faith and for value with respect to the
development or permanent financing of and Site or portion thereof; provided,
however, all of the VALENCIA INDUSTRIAL CENTER RESTRICTIONS shall be binding
upon and effective against any subsequent Owner of the Site or any portion
thereof whose title is acquired by foreclosure, trustee's sale, deed in lieu of
foreclosure or otherwise pursuant to such lien rights, but such subsequent Owner
shall take title free and clear of any violations of the VALENCIA INDUSTRIAL
CENTER RESTRICTIONS occurring prior to such transfer of title.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 ASSIGNMENT OF RIGHTS AND DUTIES
Any and all of the rights, powers and reservations of DECLARANT herein contained
may be assigned to any person, corporation or association which will assume the
duties of DECLARANT pertaining to the particular rights, powers and reservations
assigned, and upon any such person, corporation or association's evidencing its
consent in writing to accept such assignment and assume such duties, he or it
shall, to the extent of such assignment, have the same rights and powers and be
subject to the same obligations and duties as are given to and assumed by
DECLARANT herein. The term DECLARANT as used herein includes all such assignees
and their heirs, successors and assigns. If at any time DECLARANT ceases to
exist and has not made such an assignment, a successor DECLARANT may be
appointed in the same manner as the VALENCIA INDUSTRIAL CENTER RESTRICTIONS may
be terminated, extended, modified or amended under Section 6.2 of Article Vi.
Any assignment or appointment made under this section shall be in recordable
form and shall be recorded in the County where the real property affected is
situated.
SECTION 8.2 CONSTRUCTIVE NOTICE AND ACCEPTANCE
Every person or other entity who now or hereafter owns or acquires any right,
title or interest in or to any portion of the real property made subject to the
VALENCIA INDUSTRIAL CENTER RESTRICTIONS is and shall be conclusively deemed to
have consented and agreed to every covenant, condition and restriction contained
herein, whether or not any reference to ties DECLARATION is contained in the
instrument by which such person or entity acquired an interest in said real
property.
<PAGE>
SECTION 8.3 WAIVER
Neither DECLARANT nor its successors or assigns shall be liable to any owner,
lessee licensee, or occupant of a Site or of any portion of the real property
subject to the VALENCIA INDUSTRIAL CENTER RESTRICTIONS by reason of any mistake
in judgment, negligence, nonfeasance, action or inaction or for the enforcement
or failure to enforce any provision of this DECLARATION. Every owner, lessee,
licensee or occupant of any of Sites or any portion of the real property by
acquiring his interest therein agrees that he will not bring any action or suit
against DECLARANT to recover any such damages or to seek equitable relief.
SECTION 8.4 MUTUALITY, RECIPROCITY; RUNS WITH LAND
All covenants, conditions, restrictions and agreements contained herein are made
for the direct, mutual and reciprocal benefit of each and every Site and portion
of the real property now or hereafter made subject to the DECLARATION; shall
create mutual, equitable servitudes upon each Site and portion of the real
property in favor of every other Site and portion of the real property; shall
create reciprocal rights and obligations between the respective owners of all
Sites and portions of the real property and privity of contract and estate
between all grantees of said Sites and portions of the real property, their
heirs, successors and assigns; and shall, as to the owner of each Site and
portions of the real property, his heirs, successors and assigns, operate as
covenants running with the land, for the benefit of all other Sites and portion
of the real property.
SECTION 8.5 NOTICES
All notices, consents, requests, demands and other communications provided for
herein shall be in writing and shall be deemed to have been duly given if and
when personally served or 24 hours after being sent by United States registered
or certified mail, return receipt requested, postage prepaid, to the intended
party at its last known address.
Paragraph 52
LESSOR'S OPTION TO CANCEL ON ASSIGNMENT OR SUBLEASE BY LESSEE
(a) In the event Lessee or any sublease or assignee of Lessee (all hereinafter
referred to as "Lessee") shall intend to sublet all or a portion of the Premises
(which portion is more than 40% of the square footage in any building on the
Premises or more than 40% of the entire Premises and which is for more than a
one year term including options) or assign its interest under this Lease then
Lessee shall give to Lessor written notice of such intent (hereinafter known as
"Notice of Intent") in strict accordance with the procedures herein set forth.
(b) Lessee's Notice of Intent shall set forth the date (hereinafter
"Termination Date") upon which it is intended that a proposed sublease or
assignment would become effective. The Termination Date shall not be less than
ninety days nor more than one hundred twenty days from the date that Lessor
receives the Notice of Intent. Within twenty days after Lessors receipt of the
Notice of Intent, Lessor may give written notice to Lessee that Lessor elects to
terminate this Lease effective as of the Termination Date. If Lessor shall elect
to terminate this Lease, then neither Lessor nor Lessee shall be liable to the
other for any reason having to do with this Lease from and after the Termination
<PAGE>
Date except for matters which may have arisen prior to termination and
obligations of Lessee that exist upon termination.
(c) In the event that Lessor does not exercise its right to terminate this
Lease and in the event that Lessee does not in fact execute a final and binding
sublease or assignment within one hundred twenty days after said Termination
Date, then Lessee shall be obligated to give another Notice of Intent to Lessor
before Lessee may assign or sublease and the terms of this addendum shall
reapply. The failure of Lessor to exercise its right to terminate this Lease
under this paragraph shall not be deemed a waiver of the right to subsequently
terminate this Lease in accordance with the terms hereof, and this option to
cancel shall continue to exist during the entire term of this Lease and any
extension thereof.
(d) Lessor's failure to exercise its option to cancel this Lease, shall not be
deemed a waiver of Lessor's right to approve or disapprove of any assignment or
subletting as provided for in paragraph 12.1 of this Lease.
<PAGE>
EXHIBIT 6.16
WEST METRO BUSINESS CENTRE 11 LEASE AGREEMENT
THIS AGREEMENT (the "Lease") is hereby entered into as of the 22 day of April,
1999, by and between WELTON FAMILY LEUMD PARTNERSHIP ("Landlord"), whose address
is c/o Welton Enterprises, Inc. 567 D'Onofrio Drive, Suite 210, P.O. Box 44580,
Madison, Wisconsin 53744-4580 and DCH TECHNOLOGY, INC. ('Tenant"), whose address
is 27811 Avenue Hopkins, Suite 6, Valencia, CA 91355.
ARTICLE I
GRANT AND TERM
SECTION 1.01. PREMISES. Landlord leases to Tenant, and Tenant leases from
Landlord, that part of the West Metro Business Centre Complex (the "Complex")
located at 2120 West Greenview Drive, in the City of Middleton, Wisconsin, now
or hereafter to be constructed, which consists of the area outlined on the site
plan attached as an Exhibit (the 'Premises"), containing 3355 square feet. The
Premises leased to Tenant do not include the land under the Complex or the roof
or outer walls of the building or buildings comprising the Complex. Landlord
reserves the right to place, maintain, repair and replace utility lines, pipes,
tunneling and the like in, under, over, upon or through the Premises as may be
reasonably necessary or advisable for the servicing of the Premises or other
existing or future portions of the Complex. Landlord further reserves the air
rights above the Premises and the Complex for Landlord's use, which may include,
among other things, the upward expansion of the Complex. No rights or licenses
are acquired by Tenant by implication or otherwise except as expressly set forth
in this Lease.
SECTION 1.02. LEASE TERM. The term of this Lease shall be for Three (3) Lease
Years, unless terminated sooner pursuant to any of the provisions of this Lease.
The term of this Lease and Tenant's obligation to pay rent and other charges due
hereunder and to perform all other obligations set forth herein shall begin on
the date on which Tenant occupies the Premises (the "Commencement Date").
Landlord anticipates the Commencement Date will be May 1, 1999. Landlord shall
give Tenant notice when Landlord's Work is substantially complete. Tenant shall
be entitled to access to the Premises immediately after the giving of Landlord's
notice so that Tenant can complete Tenant's Work (as defined in Section 4.03)
and prepare the Premises for opening, provided, however, that Tenant shall first
obtain the policies of insurance and furnish Landlord the evidence thereof as
set forth in Sections 8.01 and 8.03 hereof. Tenant shall also be responsible for
all utility charges as set forth in Section 7.04 hereof immediately after
Landlord gives notice hereunder. The term of this Lease shall end on the last
day of the last full Lease Year (as defined in Section 1.04) unless terminated
sooner pursuant to any of the provisions hereof.
SECTION 1.03. OPTION TO EXTEND.
(a) First Option to Extend. Provided that Tenant shall not then be in
default under this Lease, Tenant shall have the option (the "First Option') to
extend this Lease for a period of Three (3) Lease Years beyond the lease term
set forth in Section 1.02 (the "First Option Term'). The First Option shall be
exercised by delivery of written notice by Tenant to Landlord not later than one
hundred twenty (120) days prior to the date the Lease would otherwise expire. If
written notice is not given by Tenant by the deadline set forth herein, then
this lease shall terminate at the end of the lease term set forth in Section
1.02. If this Lease is extended pursuant to this Section 1.03(a), all terms,
<PAGE>
covenants and conditions of this Lease shall remain in full force and effect,
except, however, that:
(i) the term of this Lease shall be extended for the period of the First
Option Term;
(ii) Minimum Rent for the first Lease Year of the First Option Term shall be
increased by three percent (3 %) of the Minimum Rent payable during the last
Lease Year of the original Lease term set forth in Section 1.02, and shall be
subject to annual increases thereafter as provided in Section 3.01; and
(iii) the only remaining option to extend shall be that set forth in Section
1.03(b).
(b) Second Option to Extend. Provided that Tenant shall not then be in
default under this Lease, and provided that Tenant has previously and validly
exercised the First Option, Tenant shall have the option (the "Second Option')
to extend this Lease for an additional period of Three (3) Lease Years beyond
the First Option Term (the "Second Option Term"). The Second Option shall be
exercised by delivery of written notice by Tenant to Landlord given not later
than one hundred twenty (120) days prior to the last day of the Sixth Lease
Year. If written notice is not given by Tenant by the deadline set forth herein,
then this Lease shall terminate at the end of the Lease term set forth in
Section 1.02 (or, if the First Option has been properly exercised, at the end of
the First Option Term). If this Lease is extended pursuant to this Section
1.03(b), all terms, covenants and conditions of this Lease shall remain in full
force and effect, except, however, that:
(i) the term of this Lease shall be extended for the period of the Second
Option Term;
(ii) Minimum Rent for the first Lease Year of the Second Option Term shall be
increased by three percent (3 %) of the Minimum Rent payable during the last
Lease Year of the First Option Term, and shall be subject to annual increases
thereafter as provided in Section 3.01; and
(iii) there shall be no further option to extend.
SECTION 1.04. LEASE YEAR. 'Me term "Lease Year' means a period of twelve (12)
consecutive calendar months. The first Lease Year shall begin on the
Commencement Date if that date is the first day of a calendar month, and, if
not, then on the first day of the calendar month following the Commencement
Date.
SECTION 1.05. SURRENDER. On the last day of the term of this Lease, or any
extension or renewal thereof, or on any sooner termination, Tenant shall
surrender the Premises in the same condition as the Pren3ises existed on the
Commencement Date, broom clean, reasonable wear and tear excepted, and shall
surrender all keys to Landlord.
SECTION 1.06. RIGHT OF ENTRY. Landlord and its authorized representatives shall
have the right to enter the Premises at all reasonable times or at any time
during or after an emergency to inspect the Premises or to show the Premises to
prospective purchasers or tenants or to abate nuisances, to cure dangerous
conditions, repair waste and to make repairs, alterations, improvements or
additions to the Premises or to the building of which the Premises are a part,
as Landlord may reasonably deem necessary, including those to be performed by
<PAGE>
Tenant, without the same constituting an eviction of Tenant in whole or in part,
and rent shall not abate as a result of such entry. Landlord shall use its
reasonable efforts in making any repairs, alterations, improvements or additions
to the Premises or the building of which the Premises are a part to keep the
disruption of Tenant's business to a minimum. Nothing herein shall impose any
duty upon Landlord to do any work or perform any other act which Tenant may be
required to perform under this Lease, and the performance thereof by Landlord
shall not constitute a waiver of Tenant's default in failing to perform it.
During the six (6) months prior to the expiration of the term of this Lease,
Landlord may place upon the Premises notice "To Let" or "For Rent." If Tenant is
not present to permit entry into the Premises, Landlord may, in case of
emergency, enter by master key, or may forcibly enter, without rendering
Landlord liable therefor.
ARTICLE II SECURITY DEPOSIT
2
SECTION 2.01. AMOUNT OF DEPOSIT. Tenant shall deposit with Landlord within
thirty (30) days after execution of this Lease, as a security deposit, the
amount of $1,400.00 (payable to Welton Family Limited Partnership). The deposit
shall be held by Landlord, without liability for interest, unless required by
law, as security for the full performance by Tenant of all the terms, covenants
and conditions of this Lease. Landlord shall not be required to hold the deposit
as a separate fund, and may commingle it with other funds.
SECTION 2.02. USE AND RETURN OF DEPOSIT. If Tenant fails to perform any of the
terms, covenants and conditions of this Lease, Landlord may, at its option and
without waiving any other rights, apply the entire deposit (or any part thereof)
toward amounts due Landlord under this Lease. If the entire deposit, or any
portion thereof, shall be applied by Landlord for the payment of amounts due to
Landlord by Tenant, then Tenant shall, upon written demand of Landlord,
immediately remit to Landlord a sufficient amount of cash to restore the deposit
to its original amount, and Tenant's failure to do so within five (5) days after
receipt of the demand shall of itself constitute a breach of this Lease. Should
Tenant comply with all terms, covenants and conditions and promptly pay all
rents and other sums as due, the deposit shall be returned in full to Tenant
within thirty (30) days following the expiration or termination of this Lease
and after the removal of Tenant and surrender of possession of the Premises to
Landlord.
ARTICLE III RENT
SECTION 3.01. MINIMUM RENT. Tenant shall, for the entire term of this Lease,
pay to Landlord, at such place as Landlord may from time to time in writing
designate, as minimum rent (the 'Minimum Rent") the sum of Sixteen Thousand
Eight Hundred Dollars ($16,800.00) per year, in equal monthly installments of
One Thousand Four Hundred Dollars ($1,400.00) each, payable in advance on the
first day of each calendar month, without any setoff, counterclaim or deduction
whatsoever or any prior demand. Minimum Rent for any period during the term of
this Lease which is less than one (1) mouth shall be a pro rata portion of the
monthly installment. Effective on the first anniversary of the commencement
date, and on the anniversary of the commencement date every year thereafter,
during the term of this Lease, Minimum Rent shall be increased by adding thereto
an amount equal to three percent (3%) of the Minimum Rent payable for the
previous twelve (12) month period.
<PAGE>
SECTION 3.02. ADDITIONAL RENT. Tenant shall also pay to Landlord, at such place
as Landlord may from time to time in writing designate, as additional rent (the
"Additional Rent"), (i) Tenant's proportionate share of all Operating Expenses
paid or accrued during each Lease Year or part thereof, and (ii) the Other Costs
and Expenses due from or chargeable to Tenant under this Lease, at the times
herein specified, without any setoff, counterclaim or deduction whatsoever or
any prior demand.
(a) Tenant's Proportionate Share. As used herein, Tenant's proportionate
share of all Operating Expenses shall be the total amount of such and Operating
Expenses paid or accrued during each Lease Year or part thereof, multiplied by a
fraction, the numerator of which shall be the number of square feet of the
Premises set forth in Section 1.01 and the denominator of which shall be the
number of square feet of Leasable Floor Area within the building comprising the
entire Complex. As used herein, 'Leasable Floor Area" shall mean the entire
area, measured in square feet, of all floor space within the Complex that is
leased or leasable and that is either occupied, or can be readied for occupancy
within sixty (60) days, and shall include floor area on all levels. No deduction
shall be made for columns, stairs or interior construction, fixtures or
equipment. Any changes in Leasable Floor Area shall be deemed in effect on the
first day of the next succeeding month following such change. Tenants Leasable
Floor Area proportionate share 10.89%.
(b) Payment of Additional Rent.
(i) Tenant shall pay Landlord, beginning on the Commencement Date and
continuing on the first day of each calendar month, an amount equal to one-
twelfth (1/12) of Tenant's proportionate share of the amount budgeted by
Landlord for Operating Expenses. Landlord shall, prior to the end of the first
quarter of each calendar year, provide Tenant with a budget for the Operating
Expenses for the ensuing calendar year. Such payments shall not bear interest,
may be commingled by Landlord with other funds, and shall be used to pay when
due the Operating Expenses and to create and maintain the reserves therefor as
hereinafter provided. If the payments by Tenant are insufficient to pay when due
the Operating Expenses or are insufficient to fund the reserves as hereinafter
provided for, Tenant shall pay any deficiency on demand. If the payments by
Tenant are in excess of the amounts needed, the amount of such excess shall be
credited to the subsequent payments for Operating Expenses required hereunder.
(ii) Tenant shall pay Landlord, beginning on the Commencement Date and
continuing on the first day of each calendar month, the full amount of Other
Costs and Expenses that have come due during the preceding month.
(c) Operating Expenses. As used herein, the terms "Operating Expenses"
shall include all costs and expenses of every kind and nature paid or incurred
by Landlord in operating and maintaining the Common Areas of Complex. Such costs
and expenses may include, without limitation, those of. maintaining,
resurfacing, repairing and replacing, cleaning, lighting, snow and ice removal,
line painting and landscaping of all vehicle parking areas, landscaping and
other outdoor Common Areas; total compensation and benefits (including premiums
for workmen's compensation and other insurance) paid to or on behalf of
employees employed to operate or maintain the Complex; personal property taxes;
supplies; fire protection and fire hydrant charges; water and sewer charges;
utility charges not metered to the Premises; licenses and permit fees, legal and
accounting fees; reasonable depreciation of equipment used in operating and
maintaining the Common Areas and rent paid for leasing any such equipment;
together with a charge of five percent (5) of the foregoing to cover costs of
<PAGE>
administration of the Complex. "Operating Expenses" shall also include increases
in Real Estate Taxes over actual Real Estate Taxes for the calendar year of
occupancy.
(d) Real Estate Taxes. As used herein, the term 'Real Estate Taxes" shall
include all taxes, charges, and assessments, general or special of every nature
and kind whatsoever, levied, assessed, imposed due or payable against the land,
buildings and all other improvements within the Complex and all water and sewage
charges levied, assessed, imposed, due or payable during the term of the Lease,
whether such tax, charge or assessment shall be for city, county, state, federal
or any political subdivision thereof, or any other purpose whatsoever, together
with any costs and fees incurred by Landlord in contesting or negotiating the
same. Should any governmental agency or political subdivision impose any taxes
or assessments, whether or not now customary or within the contemplation of the
parties hereto, either by way of substitution for taxes or assessments presently
levied and assessed against the land, buildings, or any other improvements
within the Complex, such taxes and assessments shall be deemed to constitute a
tax or assessment for the purposes of this section. Copies of tax bills
submitted by Landlord to Tenant shall be conclusive of the amount levied or
assessed as Real Estate Taxes. As used herein, the term 'real estate taxes"
means all taxes, charges, and assessments, general and special, of every kind
and nature whatsoever levied, assessed, imposed, due or payable upon the land,
buildings and all of their improvements that comprise the complex within which
the Premises are located, including, without limitation, taxes or other charges
assessed against any parking areas.
1999 Budget for Common Area Maintenance 2120 West Greenview Drive
Grounds Upkeep $ 2,035.00
Snow & Ice Removal 1,570.00
Common Area Electricity (lighting) 1,105.00
Common Area Repairs & Maintenance 900.00
Parking Lot Maintenance 140.00
Management Fee 287.00
TOTAL 1999 Budget $6,037.00
$6,037 / 30,800 SF = $.20/SF. Tenant pays 1/12 per month = $55.92/month for
calendar year 1999. Budget for Common Area Maintenance is adjusted annually in
the first quarter of the new year.
ARTICLE IV
ALTERATIONS AND ADDMONS
SECTION 4.01. ALTERATIONS. Tenant shall not, without Landlord's prior written
consent, make any alterations, improvements, additions or utility installations
upon the Premises, except for minor nonstructural alterations. The term "utility
installations," as used herein, shall include without limitation power panels,
space heaters, fluorescent fixtures, conduits and wiring, and plumbing
installation.
SECTION 4.02. LANDLORD'S WORK. Landlord shall, at its expense, perform or cause
to be performed the construction work on the Premises specifically enumerated on
the attached Exhibit as Landlord's Work.
SECTION 4.03. TENANT'S WORK. With the exception of the items specifically
enumerated in Exhibit as Landlord's Work, Tenant shall, at Tenant's expense,
perform all work and supply all installations described in Exhibit ('Tenant's
<PAGE>
Work') and shall fully equip the Premises with all trade fixtures, furniture,
furnishings, special equipment and other items necessary for the completion of
the Premises and the proper and efficient operation of Tenant's business. All
materials, fixtures and furnishings installed by Tenant shall be of first class
quality, new and fully paid for by Tenant and shall conform to the general
design and character of the Complex. Tenant shall not undertake any of Tenant's
Work or fixture, furnish or decorate the Premises without Landlord's prior
written consent to plans and specifications therefor, a complete set of which
shall be submitted to Landlord for review and initialing. Thereafter, no changes
shall be made in Tenant's plans and specifications without the written consent
of Landlord. Immediately after approval of Tenant's plans and specifications by
Landlord, Tenant shall diligently complete its construction in a good and
workmanlike manner as provided in accordance with all applicable federal, state
and municipal regulations. Tenant shall do nothing to create any work stoppage,
picketing or other labor disruption. Landlord reserves the right to approve
Tenant's general contractor and subcontractors, and such approval shall not
constitute a waiver of Tenant's obligations hereunder.
SECTION 4.04. CONSTRUCTION LIENS. Tenant shall pay when due, and indemnify,
defend and hold Landlord harmless from, all claims for labor or materials
furnished or alleged to have been furnished to Tenant for use in the Premises,
which claims are or may be secured by any construction lien against the Premises
or any interest therein. Tenant shall not permit any liens under the
construction lien law to be filed against the Premises or any interest therein
and shall immediately obtain a release from any lien so filed. Nothing in the
Lease shall be construed in any way as constituting the consent or request of
Landlord to any contractor, subcontractor, laborer, or materialman for the
performance of any labor or the famishing of any materials for any alteration,
addition, improvement or repair to the Premises or any other part of the
Complex, nor as giving Tenant any right, power or authority to contract for or
permit the rendering of services or the furnishing of materials that would give
rise to the filing of a construction lien against the Premises or the Complex.
SECTION 4.05. REMOVAL OF IMPROVEMENTS. All items of Landlord's Work, all
heating and air-conditioning equipment and all alterations and other
improvements by Tenant shall become the property of Landlord and shall not be
removed from the Premises, unless request is made by Landlord to Tenant to
remove the same. All trade fixtures, furniture, furnishings and signs installed
in the Premises by Tenant and paid for by Tenant shall remain the property of
Tenant and may be removed upon the expiration or termination of this Lease;
provided that any of such items as are affixed to the Premises and require
severance may be removed only if Tenant repairs any damage caused by such
removal and that Tenant shall have fully performed all of the terms, conditions
and covenants to be performed by Tenant under this Lease. If Tenant fails to
remove such items from the Premises by the expiration or earlier termination of
this Lease, all such trade fixtures, furniture, furnishings and signs shall
become the property of Landlord, unless Landlord elects to require their
removal, in which case Tenant shall, at its sole cost and expense, promptly
remove the same and restore the Premises to their prior condition. The covenants
contained in this Section shall survive the expiration or termination of this
Lease.
ARTICLE V REPAIRS AND MAINTENANCE
SECTION 5.01. LANDLORD'S OBLIGATIONS. Landlord shall keep the exterior of the
Complex and the foundations, roof, and structural portions of the walls of the
Premises (except interior walls erected by Tenant) in good condition and repair,
except for repairs required thereto by reason of the acts or omissions of
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Tenant, Tenant's employees, agents, invitees, licensees or contractors. Landlord
shall also be responsible for, but not pay for, the maintenance and repair of
the Common Areas (as defined in Section 6.02). As used in this section, the term
"repairs' shall include replacements and other improvements as are necessary to
maintain the property in good order and condition. If Landlord is required to
make exterior or structural repairs by reason of Tenant's acts or omissions,
Landlord shall have the right, but shall not be obligated, to make such repairs
or replacements on behalf of and for the account of Tenant. In such event, such
work shall be paid for in full by Tenant as Additional Rent in accordance with
Section 3.02. 'Me provisions of this Section shall not apply in the case of
damage or destruction by fire or other casualty or by condemnation, in which
events the obligations of Landlord shall be controlled by Articles IX and X,
respectively.
SECTION 5.02. TENANT'S OBLIGATIONS. Except as provided in Section 5.01, Tenant
shall keep the Premises and every part thereof and any fixtures, facilities or
equipment contained therein, in good condition and repair, including, but not
limited to, the heating, air-conditioning, ventilating, electrical, fighting,
plumbing and sewer systems, exterior doors, window frames and all portions of
the store front area, columns, nonstructural walls, and partitions, and shall
make any replacements thereof and of all broken and cracked glass which may
become necessary during the term of this Lease.
ARTICLE VI COMMON AREAS
SECTION 6.01. USE OF COMMON AREAS. Use by Tenant of the Premises shall include
the non-exclusive use, in common with others, of the Common Areas, as defined
herein, and subject to the provisions of Section 6.02.
SECTION 6.02. CONTROL OF COMMON AREAS. All parking areas, driveways, entrances,
exits, loading docks, pick-up stations, sidewalks, ramps, malls, landscaped
areas, exterior stairways, and other areas and improvements provided by Landlord
for the common use of the tenants of the Complex, their agents, employees, and
customers and all other portions of the Complex that are not leased (the 'Common
Areas") shall be subject to the exclusive control and management of Landlord.
Landlord shall have the right to establish, modify and enforce the rules (the
'Rules") with respect to the Common Areas, and Tenant agrees to cooperate with
Landlord in enforcing the Rules. Landlord shall have the right to alter the
Common Areas and to construct additions to or additional buildings in the
Complex resulting in a diminution of Common Areas. Landlord shall have the right
to construct and operate lighting and signs on all the Common Areas and
improvements, to police the same, to change the area and location of parking
areas and other common facilities, to close temporarily the parking areas or
facilities to perform other acts in and to the areas and improvements as
Landlord may deem advisable.
ARTICLE VII COVENANTS OF TENANT
SECTION 7.01. USE OF PREMISES. Tenant covenants and agrees that it shall use
and occupy the entire Premises (and not less than one hundred percent (100%) of
the Premises) solely for business office and warehouse use. Tenant's business in
the Premises shall be conducted under the following trade name: DCH Technology,
Inc.
SECTION 7.02. OPERATION OF BUSINESS. Tenant, as a further inducement to
Landlord to enter into this Lease, covenants and agrees:
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(a) Insurance. To neither do nor suffer anything to be done or kept in or
about the Premises which contravenes Landlord's insurance policies or increases
the premiums therefor;
(b) Sounds. To permit no reproduction of sound which is audible outside the
Premises nor permit odors to be unreasonably dispelled from the Premises;
(c) Parking. To park Tenant's vehicles and to require all employees to park
vehicles only in such places as may be designated from time to time by Landlord
for the use of Tenant and its employees;
(d) Loading. To neither load, unload nor permit the loading or unloading of
merchandise, equipment or other property from any doors of the Premises other
than the rear doors;
(e) Heating and Cooling. To adequately heat and cool the Premises;
(f) Hazardous Waste. To neither use, nor permit any other person to use,
any portion of the Premises for the generation, storage, transportation,
disposal or treatment of hazardous or toxic wastes;
(g) Compliance with Laws. To comply with all applicable ordinances, rules,
regulations and requirements of all federal, state and municipal governments
which relate to the Premises or the business Tenant conducts on or from the
Premises; and
(h) Compliance with Rules. To comply with all reasonable rules and
regulations which Landlord may from time to time establish for the use and care
of the Premises, the Common Areas, and other facilities and buildings that
comprise the Complex.
SECTION 7.03. SIGNS. Tenant covenants and agrees that it shall not, without the
prior written consent of Landlord, paint, erect or install any signs, lettering
or placards or make any additions, alterations or changes to the exterior of the
Premises, or place or permit to be placed any sign, advertising material or
lettering upon the interior surface of any door or show window or any point
inside the Premises from which the same may be visible from outside the
Premises.
SECTION 7.04. UTILITIES. Tenant covenants and agrees that it shall be solely
responsible and shall pay when due all charges for utility meters, gas,
electricity or any other utility used in or supplied to the Premises, beginning
on the earlier of the Commencement Date or the date on which Tenant gains access
to the Premises. Charges for sewer service, water service and other utilities
that are not separately metered in the Premises shall be charged to Tenant as
Operating Expenses. In no event shall Landlord be liable for an interruption or
failure in the supply of any utilities.
SECTION 7.05. MUNICIPAL, COUNTY, STATE OR FEDERAL TAXES. Tenant covenants and
agrees that it shall pay, before delinquency, all municipal, county and state or
federal taxes assessed against any leasehold interest of Tenant or any fixtures,
furnishings, equipment, merchandise, improvements, alterations, stock-in-trade
or other personal property of any kind owned, installed or upon the Premises.
SECTION 7.06. ENVIRONMENTAL.
(a) Definitions.
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(i) As used herein, "Environmental Laws' shall mean any federal, state
and local laws including statutes, regulations, ruling, orders, administrative
interpretations and other governmental restrictions and requirements relating to
the discharge of air pollutants, water pollutants or process wastewater or
otherwise relating to the environment or Hazardous Substances (as defined
herein) including, but not limited to, Chapters 144 and 162 of the Wisconsin
Statutes, the Federal Toxic Substances Control Act, the federal Disposal Act,
the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource and
Conservation and Recovery Act of 1976, the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, regulations of the Regulatory
resources or state environment protection agency now or at any time hereafter in
effect.
(ii) As used herein, 'Hazardous Substances" shall mean any hazardous waste
or substance, asbestos or asbestos-containing material pollutant, solid, liquid,
gaseous, or thermal irritant or contaminant (such as smoke, vapor, soot, fumes,
acids alkalis, chemicals or waste, including materials to be recycled in the
future, reconditioned or reclaimed), polychlorinated biphenyl (in the form of
electrical transformers, fluorescent light fixtures with ballasts, cooling oils
or any other device or form) or urea-formaldehyde foamed-in-place insulation,
all as defined or included under Environmental Laws.
(b) Environmental Covenants. During the term of this Lease, Tenant shall:
(i) timely comply with all applicable Environmental Laws;
(ii) provide Landlord, immediately upon receipt thereof, with copies of any
correspondence, notice, pleading, citation, indictment, complaint, order, decree
or other document from any source asserting or alleging violation upon the
Premises by Tenant of any Environmental Laws, or asserting or alleging a
circumstance or condition upon the Premises which may require a financial
contribution by Tenant or a cleanup, remedial action or other response by or on
the part of Tenant under any Environmental Laws;
(iii) permit Landlord, in the event Landlord has reasonable cause to believe
that there exists a condition or circumstance created by Tenant, its employees
or invitees during the term of this Lease warranting an environmental inspection
or audit, at Tenant's expense to retain an architect or engineer selected by
Landlord to perform an environmental inspection and/or audit of the Premises to
evaluate Tenant's compliance with Environmental Laws, and to test for Hazardous
Substances on the Premises, and for risks associated with exposure to Hazardous
Substances. Tenant shall permit Landlord and its employees and agents access to
the Premises and the books and records of Tenant as necessary for the
performance of the environmental inspection and/or audit;
(iv) at its expense, remove or contain any Hazardous Substances on the
Premises that were brought onto the Premises by Tenant, its employees or
invitees during the term of this Lease, or perform other corrective action as
required by Landlord in its sole discretion, if at any time it is determined
that such Hazardous Substances present a health hazard on the Premises or are
required to be removed or contained or other corrective action is required by
any Environmental Laws.
ARTICLE VIII INSURANCE AND INDEMNITIES
<PAGE>
SECTION 8.01. INSURANCE BY TENANT. Tenant shall obtain, at Tenant's expense,
beginning on the date that Tenant exercises its right of access to the Premises
pursuant to Section 1.02, and shall maintain through the expiration or
termination of this Lease, the following insurance coverage:
(a) Public Liability. A policy of comprehensive public liability insurance
naming Landlord, Tenant and any other party designated by Landlord as the
insured, to insure against injury to property, person or loss of life arising
out of the ownership, use, occupancy or maintenance of the Premises with limits
of public liability not less than $500,000 per person for death and/or bodily
injury including personal injury, $1,000,000 per accident and/or occurrence, and
limits of property damage liability not less than $500,000 per accident and/or
occurrence. The policy shall contain a supplemental endorsement covering
contractual liability voluntarily assumed by the insured under this Lease.
(b) Boiler and Machinery. A policy of boiler and machinery insurance in an
amount determined by Landlord to be sufficient if any time or from time to time
such equipment is located on Premises. (No boiler of any kind shall be installed
on the Premises without the Landlord's prior written consent.)
(c) Unusual Hazards. If Tenant commits or permits any activity or the
placing or operation of any equipment on or about the Premises creating unusual
hazards, Tenant shall promptly, upon notice or demand from Landlord, procure and
maintain in force, during such activity or operation, insurance sufficient to
cover the risks created thereby. Landlord's demand for unusual hazard insurance
shall not constitute a waiver of any right Landlord may have to demand the
removal or cessation of such activity or operation.
(d) Other. All other insurance, if any, customarily maintained by
businesses of like type, or required by any ordinance, law, or governmental
regulation to be carried or maintained by Tenant, as may be reasonably required
by Landlord or by any ordinance, law or governmental regulation.
SECTION 8.02. INSURANCE BY LANDLORD. Landlord shall obtain before the date that
Tenant gains access to the Premises pursuant to Section 1.02, and shall maintain
through the expiration or termination of this Lease, the following insurance
coverage:
(a) Public Liability. A policy of comprehensive public liability insurance
on the Common Areas with limits of public liability not less than $500,000 per
person for death and/or bodily injury, including personal injury, $1,000,000 per
accident and/or occurrence, and limits of property damage liability not less
than $500,000 per accident or occurrence.
(b) Comprehensive. A comprehensive policy of coverage containing fire,
extended coverage, vandalism, malicious mischief and other endorsements deemed
advisable by Landlord insuring the leasehold improvements of the Complex,
including the Premises and all appurtenances thereto (excluding Tenant's
merchandise, trade fixtures, furnishings, equipment, personal property and
excluding plate glass) for the full insurable replacement value thereof, with
such deductibles as Landlord deems advisable. Tenant shall be solely responsible
for carrying personal property insurance sufficient to cover the loss or damage
to Tenant's personal property.
SECTION 8.03. INSURANCE POLICIES. Insurance required of Tenant under Section
8.01 shall be written by companies duly qualified to do business in the State of
Wisconsin, with a general policyholder's rating of at least 'A" and a financial
<PAGE>
rating of at least Class XI, as rated in the latest edition of Best's Insurance
Guide, and shall be satisfactory in all respects to Landlord and the holder of
any mortgage against the Complex. Tenant shall deliver to the other copies of
such policies or certificates evidencing the existence and amounts of such
insurance with loss payable clauses satisfactory to Landlord. No such policy
shall be cancelable or subject to reduction of coverage or modification except
after thirty (30) days prior written notice to Landlord. At least ten (10) days
prior to the expiration of Tenant's policies, Tenant shall furnish Landlord with
renewals or "binders" thereof, or Landlord may order such insurance and charge
the cost to Tenant as Additional Rent. Tenant shall not do or permit anything to
be done which will invalidate the insurance policies furnished by Tenant or
Landlord pursuant to Sections 8.01 and 8.02. If Tenant does or permits anything
to be done which shall increase the cost of the insurance policies furnished by
Landlord, Tenant shall pay to Landlord, as Additional Rent, the amount of any
such additional premiums. Landlord may from time to time require that the policy
limits of any or all such insurance be increased to reflect the effects of
inflation and changes in normal commercial insurance practices. If Tenant fails
to comply with the requirements of this Section or Section 8.01, Landlord may
obtain such insurance and maintain it in effect, and Tenant shall pay Landlord
the premium cost and any other costs or expenses incurred by Landlord as
Additional Rent.
SECTION 8.04. EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby agrees that
Landlord shall not be liable for injury to Tenant's business or any loss of
income or other consequential damages or for damage to the inventory, fixtures,
furnishings, improvements or other property of Tenant, Tenant's employees,
invitees, customers, sublessees, agents, occupants, contractors, or any other
person in or about the Premises, nor shall Landlord be liable for injury to the
person of Tenant, Tenant's employees, agents, contractors, occupants, invitees,
customers, sublessees, 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, sprinkler, wires, appliances, plumbing, air-conditioning or lighting
fixtures, or from any other cause whatsoever, whether said damage or injury
results from conditions arising upon the Premises, 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 inaccessible to Tenant. Landlord shall not be
liable for any damages arising from any act or neglect of any other tenant of
the Complex.
SECTION 8.05 INDEMNIFICATION BY TENANT. Tenant shall indemnify, defend and hold
harmless Landlord from and against any and all claims arising from Tenant's use
of the Premises, or from the conduct of Tenant's business or from any activity,
work or things done, permitted or suffered by Tenant in or about the Premises or
elsewhere and shall further indemnify, defend and hold harmless Landlord from
and against any and all claims arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under the terms
of this Lease, or arising from any negligence of the Tenant, or any of Tenant's
sublessees, agents, customers, invitees, contractors, occupants, or employees,
and from and against all costs, attorneys' fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against landlord by
reason of any such claim, Tenant, upon notice from Landlord, shall defend the
same at Tenant's expense by counsel satisfactory to Landlord. Tenant, as a
material part of the consideration to Landlord, hereby assumes all risk of
damage to property or injury to persons, in, upon or about the Premises arising
<PAGE>
from any cause, and Tenant hereby waives all claims in respect thereof against
Landlord.
SECTION 8.06. INDEMNIFICATION BY LANDLORD. Landlord shall indemnify, defend and
hold harmless Tenant from and against any and all claims arising from Landlord's
use of the Common Areas, or from the conduct of Landlord's business or from any
activity, work, or things done, permitted or suffered by Landlord in or about
the Common Areas or elsewhere and shall further indemnify, defend and hold
harmless Tenant from and against any and all claims arising from any breach or
default in the performance of any obligation on Landlord's part to be performed
under the terms of this Lease, or arising from any negligence of the Landlord or
any of Landlord's sublessees, agents, customers, invitees, contractors,
occupants, or employees, and from and against all costs, attorneys' fees,
expenses and liabilities incurred in the defense of any such claim or any action
or proceeding brought thereon; and in case any action or proceeding be brought
against Landlord by reason of any such claim, Landlord upon notice from Tenant,
shall defend the same at Landlord's expense by counsel satisfactory to Landlord.
SECTION 8.07. MUTUAL WAIVER OF SUBROGATION. Nothing in this Lease shall be
construed so as to authorize or permit any insurer of Landlord or Tenant to be
subrogated to any right of Landlord or Tenant against the other party arising
under this Lease. Landlord and Tenant each hereby release the other to the
extent of any perils to be insured against by either of the parties under the
terms of this Lease, whether or not such insurance has actually been secured,
and to the extent of their respective insurance coverage for any loss or damage
caused by any such casualty, even if such incidents shall be brought about by
the fault or negligence of either party or persons for whose acts or negligence
the other party is responsible. All insurance policies to be provided under this
Article VIII by either Landlord or Tenant shall contain a provision that they
are not invalidated by the foregoing waiver. Such waiver shall, however, cease
to be effective if the existence thereof precludes either Landlord or Tenant
from obtaining any such policy.
ARTICLE IX
DAMAGE OR DESTRUCTION
In the event (i) the Premises are damaged by fire, explosion or other casualty
insured under Landlord's fire and extended coverage insurance policy (an
'Insured Casualty') to the extent of eighty percent (80%) or more of the
insurable value thereof immediately preceding the casualty, (ii) the building of
which the Premises are a part is damaged by an Insured Casualty to the extent of
eighty percent (80%) or more of the insurable value thereof immediately
preceding the casualty, or (iii) the Premises are damaged by a casualty or
occurrence other than Insured Casualty, or (iv) the Premises are damaged by a
casualty or occurrence and Landlord's mortgagee does not authorize the
disbursement of insurance proceeds to repair or replace the same, Landlord may
terminate this Lease by giving Tenant written notice of termination within sixty
(60) days after the happening of the event causing the damage. In the event the
damage is not extensive enough to give rise to Landlord's option to terminate
this Lease or Landlord does not elect to terminate this Lease, Landlord shah
promptly repair and replace the roof, exterior walls (excluding store front),
foundation and any other improvements furnished as a part of Landlord's Work or
existing on the date that Tenant was entitled to access to the Premises pursuant
to Section 1.02, to the condition existing immediately preceding such fire,
explosion or other casualty. Upon completion of such repairs and replacements by
Landlord, Tenant shall promptly repair or replace all portions of the Premises
<PAGE>
not repaired or replaced by Landlord and repair or replace all furniture,
fixtures and equipment to the condition existing immediately preceding such
fire, explosion or other casualty. All work by Tenant shall comply with the
requirements and limitations contained in the Exhibit. During any period of
reconstruction or repair of the Premises, Tenant shall operate its business in
the Premises to the extent practicable. Rent or other sums payable under this
Lease shall not be reduced or abated during the period of such repair and
restoration (except to the extent of any rent insurance proceeds actually
received by Landlord therefor) even if the Premises are not tenantable.
ARTICLE X
CONDENNATION
SECTION 10.01. TAKING OF WHOLE. In the event (i) the whole of the Premises shall
be taken or condemned for a public or quasipublic use or purpose by a competent
authority, or (ii) such a portion of the Premises shall be taken so that the
balance cannot be used for the same purpose and with substantially the same
utility to Tenant as immediately prior to such taking, this Lease shall
terminate upon delivery of possession to the condemning authority, and any
award, compensation or damages payable as compensation for the fee estate in the
Premises (the 'Award') shall be paid to and be the sole property of Landlord,
and Tenant hereby assigns to Landlord all of Tenant's right, title and interest
in and to any and all of the Award. Tenant shall have no claim against Landlord
by reason of such taking or termination and shall not have any claim or right to
any portion of the Award to be paid to Landlord. Tenant shall continue to pay
rent and other charges hereunder until the Lease is terminated.
SECTION 10.02. PARTIAL TAKING. In the event only a part of the Premises or
Complex is taken or condemned but the Premises or the part remaining can still
be used for the same purpose and with substantially the same utility to Tenant
as immediately prior to such taking, this Lease shall not terminate and Landlord
shall repair and restore the Premises provided the cost and expense of such
repair and restoration does not exceed the amount of the Award. If the cost of
such repair and restoration exceeds the amount of the Award, Landlord may
terminate this Lease by giving Tenant written notice of termination to Tenant
within sixty (60) days of the delivery of possession to the condemning
authority. If Landlord is obligated to repair and restore the Premises as herein
provided, there shall be no abatement or reduction in any rental because of such
taking or condemnation.
ARTICLE XI
DEFAULTS; REMEDIES
SECTION 11.01. DEFAULTS. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
(a) Abandonment. The abandonment of the Premises or the cessation of
business by Tenant.
(b) Failure to Pay. The failure of Tenant to make any payment of rent or
any other payment required to be made by Tenant under this Lease, when due, and
such failure shall continue for a period of five (5) days.
(c) Failure to Observe Other Covenants. The failure by Tenant to repair any
waste or to observe or perform any of the terms, covenants or conditions of this
<PAGE>
Lease to be observed or performed by Tenant where such failure shall continue
for a period of twenty (20) days after written notice thereof from Landlord to
Tenant (or without notice where (i) a violation of Section 13.01 or Section
13.17 has occurred; (ii) as a result of Tenant's failure to observe any term,
covenant or condition of this Lease, Landlord has delivered three (3) or more
notices of default under this subsection (c) within a single twelve (12)-month
period; (iii) an emergency or a hazardous condition exists or a fine, penalty,
interest or cost may otherwise be imposed or incurred). Except as otherwise
provided herein, in the event of a breach of a term, covenant or condition of
this Lease which requires more than the payment of money to cure and which
cannot because of the nature of such default be cured within said twenty (20)
days, then Tenant is deemed to be complying with said notice if, promptly upon
receipt of such notice, Tenant immediately takes steps to cure the default as
soon as reasonably possible and proceeds thereafter continuously with due
diligence to cure the default within a period of time which, under all
prevailing circumstances, shall be reasonable. Failure to send a notice shall
not be construed as a waiver of such breach or as to any subsequent breach.
(d) Insolvency. (i) The making by Tenant of any general assignment, or
general arrangement for the benefit of creditors; (ii) the filing by or against
Tenant of a petition to have Tenant adjudged a bankrupt 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 sixty
(60) 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, where possession is not restored to Tenant within sixty
(60) days; or (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 such seizure is not discharged within sixty (60)
days.
SECTION 11.02. LANIDLORD'S REMEDIES. If any default by Tenant shall continue
uncured following notice of default, if any, as required by this Lease, for a
period applicable to the default under the applicable provision of this Lease,
Landlord has the following remedies, in addition to all other rights and
remedies provided by law or equity, to which Landlord may resort cumulatively or
in the alternative.
(a) Termination of Lease. Landlord may at Landlord's election terminate
this Lease by giving Tenant notice of termination. On the giving of the notice,
all further obligations of Landlord under this Lease shall terminate, Tenant
shall surrender and vacate the Premises in a broom clean condition, and Landlord
may reenter and take possession of the Premises and eject all parties in
possession or eject some and not others or eject none. Termination under this
paragraph shall not relieve Tenant from the payment of any sum then due to
Landlord or from any claim for damages previously accrued or then accruing
against Tenant. Should Tenant abandon the Premises and Landlord elect to reenter
as herein provided, or if Tenant's right to possession is terminated by Landlord
because of a breach of the Lease by Tenant, this Lease shall, at landlord's
written election, terminate and Landlord shall be entitled to recover from the
Tenant (i) unpaid rent which has been earned at the time of termination, and
(ii) as liquidated damages and not as a penalty a sum of money equal to the rent
and rental loss to be paid by Tenant to Landlord for the remainder of the term
of this Lease.
(b) Termination of Possession. Landlord may at Landlord's election
terminate Tenant's right to possession only, without terminating the Lease,
<PAGE>
following a breach of the Lease by Tenant. Upon termination of Tenant's right to
possession without termination of the Lease, Tenant shall surrender possession
and vacate the Premises immediately and possession thereof to Landlord, and
Tenant hereby grants to Landlord the immediate right to enter into the Premises,
remove Tenant's signs and other evidences of tenancy, and take and hold
possession thereof with or without process of law, and to repossess the Premises
as Landlord's former estate and to expel or remove Tenant and any others who may
be occupying or within the Premises, without being deemed in any manner guilty
of trespass, eviction, or forcible entry or detainer, without incurring any
liability for any damage resulting therefrom, without such entry and possession
terminating the Lease or releasing Tenant from Tenant's obligation to pay the
rent and to fulfill all other of Tenant's obligations under this lease for the
full term of this Lease. Landlord shall be entitled to recover from Tenant (i)
unpaid rent which has been earned at the time of termination, and (ii) as
liquidated damages and not as a penalty a sum of money equal to the rent and
rental loss to be paid by Tenant to Landlord for the remainder of the term of
this Lease. Notwithstanding any remedial action taken hereunder by Landlord
short of termination, including reletting the Premises to a substitute Tenant,
Landlord may at any time thereafter elect to terminate this Lease for any
previous default.
(c) Storage. , Landlord may at Landlord's election store Tenant's personal
property and trade fixtures for the account and at the cost of Tenant.
(d) Reletting of Premises. Landlord may, but shall be under no obligation
to, relet all or any part of the Premises for such rent and upon such terms as
shall be satisfactory to Landlord (including the right to relet the Premises as
a part of a larger area, the right to change the character or use of the
Premises and the right to restrict prospective tenants to those whose business
is compatible with the nature and character of the Complex). For the purpose of
such reletting, Landlord may decorate or may make any repairs, changes,
alterations or additions in or to the Premises that may be necessary or
convenient. If the Premises are relet and a sufficient sum shall not be realized
from such reletting after paying all of the expenses of such decorations,
repairs, changes, alterations and additions, the expenses of such reletting and
the collection of the rent accruing therefrom (including, but not limited to,
attorneys' fees and brokers' commissions), to satisfy the rent and other charges
herein provided to be paid for the remainder of the term of this Lease, Tenant
shall pay to Landlord promptly any deficiency, and Tenant agrees that Landlord
may file suit to recover any sum falling due under the terms of this paragraph
from time to time.
SECTION 11.03. LANDLORD MAY PERFORM. Landlord shall have the right at any time,
after ten (10) days notice to Tenant (or without notice in case of emergency or
a hazardous condition or in case any fine, penalty, interest or cost may
otherwise be imposed or incurred), to make any payment or perform any act
required of Tenant under any provision in this Lease, and in exercising such
right, to incur necessary and incidental costs and expenses, including
reasonable attorneys' fees. Nothing herein shall obligate Landlord to make any
payment or perform any act required of the Tenant, and this exercise of the
right to so do shall not constitute a release of any obligation or a waiver of
any default. All payments made and all costs and expenses incurred in connection
with any exercise of such right shall be reimbursed to Landlord by Tenant as
Additional Rent.
ARTICLE XII
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ASSIGNMENT AND SUBLEITING
SECTION 12.01. ASSIGNMENT BY TENANT. Tenant shall not voluntarily or by
operation of law assign, transfer, mortgage, lease, sublet, grant license or
rights to a concessionaire or otherwise transfer or encumber all or any part of
Tenant's interest in this Lease or in the Premises, or permit the use or
occupancy of the Premises or any part thereof by anyone other than Tenant,
without Landlord's prior written consent, nor may ownership of any general
partnership interest, or of more than fifty percent (50 %) of the limited
partnership interests in Tenant (if Tenant is a partnership) or of Tenant's
corporate stock (if Tenant is a corporation) be transferred without Landlord's
prior written consent, provided, however, that the restrictions on transfer of
ownership interests in Tenant set forth herein shall not apply to transfers
resulting from death. Any attempted assignment, transfer, mortgage, use, lease,
occupancy, encumbrance or subletting without such consent shall be void and
shall constitute a default under this Lease.
SECTION 12.02. NO RELEASE OF TENANT. Notwithstanding anything to the contrary
contained in this Lease, and regardless of Landlord's consent, no such
assignment, encumbrance, subletting, transfer, lease or other permission for the
use or occupancy of all or any part of the Premises shall release Tenant of
Tenant's obligation to pay the rent and to perform all other obligations to be
performed by Tenant under this Lease, and Tenant and each respective assignor
hereby waives notice of default in the payment and performance by the tenant in
possession of the rents, covenants and conditions of this Lease. Tenant and each
such assignor further agree that Landlord may deal with the tenant in possession
without notice to, and without the consent of, Tenant or any such assignor, and
any and all extensions of time, modifications, or waivers shall be deemed to be
made with the consent of Tenant and any such assignor. The acceptance of rent by
Landlord from any other person shall not be deemed to be a waiver by Landlord of
any provision hereof. Consent to one assignment shall not be deemed consent to
any subsequent assignment.
ARTICLE XIII
GENERAL PROVISIONS
SECTION 13.01. ESTOPPEL CERTIFICATE.
(a) Tenant shall at any time, upon not less than ten (10) days after the
giving of written notice by Landlord, execute, acknowledge and deliver to
Landlord or to such person designated by Landlord, a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any, (ii) acknowledging that
there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder, nor any offsets, counterclaims or defenses to the Lease on
the part of Tenant, or specifying such defaults if any are claimed, and (iii)
certifying as to any other matters as may be reasonably requested by Landlord.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) If Landlord desires to sell or finance or refinance the Complex, or
any part thereof, Tenant shall deliver to any purchaser and/or lender designated
by Landlord such financial information concerning Tenant as may be reasonably
required by such purchaser and/or lender. Such statements shall include, but
shall not be limited to, the past three (3) years' financial statements of
<PAGE>
Tenant. All such financial information shall be received by Landlord in
confidence and shall be used only for the purposes herein set forth.
SECTION 13.02. LANDLORD'S LIABILITY. The term "Landlord" as used in this Lease,
shall mean only the owner or owners at the time in question of the fee title or
a tenant's interest in a ground lease of the Premises, it being expressly
acknowledged by the parties hereto that none of the terms or conditions to be
performed or observed by Landlord under this Lease are personal to the party
originally named "Landlord" hereunder. In the event of any transfer of such
title or interest, Landlord shall be released from all liability as respects
Landlord's obligations thereafter to be performed, provided that any funds held
by Landlord at the time of such transfer, in which Tenant has an interest, shall
be delivered to the grantee.
SECTION 13.03. SEVERABILITY. The invalidity of any provision of this Lease, or
of its application to any person or circumstance as determined by a court of
competent jurisdiction, shall in no way affect the validity of any other
provision hereof and each term, covenant, condition and provision of this Lease
shall be valid and be enforced to the fullest extent permitted by law.
SECTION 13.04. TIME OF ESSENCE. Time is of the essence.
SECTION 13.05. CAPTIONS. Article, section and paragraph captions are not a part
of this Lease.
SECTION 13.06. INCORPORATION OF PRIOR AGREEMENTS. This Lease and the attached
Exhibits set forth all the agreements, terms, covenants and conditions between
Landlord and Tenant concerning the Premises and there are no agreements, terms
covenants or conditions, oral or written, between them other than those herein
contained. No amendment, change or addition to this Lease shall be binding upon
Landlord or Tenant unless it is in writing and signed by each party.
SECTION 13.07. TENANT'S REMEDIES. If Landlord shall fail to perform any
covenant, term or condition of this Lease required to be performed by Landlord,
if any, and if as a consequence of such default, Tenant shall recover a money
judgment against Landlord, such judgment shall be satisfied only out of the
proceeds of sale received upon execution of such judgment and levied thereon
against the right, title and interest of Landlord in the Premises and out of
rents or other income from such property receivable by Landlord, or out of the
consideration received by Landlord from the sale or other disposition of all or
any part of Landlord's right, title and interest in the Premises, and Landlord
shall not be personally liable for any deficiency.
SECTION 13.08. ATTORNMENT OF TENANT. Tenant shall in the event of the sale,
assignment, or other transfer of Landlord's interest in the Premises or in this
Lease, or in the event of any proceedings brought for the foreclosure of, or in
the event of exercise of the power of sale under any mortgage made by Landlord
covering the Premises, attorn to the transferee and recognize such transferee as
Landlord under this Lease.
SECTION 13.09 DELINQUENT RENT TO BEAR INTEREST. Any rent whether Minimum,
Additional, or such other sums, if any, required to be paid by Tenant pursuant
to the terms of this Lease which are not paid when due shall bear interest at
the rate of eighteen percent (18%) per annum, or the maximum rate permitted by
law, whichever is less, from the date due until paid. The payment of such
interest shall not excuse or cure any default by Tenant under this Lease.
<PAGE>
SECTION 13.10. NOTICES. All notices and demands hereunder shall be in writing,
and shall be given by registered or certified mail, return receipt requested,
and shall be deemed given if (a) hand delivered; (b) sent by Express Mail or a
national commercial courier service (e.g., Airborne Express, United Parcel
Service or Federal Express) for next day delivery, to be confirmed in writing by
said courier or service, or (c) when deposited in the United States Mail with
sufficient postage prepaid thereon to carry it to its addressed destination; and
when addressed as follows:
LANDLORD: Welton Family Limited Partnership
c/o Welton Enterprises, Inc., General Partner
567 D'Onofrio Drive, Suite 210
P.O. Box 44580
Madison, WI 53744-4580
COPY TO: Jesse S. Ishikawa
Reinhart, Boemer, Van Deuren,
Norris & Rieselbach, S.C.
P.O. Box 2020
Madison, WI 53701-2020
TENANT: David Walker
DCH Technology, Inc.
27811 Avenue Hopkins, Suite 6
Valencia CA 91355
COPY TO:
The above names and addresses may be changed at any time or from time to time by
notice as above provided.
SECTION 13.11. WAIVERS. No waiver by Landlord of any provision of this lease
shall be deemed a waiver of any other provision hereof or of any subsequent
breach by Tenant of the same or any other provision. Landlord's consent to or
approval of any act shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act by Tenant. The
acceptance of rent hereunder by Landlord shall not constitute a waiver of any
breach by Tenant even if Landlord knows of such breach at the time of acceptance
of such rent. No payment by Tenant or receipt by Landlord of a lesser amount
than the rent then due shall be deemed to be other than on account of the
earliest rent due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord shall accept such check or payment without prejudice
to Landlord's right to recover the balance of such rent or pursue any other
remedy in this Lease provided.
SECTION 13.12. RECORDING. Tenant shall not record this Lease without Landlord's
prior written consent and such recordation shall, at the option of Landlord,
constitute a non-curable default of Tenant hereunder. Either party shall, upon
request of the other, execute, acknowledge and deliver to the other a "short
form" memorandum of this Lease for recording purposes.
SECTION 13.13. HOLDING OVER. In case of holding over by the Tenant after
expiration of termination of this Lease, the Tenant will pay as liquidated
damages double rent for the entire holdover period. No holding over by the
Tenant after the term of this lease, either with or without consent and
acquiescence of the Landlord, shall thereafter constitute this Lease a lease
from month to month.
<PAGE>
SECTION 13.14. 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.
SECTION 13.15. COVENANTS AND CONDITIONS. Each provision of this Lease
performable by Tenant shall be deemed both a covenant and a condition.
SECTION 13.16. BINDING EFFECT; CHOICE OF LAW. This Lease shall bind the parties,
their heirs, personal representatives, successors and assigns. This Lease shall
be governed by and be construed and interpreted in accordance with the laws of
the State of Wisconsin.
SECTION 13.17. SUBORDINATION. This Lease shall be subject and subordinate to all
mortgages which may now or hereafter affect Landlord's interest in the Premises,
whether such mortgages cover only the Premises or by blanket mortgage cover
other premises in addition to the Premises, and to any renewals, modifications,
consolidations, replacements and extensions thereof, to the full extent of all
amounts secured by the mortgages. Tenant shall, within ten (10) days after the
giving of written notice by Landlord, execute, acknowledge and deliver to
Landlord any certificate that Landlord may request to confirm such
subordination. Tenant shall attorn to and recognize any purchaser at a
foreclosure sale under any mortgage, or any transferee who acquires Landlord's
interest in the Premises by deed in lieu of foreclosure, and the successors and
assigns of such purchasers and transferees, as its landlord for the unexpired
balance (and any extensions, if exercised) of the term of the Lease upon the
same terms and conditions set forth in this Lease.
SECTION 13.18. ATTORNEY'S FEES. If either party brings an action to enforce the
terms of or declare rights under this Lease, the prevailing party in any such
action shall be entitled to recover reasonable costs, attorneys' fees and
expenses.
SECTION 13.19. CORPORATE AUTHORITY. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he or she is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance with a duly adopted resolution of the Board of
Directors of said corporation, and that this Lease is binding upon said
corporation in accordance with its terms.
SECTION 13.20. MORTGAGE FINANCING. In the event Landlord desires to obtain
mortgage financing and Landlord's mortgagee or mortgagees request certain
mortgage modifications or amendments to this Lease, then Tenant, on demand,
agrees to execute such modifications or amendments as required. Notwithstanding
the foregoing, Tenant shall not be required to execute any modifications or
amendments to this Lease which shall modify the provisions of this Lease
relating to the amount of rent or other charges to be paid by Tenant, the size
of the Premises, the duration of the term of this Lease, or otherwise subject
Tenant to additional cost or expense. Tenant agrees to cooperate with Landlord's
efforts in obtaining said mortgage financing.
SECTION 13.21. EXPANSION OF COMPLEX. Tenant acknowledges and agrees that the
Complex may, from time to time, be expanded to include additional land,
buildings and improvements. The term 'Complex', as used in this Lease, refers to
the Complex and any such expansion or enlargement thereof.
<PAGE>
IN WITNESS WHEREOF, Tenant and Landlord have executed this instrument as of the
date set forth above.
TENANT LANDLORD
DCH TECHNOLOGY, INC. WELTON FAMILY LIMITED PARTNERSIHP
By: WELTON ENTERPRISES, INC., General Partner
By: /s/ DAVID A. WALKER By: /s/ KEVIN D. WELTON
Name: David A. Walker Name: Kevin D. Welton, Vice President
Title: President
EXMBIT A
[Landlord's Work]
1) Prep, patch and paint all wars in office area.
2) Replace air filter and thermostat in HVAC unit.
3) Repair all exit sign lighting, install lighting fixtures to existing
track.
4) Clean all carpets in office area.
5) Re-key locksets and provide keys to premises.
Exclusions: Telephone system installation and wiring, security system
installation and wiring, computer system installation and wiring and business
machine hook-up.
EXHIBIT B
[Tenant's Work]
All work other than as described on Exhibit A.
EXHIBIT C
Floor plan of premises
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report included herein dated February 22, 1999, except for Note 13 to the
financial statements which is as of April 30, 1999, and the reference to our
firm under the caption "Experts" included in or made part of this Form 10-SB.
/s/ LUCAS, HORSFALL, MURPHY & PINDROH, LLP
------------------------------------------
Pasadena, CA
August 5, 1999
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
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