Registration No. 33-64641
As filed with the Securities and Exchange Commission on February 22, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-2632319
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5 SYLVAN WAY
PARSIPPANY, NEW JERSEY
07054
(201) 898-1500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
MARK S. NEWMAN
5 SYLVAN WAY
PARSIPPANY, NEW JERSEY
07054
(201) 898-1500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
MARK N. KAPLAN, ESQ.
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NEW YORK
10022
(212) 735-3000
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. (X)
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. ( )
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. ( )
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. ( )
__________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
Cross Reference Sheet Pursuant to
Rule 501(b) of Regulation S-K, Showing
Location in Prospectus of Information
Required by Part I of Form S-1
Item
No. Caption Location in Prospectus
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus . Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus . . . . . . . . . . . . Inside Front Cover
Page; Outside Back
Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges . . . . Prospectus Summary;
Risk Factors; The
Company; Selected
Consolidated
Financial Data
4. Use of Proceeds . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . Plan of Distribution
6. Dilution . . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders . . . . . . Selling Security
Holders
8. Plan of Distribution . . . . . . . . Outside Front Cover
Page; Plan of
Distribution
9. Description of Securities to be Registered
Description of the
Debentures; Description
of Capital Stock
10. Interests of Named Experts and Counsel Legal Matters
11. Information with Respect to the Registrant
Prospectus Summary; The
Company; Capitalization;
Market Prices of Capital
Stock; Dividend Policy;
Selected Consolidated
Financial Data;
Management's Discussion
and Analysis of
Financial Condition and
Results of Operations;
Business; Management;
Security Ownership;
Certain Relationships
and Related
Transactions;
Description of the
Debentures; Description
of Capital Stock; Plan
of Distribution; Index
to Financial Statements
12. Disclosure of Commission Position on Indem-
nification for Securities Act Liabilities Not Applicable
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED FEBRUARY 22, 1996
PROSPECTUS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
$25,000,000 9% Senior Subordinated Convertible Debentures Due 2003
This Prospectus relates to $25,000,000 aggregate principal amount
of 9% Senior Subordinated Convertible Debentures Due 2003 (the
"Debentures") of Diagnostic/Retrieval Systems, Inc. (the "Company"), and
the shares of Class A Common Stock, par value $.01 per share (the "Class
A Common Stock"), of the Company which are issuable from time to time
upon conversion of the Debentures. The Debentures or Class A Common
Stock issued upon conversion may be offered from time to time for the
account of holders of the Debentures named herein (the "Selling Security
Holders"). The Debentures were originally issued by the Company on
September 29, 1995 in a private placement (including the over-allotment
option for $5,000,000 aggregate principal amount of the Debentures which
was exercised on November 3, 1995) (the "Debenture Offering"), and the
Company will not receive any proceeds from this offering.
Interest on the Debentures is payable semi-annually on April 1 and
October 1 of each year, commencing April 1, 1996. The Debentures are
convertible at any time prior to maturity, unless previously redeemed or
repurchased, into shares of Class A Common Stock of the Company, at a
conversion price of $8.85 per share, subject to adjustment under certain
circumstances. Prior to this offering there has not been any public
market for the Debentures. The Debentures are eligible for trading in
the Private Offerings, Resale and Trading through Automated Linkages
("PORTAL") Market. The Company has applied for listing of the
Debentures and the shares of Class A Common Stock which are issuable
upon conversion of the Debentures on the American Stock Exchange (the
"AMEX"). The Company has been advised by Forum Capital Markets L.P.
(the "Initial Purchaser") that it intends to make a market in the
Debentures. The Initial Purchaser is, however, under no obligation to
do so and may discontinue any such market making activity at any time
without notice. There can be no assurance that a secondary market in
the Debentures will develop or be maintained. The Company's Class A
Common Stock is listed on the AMEX under the symbol "DRSA." On February
20, 1996, the last reported sale price of the Class A Common Stock on
the AMEX was $7-3/4 per share.
The Debentures are unsecured and subordinate to all Senior
Indebtedness (as defined herein) and are effectively subordinated to all
obligations of the subsidiaries of the Company. The Indenture (as
defined herein) governing the Debentures provides that the Company will
not (i) issue or incur any Debt (other than Senior Indebtedness or
Capitalized Lease Obligations) unless such Debt is subordinate in right
of payment to the Debentures at least to the same extent that the
Debentures are subordinate to Senior Indebtedness or (ii) permit any of
its subsidiaries to issue or incur any Debt (other than Senior
Indebtedness or Capitalized Lease Obligations) unless such Debt provides
that it will be subordinate in right of payment to distributions and
dividends from such subsidiary to the Company in an amount sufficient to
satisfy the Company's obligations under the Debentures at least to the
same extent that the Debentures are subordinate to Senior Indebtedness.
At December 31, 1995, Senior Indebtedness (excluding current
installments) was approximately $2.8 million and the indebtedness
(excluding liability for income taxes) of the Company's subsidiaries was
approximately $16.6 million. The Debentures will mature on October 1,
2003. The Company may not redeem the Debentures prior to October 1,
1998. On or after such date, the Company may redeem the Debentures, in
whole or in part, at the redemption prices set forth herein plus accrued
but unpaid interest to the date of redemption. Upon a Change of Control
(as defined herein), the Company will offer to repurchase the Debentures
at 100% of the principal amount thereof plus accrued but unpaid interest
to the date of repurchase. In addition, upon a Net Worth Deficiency (as
defined herein), the Company will offer to repurchase up to 10% of the
aggregate principal amount of Debentures at 100% of the principal amount
thereof plus accrued but unpaid interest to the date of repurchase. See
"Description of the Debentures."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COM-
MISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Company has been advised by the Selling Security Holders that
the Selling Security Holders, acting as principals for their own
account, directly, through agents designated from time to time, or
through dealers or underwriters also to be designated, may sell all or a
portion of the Debentures or shares of Class A Common Stock offered
hereby from time to time on terms to be determined at the time of sale.
To the extent required, the aggregate principal amount of the Debentures
or the number of shares of Class A Common Stock to be sold, the names of
the Selling Security Holders, the purchase price, the name of any such
agent, dealer or underwriter and any applicable commissions with respect
to a particular offer will be set forth in an accompanying Prospectus
Supplement or, if appropriate, a post-effective amendment to the
Registration Statement of which this Prospectus is a part. The
aggregate proceeds to the Selling Security Holders from the sale of
Debentures and Class A Common Stock offered by the Selling Security
Holders hereby will be the purchase price of such Debentures or Class A
Common Stock less any commissions. For information concerning
indemnification arrangements between the Company and the Selling
Security Holders, see "Plan of Distribution."
The Selling Security Holders and any broker-dealers, agents or
underwriters that participate with the Selling Security Holders in the
distribution of the Debentures or shares of Class A Common Stock may be
deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), in which event any commissions
received by such broker-dealers, agents or underwriters and any profit
on the resale of the Debentures or shares of Class A Common Stock
purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
The date of this Prospectus is ___________, 1996
AVAILABLE INFORMATION
The Company is subject to the information requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the
"SEC") . Such reports and other information filed by the Company
with the SEC in accordance with the Exchange Act may be
inspected, without charge, at the Public Reference Section of the
SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies
of all or any portion of the material may be obtained from the
Public Reference Section of the SEC upon payment of the
prescribed fees. Materials can also be inspected at the offices
of the AMEX, 86 Trinity Place, New York, New York 10006, on which
exchange the Company's Class A Common Stock is listed.
The Company is required, pursuant to the terms of the
Indenture under which the Debentures were issued, to deliver to
the Trustee and the holders of the Debentures, within 15 days
after the Company has filed the same with the SEC, copies of the
annual reports and information, documents and other reports which
the Company is required to file with the SEC pursuant to Section
13 or 15(d) of the Exchange Act.
The Company has filed with the SEC a Registration Statement
on Form S-1 (the "Registration Statement") under the Securities
Act, with respect to the Debentures and shares of Class A Common
Stock offered pursuant to this Prospectus. This Prospectus,
which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration
Statement, certain items of which are contained in the exhibits
and schedules thereto as permitted by the rules and regulations
of the SEC. For further information with respect to the Company,
the Debentures and the Class A Common Stock, reference is made to
the Registration Statement, including the exhibits and schedules
filed therewith. Statements contained in this Prospectus
concerning the provisions of certain documents filed with the
Registration Statement are not necessarily complete, each
statement being qualified in all respects by such reference.
Copies of all or any part of the Registration Statement,
including exhibits thereto, may be obtained, upon payment of the
prescribed fees, at the offices of the SEC as set forth above.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and
should be read in conjunction with, the more detailed information
and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless the context otherwise
requires, all references herein to the "Company" include
Diagnostic/Retrieval Systems, Inc. and its consolidated
subsidiaries.
THE COMPANY
Diagnostic/Retrieval Systems,Inc. ("DRS" or the "Company")
designs, manufactures and markets high-technology computer
workstations for the United States (the "U.S.") Department of
Defense, electro-optical targeting systems for military customers
and image and data storage products for both military and
commercial customers. In response to a 1992 mandate by the Joint
Chiefs of Staff, the Company focuses on "commercial-off-the-
shelf" ("COTS") product designs, whereby commercial electronic
components are adapted, upgraded and "ruggedized" for application
in harsh military environments. The Company believes that
military expenditures on electronic systems and equipment will
grow in coming years as the nature of modern warfare dictates
increasing reliance on real-time, accurate battlefield
information and the electronic content and sophistication of
defense systems increases.
During its last three fiscal years, the Company has
restructured its management team and implemented strategies to
exploit the changing nature of military procurement programs
brought on by the end of the cold war, military budget
constraints and the COTS mandate. The Company's strategies
include:
* expanding and diversifying the Company's
technology and product base into complementary
military and commercial markets primarily through
acquisitions and the forging of strategic
relationships;
* increasing revenue opportunities through the
design and adaptation of products for use by all
branches of the military; and
* enhancing financial performance through specific
cost reduction measures and increased
manufacturing efficiencies.
To effect these strategies, the Company has (i) acquired
several businesses with complementary military and commercial
products and technologies over the last three years; (ii) forged
strategic relationships with other defense suppliers such as
Loral Corporation and Westinghouse Electric Corporation, among
others; (iii) emphasized the development of COTS-based products
as well as products and systems that are easily adapted to
similar weapons platforms for use by all branches of the
military; and (iv) implemented cost reduction programs to reduce
its fixed-cost base, allow for growth and maintain the
flexibility of its operations.
The implementation of these strategies has resulted in
increasing revenues and profits over the last three fiscal years.
Although the Company experienced operating losses in fiscal 1990
through 1992, primarily due to cost overruns on a single fixed-
price development contract, a shift over the last several years
in the nature of military development contracting from fixed-
price to cost-type contracts has reduced the Company's exposure
in this area. For the fiscal year ended March 31, 1995, the
Company had revenues of $69.9 million, net income of $2.6
million and earnings per share of $.50, representing increases of
20.9%, 61.2% and 66.7%, respectively, compared with the year
ended March 31, 1994. For the nine months ended December 31,
1995 the Company had revenues of $65.6 million, net income of
$2.5 million and fully diluted earnings per share of $.44,
representing increases of 38.4%, 45.7% and 29.4%, respectively,
compared with the same nine-month period ended December 31, 1994.
<TABLE>
<CAPTION>
SUMMARY FINANCIAL INFORMATION
Year Ended March 31, Nine Months
Ended December 31,
1995 1994 1993 1992 1991 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
DATA:
Revenues . . $ 69,930,000 $ 57,820,000 $ 47,772,000 $ 28,925,000 $ 47,762,000 $ 65,628,000 $ 47,404,000
Costs and Expenses 64,836,000 54,372,000 45,461,000 37,032,000 52,812,000 60,289,000 44,143,000
Operating Income
(Loss) 5,094,000 3,448,000 2,311,000 (8,107,000) (5,050,000) 5,339,000 3,261,000
Interest and Related
Expenses (1,372,000) (1,574,000) (1,735,000) (2,198,000) (2,362,000) (1,675,000) (1,020,000)
Other Income, Net 534,000 834,000 1,224,000 944,000 1,677,000 425,000 613,000
Earnings (Loss)
before Income Taxes
(Benefit) 4,256,000 2,708,000 1,800,000 (9,361,000) (5,735,000) 4,089,000 2,854,000
Income Taxes
(Benefit) 1,652,000 1,093,000 715,000 (4,006,000) (1,488,000) 1,594,000 1,142,000
Net Earnings (Loss) $ 2,604,000 $ 1,615,000 $ 1,085,000 $ (5,355,000) $ (4,247,000) $ 2,495,000 $ 1,712,000
Net Earnings (Loss)
per share of Class
A and Class B
Common Stock(1) $ .50 $ .30 $ .20 $ (1.01) $ (.79) $ .44 $ .34
OTHER OPERATIONS DATA:
EBITDA(2) . . $ 7,574,000 $ 6,006,000 $ 5,513,000 $ (4,393,000) $ (973,000) $ 7,565,000 $ 5,228,000
Ratio of Earnings to
Fixed Charges(3)(4) 2.9x 2.3x 1.8x - - 2.8x 2.7x
Ratio of Earnings to
Fixed Charges, as
adjusted(3)(5) 1.8x 2.2x
</TABLE>
December 31, 1995
Actual As Adjusted(6)
BALANCE SHEET DATA:
Working Capital $ 40,585,000 $ 38,085,000
Net Property, Plant
and Equipment $ 14,728,000 $ 14,728,000
Total Assets $ 90,770,000 $ 85,631,000
Long-Term Debt,
Excluding Current
Installments $ 35,319,000 $ 32,819,000
Net Stockholders'
Equity $ 24,907,000 $ 24,907,000
(1) No cash dividends have been distributed during any of the years in
the five-year period ended March 31, 1995 or the nine months ended
December 31, 1995.
(2) EBITDA is defined as operating income (loss) plus depreciation and
amortization. EBITDA is a widely accepted financial indicator of a
company's ability to service and incur debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash
flows or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
(3) Earnings used in computing the ratio of earnings to fixed charges
consist of earnings before income taxes plus fixed charges. Fixed
charges consist of interest expense, amortization of debt issuance
costs and the portion of the Company's rent expense that the
Company believes is representative of the interest factor.
(4) Earnings were inadequate to cover fixed charges in fiscal 1992 and
fiscal 1991. Earnings (Loss) before Income Taxes (Benefit) in
fiscal 1992 and fiscal 1991 include fixed charges of approximately
$2.7 million and $2.9 million, respectively.
(5) Adjusted to reflect the application of the proceeds from the
Debenture Offering, which was consummated on September 29, 1995
(including the over-allotment option which was exercised on
November 3, 1995). The ratio also assumes additional interest
income was earned on the proceeds remaining after the redemption of
the Company's 1998 Debentures (as defined herein). See "Use of
Proceeds."
(6) Adjusted to give effect to the use of the net proceeds from the
Debenture Offering to redeem $4,963,000 of the 1998 Debentures and
for the payment of $176,000 of accrued interest thereon as of
December 31, 1995. See "Use of Proceeds."
THE OFFERING
Debentures Offered . . . . . $25,000,000 principal amount
of Senior Subordinated
Convertible Debentures Due
2003.
Maturity Date . . . . . . . . October 1, 2003
Interest Payment Dates . . . April 1 and October 1
Interest . . . . . . . . . . 9.0% per annum
Conversion . . . . . . . . . Convertible into Class A
Common Stock at any time prior
to maturity, unless previously
redeemed or repurchased, at a
conversion price of $8.85 per
share, subject to adjustment
in certain circumstances.
Redemption at the Option
of the Company . . . . . . .
Redeemable at the option of the
Company, in whole or in part at any
time on or after October 1, 1998,
upon not less than 30 nor more than
60 days' notice, at the redemption
prices set forth herein plus
accrued but unpaid interest to the
date of redemption. See
"Description of the Debentures --
Redemption."
Redemption at the Option
of the Holders . . . . . . .
Upon a Change of Control (as
defined herein), the Company will
offer to repurchase the Debentures
at 100% of the principal amount
thereof plus accrued but unpaid
interest to the date of repurchase.
See "Description of the Debentures
-- Change of Control."
In the event the Company's
Consolidated Net Worth (as
defined herein) at the end of
any two consecutive fiscal
quarters is below $18.0
million (a "Net Worth
Deficiency"), the Company will
offer to repurchase up to 10%
of the aggregate principal
amount of Debentures at 100%
of the principal amount
thereof plus accrued but
unpaid interest to the date of
repurchase. See "Description
of the Debentures --
Maintenance of Consolidated
Net Worth."
Ranking . . . . . . . . . . . The Debentures are
subordinated to all Senior
Indebtedness (as defined
herein) and will be
effectively subordinated to
all obligations of the
subsidiaries of the Company.
The Indenture (as defined
herein) governing the
Debentures provides that the
Company will not (i) issue or
incur any Debt (other than
Senior Indebtedness or
Capitalized Lease Obligations)
unless such Debt (other than
Senior Indebtedness or
Capitalized Lease Obligations)
is subordinate in right of
payment to the Debentures at
least to the same extent that
the Debentures are subordinate
to Senior Indebtedness or (ii)
permit any of its subsidiaries
to issue or incur any Debt
(other than Senior
Indebtedness or Capitalized
Lease Obligations) unless such
Debt (other than Senior
Indebtedness or Capitalized
Lease Obligations) provides
that it will be subordinate in
right of payment to
distributions and dividends
from such subsidiary to the
Company in an amount
sufficient to satisfy the
Company's obligations under
the Debentures at least to the
same extent that the
Debentures are subordinate to
Senior Indebtedness. At
December 31, 1995, Senior
Indebtedness (excluding
current installments) was
approximately $2.8 million and
the indebtedness (excluding
liability for income taxes) of
the Company's subsidiaries was
approximately $16.6 million.
See "Description of the
Debentures -- Ranking."
Registration Rights . . . . . Pursuant to a registration
rights agreement (the
"Registration Rights
Agreement") between the
Company and the Initial
Purchaser, the Company has
agreed to file a shelf
registration statement (the
"Shelf Registration
Statement") relating to the
Debentures and the shares of
Class A Common Stock which are
issuable from time to time
upon conversion of the
Debentures. The Company has
agreed to use its reasonable
best efforts to maintain the
effectiveness of the Shelf
Registration Statement until
the third anniversary of the
issuance of the Debentures,
except that it will be
permitted to suspend the use
of the Shelf Registration
Statement during certain
periods under certain
circumstances. Upon default
by the Company with respect to
certain of its obligations
under the Registration Rights
Agreement, liquidated damages
will be payable on the
Debentures and Class A Common
Stock affected by such
default. See "Description of
the Debentures -- Registration
Rights; Liquidated Damages."
Restrictive Covenants . . . . The indenture under which the
Debentures were issued (the
"Indenture") limits (i) the
issuance of additional debt by
the Company, (ii) the payment
of dividends on the capital
stock of the Company and
investments by the Company,
(iii) certain transactions
with affiliates, (iv)
incurrence of liens, (v)
issuance of preferred stock by
the Company or its
subsidiaries, (vi) stock
splits, consolidations and
reclassifications and (vii)
sales of assets and subsidiary
stock. The Indenture also
prohibits certain restrictions
on distributions from
subsidiaries. However, all
these limitations and
prohibitions are subject to a
number of important
qualifications. See
"Description of the Debentures
-- Certain Covenants of the
Company."
Use of Proceeds . . . . . . . The Company will not receive
any proceeds from the sale of
the Debentures or shares of
Class A Common Stock offered
pursuant to this Prospectus.
The Selling Security Holders
will receive all of the net
proceeds from any sale of the
Debentures or shares of Class
A Common Stock offered hereby.
See "Use of Proceeds" and
"Selling Security Holders."
RISK FACTORS
In addition to the other information contained in this
Prospectus, prospective investors should consider carefully the
following factors before purchasing the Debentures offered
hereby.
AMOUNT AND RISKS OF GOVERNMENT BUSINESS
Substantially all the Company's revenues are derived from
contracts or subcontracts with domestic and foreign government
agencies of which a significant portion is attributed to United
States Navy (the "U.S. Navy") procurements. The development and
success of the Company's business in the future will depend upon
the continued willingness of the U.S. Government to commit
substantial resources to such U.S. Navy programs and, in
particular, upon continued purchases of the Company's products.
See "Business -- Company Organization and Products."
The Company's business with the U.S. Government is subject
to various risks, including termination of contracts at the
convenience of the U.S. Government; termination, reduction or
modification of contracts or subcontracts in the event of changes
in the U.S. Government's requirements or budgetary constraints;
shifts in spending priorities; and when the Company is a
subcontractor, the failure or inability of the prime contractor
to perform its prime contract. Certain contract costs and fees
are subject to adjustment as a result of audits by government
agencies. In addition, all defense businesses are subject to
risks associated with the frequent need to bid on programs in
advance of design completion (which may result in unforeseen
technological difficulties and/or cost overruns).
Multi-year U.S. Government contracts and related orders are
subject to cancellation if funds for contract performance for any
subsequent year become unavailable. In addition, if certain
technical or other program requirements are not met in the
developmental phases of the contract, then the follow-on
production phase may not be realized. Upon termination other
than for a contractor's default, the contractor normally is
entitled to reimbursement for allowable costs, but not
necessarily all costs, and to an allowance for the proportionate
share of fees or earnings for the work completed. Foreign
defense contracts generally contain comparable provisions
relating to termination at the convenience of the foreign
government. See "Business -- Contracts."
REDUCED SPENDING IN DEFENSE INDUSTRY
Reductions in U.S. Government expenditures for defense
products are likely to continue during the 1990's. These
reductions may or may not have an effect on the Company's
programs; however, in the event expenditures for products of the
type manufactured by the Company are reduced and not offset by
greater foreign sales or other new programs or products, there
will be a reduction in the volume of contracts or subcontracts
awarded to the Company. Unless offset, such reductions would
adversely affect the Company's earnings.
LIMITED TERM OF CONTRACTS
The Company's contracts with the U.S. Government are for
varying fixed terms, and there can be no assurance that a renewal
or follow-on contract will be awarded to the Company by the U.S.
Government upon the expiration of any such contract. Certain of
the Company's U.S. Government contracts account for a substantial
portion of the Company's revenues (i.e., the AN/UYQ-65 production
contract). The loss of revenue resulting from the failure to
obtain a renewal or follow-on contract with respect to any
significant contract or a number of lesser contracts, in either
case without the substitution of revenues from the award of new
contracts, would have a material adverse effect upon the
Company's results of operations and financial position. In
addition, from time to time the Company enters into U.S.
Government contracts with a full funded backlog but in which the
price per unit may not be determined at the time of award. If
the price per unit which is ultimately determined is
significantly less than anticipated by the Company, the net
revenues of the Company would be adversely affected.
HOLDING COMPANY STRUCTURE; SUBORDINATION
The Debentures are a direct obligation of DRS, which
derives a majority of its revenues from the operations of its
subsidiaries. The ability of DRS to make interest payments on or
redeem the Debentures and to pay dividends, if any, on the Class
A Common Stock will be primarily dependent upon the receipt of
dividends or other distributions from such subsidiaries. The
payment of dividends from the subsidiaries to the Company and the
payment of any interest on or the repayment of any principal of
any loans or advances made by the Company to any of its
subsidiaries may be subject to statutory or contractual
restrictions and are contingent upon the earnings of such
subsidiaries. Although the Company believes that distributions
and dividends from its subsidiaries will be sufficient to pay
interest on the Debentures as well as to meet the Company's other
obligations, there can be no assurance they will be sufficient.
The Debentures are subordinated in right of payment to
all existing and future Senior Indebtedness of the Company,
including all indebtedness under the Company's credit agreements.
By reason of such subordination, in the event of an insolvency,
liquidation or other reorganization of the Company, the Senior
Indebtedness must be paid in full before the principal of,
premium if any, and interest on the Debentures may be paid. At
December 31, 1995, Senior Indebtedness (excluding current
installments) was approximately $2.8 million. Because a majority
of the Company's operations are conducted through subsidiaries,
claims of the creditors of such subsidiaries will have priority
with respect to the assets and earnings of such subsidiaries over
the claims of the creditors of the Company, including holders of
the Debentures, even though such obligations do not constitute
Senior Indebtedness, except to the extent the Company is itself
recognized as a creditor of such subsidiary or such other
creditors have agreed to subordinate their claims to the payment
of the Debentures. The Company's subsidiaries had indebtedness
(excluding liability for income taxes) of approximately $16.6
million at December 31, 1995.
The Debentures are not secured by any of the assets of
the Company or its subsidiaries. In addition, certain
obligations of the Company are secured by pledges of certain
assets of the Company or its subsidiaries.
SUBSTANTIAL INDEBTEDNESS
Following the issuance of the Debentures, the Company
continues to have indebtedness that is substantial in relation to
its stockholders' equity. See "Capitalization." The Indenture
imposes significant operating and financial restrictions on the
Company. Such restrictions will affect, and in many respects
significantly limit or prohibit, among other things, the ability
of the Company to incur additional indebtedness and pay
dividends. These restrictions, in combination with the leveraged
nature of the Company, could limit the ability of the Company to
effect future financings or otherwise may restrict corporate
activities. See "Description of the Debentures." The Indenture
permits the Company to incur additional indebtedness under
certain conditions, and the Company expects to obtain additional
indebtedness as so permitted.
The Company's high degree of leverage could have
important consequences to the holders of the Debentures,
including the following: (i) the Company's ability to obtain
additional financing for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be
impaired in the future; (ii) a substantial portion of the
Company's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Company for other purposes;
(iii) the Company's substantial degree of leverage may hinder its
ability to adjust rapidly to changing market conditions; and (iv)
could make it more vulnerable in the event of a downturn in
general economic conditions or its business. See "Description of
the Debentures."
COMPETITION
The military electronics industry is characterized by rapid
technological change. The Company's products are sold in markets
containing many competitors which are substantially larger than
the Company, devote substantially greater resources to research
and development and generally have greater resources. Certain of
such competitors are also suppliers to the Company. In the
military sector, the Company competes with many first- and
second-tier defense contractors on the basis of product
performance, cost, overall value, delivery and reputation. The
Company's future success will depend in large part upon its
ability to improve existing product lines and to develop new
products and technologies in the same or related fields. The
introduction by competitors of new products with greater
capabilities could adversely affect the Company's business.
RELIANCE ON SUPPLIERS
The Company's manufacturing process for its products,
excluding electro-optical products, consists primarily of the
assembly of purchased components and testing of the product at
various stages in the assembly process.
Although materials and purchased components generally are
available from a number of different suppliers, several suppliers
are the Company's sole source of certain components. If a
supplier should cease to deliver such components, other sources
probably would be available; however, added cost and
manufacturing delays might result. The Company has not
experienced significant production delays attributable to supply
shortages, but occasionally experiences procurement problems with
respect to certain components, such as semiconductors and
connectors. In addition, with respect to the Company's electro-
optical products, certain exotic materials, such as germanium,
zinc sulfide and cobalt, may not always be readily available.
ATTRACTING AND RETAINING TECHNICAL PERSONNEL
There is a continuing demand for qualified technical
personnel, and the Company believes that its future growth and
success will depend upon its ability to attract, train and retain
such personnel. An inability to maintain a sufficient number of
trained personnel could have a material adverse effect on the
Company's contract performance or on its ability to capitalize on
market opportunities.
FUNDING OF REPURCHASE OBLIGATIONS; ABSENCE OF SINKING FUND
There is no sinking fund with respect to the Debentures, and
at maturity the entire outstanding principal amount thereof will
become due and payable by the Company. Also, upon the occurrence
of certain events the Company will be required to offer to
repurchase all or a portion of the outstanding Debentures. The
source of funds for any such payment at maturity or earlier
repurchase will be the Company's available cash or cash generated
from operating or other sources, including, without limitation,
borrowings or sales of assets or equity securities of the
Company. There can be no assurance that sufficient funds will be
available at the time of any such event to pay such principal or
to make any required repurchase. See "Description of the
Debentures."
SHARES ELIGIBLE FOR FUTURE SALE
The sale, or availability for sale, of substantial amounts
of Class A Common Stock in the public market could adversely
affect the prevailing market price of the Debentures and the
Class A Common Stock into which the Debentures are convertible
and could impair the Company's ability to raise additional
capital through the sale of its securities. The Debentures
offered hereby are convertible at any time prior to maturity,
unless previously redeemed or repurchased, into shares of Class A
Common Stock, at a conversion price of $8.85 per share, subject
to adjustment under certain circumstances. As of February 20,
1996, there was an aggregate of 3,307,324 shares of Class A
Common Stock outstanding (excluding 432,639 shares of Class A
Common Stock in treasury) and an aggregate of 2,154,808 shares of
Class B Common Stock, par value $.01 per share (the "Class B
Common Stock") outstanding (excluding 65,795 shares of Class B
Common Stock in treasury). Of such shares, 760,168 shares of the
Class A Common Stock and 307,180 shares of the Class B Common
Stock are "restricted" under the Securities Act and are resalable
pursuant to the limitations of Rule 144 under the Securities Act.
After giving effect to the application of $5.0 million in net
proceeds acquired by the Company pursuant to the Debenture
Offering to repurchase approximately $5.0 million in principal
amount of the Company's 8-1/2% Convertible Subordinated
Debentures due August 1, 1998 (the "1998 Debentures"), the
remaining outstanding 1998 Debentures will be convertible into an
additional 333,333 shares of Class B Common Stock at $15 per
share. Each share of Class A Common Stock is convertible at any
time into one share of the Class B Common Stock, subject to
adjustment under certain circumstances. See "Description of
Capital Stock." The Company is considering setting forth a
proposal to its stockholders to amend the Company's Certificate
of Incorporation to convert the Class A Common Stock and Class B
Common Stock into a single class of common stock, as well as to
include certain other charter amendments.
LACK OF PUBLIC MARKET; RESTRICTIONS ON RESALE
At present, the Debentures are owned by a small number of
institutional investors, and prior to this offering there has not
been any public market for the Debentures. The Company has
applied for listing of the Debentures and the shares of Class A
Common Stock which are issuable upon conversion of the Debentures
on the AMEX. The Debentures are eligible for trading in the
PORTAL Market of the National Association of Securities Dealers,
Inc. There can be no assurance regarding the future development
of a market for the Debentures or the ability of holders of the
Debentures to sell their Debentures or the price at which such
holders may be able to sell their Debentures. If such a market
were to develop, the Debentures could trade at prices that may be
higher or lower than the initial offering price depending on many
factors, including prevailing interest rates, the Company's
operating results and the market for similar securities. The
Initial Purchaser has advised the Company that it currently
intends to make a market in the Debentures. The Initial
Purchaser is not obligated to do so, however, and any market-
making with respect to the Debentures may be discontinued at any
time without notice. Therefore, there can be no assurance as to
the liquidity of any trading market for the Debentures or that an
active public market for the Debentures will develop.
The Class A Common Stock of the Company is listed on the
AMEX. The market for the Class A Common Stock has historically
been characterized by limited trading volume and a limited number
of holders. The Board of Directors of the Company has authorized
and is currently soliciting proxies from the stockholders of the
Company with respect to a proposal to amend the Company's
Certificate of Incorporation to convert the Class A Common Stock
and Class B Common Stock into a single class of common stock,
however, there can be no assurance that such proposal will be
approved by the stockholders, or if approved, that a more active
trading market for the resulting class of common stock will
develop.
THE COMPANY
GENERAL
The Company designs, manufactures and markets high-
technology computer workstations for the U.S. Department of
Defense, electro-optical targeting systems for military customers
and image and data storage products for both military and
commercial customers. In response to a 1992 mandate by the Joint
Chiefs of Staff, the Company focuses on "commercial-off-the-
shelf" ("COTS") product designs, whereby commercial electronic
components are adapted, upgraded and "ruggedized" for application
in harsh military environments. The Company believes that
military expenditures on electronic systems and equipment will
grow in coming years as the nature of modern warfare dictates
increasing reliance on real-time, accurate battlefield
information and the electronic content and sophistication of
defense systems increases.
Using COTS designs, the Company develops and delivers its
products with significantly less development time and expense
compared to traditional military product cycles, generally
resulting in shorter lead times, lower costs and the employment
of the latest information and computing technologies. The COTS
process entails the purchasing, refitting, upgrading (of both
hardware and software) and "ruggedization" (repackaging,
remounting and stress testing to withstand harsh military
environments) of readily available commercial components. The
design and manufacture of COTS-based products is a complex
process requiring specific engineering capabilities, extensive
knowledge of military platforms to which the equipment will be
applied and in-depth understanding of military operating
environments and requirements.
STRATEGY
During its last three fiscal years, the Company has
restructured its management team and implemented strategies to
exploit the changing nature of military procurement programs
brought on by the end of the cold war, military budget
constraints and the COTS mandate. The Company's strategies
include:
* expanding and diversifying the Company's
technology and product base into complementary
military and commercial markets primarily through
acquisitions and the forging of strategic
relationships;
* increasing revenue opportunities through the
design and adaptation of products for use by all
branches of the military; and
* enhancing financial performance through specific
cost reduction measures and increased
manufacturing efficiencies.
To effect these strategies, the Company has (i) acquired
several businesses with complementary military and commercial
products and technologies over the last three years; (ii) forged
strategic relationships with other defense suppliers such as
Loral Corporation and Westinghouse Electric Corporation, among
others; (iii) emphasized the development of COTS-based products
as well as products and systems that are easily adapted to
similar weapons platforms for use by all branches of the
military; and (iv) implemented cost reduction programs to reduce
its fixed-cost base, allow for growth and maintain the
flexibility of its operations.
The implementation of these strategies has resulted in
increasing revenues and profits over the last three fiscal years.
Although the Company experienced operating losses in fiscal 1990
through 1992, primarily due to cost overruns on a single fixed-
price development contract, a shift over the last several years
in the nature of military development contracting from fixed-
price to cost-type contracts has reduced the Company's exposure
in this area. For the fiscal year ended March 31, 1995, the
Company had revenues of $69.9 million, net income of $2.6 million
and earnings per share of $.50, representing increases of 20.9%,
61.2% and 66.7%, respectively, compared with the year ended March
31, 1994. For the nine months ended December 31, 1995, the
Company had revenues of $65.6 million, net income of $2.5 million
and fully diluted earnings per share of $.44, representing
increases of 38.4%, 45.7% and 29.4%, respectively, compared with
the same nine-month period ended December 31, 1994.
COMPANY ORGANIZATION
The Company is organized into three operating groups:
Electronic Systems Group ("ESG," 54% of fiscal 1995 revenues),
Electro-Optical Systems Group ("EOSG," 18% of fiscal 1995
revenues) and Media Technology Group ("MTG," 28% of fiscal 1995
revenues). See "Business -- Company Organization and Products."
ESG designs and manufactures COTS-based computer
workstations designed for military information processing
applications. This equipment is designed to cost-effectively
replace and upgrade anti-submarine warfare ("ASW") systems,
tactical (combat/attack) workstations and training equipment.
ESG's products are a direct outgrowth of the ASW and Naval
systems expertise that has formed the core of DRS' business base
since the Company's inception. Major products include: (i)
computer workstations used in ASW systems for ship and land-based
(harbors and coastal areas) detection networks, (ii) tactical
workstations used to coordinate and control personnel and weapons
systems on the military's most advanced ship, air and submarine-
based platforms, and (iii) military display emulators ("MDE"),
which are used for combat system operator training at a fraction
of the cost of fully-militarized, field-ready versions of the
display. ESG's workstation products, which are PC-based, open
architecture, networked systems designed for flexibility and
adaptability to a wide variety of applications, have been
developed to replace many of the mainframe-based systems
currently in use, while preserving the U.S. Navy's existing
investment in such technology. ESG's systems process incoming
sonar, radar and other information through complex customized
software, enabling operators to interpret data quickly and relay
information to command personnel. These workstations are an
integral part of the U.S. Navy's Aegis defense program and the
U.S. coastal defense strategy. MDE systems are used for training
of combat system operators and to maintain and improve the
operation skills of naval reserve personnel. ESG operates a
field service division for system maintenance, installation and
upgrade services and general product support. ESG's
manufacturing division (which is 80% owned through a partnership)
produces ESG's new generation products and also supplies complex
wire harness assemblies and other products to the military and
commercial aerospace industry.
EOSG manufactures precision electro-optical assemblies used
in infrared seeker heads of Stinger, Sidewinder and new
generation missiles and produces proprietary Multiple Platform
Boresight Equipment ("MPBE") used to align the weapons systems
with the airframes and pilot sighting systems on Apache and Cobra
helicopters. Originally supplying only the primary mirror for
infrared seeker heads, EOSG now supplies the primary, secondary,
tertiary and fold mirrors, as well as the mirror housing and nose
domes. EOSG is currently under contract to produce infrared
components and subassemblies on many of the next generation
infrared missile systems. The MPBE boresight system was
originally deployed on the Army's Apache attack helicopters and
has been adapted for use on Marine Corps' Cobra helicopters.
EOSG is under contract to supply the next generation laser-based
MPBE for these platforms. Due to the inherent flexibility and
economics of MPBE's multiple platform design, EOSG has submitted
proposals to adapt the system for use on fixed-wing aircraft such
as the F-15 and C-130. The Company recently acquired
substantially all of the assets of Opto Mechanik, Inc. through
its subsidiary OMI Acquisition Corp. ("OMI"). Through OMI, EOSG
now supplies the electro-optical sighting and targeting systems
used on TOW anti-tank missiles, the military's primary anti-tank
weapon, and other electro-optical military products. The Company
is also under contract with the primary contractor for work on
the anti-tank Improved TOW Acquisition System.
MTG manufactures products used by military and commercial
customers for image and data storage. The group designs military
recorder systems by adapting commercial video recording products
to operate in and withstand harsh military environments. With
MTG's recorder products, the COTS process entails the purchasing,
refitting, upgrading (hardware and software) and "ruggedization"
(repackaging, remounting and vibration/thermal stress testing to
withstand harsh military operating environments) of readily
available commercial components. These systems are used to
record cockpit video of jet fighter, helicopter and light armored
vehicle missions. MTG's commercial operations manufacture
burnish, glide and test heads which are used in the manufacture
of computer hard disks, listing among its customers many of the
major disk drive manufacturers in the United States. MTG also
manufactures specialty recorder heads and refurbishes the head
assemblies of high-end video recording products used by
broadcasters worldwide.
The Company was incorporated in Delaware in June 1968. The
Company's executive offices are located at 5 Sylvan Way,
Parsippany, New Jersey, 07054, and its telephone number is (201)
898-1500.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of
the Debentures or shares of Class A Common Stock offered pursuant
to this Prospectus. The Selling Security Holders will receive
all of the net proceeds from any sale of the Debentures or shares
of Class A Common Stock offered hereby.
The net proceeds received by the Company pursuant to the
Debenture Offering (including the exercise of the over-allotment
option) were approximately $23,750,000. On February 16, 1996,
the Company used approximately $5.0 million of such net proceeds
to redeem $4,963,000 aggregate principal amount of the Company's
1998 Debentures (of which $2,463,000 aggregate principal amount
was classified as current as of December 31, 1995), plus accrued
and unpaid interest thereon. The balance will be used for
general corporate purposes, including acquisitions. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition and Liquidity -- The
Debenture Offering." Although the Company continues to seek
acquisition opportunities consistent with its business strategy
and is engaged in discussions regarding potential acquisitions,
the Company does not currently have any agreement or
understanding regarding any potential acquisition.
CAPITALIZATION
The following table sets forth the consolidated
capitalization of the Company at December 31, 1995 as adjusted to
give effect to the use of net proceeds from the Debenture
Offering (including the over-allotment option for $5,000,000
aggregate principal amount of the Debentures which was exercised
on November 3, 1995). The information presented below should be
read in conjunction with the consolidated financial statements of
the Company included elsewhere in this Prospectus.
December 31, 1995
Actual As Adjusted
Long-term debt, excluding current
installments(1):
Senior Indebtedness(2) . . . $ 2,819,000 $ 2,819,000
81/2% Convertible Subordinated Debentures
due August 1, 1998 . . . . . 7,500,000 5,000,000
Senior Subordinated Convertible
Debentures due 2003 . . . . . 25,000,000 25,000,000
Total long-term debt . . . 35,319,000 32,819,000
Stockholders' equity:
Preferred Stock, $10 par value 2,000,000
shares authorized; no shares issued. . -- --
Class A Common Stock, $.01 par value,
10,000,000 shares authorized;
3,739,963 shares issued . . . 37,000 37,000
Class B Common Stock, $.01 par value,
20,000,000 shares authorized;
2,216,353 shares issued . . . 22,000 22,000
Additional paid-in capital . 13,579,000 13,579,000
Retained earnings . . . . . . 13,414,000 13,414,000
27,052,000 27,052,000
Less Treasury Stock -at cost:
432,639 shares of Class A
Common Stock and 21,619 shares
of Class B Common Stock . . (1,918,000) (1,918,000)
Less unamortized restricted stock
compensation . . . . . . . (227,000) (227,000)
Net stockholders' equity . . 24,907,000 24,907,000
Total capitalization . . . . . $ 60,226,000 $ 57,726,000
_________________
(1) See Note 6 to Consolidated
Financial Statements for further
information with respect to the
Company's debt obligations.
(2) Consisting of Industrial Revenue
Bonds due 1998 and other
obligations. See Note 6 to
Consolidated Financial
Statements.
MARKET PRICES OF CAPITAL STOCK
The Company's Class A Common Stock and Class B Common Stock
trades on the AMEX (Symbols: DRSA and DRSB, respectively). The
following table sets forth for each period indicated the high and
low closing sales prices of the Company's Class A Common Stock
and Class B Common Stock, as reported by the American Stock
Exchange Monthly Market Statistics:
Class A Common Stock* Class B Common Stock*
High Low High Low
Year Ended March 31, 1994:
First Quarter . . . . . . . . $ 4-3/8 $ 2-3/4 $ 4-1/4 $ 2-13/16
Second Quarter . . . . . . . 3-7/8 3-1/16 3-13/16 3
Third Quarter . . . . . . . . 3-11/16 2-15/16 3-1/2 2-3/4
Fourth Quarter . . . . . . . 4-1/16 3 4 3
Year Ended March 31, 1995:
First Quarter . . . . . . . . 5-1/4 3-5/8 5-1/8 3-3/4
Second Quarter . . . . . . . 4-3/4 3-3/4 4-5/8 3-3/4
Third Quarter . . . . . . . 4-5/16 3-15/16 4-3/8 3-7/8
Fourth Quarter . . . . . . . 5-1/4 4 5-1/2 3-7/8
Year Ended March 31, 1996:
First Quarter . . . . . . . . 6-5/8 4-3/4 6-13/16 4-7/8
Second Quarter . . . . . . . 7-13/16 6-3/16 7-7/8 5-3/4
Third Quarter . . . . . . . . 8 7 7-7/8 6-3/4
Fourth Quarter
(through February 20, 1996) 8-11/16 7-5/8 8-5/16 7-3/8
________________
* As of February 20, 1996, the Class A Common Stock was held
by 1,416 stockholders (of which 298 were registered holders
and 1,118 were beneficial holders) and the Class B Common
Stock was held by 845 stockholders (of which 207 were
registered holders and 638 were beneficial holders). See
"Risk Factors -- Lack of Public Market; Restrictions on
Resale."
DIVIDEND POLICY
The Company has not paid any cash dividends since 1976. The
Company intends to retain future earnings for use in its business
and does not expect to declare cash dividends in the foreseeable
future on the Class A Common Stock or the Class B Common Stock,
which rank pari passu as to dividends and distributions. The
Company's 1998 Debentures limit the Company's ability to pay
dividends or make other distributions on its Class A Common Stock
and Class B Common Stock. See Note 6 of Notes to Consolidated
Financial Statements for information concerning restrictions on
the declaration or payment of dividends. The Company's Restated
Certificate of Incorporation, as amended, also limits the payment
of dividends under certain circumstances. See "Description of
Capital Stock -- Dividends and Distributions." Any future
declaration of dividends will be subject to the discretion of the
Board of Directors of the Company. The timing, amount and form
of any future dividends will depend, among other things, on the
Company's results of operations, financial condition, cash
requirements, plans of expansion and other factors deemed
relevant by the Board of Directors.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated
statements of operations and balance sheet data for the periods
indicated. The information for, and as of the end of, each of
the twelve months in the five year period ended March 31, 1995 is
derived from the consolidated financial statements of the Company
for such periods which have been audited by KPMG Peat Marwick
LLP. The selected consolidated statements of operations data for
the nine months ended December 31, 1995 and 1994 and the selected
consolidated balance sheet data as of December 31, 1995 are
derived from the unaudited consolidated statements of the
Company, which include all adjustments which management considers
necessary for a fair presentation of the data for such periods
and at such dates, all of which were of a normal recurring
nature. The results of the nine months ended December 31, 1995
are not necessarily indicative of results to be expected for the
full year. The selected consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the consolidated
financial statements of the Company and the notes thereto, and
other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Nine Months
Year Ended March 31, Ended December 31,
1995 1994 1993 1992 1991 1995 1994
SUMMARY OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues . . . . $ 69,930,000 $ 57,820,000 $ 47,772,000 $ 28,925,000 $ 47,762,000 $ 65,628,000 $ 47,404,000
Costs and Expenses 64,836,000 54,372,000 45,461,000 37,032,000 52,812,000 60,289,000 44,143,000
Operating Income (Loss) 5,094,000 3,448,000 2,311,000 (8,107,000) (5,050,000) 5,339,000 3,261,000
Interest and Related
Expenses (1,372,000) (1,574,000) (1,735,000) (2,198,000) (2,362,000) (1,675,000) (1,020,000)
Other Income, Net 534,000 834,000 1,224,000 944,000 1,677,000 425,000 613,000
Earnings (Loss) before
Income Taxes (Benefit) 4,256,000 2,708,000 1,800,000 (9,361,000) (5,735,000) 4,089,000 2,854,000
Income Taxes (Benefit) 1,652,000 1,093,000 715,000 (4,006,000) (1,488,000) 1,594,000 1,142,000
Net Earnings (Loss ) $ 2,604,000 $ 1,615,000 $ 1,085,000 $ (5,355,000) $ (4,247,000) $ 2,495,000 $ 1,712,000
Net Earnings (Loss) per share
of Class A and Class B
Common Stock(1) $ .50 $ .30 $ .20 $ (1.01) $ (.79) $ .44 $ .34
OTHER OPERATIONS DATA:
EBITDA(2) . . . . $ 7,574,000 $ 6,006,000 $ 5,513,000 $ (4,393,000) $ (973,000) $ 7,565,000 $ 5,228,000
Ratio of Earnings to
Fixed Charges(3)(4) . 2.9x 2.3x 1.8x - - 2.8x 2.7x
Ratio of Earnings to Fixed
Charges, as adjusted(3)(5) 1.8x 2.2x
March 31, December 31, l995
1995 1994 1993 1992 1991 Actual As Adjusted (6)
BALANCE SHEET DATA:
Working Capital . $ 20,317,000 $ 19,803,000 $ 17,994,000 $ 17,747,000 $ 24,833,000 $ 40,585,000 $ 38,085,000
Net Property, Plant
and Equipment 9,849,000 8,893,000 9,768,000 11,602,000 13,904,000 14,728,000 14,728,000
Total Assets . . 64,590,000 58,836,000 51,948,000 53,904,000 58,527,000 90,770,000 85,631,000
Long-Term Debt, Excluding
Current Installments 11,732,000 14,515,000 17,290,000 19,958,000 22,240,000 35,319,000 32,819,000
Net Stockholders' Equity 22,509,000 19,759,000 18,115,000 17,047,000 22,300,000 24,907,000 24,907,000
<FN>
____________________
(1) No cash dividends have been distributed during any
of the years in the five-year period ended March
31, 1995 or the nine months ended December 31,
1995.
(2) EBITDA is defined as operating income (loss) plus
depreciation and amortization. EBITDA is a widely
accepted financial indicator of a company's ability
to service and incur debt. EBITDA should not be
considered in isolation or as a substitute for net
income, cash flows or other consolidated income or
cash flow data prepared in accordance with
generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
(3) Earnings used in computing the ratio of earnings to
fixed charges consist of earnings before income
taxes plus fixed charges. Fixed charges consist of
interest expense, amortization of debt issuance
costs and the portion of the Company's rent expense
that the Company believes is representative of the
interest factor.
(4) Earnings were inadequate to cover fixed charges in
fiscal 1992 and fiscal 1991. Earnings (Loss)
before Income Taxes (Benefit) in fiscal 1992 and
fiscal 1991 include fixed charges of approximately
$2.7 million and $2.9 million, respectively.
(5) Adjusted to reflect the application of the proceeds
from the Debenture Offering, which was consummated
on September 29, 1995 (including the over-allotment
option which was exercised on November 3, 1995).
The ratio also assumes additional interest income
was earned on the proceeds remaining after the
redemption of the Company's 1998 Debentures. See
"Use of Proceeds."
(6) Adjusted to give effect to the use of the net
proceeds from the Debenture Offering to redeem
$4,963,000 of the 1998 Debentures and for the
payment of $176,000 of accrued interest thereon as
of December 31, 1995. See "Use of Proceeds."
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial
condition and results of operations of the Company for the nine
months ended December 31, 1995 and 1994, and for each of the
years in the three year period ended March 31, 1995. This
section should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto and
other financial information included elsewhere in this
Prospectus.
OVERVIEW
During the last three fiscal years, the Company, in
connection with its strategic plan, acquired several businesses
with complementary military and commercial products and
technologies. The businesses of Technology Applications &
Service Company ("TAS"), CMC Technology ("CMC") and Laurel
Technologies ("Laurel"), which joined the Company in the latter
part of fiscal 1994, became an integral part of the fiscal 1995
business base and significantly contributed to the Company's
fiscal 1995 financial performance. In November 1994, the Company
acquired Ahead Technology Corporation ("Ahead"), located in Los
Gatos, California.
RECENT DEVELOPMENTS
Shortly after the close of fiscal 1995, the Company signed a
non-binding letter of intent contemplating the merger of the
Company with NAI Technologies, Inc. ("NAI"), which the Company
terminated on July 13, 1995. Currently, the Company does not
intend to continue discussions with NAI regarding any proposed
merger.
In August 1995, Mr. Leonard Newman was elected Chairman
Emeritus of the Company and retired as the Chairman of the Board
and Secretary of the Company. The Company is currently
negotiating an employment, non-competition and retirement
agreement between the Company and Mr. Leonard Newman. See "--
Financial Condition and Liquidity - Contingencies."
RESULTS OF OPERATIONS
The following table sets forth items in the consolidated
statements of operations as a percentage of revenues and the
percentage increase or decrease of those items as compared with
the prior period.
Percentage of Revenues Percentage Change
Nine
Months
Ended
Decem
ber
31,
1995
Nine vs.
Months Nine
Ended Months
Year Ended March 31, December 31, Ended
Fiscal Fiscal Decem
1995 1994 ber
vs. vs. 31,
1995 1994 1993 1995 1994 1994 1993 1994
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 20.9% 21.0% 38.4%
Costs and Expenses 92.7 94.0 95.2 91.9 93.1 19.2 19.6 36.6
Operating Income 7.3 6.0 4.8 8.1 6.9 47.7 49.2 63.7
Interest and Related
Expenses (2.0) (2.7) (3.6) (2.5) (2.2) (12.8) (9.3) 64.2
Other Income, Net .8 1.4 2.6 0.6 1.3 (36.0) (31.9) (30.7)
Earnings before
Income Taxes 6.1 4.7 3.8 6.2 6.0 57.2 50.4 43.3
Income Taxes 2.4 1.9 1.5 2.4 2.4 51.1 52.9 39.6
Net Earnings 3.7% 2.8% 2.3% 3.8% 3.6% 61.2% 48.8% 45.7%
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1995 WITH NINE
MONTHS ENDED DECEMBER 31, 1994
Revenues for the nine-month period ended December 31, 1995
increased 38.4% to $65.6 million from $47.4 million for the same
nine-month period in fiscal 1995. The revenue growth was due
primarily to increased shipments of display workstations and data
storage systems, as well as from higher commercial product sales.
In addition, revenue growth was partly due to higher sales of
electro-optical systems following the acquisition of
substantially all of the assets of Opto Mechanik, Inc. on July 5,
1995 (the "OMI Asset Acquisition").
Operating income for the nine-month period ended December
31, 1995 increased 63.7% to $5.3 million from $3.3 million for
the same nine-month period in fiscal 1995. Operating income as a
percentage of revenues was 8.1% for the nine-month period ended
December 31, 1995 as compared with 6.9% for the comparable prior
year period. Higher operating income was due primarily to the
overall increase in revenues, together with higher margins on the
company's commercial products.
Interest and related expenses were $1.7 million for the nine
months ended December 31, 1995 as compared to $1.0 million for
the comparable prior year period. The increase for the period
was primarily due to the increase in debt associated with the
Debenture Offering, offset in part by a reduction in interest
resulting from repurchases of the Company's 1998 Debentures, in
satisfaction of the August 1, 1995 sinking fund requirement for
this debt.
Other income, net, was $0.4 million for the nine-month
period ended December 31, 1995, representing a decrease from $0.6
million in the comparable prior year period. This decrease was
due to a gain on the sale of fixed assets of approximately $0.2
million in the third quarter of fiscal 1995, offset in part by
interest earned on higher average cash balances this fiscal year,
primarily resulting from the net proceeds generated from the
Debentures.
The Company's effective tax rate for the nine-month period
ended December 31, 1995 was 39%, as compared to 40% in the
comparable prior year period. The Company records income tax
expense based on an estimated effective income tax rate for the
full fiscal year. The effective income tax rate and the
components of income tax expense for the nine months ended
December 31, 1995 did not significantly change from those of the
fiscal year ended March 31, 1995. The provision for income taxes
includes all estimated income taxes payable to federal and state
governments as applicable.
COMPARISON OF FISCAL 1995 WITH FISCAL 1994
Revenues for fiscal 1995 increased 21% to $69.9 million from
$57.8 million in fiscal 1994. The increase during fiscal 1995
was primarily attributable to revenues from the display,
manufacturing and video broadcast product lines of TAS, CMC and
Laurel, which were included in the Company's results for the full
year. In addition, commercial revenues increased $4.3 million to
approximately $6.4 million in fiscal 1995 primarily as a result
of the Company's November 1994 acquisition of Ahead, which
contributed approximately $2.7 million in revenues for the fiscal
1995 period. Revenues from the Company's core signal processing,
display, data storage and optical product lines experienced a
slight decrease during fiscal 1995, as development efforts on
several major programs were substantially completed, and the
receipt of certain new awards was delayed into the latter part of
the year.
Operating income for fiscal 1995 increased 48% to $5.1
million from $3.4 million in fiscal 1994. Operating income as a
percentage of revenues was 7% for fiscal 1995 as compared to 6%
in fiscal 1994. Such increases are attributable to higher fiscal
1995 revenues and the contribution of higher margin commercial
products to the Company's business base and the positive impact
of management's continuing cost reduction efforts.
Interest and related expenses for fiscal 1995 decreased 13%
to $1.4 million from $1.6 million in fiscal 1994. The decrease
was a result of the reduction in the Company's long-term debt.
The Company repurchased approximately $2.7 million of its 1998
Debentures during fiscal 1995, which were used principally to
satisfy the August 1, 1994 mandatory sinking fund requirement for
the debt.
Other income, net, for fiscal 1995 decreased 36% to $.5
million from $.8 million in fiscal 1994. This decrease was
primarily attributable to lower gains from the repurchases of
1998 Debentures of $.2 million. Substantially all 1998
Debentures repurchased during fiscal 1995 were at prices
approximating par value.
The Company's effective income tax rate in fiscal 1995 and
1994 was 39% and 40%, respectively.
COMPARISON OF FISCAL 1994 WITH FISCAL 1993
Revenues for fiscal 1994 increased 21% to $57.8 million from
$47.8 million in fiscal 1993. The revenue increase reflects the
contribution of the recently acquired product lines of TAS, CMC
and Laurel. Revenues from core signal processing, display,
recording and optical product lines shifted to those from
contracts awarded primarily within the 1994 and 1993 fiscal
years. Revenues from older contracts for such products were not
as significant as in fiscal 1993, as a result of the completion
or near-completion of these contracts during the year.
Operating income for fiscal 1994 increased 49% to $3.4
million from $2.3 million in fiscal 1993. Operating income as a
percentage of revenues was 6% in fiscal 1994 as compared to 5% in
fiscal 1993. Such increases are attributable to higher fiscal
1994 revenues, lower costs as a result of improved efficiencies
and the substantial completion during fiscal 1993 of two fixed-
price development contracts on which the Company incurred write-
offs for cost overruns.
Interest and related expenses decreased 9% to $1.6 million
in fiscal 1994 from $1.7 million in fiscal 1993. This decrease
reflects the Company's retirement of $2.5 million of principal on
its 1998 Debentures during the first half of fiscal 1994,
pursuant to the mandatory sinking fund requirement for the debt.
The Company also repurchased an additional $.1 million in
principal amount of the 1998 Debentures during the latter half of
fiscal 1994.
Other income, net, for fiscal 1994 decreased 32% to $.8
million from $1.2 million in fiscal 1993. Fiscal 1994 results
included gains on the repurchases of 1998 Debentures, described
previously, of approximately $.3 million, while fiscal 1993 gains
for similar transactions amounted to $.5 million.
The Company's effective income tax rate in both fiscal 1994
and 1993 was 40%.
FINANCIAL CONDITION AND LIQUIDITY
Cash and Cash Flow. Cash and cash equivalents at December
31, 1995 and March 31, 1995 represented approximately 25% and
17%, respectively, of total assets. During the nine-month period
ended December 31, 1995, cash increased $11.9 million. This
increase was primarily the result of the private placement of
$20,000,000 in aggregate principal amount of the Debentures on
September 29, 1995, and the additional placement of $5,000,000 in
aggregate principal amount of the Debentures, pursuant to an
over-allotment option, completed on November 3, 1995. In
addition, approximately $2.4 million was generated from sales of
certain fixed assets. These contributions to cash were offset by
uses of: (i) approximately $4.1 million in the OMI Asset
Acquisition; (ii) approximately $2.2 million for repurchases of
outstanding 1998 Debentures in satisfaction of the August 1, 1995
sinking fund requirement for such debt; and (iii) approximately
$3.7 million for capital expenditures. Additionally,
approximately $3.5 million was used in support of operations,
primarily for material procurement.
Cash and cash equivalents at March 31, 1995 of $11.2 million
was down $4.3 million from the balance at March 31, 1994. Cash
represented 17% of total assets at the end of fiscal 1995, as
compared with 26% in fiscal 1994. During fiscal 1995, cash
generated by operations amounted to $2.5 million. In comparison,
cash generated by operations during fiscal 1994 was $10.2
million. The reduction in the amount of cash generated by
operations during fiscal 1995 was primarily attributable to the
build-up in inventory which occurred during fiscal 1995 in
preparation for the fiscal 1996 production and shipment of
products under several significant development contracts. Cash
used in investing and financing activities during fiscal 1995
totalled $3.8 million and $3.0 million, respectively, primarily
attributable to purchases of capital equipment for $2.5 million,
the acquisition of Ahead for $1.5 million and the repurchase of
1998 Debentures for $2.7 million.
Capital expenditures during fiscal 1996, excluding assets
acquired as a result of the OMI Asset Acquisition, are expected
to approximate $4.4 million. The majority of these expenditures
will be for facilities improvements, as well as for computer and
laboratory-related equipment, which will be required to support
the Company's growth.
Working capital as of December 31, 1995 was $40.6 million,
as compared to $20.3 million at March 31, 1995. The increase was
primarily due to higher cash balances resulting from the
Debenture Offering. Net proceeds from the Debenture Offering
were used on February 16, 1996 to repurchase approximately $5.0
million in principal amount of outstanding 1998 Debentures, for
working capital requirements and for future acquisition-related
transactions. During the first quarter of fiscal 1996, the
Company obtained a $5.0 million unsecured line of credit from
NatWest Bank, in order to supplement its working capital needs.
This line of credit expired on December 31, 1995 and has not been
renewed. As of August 1995, the Company satisfied its $2.5
million sinking fund obligation under the 1998 Debentures.
Although the Company continues to seek acquisition opportunities
consistent with its business strategy and is engaged in
discussions regarding potential acquisitions, the Company does
not currently have any agreement or understanding regarding any
potential acquisition. The Company believes that its current
working capital position is sufficient to support operational
needs as well as its near-term business objectives.
Accounts Receivable and Inventories. Accounts receivable
increased approximately $3.2 million in the nine-month period
ended December 31, 1995, primarily resulting from increased
billings associated with certain contracts and, to a lesser
extent, from the OMI Asset Acquisition. Accounts receivable were
approximately $17.4 million at March 31, 1995, an increase of
$1.9 million from the balance at March 31, 1994. This increase
was primarily attributable to significant shipments on several
contracts which occurred toward the end of the fiscal year. The
Company receives progress payments on certain contracts from the
U.S. Government of between 80-100% of allowable costs incurred.
The remainder, including profits and incentive fees, is billed to
its customers based upon delivery and final acceptance of all
products. In addition, the Company may bill its customers based
upon units delivered. Generally, there are no contract
provisions for retainage, and all accounts receivable are
expected to be collected within one year.
Inventories increased by approximately $4.8 million during
the first nine months of fiscal 1996, primarily due to increased
material procurement related to higher production activity on
certain display workstation programs. The increase in
inventories was also due, in part, to the OMI Asset Acquisition.
The net inventory balance at March 31, 1995 was $11.7 million, an
increase of $6.7 million from the balance at March 31, 1994. As
mentioned previously, the Company experienced a build-up in
inventory during fiscal 1995 in preparation for production and
shipment on several major development contracts. In addition,
the terms of certain production contracts in process during
fiscal 1995, specifically those with foreign governments, did not
provide for progress billings. In such cases, the Company is
required to fund the cost of inventory until such time as
shipments are made.
Long-Term Debt. Long-term debt outstanding increased by
approximately $23.6 million during the nine-month period ended
December 31, 1995 to $35.3 million, primarily due to the
Debenture Offering. Long-term debt outstanding decreased by
approximately $2.8 million during fiscal 1995. The reduction in
outstanding debt during fiscal 1995 was primarily attributable to
the $2.5 million mandatory sinking fund obligation on the 1998
Debentures, as well as the mandatory redemption of $.2 million in
principal amount on the Company's industrial revenue bonds (the
"Revenue Bonds") on January 1, 1995. The Company is subject to
annual redemptions on the Revenue Bonds through 1998. At
December 31, 1995 and March 31, 1995, the Company had
approximately $1.9 million in principal amount of Revenue Bonds
outstanding, subject to annual redemptions through 1998. The
principal amount of the Revenue Bonds to be redeemed varies each
year in accordance with the redemption schedule provided in the
indenture. Under the terms of the Revenue Bonds, the Company is
a guarantor under a letter of credit arrangement and has agreed
to certain financial covenants (see Note 6 of Notes to
Consolidated Financial Statements). The Company must realize a
certain level of profits during each quarter of fiscal 1996 to be
in compliance with these covenants.
Stockholders' Equity. Net stockholders' equity increased by
$2.4 million during the nine-month period ended December 31, 1995
to $24.9 million and increased by $2.8 million during fiscal 1995
to $22.5 million, primarily as a result of net earnings of $1.6
million and $2.6 million generated for the respective periods.
In July 1994, pursuant to a stock purchase agreement between
the Company and David E. Gross, its former President and Chief
Technical Officer, the Company purchased 659,220 shares of its
Class A Common Stock and 45,179 shares of its Class B Common
Stock owned by Mr. Gross, at a price of $4.125 and $4.00 per
share, respectively, totalling approximately $2.9 million in cash
(the "Buy-back"). On October 18, 1994, the Company filed a
registration statement on form S-2 and on November 10, 1994, the
Company filed Amendment No. 1 to such registration statement with
the SEC for the purpose of selling shares of its common stock
purchased in the Buy-back. The Company sold 650,000 shares of
its Class A Common Stock and 45,000 shares of its Class B Common
Stock, at prices of $4.125 and $4.00 per share, respectively,
totalling approximately $2.9 million pursuant to the offering.
Backlog. At December 31, 1995, the Company's backlog of
orders was approximately $147 million as compared to $126 million
at March 31, 1995. The increase in backlog for the first nine
months of the fiscal year was due to the net effect of bookings,
partially offset by revenues, and the addition of approximately
$16 million of backlog from the OMI Asset Acquisition. New
contract awards of approximately $71 million were booked during
the nine-month period ended December 28, 1995. As of January 28,
1996, backlog totalled approximately $147 million, including
approximately $16 million of backlog from the OMI Asset
Acquisition.
The Company closed fiscal 1995 with a funded backlog of
$126.0 million representing an $8.5 million decrease from backlog
at March 31, 1994. Included in the fiscal 1995 year-end backlog
is approximately $2.2 million of commercial orders. New business
awards during fiscal 1995 totalled approximately $61.4 million
and included approximately $5.8 million of new commercial orders.
Significant awards received during the year included $5.9 million
in contracts from the Naval Air Systems Command to produce
additional quantities of A/U36M-1(V) Weapons Boresight Equipment
for the Marine Corps' AH-1W Cobra helicopters, approximately $9.4
million from the Government Systems Group of Unisys Corporation
to provide portions of the AN/UYQ-70 Advanced Display System and
a $4.9 million contract with the U.S. Navy to provide Readiness
Trainer Systems for the Mobile In-shore Undersea Warfare System
Upgrade program. Contract awards for the Company's 8mm video
recorder products totalled approximately $5.4 million and
included a $3.1 million award from the Naval Air Systems Command
to equip the U.S. Navy's F/A-18 Hornet carrier-based aircraft
with WRR-818 8mm video recorders. The Company also received
funding under a $12.5 million not-to-exceed contract from
Lockheed Aeronautical Systems Company to provide engineering
services and modified AN/USH-42 Mission Recording Systems for
deployment on the U.S. Navy's S-3B Viking carrier-based jet
aircraft, as well as additional funding under a multi-year
contract with the U.S. Navy, initially received in fiscal 1994,
to provide combat-system display consoles for land-based
applications.
Approximately 84%, 94% and 83% of revenues in fiscal 1995,
1994 and 1993, respectively, were derived directly or indirectly
from contracts or subcontracts with the U.S. Government,
principally the U.S. Navy. Included in revenues for fiscal 1995,
1994 and 1993 were $18.8 million, $27.5 million and $19.2
million, respectively, of customer-sponsored research and
development, which were the result of contract agreements
directly or indirectly with the U.S. Government.
The Debenture Offering. On September 29, 1995 (the
"Debenture Closing Date"), the Company issued $20,000,000 in
aggregate principal amount of the Debentures pursuant to the
Debenture Offering. Net proceeds from the private placement of
these Debentures were approximately $19,000,000. On November 3,
1995, the Company issued an additional $5,000,000 in aggregate
principal amount of the Debentures, upon exercise of the over-
allotment option pursuant to the Purchase Agreement between the
Company and the Initial Purchaser, dated September 22, 1995. Net
proceeds from the exercise of the over-allotment option were
approximately $4,750,000. Pursuant to the related Registration
Rights Agreement dated September 22, 1995 between the Company and
the Initial Purchaser, acting on behalf of holders of the
Debentures (the "Registration Rights Agreement"), the Company has
agreed to file, within ninety (90) days after the Debenture
Closing Date, a shelf registration statement relating to the
Debentures and the shares of Class A Common Stock which are
issuable from time to time upon conversion of the Debentures, and
to cause the shelf registration statement to become effective
within one hundred fifty (150) days after the Debenture Closing
Date. In addition, the Company has agreed to use its reasonable
best efforts to keep the shelf registration statement effective
until at least the third anniversary of the issuance of the
Debentures. The Company has filed a registration statement on
Form S-1 of which this Prospectus is a part in compliance with
its obligation under the Registration Rights Agreement to file a
shelf registration statement. In connection with these
transactions, the Company expects to incur approximately $500,000
of professional fees and other costs. These costs, together with
the Initial Purchaser's commissions in connection with the
Debenture Offering, will be amortized ratably through the
maturity date of the Debentures. See "Description of the
Debentures."
Letter of Credit. The Company's Revenue Bonds are supported
by an irrevocable, direct-pay letter of credit in an amount equal
to the principal balance plus interest thereon for 45 days. At
December 31, 1995, the contingent liability of the Company as
guarantor under the letter of credit was approximately
$1,930,000. The Company has collateralized the letter of credit
with accounts receivable and has also agreed to certain financial
covenants, including the maintenance of: (i) a certain minimum
ratio of consolidated tangible net worth to total debt (the "Debt
Ratio"), (ii) a certain minimum quarterly ratio of earnings
before interest and taxes to interest (the "Interest Ratio"), and
(iii) a certain minimum balance of billed and unbilled accounts
receivable ("Eligible Receivables"). At December 31, 1995, the
covenants required: (i) a Debt Ratio of 0.6:1, (ii) an Interest
Ratio of 1.5:1 and (iii) Eligible Receivables of $2,500,000. As
a result of the issuance of $25,000,000 aggregate principal
amount of the Debentures, the Debt Ratio at December 31, 1995 was
0.4:1. The Company has obtained a waiver, renewable quarterly,
from the bank of the required debt ratio and is in compliance
with all covenants under the letter of credit.
Contingencies. The books and records of the Company are
subject to audit and post-award review by the Defense Contract
Audit Agency. The Company is not a party to any legal
proceedings with the U.S. Government.
Certain Agreements. Effective July 20, 1994, the Company
entered into an Employment, Non-Competition and Termination
Agreement (the "Gross Agreement") and a Stock Purchase Agreement
(the "Gross Stock Purchase Agreement") with David E. Gross, its
former President and Chief Technical Officer. Under the terms of
the Gross Agreement, Mr. Gross will receive a total of $600,000
over a five-year period as compensation for his services pursuant
to a five-year consulting arrangement with the Company and a
total of $750,000 over a five-year period as consideration for a
five-year non-compete arrangement. The payments will be charged
to expense over the term of the Gross Agreement as services are
performed and obligations are fulfilled by Mr. Gross. Mr. Gross
will also receive at the conclusion of such initial five-year
period, an aggregate of approximately $1.3 million payable over a
nine-year period as deferred compensation. The net present value
of the payments to be made to Mr. Gross pursuant to the deferred
compensation portion of the Gross Agreement approximated the
amount of the Company's previous deferred compensation
arrangement with Mr. Gross. In addition to the Buy-back, the
Gross Stock Purchase Agreement also provides that (i) the Company
has a right of first refusal with respect to the sale by Mr.
Gross of any of the remaining shares of common stock of the
Company held by Mr. Gross in excess of 20,000 shares, (ii) any
shares of common stock of the Company held by Mr. Gross must be
voted pro rata in accordance with the vote of the Company's other
stockholders and (iii) in the event of a change in control of the
Company within three years from the date of the Gross Stock
Purchase Agreement, Mr. Gross will receive a percentage of the
difference between the price per share paid to Mr. Gross pursuant
to the Buy-back and the price per share received by the
stockholders of the Company pursuant to the change of control
transaction, less an interest factor, as defined in the Gross
Stock Purchase Agreement, on the aggregate amount paid to Mr.
Gross pursuant to the Buy-back.
The Company is currently negotiating an employment, non-
competition and retirement agreement (the "Newman Agreement")
between the Company and Leonard Newman, its former Chairman of
the Board and Secretary of the Company. Pursuant to the Newman
Agreement, it is expected that Mr. Newman will receive certain
compensation from the Company over a five-year period for
consulting services and a non-compete arrangement. In addition,
Mr. Newman will receive certain retirement benefits payable over
a ten-year period at the conclusion of such initial five-year
period. Results of operations for fiscal 1995 reflect a charge
of $1.5 million representing the estimated net present value of
the Company's obligation under the Newman Agreement. The
corresponding amount was included in Other Liabilities in the
Consolidated Balance Sheet at March 31, 1995 as an addition to
the accrual which had been established to cover the Company's
liability to Mr. Newman under a previous deferred compensation
arrangement.
Inflation. The Company has experienced the effects of
inflation through increased costs of labor, services and raw
materials. Although a majority of the Company's revenues are
derived from long-term contracts, the selling prices of such
contracts generally reflect estimated costs to be incurred in the
applicable future periods.
ACCOUNTING STANDARDS
Income Taxes. In February 1992, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS
109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
Effective April 1, 1993, the Company adopted SFAS 109.
Until March 31, 1993, the Company used the asset and liability
method of accounting for income taxes, as set forth in Statement
of Financial Accounting Standards No. 96, "Accounting for Income
Taxes" ("SFAS 96"). Under SFAS 96, deferred income taxes are
recognized by applying statutory tax rates to the difference
between the financial statement carrying amounts and tax bases of
assets and liabilities. The statutory tax rates applied are
those applicable to the years in which the differences are
expected to reverse. The cumulative effect of adopting SFAS 109
was not material to the Company's consolidated results of
operations or financial position.
Postretirement Benefits Other Than Pensions. In December
1990, the FASB issued Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("SFAS 106"). The Company adopted SFAS 106 during
the first quarter of fiscal 1994, and its adoption did not have a
material impact on the Company's consolidated results of
operations or financial position.
Postemployment Benefits. In November 1992, the FASB issued
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS 112"). The
Company adopted SFAS 112 during the first quarter of fiscal 1995,
and its adoption did not have a material impact on the Company's
consolidated results of operations or financial position.
ACQUISITIONS AND RELATED ACTIVITIES
On October 1, 1993, the Company acquired, through TAS
Acquisition Corp., a wholly-owned subsidiary of the Company, a
95.7% equity interest in TAS, a Maryland corporation, pursuant to
a stock purchase agreement (the "TAS Agreement") dated as of
August 6, 1993. TAS, headquartered in Gaithersburg, Maryland,
was a privately-held company incorporated in early 1991. Under
the terms of the TAS Agreement, the Company paid $15.10 in cash
for a total of 97,317 issued and outstanding shares of common
stock, par value $.01 per share, of TAS. The price paid by the
Company for the shares of TAS common stock was obtained from the
Company's working capital. On September 30, 1993, the Company,
in anticipation of the acquisition, advanced $1.8 million to TAS
pursuant to a demand promissory note. Such advance was converted
to an intercompany liability on the date of the acquisition and
was eliminated in consolidation. On November 1, 1993, Articles
of Merger were filed in order to merge TAS into TAS Acquisition
Corp. The name TAS Acquisition Corp. was changed to Technology
Applications & Service Company.
The acquisition has been accounted for using the purchase
method of accounting. The excess of cost over the estimated fair
value of net assets acquired was approximately $.4 million and
will be amortized on a straight-line basis over 30 years, or
$14,000 annually.
On December 13, 1993, the Company, through its wholly-owned
subsidiary, DRSSMC, entered into a partnership with Laurel
Technologies, Inc. of Johnstown, Pennsylvania. Pursuant to a
Joint Venture Agreement dated November 3, 1993 and a Partnership
Agreement dated December 13, 1993, between DRSSMC and Laurel
Technologies, Inc., Laurel was formed for the purposes of
electronic cable and harness manufacturing, military-quality
circuit card assembly and other related activities. The
Company's contribution to Laurel consisted of cash, notes and
equipment valued at approximately $.6 million, representing an
80% controlling interest in Laurel. As a result, the financial
position and results of operations of Laurel since December 13,
1993 have been consolidated with those of the Company's. The
related minority interest in Laurel has been included in "Other
Liabilities" and "Other Income, Net," respectively, in the
Company's consolidated financial statements for the period ended
March 31, 1995 and 1994.
Also during December 1993, the Company acquired certain
assets of CMC, located in Santa Clara, California, for
approximately $.4 million. CMC primarily refurbishes magnetic
video recording rotary-head scanner assemblies for post-
production facilities and television broadcast stations
worldwide. This acquisition provides the Company with a key
customer base in the commercial video recording systems industry.
On November 17, 1994, the Company acquired, through a
wholly-owned subsidiary of Precision Echo ("Precision
Acquisition"), the net assets of Ahead, pursuant to an asset
purchase agreement (the "Ahead Asset Purchase Agreement"), dated
October 28, 1994. Under the terms of the Ahead Asset Purchase
Agreement, Precision Acquisition paid, on the date of
acquisition, approximately $1.1 million for the net assets of
Ahead. In addition, Precision Acquisition entered into a
Covenant and Agreement Not to Compete (the "Covenant"), dated
October 28, 1994, with the chairman of the board of Ahead. Under
the terms of the Covenant Agreement, the total cash consideration
to be paid by Precision Acquisition consisted of approximately
$.4 million payable at the acquisition date, and an additional
$.5 million, payable in equal monthly installments over a period
of five years from the acquisition date.
The acquisition has been accounted for using the purchase
method of accounting and, therefore, Ahead's financial statements
are included in the consolidated financial statements of the
Company from the date of acquisition. The excess of cost over
the estimated fair value of net assets acquired was approximately
$.9 million and will be amortized on a straight-line basis over 5
years, or approximately $.2 million annually. The acquisition
had no significant effect on the Company's consolidated financial
position or results of operations.
On July 5, 1995 (the "OMI Closing Date"), Photronics Corp.,
a New York corporation and a wholly-owned subsidiary of the
Company ("Photronics Corp."), acquired (through OMI, a Delaware
corporation and a wholly-owned subsidiary of Photronics Corp.),
substantially all of the assets of Opto Mechanik, Inc. ("Opto"),
a Delaware corporation, pursuant to an Agreement for Acquisition
of Assets dated May 24, 1995, as amended July 5, 1995, between
Photronics Corp. and Opto (the "OMI Agreement"), and approved by
the United States Bankruptcy Court for the Middle District of
Florida on June 23, 1995. OMI, now located in Palm Bay, Florida,
designs and manufactures electro-optical sighting and targeting
systems used primarily in military fire control devices and in
various weapons systems.
Pursuant to the OMI Agreement, the Company paid a total of
$5,450,000 consisting of (i) $1,150,000 in cash to PNC Bank,
Kentucky, Inc. ("PNC"), (ii) a note to PNC in the principal
amount of $1,450,000 payable in forty eight (48) equal monthly
installments of principal and interest commencing with the first
day of the month subsequent to the OMI Closing Date (the "PNC
Note"), (iii) $2,550,000 in cash to MetLife Capital Corporation
and (iv) a note in the principal amount of $300,000 to Opto
payable in six (6) equal monthly installments of principal and
interest commencing on August 5, 1995 (the "Opto Note"). The PNC
Note bears interest at a floating rate equal to the lesser of (i)
PNC's stated prime interest rate plus 0.5% or (ii) the prime rate
as reported by the Wall Street Journal plus 0.5%. The Opto Note
bears interest at a rate of 9.5% per annum. Professional fees
and other costs associated with the acquisition were capitalized
as part of the total purchase price. Total cash consideration
paid in the acquisition was obtained from the Company's working
capital.
The acquisition of the assets of Opto has been accounted for
under the purchase method. The cost of the acquisition has been
allocated on the basis of the estimated fair market value of the
assets acquired and the liabilities assumed. The fair value of
the assets acquired represented slightly less than 10% of the
total assets of the Company as of March 31, 1995.
Prior to the asset acquisition, on October 11, 1994, Opto
filed a petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. For the twelve months ended March 31, 1995,
Opto had revenues of approximately $13.9 million and an operating
loss of approximately $6.6 million, primarily attributable to
excessive labor and overhead costs, which the Company believes
caused significant cost overruns on substantially all of Opto's
contracts.
The operating results of OMI, the acquiring corporation,
have been included in the Company's reported operating results
since the date of acquisition. For the period from the date of
acquisition to December 31, 1995, revenues generated in respect
of the assets acquired constituted approximately 10% of the
consolidated revenues of the Company for that period. These
assets were operated at a modest profit, which was less than 10%
of the consolidated operating income of the Company for such
period. Interest expense for such period incurred in connection
with the acquired assets was immaterial to the Company's
consolidated results of operations. At the present time, there
is no single contract being performed or to be performed with the
acquired assets which is expected to significantly affect the
Company's operating results in the foreseeable future. The
business currently being conducted with such assets is subject to
risks and uncertainties similar to those of the Company as a
whole. See "Risk Factors" and "Business -- Industry
Consolidation."
Since the asset acquisition, the Company has relocated a
portion of the Electro-Optical Systems Group's manufacturing
operations from Hauppauge, New York to OMI's new location in Palm
Bay, Florida. The Company expects to realize certain cost
benefits and other efficiencies as a result of this
consolidation. See "The Company -- Company Organization" and
Business -- Strategy."
On February 6, 1996, pursuant to a Joint Venture Agreement,
dated February 6, 1996, by and among DRS/MS, Inc. ("DRS/MS"), a
wholly-owned subsidiary of the Company, Universal Sonics
Corporation ("Universal Sonics"), a New Jersey corporation, Ron
Hadani, Howard Fidel and Thomas S. Soulos, and a Partnership
Agreement, dated February 6, 1996, by and between DRS/MS and
Universal Sonics, the Company entered into a partnership with
Universal Sonics (the "Partnership") for the purpose of
developing, manufacturing and marketing medical ultrasound
imaging equipment. The Company's contribution to the Partnership
consisted of $400,000 in cash and certain managerial expertise
and manufacturing capabilities, representing a 90% interest in
the Partnership.
On February 9, 1996, Precision Echo acquired (through Ahead
Technology Acquisition Corporation ("Ahead Acquisition"), a
Delaware corporation and a wholly-owned subsidiary of Precision
Echo), certain assets and assumed certain liabilities
(principally, obligations under property leases) of Mag-Head
Engineering Company, Inc. ("Mag-Head"), a Minnesota corporation,
pursuant to an Asset Purchase Agreement, dated as of February 9,
1996, by and among Mag-Head and Ahead Acquisition for
approximately $400,000 in cash. Mag-Head produces audio and
flight recorder heads.
BUSINESS
GENERAL
The Company designs, manufactures and markets high-
technology computer workstations for the U.S. Department of
Defense, electro-optical targeting systems for military customers
and image and data storage products for both military and
commercial customers. In response to a 1992 mandate by the Joint
Chiefs of Staff, the Company focuses on "commercial-off-the-
shelf" ("COTS") product designs, whereby commercial electronic
components are adapted, upgraded and "ruggedized" for application
in harsh military environments. The Company believes that
military expenditures on electronic systems and equipment will
grow in coming years as the nature of modern warfare dictates
increasing reliance on real-time, accurate battlefield
information and the electronic content and sophistication of
defense systems increases.
Using COTS designs, the Company develops and delivers its
products with significantly less development time and expense
compared to traditional military product cycles, generally
resulting in shorter lead times, lower costs and the employment
of the latest information and computing technologies. The COTS
process entails the purchasing, refitting, upgrading (of both
hardware and software) and "ruggedization" (repackaging,
remounting and stress testing to withstand harsh military
environments) of readily available commercial components. The
design and manufacture of COTS-based products is a complex
process requiring specific engineering capabilities, extensive
knowledge of military platforms to which the equipment will be
applied and in-depth understanding of military operating
environments and requirements.
STRATEGY
During its last three fiscal years, the Company has
restructured its management team and implemented strategies to
exploit the changing nature of military procurement programs
brought on by the end of the cold war, military budget
constraints and the COTS mandate. The Company's strategies
include:
* expanding and diversifying the Company's
technology and product base into complementary
military and commercial markets primarily through
acquisitions and the forging of strategic
relationships;
* increasing revenue opportunities through the
design and adaptation of products for use by all
branches of the military; and
* enhancing financial performance through specific
cost reduction measures and increased
manufacturing efficiencies.
To effect these strategies, the Company has (i) acquired
several businesses with complementary military and commercial
products and technologies over the last three years; (ii) forged
strategic relationships with other defense suppliers such as
Loral Corporation and Westinghouse Electric Corporation, among
others; (iii) emphasized the development of COTS-based products
as well as products and systems that are easily adapted to
similar weapons platforms for use by all branches of the
military; and (iv) implemented cost reduction programs to reduce
its fixed-cost base, allow for growth and maintain the
flexibility of its operations.
The implementation of these strategies has resulted in
increasing revenues and profits over the last three fiscal years.
Although the Company experienced operating losses in fiscal 1990
through 1992, primarily due to cost overruns on a single fixed-
price development contract, a shift over the last several years
in the nature of military development contracting from fixed-
price to cost-type contracts has reduced the Company's exposure
in this area. For the fiscal year ended March 31, 1995, the
Company had revenues of $69.9 million, net income of $2.6 million
and earnings per share of $.50, representing increases of 20.9%,
61.2% and 66.7%, respectively, compared with the year ended March
31, 1994. For the nine months ended December 31, 1995, the
Company had revenues of $65.6 million, net income of $2.5 million
and fully diluted earnings per share of $.44, representing
increases of 38.4%, 45.7% and 29.4%, respectively, compared with
the same nine-month period ended December 31, 1994.
Acquisitions. In October 1993 the Company acquired TAS, a
designer and supplier of advanced command and control software
and hardware. TAS' business, which focuses primarily on radar
displays, augments the Company's core expertise in sonar signal
processing, allowing the Company to offer complete command and
control system solutions to its naval customers. In December
1993, the Company purchased its 80% interest in Laurel, then
primarily an assembler of wire harness products for aerospace
customers. The addition of Laurel has provided the Company with
the opportunity to consolidate manufacturing operations at ESG
and enables the Company to solicit and bid effectively for long-
term system development and manufacturing contracts.
The Company acquired CMC in December 1993 and Ahead in
November 1994. These acquisitions provide the Company with an
established computer and recorder products commercial base,
provide advanced manufacturing capabilities in the area of
magnetic recorder heads and allow the Company to apply its
expertise in high technology recorder products to select
commercial markets. In July 1995, the Company acquired
substantially all of the assets that now constitute OMI. This
acquisition enables EOSG to expand its electro-optical targeting
products and manufacturing activities in a lower cost
manufacturing facility, adds backlog in complementary product
areas and allows for expansion of the MPBE program.
Strategic Relationships. The Company has established
relationships with other defense suppliers such as Loral
Corporation and Westinghouse Electric Corporation, among others.
The Company acts as a subcontractor to these major contractors
and may also engage in other development work with such
contractors. This enables the Company to diversify its program
base and increase its opportunities to participate in larger
military procurement programs.
Adaptable Product Designs. The Company's recent focus has
been on the design and development of products that can be used
by all branches of the military. This enables the Company to
increase revenues, reduce product costs and decrease reliance on
U.S. Navy procurement programs. The Company's systems,
originally designed under a U.S. Navy development contract, are
open architecture information processing workstations that can be
applied for use in other branches of the military. Similarly,
the Company's boresight products, originally designed for use
with the U.S. Army's Apache attack helicopter, were specifically
designed to be adaptable to other air, sea or land-based weapons
platforms. The boresight system has been successfully applied to
the U.S. Marine Corps' Cobra helicopter and proposals have been
submitted for its use on F-15 and C-130 fixed-wing platforms.
Cost Reduction Programs. During the last three fiscal
years, the Company has streamlined personnel levels, decreased
rent expenses through facility consolidation and acquired low-
cost manufacturing operations. The Company is also utilizing more
efficient manufacturing methods on several projects that are set
to enter full-scale production in fiscal 1996.
COMMERCIAL-OFF-THE-SHELF (COTS) PRODUCT DESIGNS
The concept of designing and manufacturing military products
and systems through the integration and adaptation of existing
commercial and military products was developed in response to
both decreasing military budgets and the increasing pace of
technology. Management believes that the adaptation of
available commercial components and existing military systems to
new military applications offers two primary advantages over
traditional military systems development and procurement cycles:
(i) it has the potential to save significant amounts of time and
expenditures in the area of research and development and (ii) as
commercial product development and production cycles become
shorter than their military equivalents, the adaptation of
commercial technology to battlefield systems has the potential to
shorten military product cycles. As a result of some of these
advantages, the use of COTS computer hardware and software that
can be integrated in common (open architecture) applications and
systems was mandated by the Joint Chiefs of Staff in 1992.
COTS entails the purchasing, refitting, upgrading and
"ruggedization" (repackaging, remounting and stress- testing to
withstand harsh military operating environments) of available
commercial components. Application of the COTS concept to
electronic systems includes open architecture designs and the
customization of software for increased flexibility, performance
and compatibility with existing and future systems. The Company
strives to apply a COTS design to most new product designs at
ESG, EOSG and MTG. For example, the combination of COTS
components integrated in an open architecture design allows ESG
to provide products compatible with existing systems and which
provide improved performance and the ability to upgrade systems
at significant cost savings versus the previous generation
military systems they are intended to replace.
MARKET OVERVIEW
According to a recent Electronics Industry Association
survey (reportedly based on extensive audits, surveys and
interviews of Department of Defense and Congressional records and
personnel), U.S. military expenditures for electronics and
related equipment were $37 billion in 1994 and are projected to
grow slowly over the next decade. The Company believes that the
market for military electronics and related equipment will grow
slowly in coming years due to two primary factors:
First, the nature of modern warfare dictates increasing
reliance on timely and accurate battlefield information to ensure
that increasingly costly assets are efficiently deployed and to
minimize destruction of nonmilitary targets. In general,
military engagements have evolved from large-scale undertakings,
where numerical superiority was the key to dominance, to
"surgical strikes" where the ability to observe and strike
accurately and at will from afar has become a major means of both
deterrence and loss minimization. Advanced technology has been a
major factor enabling the increasing precision strike capability
of the U.S. military and has increased the "per shot" cost of
arms. These factors combine to produce a military, economic and
political environment requiring increased weapons efficiency and
accuracy. In addition, real time data is needed for in-theatre
evaluation, damage assessment and training, as well as to reduce
and minimize incidents of U.S. casualties due to friendly fire.
Second, it is often more cost-effective to refit and upgrade
existing weapons platforms than to replace them. With the
development and unit costs of new platforms increasing rapidly
amid a political and economic environment demanding decreasing
overall military expenditures, Congress and the military have
delayed or canceled the implementation of many proposed weapons
systems, opting instead to improve the performance, and extend
the life, of existing weapons through improved battlefield
intelligence and equipment enhancements. This increasing focus
on cost efficiencies has manifested itself in the military's COTS
program.
INDUSTRY CONSOLIDATION
As the size of the overall defense industry has decreased in
recent years, there has been an increase in the number of
consolidations and mergers of defense suppliers and this trend is
expected to continue. As the industry consolidates, the large
(first-tier) defense contractors are narrowing their supplier
base and awarding increasing portions of projects to strategic second-
and third-tier suppliers, and in the process becoming oriented
more toward system integration and assembly.
As an example of the changing nature of supplier
relationships, Photronics Corp. has been awarded increasing
content in the infrared detector assemblies of several missile
systems by its prime contractors. In 1988, Photronics Corp.
supplied only the primary mirror for these systems. Photronics
Corp. now supplies the primary, secondary, tertiary and fold
mirrors, as well as the housing and nose domes for the missiles,
and is working directly with these prime contractors on the
electro-optical assemblies for the next generation missiles.
COMPANY ORGANIZATION AND PRODUCTS
The Company is organized into three operating groups:
Electronic Systems Group ("ESG," 54% of fiscal 1995 revenues),
Electro-Optical Systems Group ("EOSG," 18% of fiscal 1995
revenues) and Media Technology Group ("MTG," 28% of fiscal 1995
revenues).
ELECTRONIC SYSTEMS GROUP ("ESG")
ESG consists of DRS Military Systems ("Military Systems"),
located in Oakland, New Jersey, TAS, located in Gaithersburg,
Maryland, and Laurel, located in Johnstown, Pennsylvania. Also,
under the direction of TAS is Technical Services Division
("TSD"), located in Norfolk, Virginia and San Diego, California.
Military Systems designs, manufactures and markets signal
processors and display workstations which are installed on naval
ships for antisubmarine warfare (ASW) purposes and in land-based
surveillance systems used for underwater surveillance of harbors
and coastal locations. These workstations receive signals from
a variety of sonar-type sensors, processing the information and
arranging it in a display format enabling operators to quickly
interpret the data and inform command personnel of potential
threats. Major product lines and contracts include:
* AN/UYQ-65: The AN/UYQ-65 is the first COTS-based
tactical workstation to be qualified by the U.S. Navy
and was designed to comply with the stringent
requirements of the Aegis (DDG-51) shipbuilding
program. Replacing the sensor displays in the SQQ-89
ASW Combat Suite, it employs dual processors enabling
simultaneous I/O and graphics processing. This new
approach allows for required high bandwidth processing
while maintaining response times for operator/machine
interfaces. The system architecture can be adapted to
meet various interface, cooling, memory, storage and
processing requirements. See "Risk Factors -- Limited
Term of Contracts."
* AN/SQR-17A(V)3: These Mobile In-Shore Undersea Warfare
(MIUW) systems are deployed in land-based vans,
utilizing sonobuoys and anchored passive detectors for
harbor defense, coastal defense and amphibious
operations surveillance, as well as to enhance drug
interdiction efforts. This system is currently being
procured for utilization in 22 field installations.
Military Systems is under contract to provide various
upgrades to these field installations.
* AN/SQQ-TIA: These are portable training systems used
onboard MIUW vans to simulate actual sonar signal
processing sets currently used by the U.S. Navy and are
employed primarily for Navy Reserve training.
TAS produces tactical (e.g., combat/attack) information
systems and training systems. Major product lines and contracts
include:
* AN/UYQ-70: The AN/UYQ-70 is an advanced, open
architecture display system designed for widespread
application through software modification, and is to be
deployed on Aegis and other surface ships, submarines
and airborne platforms. This system was developed for
the U.S. Navy under subcontract with the Government
Systems Group of Loral (Unisys) Corporation. The
AN/UYQ-70 is a self-contained, microprocessor-based
unit complete with mainframe interface software
offering advanced computing and graphic capabilities.
These units replace previous generation units that are
dependent upon a shipboard mainframe computer at
approximately 25% of the cost of the older units. This
project is currently in the pre-production phase.
Based upon the size of the naval surface fleet and the
average number of workstations to be deployed on each
ship, the Company believes that the potential market
for this workstation product may be in excess of 5,000
units over the next decade.
* Military Display Emulators: These are workstations
that are functionally identical to existing U.S. Navy
Mil-spec shipboard display consoles, but are built with
low cost COTS components suitable for landbased
laboratory environments. These Military Display
Emulators are used in U.S. Navy development, test and
training sites as plug compatible replacements for the
more expensive shipboard qualified units. The Company
is currently delivering these Military Display
Emulators for use in the Aegis and other U.S. Navy
programs.
Laurel, which is 80% owned by DRS through a partnership with
Laurel Technologies, Inc., and was purchased in December 1993,
functions as a low-cost manufacturing facility and focuses on two
areas. First, Laurel provides manufacturing and product
integration services for Military Systems and TAS. ESG's
workstation and simulator systems, among other products, are
manufactured in this facility. Second, Laurel manufactures
complex cable and wire harness assemblies for large industrial
customers that are involved in the military and commercial
aerospace industry. These products are then installed by the
customers in a wide variety of rotary blade and fixed-wing aerial
platforms.
TSD performs field service and depot level repairs for ESG
products, as well as other manufacturers' systems. Principal
locations are in close proximity to U.S. Naval yards in Norfolk,
Virginia and San Diego, California. Services including equipment
and field change installation, configuration audit, repair,
testing and maintenance, are performed for the U.S. Navy and, to
a lesser extent, commercial customers. TSD has also performed
work for foreign navies including those of Australia, the
Republic of China, Egypt, Turkey and Greece.
MEDIA TECHNOLOGY GROUP ("MTG")
MTG consists of Precision Echo, Inc. ("PE") located in Santa
Clara, California, Ahead located in Los Gatos, California and CMC
located in Santa Clara, California. PE manufactures a variety of
digital and analog recording systems utilized for military
applications including reconnaissance, ASW and other information
warfare data storage requirements, and is a predominant U.S.
manufacturer of 8 millimeter military recorders supplied to the
U.S. armed forces. PE's products include:
* AN/USH-42: This system was originally developed for
deployment in the U.S. Navy's A-6E attack aircraft. PE
is currently under contract to modify the USH-42 for
use on the Navy's S-3B ASW aircraft to record radar,
infrared, bus, navigation and voice data.
* WRR-818: This ruggedized video recorder, uses certain
components from commercial video recording equipment,
has been selected for use in U.S. F/A-18 aircraft and
several foreign military aircraft. It has also been
selected by the U.S. Army for use in its Kiowa warrior
reconnaissance helicopters. A similar recorder, the
WRR-812, has been adapted for use in the Canadian
Army's light armored reconnaissance vehicles.
* AN/AQH-9 and AN/AQH-12: These products are high-
quality helicopter mission recording systems utilized
to record sonar and mine hunting information and other
intelligence data.
Ahead manufactures burnish, glide and test heads used in the
production of computer disk drives. These consumable products
are used by many U.S. disk drive manufacturers to hone the
surface and ensure the quality of magnetic disks used in computer
hard drives. Customers include Seagate, Conner, Quantum, Komag,
Store Media, Akashic and Western Digital.
CMC manufactures and refurbishes commercial video recording
products for broadcasters operating world-wide. CMC can
refurbish pre-1993 head assemblies located on these machines at a
significant cost savings compared to replacement. CMC is
developing, in conjunction with Ahead, the ability to refurbish
post-1993 recorders used by its customer base. Ahead also has
the capability to manufacture recording heads for CMC. In order
to foster operational synergies and to allow space for growth,
Ahead and CMC will be moving into a new joint facility in late
calendar 1995.
ELECTRO-OPTICAL SYSTEMS GROUP ("EOSG")
EOSG consists of Photronics Corp. located in Hauppauge, New
York and OMI located in Melbourne, Florida.
Photronics Corp. produces boresighting equipment (used to
align and harmonize rotary-wing aircrafts', and armored vehicles'
navigation, targeting, and weapon systems, as well as pilots'
helmet sighting system) and electro-optical components used in
Sidewinder, Stinger and new generation air-to-air and surface-to-
air missiles. Photronics Corp. has specialized coating and
manufacturing processes for primary mirrors used in missiles,
giving the company a competitive advantage. Photronics Corp.'s
primary lines include:
* Multiple Platform Boresight Equipment (MPBE): These
products can be used on both rotary and fixed-wing
aircraft, as well as armored vehicles. MPBE is
currently used on the Army's Apache helicopters and
Apache Longbow helicopters and the Marine Corps' Cobra
helicopters. Proposals have been submitted to employ
the system on the C-130 transport and the F-15 fighter.
This technology is proprietary to the Company.
* Missile Components: The components produced by
Photronics Corp. originally consisted of primary
mirrors used in the nose-mounted infrared seeker of
Sidewinder and Stinger missiles. Photronics Corp.'s
development efforts have resulted in its ability to
provide increased content to include the secondary,
tertiary and fold mirrors, housing and nose dome.
Photronics Corp. is currently under contract to produce
infrared components and subassemblies on many of the
next generation infrared missile systems.
Photronics Corp. has produced all major electro-optical
components such as MPBE and missile products in Hauppauge since
1986. In July 1995, DRS acquired substantially all of the assets
of Opto previously located in Melbourne, Florida through OMI.
In order to reduce its production costs, Photronics Corp.
consolidated a portion of its manufacturing operations to OMI's
new facility in Palm Bay, Florida. In addition, the move will
create space for the expansion of Photronics Corp.'s MPBE
programs in Hauppauge. Primary product programs at OMI include:
* Gunners Auxiliary Sight: This is an electro-optical
device used as a primary or backup sight on M1 Abrams
battle tanks and contains a very sophisticated electro-
optical train and a laser protective filter. OMI has
produced over 2,000 of these instruments and continues
to operate as a repair and retrofit facility for the
M1A2 upgrade program, which will continue through 1997,
with options through 1999.
* TOW Optical Sight: OMI is currently the only U.S.
qualified producer of this device. This complex
electro-optical system is the main component of the
U.S.'s premier anti-tank weapon system.
* TOW Traversing Unit: This unit provides target
tracking accuracy for the TOW anti-tank weapon, acting
as the mount for the TOW Optical Sight and the missile
launch tube. OMI is currently the only qualified
manufacturer of this tightly toleranced assembly, and
is currently working on modification and retrofit
programs. OMI has also been contracted to modify a
version for use by an overseas customer.
* Day/Night Tank Sighting System: This system was
developed in concert with a major primary contractor.
OMI is a major subcontractor, currently supplying three
of the major assemblies.
* Eyesafe Laser Rangefinder: OMI competed against the
U.S. Army's historical primary laser supplier for this
contract and was awarded an initial contract for
preproduction units.
* Improved TOW Acquisition System: Working with the same
primary contractor as referred to above, this antitank
system was developed for the U.S. Army's humvee
vehicle.
CUSTOMERS
A significant portion of the Company's products are sold to
agencies of the U.S. Government, primarily the Department of
Defense, to foreign government agencies or to prime contractors
or subcontractors thereof. Approximately 84%, 94% and 83% of
total consolidated revenues for fiscal 1995, 1994 and 1993,
respectively, were derived directly or indirectly from defense
contracts for end use by the U.S. Government and its agencies.
See "Export Sales" below for information concerning sales to
foreign governments.
BACKLOG
The following table sets forth the Company's backlog by
major product group (including enhancements, modifications and
related logistics support) at the dates indicated:
March 31, March 31, March 31,
1995 1994 1993
Government Products:
U.S. Government $115,200,000 $123,700,000 $123,900,000
Foreign Government 8,600,000 5,800,000 1,000,000
123,800,000 129,500,000 124,900,000
Commercial Products 2,200,000 5,100,000 1,200,000
$126,000,000 $134,600,000 $126,100,000
Approximately 54% of the backlog at March 31, 1995 is
expected to result in revenues during the fiscal year ending
March 31, 1996.
At December 31, 1995, the Company's backlog of orders was
approximately $147 million compared to $126 million at March 31,
1995. The increase in backlog for the first nine months of the
fiscal year was due to the net effect of bookings, partially
offset by revenues, and the addition of approximately $16 million
of backlog from the OMI Asset Acquisition. New contract awards
of approximately $71 million were booked during the nine-month
period ended December 31, 1995. As of January 28, 1996, backlog
totalled approximately $147 million, which includes approximately
$16 million of backlog from the OMI Asset Acquisition.
"Backlog" refers to the aggregate revenues remaining to be
earned at the specified date under contracts held by the Company,
including, for U.S. Government contracts, the extent of the
funded amounts thereunder which have been appropriated by
Congress and allotted to the contract by the procuring Government
agency. Fluctuations in backlog amounts relate principally to
the timing and amount of Government contract awards.
RESEARCH AND DEVELOPMENT
The military electronics industry is subject to rapid
technological changes and the Company's future success will
depend in large part upon its ability to improve existing product
lines and to develop new products and technologies in the same or
related fields. Thus, the Company's technological expertise has
been an important factor in its growth. A portion of its
research and development activities has taken place in connection
with customer-sponsored research and development contracts. All
such customer-sponsored activities are the result of contracts
directly or indirectly with the U.S. Government. The Company
also invests in Company-sponsored research and development. Such
expenditures were $800,000, $500,000 and $500,000 for fiscal
1995, 1994 and 1993, respectively. Revenues recorded by the
Company for customer-sponsored research and development were
$18,800,000, $27,500,000 and $19,200,000 for fiscal 1995, 1994
and 1993, respectively.
CONTRACTS
The Company's contracts are normally for production, service
or development. Production and service contracts are typically
of the fixed-price variety with development contracts currently
of the cost-type variety. Because of their inherent
uncertainties and consequent cost overruns, development contracts
historically have been less profitable than production contracts.
Fixed-price contracts may provide for a firm-fixed price or
they may be fixed-price-incentive contracts. Under the firm-
fixed-price contracts, the Company agrees to perform for an
agreed-upon price and, accordingly, derives benefits from cost
savings, but bears the entire risk of cost overruns. Under the
fixed-price-incentive contracts, if actual costs incurred in the
performance of the contracts are less than estimated costs for
the contracts, the savings are apportioned between the customer
and the Company. However, if actual costs under such a contract
exceed estimated costs, excess costs are apportioned between the
customer and the Company up to a ceiling. The Company bears all
costs that exceed the ceiling.
Cost-type contracts typically provide for reimbursement of
allowable costs incurred plus a fee (profit). Unlike fixed-price
contracts in which the Company is committed to deliver without
regard to performance cost, cost-type contracts normally obligate
the Company to use its best efforts to accomplish the scope of
work within a specified time and a stated contract dollar
limitation. In addition, U.S. Government procurement regulations
mandate lower profits for cost-type contracts because of the
Company's reduced risk. Under cost-plus-incentive-fee contracts,
the incentive may be based on cost or performance. When the
incentive is based on cost, the contract specifies that the
Company is reimbursed for allowable incurred costs plus a fee
adjusted by a formula based on the ratio of total allowable costs
to target cost. Target cost, target fee, minimum and maximum fee
and adjustment formula are agreed upon when the contract is
negotiated. In the case of performance-based incentives, the
Company is reimbursed for allowable incurred costs plus an
incentive, contingent upon meeting or surpassing stated
performance targets. The contract provides for increases in the
fee to the extent that such targets are surpassed and for
decreases to the extent that such targets are not met. In some
instances, incentive contracts also may include a combination of
both cost and performance incentives. Under cost-plus-fixed-fee
contracts, the Company is reimbursed for costs and receives a
fixed fee, which is negotiated and specified in the contract.
Such fees have statutory limits.
The percentages of revenues during fiscal 1995, 1994 and
1993 attributable to the Company's contracts by contract type
were as follows:
Year Ended March 31,
1995 1994 1993
Firm-fixed-price 74% 65% 88%
Fixed-price-incentive - 1% -
Cost-plus-incentive-fee 6% 17% 10%
Cost-plus-fixed-fee 20% 17% 2%
The increased percentage of cost-type contracts between
fiscal 1993 and fiscal 1995 reflects the U.S. Government's
increased use of cost-type development contracts, and the
continued predominance of fixed-price contracts reflects the fact
that production contracts comprise a significant portion of the
Company's U.S. Government contract portfolio.
The Company negotiates for and, generally, receives progress
payments from its customers of between 80-100% of allowable costs
incurred on the previously described contracts. Included in its
reported revenues are certain amounts which the Company has not
billed to customers. These amounts, approximately $7.9 million,
$5.9 million and $8.1 million as of March 31, 1995, 1994 and
1993, respectively, consist of costs and related profits, if any,
in excess of progress payments for contracts on which sales are
recognized on a percentage-of-completion basis.
Under generally accepted accounting principles, all U.S.
Government contract costs, including applicable general and
administrative expenses, are charged to work-in-progress
inventory and are written off to costs and expenses as revenues
are recognized. The Federal Acquisition Regulations ("FAR"),
incorporated by reference in U.S. Government contracts, provide
that Company-sponsored research and development costs are
allowable general and administrative expenses. To the extent
that general and administrative expenses are included in
inventory, research and development costs also are included.
Unallowable costs, pursuant to the FAR, have been excluded from
costs accumulated on U.S. Government contracts. Work-in-process
inventory included general and administrative costs (which
include Company-sponsored research and development costs) of $6.6
million and $3.8 million at March 31, 1995 and 1994,
respectively.
All domestic defense contracts and subcontracts to which the
Company is a party are subject to audit, various profit and cost
controls, and standard provisions for termination at the
convenience of the customer. Multi-year U.S. Government
contracts and related orders are subject to cancellation if funds
for contract performance for any subsequent year become
unavailable. In addition, if certain technical or other program
requirements are not met in the developmental phases of the
contract, then the follow-on production phase may not be
realized. Upon termination other than for a contractor's
default, the contractor normally is entitled to reimbursement for
allowable costs, but not necessarily all costs, and to an
allowance for the proportionate share of fees or earnings for the
work completed. Foreign defense contracts generally contain
comparable provisions relating to termination at the convenience
of the foreign government.
MARKETING
The Company's marketing activities are conducted by its
staff of marketing personnel and engineers. The Company's
domestic marketing approach begins with the development of
information concerning the present and future requirements of its
current and potential customers for defense electronics, as well
as those in the security and commercial communities serviced by
the Company's products. Such information is gathered in the
course of contract performance, research into the enhancement of
existing systems and inquiries into advances being made in
hardware and software development, and is then evaluated and
exchanged among marketing, research and engineering groups within
the Company to devise proposals responsive to the needs of
customers. The Company markets its products abroad through
independent marketing representatives.
COMPETITION
The military electronics defense industry is characterized
by rapid technological change. The Company's products are sold
in markets containing a number of competitors which are
substantially larger than the Company, devote substantially
greater resources to research and development and generally have
greater financial resources. Certain of such competitors are
also suppliers to the Company. The extent of competition for any
single project generally varies according to the complexity of
the product and the dollar volume of the anticipated award. The
Company believes that it competes on the basis of the performance
of its products, its reputation for prompt and responsive
contract performance, and its accumulated technical knowledge and
expertise. The Company's future success will depend in large
part upon its ability to improve existing product lines and to
develop new products and technologies in the same or related
fields.
In the military sector, the Company competes with many
first- and second-tier defense contractors on the basis of
product performance, cost, overall value, delivery and
reputation.
PATENTS
The Company has patents on many of its recording products
and certain commercial products. The Company does not believe
patent protection to be significant to its current operations;
however, future programs may generate the need for patent
protection.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing process for its products,
excluding optical products, consists primarily of the assembly of
purchased components and testing of the product at various stages
in the assembly process. Purchased components include integrated
circuits, circuit boards, sheet metal fabricated into cabinets,
resistors, capacitors, semiconductors and insulated wire and
cables. In addition, many of the Company's products use machined
castings and housings, motors and recording and reproducing
heads. Many of the purchased components have been fabricated to
Company designs and specifications. The manufacturing process
for the Company's optics products includes the grinding,
polishing and coating of various optical materials and machining
of metal components.
Although materials and purchased components generally are
available from a number of different suppliers, several suppliers
are the Company's sole source of certain components. If a
supplier should cease to deliver such components, other sources
probably would be available; however, added cost and
manufacturing delays might result. The Company has not
experienced significant production delays attributable to supply
shortages, but occasionally experiences procurement problems with
respect to certain components, such as semiconductors and
connectors. In addition, with respect to the Company's optical
products, certain exotic materials, such as germanium, zinc
sulfide and cobalt, may not always be readily available.
EXPORT SALES
The Company currently sells several of its products and
services in the international marketplace to countries such as
Canada, Germany, Australia and the Republic of China. Foreign
sales accounted for approximately 7%, 3% and 17% of the Company's
revenues in fiscal 1995, 1994 and 1993, respectively. Foreign
sales are derived under export licenses granted on a case-by-case
basis by the United States Department of State. The Company's
foreign contracts are generally payable in United States'
dollars.
EMPLOYEES
As of January 28, 1996, the Company employed 799 employees.
None of the Company's employees are represented by a labor union,
and the Company has experienced no work stoppages.
There is a continuing demand for qualified technical
personnel, and the Company believes that its future growth and
success will depend upon its ability to attract, train and retain
such personnel.
PROPERTIES
The Company leases approximately 6,000 square feet of office
space for its corporate headquarters in an office building at 5
Sylvan Way, Parsippany, New Jersey under a lease that expires in
fiscal 2001. The Company leases approximately 25,000 square feet
of space for administrative and engineering facilities at 138
Bauer Drive, Oakland, New Jersey. The Company leases the Oakland
building from LDR Realty Co., a partnership wholly-owned by
Leonard Newman and David E. Gross, under a lease which expires in
fiscal 1999. The Company believes that this lease was
consummated on terms no less favorable than those that could have
been obtained by the Company from an unrelated third party in a
transaction negotiated on an arms-length basis.
Precision Echo's engineering and principal operations are
located in a 55,000 square foot building at 3105 Patrick Henry
Drive, Santa Clara, California, under a lease which expires in
fiscal 2001. The operations of CMC and Ahead are conducted from
leased facilities in Santa Clara, California and Los Gatos,
California, respectively. These leased facilities, containing
71,000 square feet and 12,000 square feet, respectively, are
covered by leases, which, with respect to the CMC facility, is on
a month-to-month basis, and for the Ahead facility expires in
fiscal 1998. The operations of CMC and Ahead are currently in
the process of moving out of the facilities in Santa Clara and
Los Gatos and into a new facility in San Jose, California,
comprising 32,000 square feet pursuant to a five year lease
expiring in fiscal 2001.
Photronics Corp.'s principal and manufacturing facilities
are located in a 45,000 square foot building at 270 Motor
Parkway, Hauppauge, New York. The building, which is owned by
the Company, was built in 1983. See Note 10 to Consolidated
Financial Statements.
TAS leases 40,000 square feet in a building at 200
Professional Drive, Gaithersburg, Maryland that houses its
executive offices and principal engineering and manufacturing
facilities under a lease which expires in fiscal 2000. It also
conducts field service operations from locations in Virginia
Beach and Chesapeake, Virginia and National City, California.
These leased facilities, comprising 15,000 square feet, 20,000
square feet and 6,000 square feet, respectively, are covered by
leases, which, with respect to the Virginia locations, expire in
fiscal 1997, and for the California location, expires in fiscal
1999.
Laurel's manufacturing facilities and administrative offices
are located in a 29,000 square-foot building at 423 Walters
Avenue in Johnstown, Pennsylvania. The lease for this facility
expires in fiscal 1999. The Company also leases approximately
2,000 square feet of office space in Arlington, Virginia under a
lease which expires in fiscal 1998.
OMI leases 53,910 square feet in a building in Woodlake
Commerce Park, Palm Bay, Florida, for its operations and
administration offices. The related leases expire in fiscal
2006.
Total rent expense aggregated $2.5 million, $1.7 million,
$1.5 million and $1.9 million in fiscal 1995, 1994, 1993, and the
nine-month period ended December 31, 1995 (unaudited),
respectively.
ENVIRONMENTAL PROTECTION
The Company believes that its manufacturing operations and
properties are in material compliance with existing federal,
state and local provisions enacted or adopted to regulate the
discharge of materials into the environment, or otherwise protect
the environment. Such compliance has been achieved without
material effect on the Company's earnings or competitive
position.
LEGAL PROCEEDINGS
The Company is a party to various legal actions and claims
arising in the ordinary course of its business. In the Company's
opinion, the Company has adequate legal defenses for each of the
actions and claims and believes that their ultimate disposition
will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names of the directors and executive officers of the
Company, their positions and offices with the Company, and their
ages are set forth below:
NAME POSITIONS WITH THE COMPANY AGE
Mark S. Newman . . Chairman of the Board, President, 46
Chief Executive Officer and
Director
Nancy R. Pitek . . Controller, Treasurer and 39
Secretary
Paul G. Casner, Jr. Vice President; President of DRS 58
Electronic Systems Group;
President of TAS
Stuart F. Platt . . Vice President and Director; 62
President of Precision Echo
Richard Ross . . . Vice President; President of 41
Photronics Corp.
Leonard Newman . . Director and Chairman Emeritus 71
Jack Rachleff . . . Director 82
Theodore Cohn . . . Director 72
Mark N. Kaplan . . Director 65
Donald C. Fraser . Director 54
Mark S. Newman has been employed by the Company since 1973,
was named Vice President, Finance, Chief Financial Officer and
Treasurer in 1980 and Executive Vice President in 1987. Mr.
Newman became a Director of the Company in 1988. In May 1994,
Mr. Newman became the President and Chief Executive Officer of
the Company and in August 1995 became Chairman of the Board.
Mark Newman is the son of Leonard Newman.
Nancy R. Pitek joined the Company in 1984 as Manager of
Accounting. She became Assistant Controller in 1985 and Director
of Internal Audit in 1988. Ms. Pitek became Director of
Corporate Finance in 1990 and has been the Controller since 1993.
In May 1994, she was also appointed to the position of Treasurer
and in August 1995 became Secretary.
Paul G. Casner, Jr. joined the Company in 1993 as President
of TAS. In 1994 he also became President of DRS Electronic
Systems Group and a Vice President of the Company. Mr. Casner
has over 30 years of experience in the defense electronics
industry and has held positions in engineering, marketing and
general management. He was the president of TAS prior to its
acquisition by the Company.
Stuart F. Platt has been a Director of the Company since
1991 and became the President of Precision Echo in July 1992. He
was named Vice President of the Company in May 1994. Rear
Admiral Platt is a co-founder and director of FPBSM Industries,
Inc., a holding company and management consulting firm for
defense, aerospace and other technology-based companies, and the
Chairman of Stuart Platt & Partners, a management consulting firm
handling principally defense-related issues. He also serves as
director for Harding Associates, Inc. None of these companies is
a parent, subsidiary or affiliate of the Company. Rear Admiral
Platt held various positions as a military officer in the
Department of the Navy, retiring as Competition Advocate General
of the Navy in 1986.
Richard Ross was employed by the Company as Assistant Vice
President and Director, Sales in 1986 and Assistant Vice
President, Corporate Development in 1987. In 1988, he became
Vice President of the Company, and in 1990, he became President
of Photronics Corp.
Leonard Newman has been a Director of the Company since 1968
and was Chairman of the Board and Secretary of the Company from
1971 until August 1995. In August 1995, Mr. Newman was appointed
Chairman Emeritus. From 1971 until May 1994, Mr. Newman also
served as the Company's Chief Executive Officer. Leonard Newman
is the father of Mark S. Newman.
Jack Rachleff has been a Director of the Company since 1968.
Mr. Rachleff has been employed since 1952 by Fablok Mills, Inc.,
a textile manufacturer, and has been its President since February
1982.
Theodore Cohn has been a Director of the Company since 1980.
He has been an independent management consultant since 1974. Mr.
Cohn also serves as a director of Dynatech Corporation.
Mark N. Kaplan has been a Director of the Company since
1986. Mr. Kaplan has been a member of the law firm of Skadden,
Arps, Slate, Meagher & Flom since 1979. Mr. Kaplan also serves
as director of American Biltrite Inc., Grey Advertising Inc.,
Harvey Electronics Inc., REFAC Technology Inc., Congoleum
Corporation, MovieFone, Inc. and Volt Information Sciences, Inc.
Donald C. Fraser became a Director of the Company in 1993.
He currently serves as director of the Boston University Center
for Photronics Research and as professor of engineering and
physics at the university. From 1991 to 1993, Dr. Fraser was the
Principal Deputy Under Secretary of Defense, Acquisition, with
primary responsibility for managing the Department of Defense
acquisition process, including setting policy and executing
programs. He also served as Deputy Director of Operational Test
and Evaluation for Command, Control, Communication and
Intelligence, from 1990 to 1991, a position which included top
level management and oversight of the operational test and
evaluation of all major Department of Defense communication,
command and control, intelligence, electronic warfare, space and
information management system programs. From 1981 to 1988, Dr.
Fraser was employed as the Vice President, Technical Operations
at Charles Stark Draper Laboratory and, from 1988 to 1990, as its
Executive Vice President.
EXECUTIVE COMPENSATION
Summary of Cash and Certain other Compensation. There is
shown below information concerning the annual and long-term
compensation for services in all capacities to the Company for
the fiscal years ended March 31, 1995, 1994 and 1993, of those
persons who were, at March 31, 1995 (i) the chief executive
officer and (ii) the other four most highly compensated executive
officers of the Company (the "Named Officers"):
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation (i) Awards
Stock All Other
Name and Principal Fiscal Salary Bonus Options Compensation
Position Year ($) ($) (#) ($)
Leonard Newman . 1995 321,910 0 0 57,000(a)(b)(c)(d)
Chairman of the 1994 331,140 100,000 0 52,538(a)(b)(c)(d)
Board 1993 332,294 20,000 0 43,974(a)(b)(c)(d)
& Secretary
Mark S. Newman . 1995 281,344 120,000 150,000(f) 19,440(b)(c)(d)
President & 1994 230,767 52,993 0 86,728(b)(c)(d)(e)
Chief 1993 226,083 15,000 0 13,910(b)(c)(d)
Executive
Officer
Paul G. Casner, Jr. 1995 198,000 40,000 0 32,201(b)(d)(h)
Vice President &
President--
Electronics
Systems Group
Stuart F. Platt . 1995 256,970 50,000 0 4,414(c)(d)
Vice President & 1994 262,854 21,597 5,000(g) 3,664(c)(d)
President-- 1993 187,889 0 0 2,426(c)(d)
Precision Echo
Richard Ross . . 1995 198,618 36,000 0 9,070(b)(c)(d)
Vice President & 1994 155,596 27,237 5,000(g) 7,010(b)(c)(d)
President-- 1993 159,166 10,000 0 5,851(b)(c)(d)
Photronics
___________________
(a) Includes deferred compensation of $25,000 pursuant to a
Deferred Compensation Agreement (as defined herein) between
the Company and Mr. L. Newman. See "-Deferred Compensation
Agreement."
(b) Includes the amounts of employer contributions which vested
pursuant to the Company's Retirement/Savings Plan (as
defined herein) (See"-Retirement/Savings Plan") in the
fiscal years ended March 31, 1995 and 1994, respectively, in
the accounts of the Named Officers, as follows: Mr. L.
Newman, $4,292 and $1,626; Mr. M. Newman, $4,838 and $3,530;
Mr. P. Casner, Jr., $3,000; and Mr. R. Ross, $3,486 and
$2,234. There were no employer contributions under the
Retirement/Savings Plan during fiscal 1993.
(c) Includes the fixed annual amounts, computed on a fiscal year
basis, provided by the Company for the benefit of the Named
Officers, to reimburse such officers for the amounts of
medical and hospital expenses actually incurred by them,
which are not covered or paid to them under the Company's
group medical and hospitalization plans during the fiscal
years ended March 31, 1995, 1994 and 1993, respectively, as
follows: Mr. L. Newman, $4,000, $3,250 and $3,750; Mr. M.
Newman, $4,500, $3,250 and $5,250; Mr. S. Platt, $4,000,
$3,250 and $2,150; and Mr. R. Ross, $4,000, $3,250 and
$4,500.
(d) The Company pays the cost of policies of life insurance and
long-term disability insurance, in excess of the amounts
furnished under the group coverage provided to all
employees, for the benefit of the Named Officers. Under
certain of the life insurance policies, the Company is a
beneficiary to the extent of the premiums paid. The total
amounts of the premiums paid by the Company or the economic
benefit to the Named Officers for such insurance policies
during the fiscal years ended March 31, 1995, 1994 and 1993,
respectively, were as follows: Mr. L. Newman, $23,708,
$22,662 and $15,224; Mr. M. Newman, $10,102, $9,948, and
$8,660; Mr. P. Casner, Jr., $124; Mr. S. Platt, $414, $414
and $276; and Mr. R. Ross, $1,584, $1,526 and $1,350.
(e) Includes $70,000 earned by Mark S. Newman as a consequence
of his involvement in the Company's October 1993 acquisition
of TAS.
(f) Represents non-qualified stock options to purchase 50,000
shares of Class B Common Stock and incentive stock options
to purchase 100,000 shares of Class B Common Stock issued to
Mr. M. Newman under the Company's 1991 Stock Option Plan
(the "1991 Stock Option Plan"). Such options, granted on
June 9, 1994, became exercisable six months from the date of
grant with respect to 20% of such options and are further
exercisable cumulatively at 20% per year on each of the
first four anniversaries of the date of grant.
(g) Represents incentive stock options to purchase shares of
Class B Common Stock issued to the Named Officers under the
Company's 1991 Stock Option Plan. Such options, granted on
August 5, 1993, became exercisable six months from the date
of grant with respect to 20% of such options and are further
exercisable cumulatively at 20% per year on each of the
first four anniversaries of the date of grant.
(h) Includes forgiveness of principal and interest owed pursuant
to the Grid Note (as defined herein) in an amount equal to
$29,077.
(i) The dollar value of perquisites and other personal benefits
provided for the benefit of the Named Officers during the
fiscal years ended March 31, 1995, 1994 and 1993,
respectively, did not exceed the lesser of either $50,000 or
10% of the total annual salary and bonus reported for the
Named Officers in those period. There were no other amounts
of compensation required to be reported as "Other Annual
Compensation", by Item 402 of Regulation S-K, earned by the
Named Officers.
Stock Options. The following table contains information
concerning the grant of stock options under the Company's 1991
Stock Option Plan to the Named Officer during the Company's
fiscal year ended March 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term
Number % of
of Total
Securi- Options
ties Granted
Under- to
lying Employ Exer-
Options ees in cise Expira-
Granted Fiscal Price tion
Name (#) 1995 ($/Sh) Date 0% ($) 5%($)(c) 10%($)(c)
Mark S. Newman 50,000(a) 33.0% $0.01 06/08/99 $224,500 $286,500 $362,000
______________ 100,000(b) 67.0% $4.95 06/08/99 --- $79,000 $230,000
______________
(a) The options granted were for shares of Class B Common Stock
at an exercise price equal to the par value of the Company's
Class B Common Stock on the date of grant. The options
become exercisable over a five year period in increments of
20% beginning six months from the date of grant and
continuing at an additional 20% per year on the anniversary
of the date of grant. The grant date of the options was
June 9, 1994.
(b) The options granted were for shares of Class B Common Stock
at an exercise price equal to 110% of the fair market value
of the Company's Class B Common Stock on the date of grant.
The options become exercisable over a five year period in
increments of 20% beginning six months from the date of
grant and continuing at an additional 20% per year on the
anniversary of the date of grant. The grant date of the
options is June 9, 1994.
(c) The amounts shown under these columns are the result of
calculations at the 5% and 10% rates required by the SEC and
are not intended to forecast future appreciation of the
Company's stock price.
Option Exercises and Fiscal Year-End Values. Shown below is
information with respect to the options exercised during fiscal
1995 by the Named Officers and the unexercised options to
purchase the Company's Class A and Class B Common Stock granted
through March 31, 1995 under the Company's 1981 Incentive Stock
Option Plan, 1981 Non-Qualified Stock Option Plan and 1991 Stock
Option Plan to the Named Officers and held by them at that date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-
END OPTION VALUE
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options in-the-Money Options
at March 31, 1995 at March 31, 1995(a)
______________________________________ _____________________________________
Class A Class B Class A Class B
Common Common Common Common
Stock Stock Stock Stock
Shares __________________ __________________ __________________ __________________
Acquired Value Un- Un- Un- Un-
on Real- Exer- exer- Exer- exer- Exer exer- Exer- exer
Exercise ized cisa cisa cisa cisa cisa cisa cisa cisa
Name (#) ($) ble ble ble ble ble ble ble ble
________ ________ ________ ________ ________ ________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Leonard Newman -- -- -- -- 25,000 -- -- -- $85,925 --
Mark S. Newman -- -- 40,000 -- 30,000 120,000 $105,500 -- $65,900 $263,600
Paul G. Casner, Jr. -- -- -- -- 20,000 30,000 -- -- $109,800 $164,700
Stuart F. Platt -- -- -- -- 2,000 3,000 -- -- $3,750 $5,625
Richard Ross 10,600 $32,719 -- -- 2,000 3,000 -- -- $3,750 $5,625
<FN>
___________________
(a) Based on the difference between the exercise price of each
grant and the closing price on the AMEX-Composite
Transactions of the Company's Class A and Class B Common
Stock on that date, $5.25 and $5.50, respectively.
</TABLE>
DEFERRED COMPENSATION AGREEMENT
In June 1993, pursuant to approval by the Board of
Directors, the Company and Mr. Leonard Newman entered into a
deferred compensation agreement (the "Deferred Compensation
Agreement") providing for certain deferred benefits which would
become payable upon the termination of his employment for any
reason including death, and providing for certain changes to
certain insurance policies maintained by the Company. Under the
terms of the Deferred Compensation Agreement, in the event of
termination of employment compensation (the "Deferred Benefit")
equal to $25,000 multiplied by the number of complete years of
employment from July 1, 1969 through the date of termination of
employment, payable in twenty quarterly installments commencing
on the first day of the month following the date of termination,
is to be provided to Mr. L. Newman or, in the case of death, to
his designated beneficiary. The terms used for computing the
Deferred Benefit are similar in all material respects to those
that had been used in the computation of deferred compensation
provided pursuant to an employment agreement that expired on June
30, 1990, between the Company and Mr. L. Newman. In the event of
permanent disability, as defined in the Deferred Compensation
Agreement, the Company is required to pay the employee an amount
equal to five times the employee's annual base compensation in
effect immediately prior to his permanent disability. Such
payments are to be made on the Company's regular payroll dates
during the five-year period following the permanent disability.
In the event of the death of the employee during the five-year
pay-out period, the Company will pay to the employee's designated
beneficiary the Deferred Benefit described above reduced by the
total of the disability payments previously paid in equal
quarter-annual installments over the remainder of the five-year
period. In addition, pursuant to the terms of the Deferred
Compensation Agreement, a keyman term insurance policy owned by
the Company for Mr. L. Newman was transferred to him. The
Company is required to provide Mr. L. Newman, on an annual basis,
the sum sufficient to pay the schedule premium on such policy.
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
In April 1994, the company entered into agreement with Mr.
Richard Ross which provided for a severance benefit in the event
of (i) termination of his employment other than for cause, (ii)
diminution in compensation and/or responsibilities and (iii) the
change in ownership of the Company or Photronics. The severance
benefit is equal to 30 months of Mr. Ross' then current salary
plus reimbursement of outplacement expenses up to a maximum of
$15,000.
Effective July 20, 1994, the Company entered into the Gross
Agreement and the Gross Stock Purchase Agreement with David E.
Gross. Under the terms of the Gross Agreement, Mr. Gross will
receive a total of $600,000 over a five-year period as
compensation for his services pursuant to a five-year consulting
arrangement with the Company and a total of $750,000 over a five-
year period as consideration for a five-year non-compete
arrangement. The payments will be charged to expense over the
terms of the Gross Agreement as services are performed and
obligations are fulfilled by Mr. Gross. Mr. Gross will also
receive at the conclusion of such initial five-year period, an
aggregate of approximately $1.3 million payable over a nine-year
period as deferred compensation. The net present value of the
payments to be made to Mr. Gross pursuant to the deferred
compensation portion of the Gross Agreement approximated the
amount of the Company's previous deferred compensation
arrangement with Mr. Gross. In addition to the Buy-Back, the
Gross Stock Purchase Agreement also provides that (i) the Company
has a right of first refusal with respect to the sale by Mr.
Gross of any of the remaining shares of common stock of the
Company held by Mr. Gross in excess of 20,000 shares, (ii) any
shares of common stock of the Company held by Mr. Gross must be
voted pro rata in accordance with the vote of the Company's other
stockholders and (iii) in the event of a change in control of the
Company within three years from the date of the Gross Stock
Purchase Agreement, Mr. Gross will receive a percentage of the
difference between the price per share paid to Mr. Gross pursuant
to the Buy-back and the price per share received by the
stockholders of the Company pursuant to the change of control
transaction, less an interest factor, as defined in the Gross
Stock Purchase Agreement, on the aggregate amount paid to Mr.
Gross pursuant to the Buy-back.
The Company is currently negotiating the Newman Agreement
between the Company and Leonard Newman, its former Chairman of
the Board and Secretary of the Company. Pursuant to the Newman
Agreement, it is expected that Mr. Newman will receive certain
compensation from the Company over a five-year period for
consulting services and non-compete arrangement. In addition,
Mr. Newman will receive certain retirement benefits payable over
a ten-year period at the conclusion of such initial five-year
period. Results of operations for fiscal 1995 reflect a charge
of $1.5 million representing the estimated net present value of
the Company's obligation under the Newman Agreement. The
corresponding amount was included in Other Liabilities in the
Consolidated Balance Sheet at March 31, 1995 as an addition to
the accrual which had been established to cover the Company's
liability to Mr. Newman under a previous deferred compensation
arrangement described above.
RETIREMENT/SAVINGS PLAN
The Summary Compensation Table above includes amounts
deferred by the Named Officers pursuant to the Company's
Retirement/Savings Plan under Section 401(k) of the Internal
Revenue Code of 1986 (the "Retirement/Savings Plan"). The value
of a participant's contributions to the Retirement/Savings Plan
is fully vested at all times; the value of employer contributions
becomes 50% vested after the employee has completed three years
of service, 75% vested after completion of four years of service,
and 100% vested after completion of five years of service.
MEDICAL REIMBURSEMENT PLAN
At the beginning of each calendar year, the Company accrues
fixed annual amounts for the benefit of certain officers to be
paid as needed to reimburse such officers for the amounts of
medical and hospital expenses actually incurred by such officers
which are not covered, and until January 1, 1993, the excess of
the amounts of medical and hospital expenses actually incurred
by such officers over the amount paid to them, under the
Company's group medical and hospitalization plans. The amount
accrued for the benefit of each such officer is included in such
officer's compensation for tax purposes regardless of whether
such accrued amount is actually paid to him. The excess of the
amount accrued over the amounts paid is used to offset the
administrative expenses payable by the Company to the medical
insurance carrier.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Leonard Newman, who was appointed to the Board of
Director's Executive Compensation Committee on May 26, 1994,
served as the Chairman of the Board and Secretary of the Company
during fiscal 1995. Mr. Newman does not participate in
compensation decisions relating to himself or Mark S. Newman.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During fiscal 1995, the Executive Compensation Committee
(the "Committee") established the compensation of the Chief
Executive Officer and the President of the Company. The bonus
awards of the Named Officers in respect of the 1995 fiscal year
were determined at a meeting of the Committee as constituted on
May 23, 1995. In determining the individual elements of
compensation, the Committee strives to enable the Company to
attract and retain key executives critical to the long-term
success of the Company and each of its subsidiaries, provide
compensation opportunities which are comparable to those offered
by similar companies, reward long-term strategic management and
the enhancement of shareholder value and create a performance-
oriented environment.
In order to meet the foregoing objectives, the Committee has
attempted to design and choose components of compensation. The
Committee consulted with Compensation Resources, Inc. to assist
in this process and provide competitive information, advice,
documentation and recommendations relating to compensation
issues. Compensation packages consist of cash, certain benefits
and equity-based compensation. The Company's compensation
provides for competitive base salaries which reflect individual
performance, level of responsibility and are based on
compensation paid by companies of relatively similar size in the
same industry as that of the Company. Annual bonuses, when
given, are linked to the financial performance of the Company and
its subsidiaries as a whole, job performance and the meeting of
specified goals. Also included are plans which reward the
enhancement of long-term values to the Company's stockholders.
The other components of the Company's compensation focus on both
short-term and long-term performance, rewarding profitability and
growth in stockholder value and delivering competitive levels of
compensation.
The compensation of the Chief Executive Officer was based on
the policies described above. The Chief Executive Officer's
compensation for the fiscal year ending March 31, 1995 was based
on a comparison of compensation provided to chief executive
officers and other members of senior management of companies of
relatively similar size within the same industry as that of the
Company. The bonus award for fiscal 1995 was computed on the
basis of a formula that applied a weighted performance factor to
a target award established for the Chief Executive Officer's
salary level. The weighted performance factor was derived as a
result of the Chief Executive Officer's achievement of certain
Company and individual performance targets including, but not
limited to, the achievement of a certain level of consolidated
earnings before income taxes for fiscal 1995.
For fiscal 1995, the Chief Executive Officer recommended the
compensation, excluding the bonus awards, for the other Named
Officers, based on substantially the same criteria as described
above. Bonus awards for the other Named Officers were computed
by the Committee on a similar basis as that used for the Chief
Executive Officer using specific target awards that had been
established for each individual's salary level.
The Committee has not formally addressed the restrictions
under Section 162(m) of the Internal Revenue Code because the
Committee does not anticipate paying compensation to its
executive officers in an amount to which Section 162(m) would
apply.
Mark N. Kaplan, Chairman
Donald C. Fraser
Jack Rachleff
Leonard Newman until 8/8/95
Theodore Cohn since 8/8/95
PERFORMANCE GRAPH
Set forth below is a chart comparing the yearly percentage
change in the cumulative total stockholder return on the
Company's Class A and Class B Common Stock against the total
return of the AMEX Market Index and a peer group index consisting
of companies comprising the Standard Industrial Classification
(SIC) Codes 3812, Search and Navigation Equipment and 3827,
Optical Instruments and Lenses. A listing of the companies
included in these SIC Codes is available through publications,
such as the Standard Industrial Classification Manual, and
computer data bases, such as Dialog Information Systems. SIC
Code 3812 includes both the Company's Class A and Class B Common
Stock.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG DIAGNOSTIC/ RETRIEVAL SYSTEMS, INC.
CLASS A AND CLASS B COMMON STOCK,
AMEX MARKET INDEX AND PEER GROUP INDEX
Class A Class B AMEX Peer
Common Stock Common Stock Market Index Group Index
1990 100 100 100 100
1991 100 124.10 101.91 111.11
1992 58.06 136.34 109.25 59.26
1993 95.16 170.70 117.52 100
1994 96.77 194.42 121.11 114.81
1995 135.48 211.66 127.73 162.96
* Assumes that the value of the investment in the Company's Class A and
Class B Common Stock and each index was $100 on April 1, 1990 and that
all dividends were reinvested.
SECURITY OWNERSHIP
The following table shows, as of January 15, 1996, the
number of shares of Class A Common Stock and Class B Common Stock
held by each director and executive officer, and by all directors
and executive officers of the Company as a group and the
percentage of each class beneficially owned (within the meaning
of Rule 13d-3 of the Exchange Act).
Class A Class B
Common Stock (a) Common Stock (a)(b)
_________________________ _________________________
Name of Percent Percent
Beneficial Owner Shares of Class Shares of Class
___________ ___________ ___________ ___________
Leonard Newman 617,600 18.7% 200,824 29.6%
Mark S. Newman 71,618(c)(f) 2.2 92,531(d)(e)(g) 7.2
Theodore Cohn 1,600 (h) 4,300 0.3
Donald C. Fraser ____ ___ ___ ___
Mark N. Kaplan 1,000 (h) ___ ___
Stuart F. Platt ____ ___ 3,000(e) 0.1
Jack Rachleff 1,000 (h) ___ ___
Paul G. Casner, Jr 1,000 (h) 30,000 1.4
Nancy R. Pitek 5,724(c) 0.2 8,583(d)(e) 0.7
Richard Ross ____ ___ 3,000(e) 0.1
All directors and
executive
officers as a
group
(10 persons) 699,542(c)(f) 21.2% 342,238(d)(e)(g) 35.3%
__________________
(a) As of January 15, 1996, the Company had outstanding 3,307,324 shares
of Class A Common Stock (excluding 432,639 shares of Class A Common
Stock held in treasury) and 2,151,458 shares of Class B Common Stock
(excluding 65,795 shares of Class B Common Stock held in treasury).
Unless otherwise noted, each director and executive officer had sole
voting power and investment power over the shares of Class A Common
Stock and Class B Common Stock indicated opposite such director's and
executive officer's name.
(b) Each share of Class A Common Stock is convertible at any time into one
share of Class B Common Stock and, accordingly, each person who owns
Class A Common Stock may be deemed to be the beneficial owner of the
number of shares of Class B Common Stock equal to the number of shares
of Class A Common Stock owned. The number of shares of Class B Common
Stock shown does not include the number of shares of Class B Common
Stock into which the number of shares of Class A Common Stock shown
may be converted. However, the computation of the percentage of class
shown includes the number of shares of Class B Common Stock into which
the number of shares of Class A Common Stock shown may be converted.
(c) Includes 5,724 shares of Class A Common Stock held by the trustee of
the Company's Retirement/Savings Plan. Mr. M. Newman and Ms. N. Pitek
share the power to direct the voting of such shares as members of the
administrative committee of such plan. Mr. M. Newman and Ms. N. Pitek
disclaim beneficial ownership as to and of such shares.
(d) Includes 7,383 shares of Class B Common Stock held by the trustee of
the Company's Retirement/Savings Plan. Mr. M. Newman and Ms. N. Pitek
share the power to direct the voting of such shares as members of the
administrative committee of such plan. Mr. M. Newman and Ms. N. Pitek
disclaim beneficial ownership as to and of such shares.
(e) Includes shares of Class B Common Stock which might be purchased upon
exercise of options which were exercisable on January 15, 1996 or
within 60 days thereafter, as follows: Mr. P. Casner, Jr., 30,000
shares; Mr. Newman, 60,000 shares; Ms. N. Pitek, 1,200 shares; Mr. S.
Platt, 3,000 shares; Mr. R. Ross, 3,000 shares; and all directors and
executive officers as a group, 97,200 shares.
(f) Includes 3,200 shares of Class A Common Stock held by Mr. M. Newman as
custodian for his daughter over which Mr. M. Newman has sole voting
and investment power.
(h) Less than 0.1%.
The following table sets forth certain information, as of
January 15, 1996 with respect to each person, other than
executive officers and directors of the Company, which has
advised the Company that it may be deemed to be the beneficial
owner (within the meaning of Rule 13d-3 of the Exchange Act) of
more than five percent of a class of voting securities of the
Company. Such information has been derived from statements on
Schedule 13D or 13G filed with the SEC by the person(s) listed
below.
Class A Class B
Common Stock Common Stock
_________________________ _________________________
Amount and Amount and
Nature of Nature of
Name and Address Beneficial Percent of Beneficial Percent
of Beneficial Ownership Class Ownership of Class
Owner
_________________________ _________________________
First Pacific
Advisors, Inc.
10301 West Pico Blvd.
Los Angeles, CA
90064 . . . . . . 965,678(a) 25.7% 1,717,955(d) 51.7%
Michael N. Taglich
Taglich Brothers,
D'Amadeo, Wagner &
Company, Incorporated
100 Wall Street
New York, NY
10005 . . . . . . 286,550(b) 8.7 529,850(f) 21.7
David E. Gross
27 Cameron Road
Saddle River,
NJ 07458 . . . . 65,880(c) 2.0 335,701(e) 15.1
__________________
(a) Includes 451,978 shares of Class A Common Stock from the assumed
conversion of $4,000,000 principal amount of the Debentures and
310,000 shares of Class A Common Stock beneficially owned by First
Pacific Advisors, Inc. ("First Pacific") through control of FPA
Capital Fund, Inc. ("FPA") to which First Pacific serves as investment
advisor. The Company has been advised that FPA has sole voting power
and shared dispositive power with respect to 310,000 shares. First
Pacific has advised the Company that it has shared voting power with
respect to 100,000 shares and shared dispositive power with respect to
965,678 shares.
(b) Consists of 186,300 shares of Class A Common Stock held by Lander
Partners, Inc. ("Lancer Partners"), 7,500 shares of Class A Common
Stock held by Antrade, N.V. ("Antrade"), 10,200 shares of Class A
Common Stock held by Album N.V. ("Album"), 7,600 shares of Class A
Common Stock held by Ralco Investments Group ("Ralco"), 71,100 shares
of Class A Common Stock held by Lancer Offshore, Inc. ("Lancer
Offshore") and 3,850 shares of Class A Common Stock held by Michael
Lauer. Michael N. Taglich and Michael Lauer serve as general partners
of Lancer Partners and managing partners of Lancer Offshore. The
Company has been advised that Messrs. Taglich and Lauer also share
voting and dispositive authority over the shares held by Album,
Antrade and Ralco resulting in shared voting and shared dispositive
power with respect to a total of 282,700 shares.
(c) Includes 25,000 shares of Class A Common Stock held by Mr. Gross for
which he has voting and dispositive power. Also included are 20,000
shares of Class A Common Stock held by David E. Gross' wife
personally, and 20,880 shares of Class A Common Stock held by her as
custodian for her two children, as to which Mr. Gross disclaims any
beneficial interest and over which he has neither voting power nor
investment power.
(d) Consists of 543,000 shares of Class B Common Stock, the beneficial
ownership of 513,700 shares of Class B Common Stock from the assumed
conversion of Class A Common Stock, beneficial ownership of 451,978
shares of Class B Common Stock from the assumed conversion of
$4,000,000 principal amount of the Debentures and an additional
208,877 shares of Class B Common Stock from the assumed conversion of
$3,133,000 principal amount of the Company's 1998 Debentures
beneficially owned by First Pacific through its control of FPA, Source
Capital, Inc. ("Source Capital") and FPA New Income, Inc. ("New
Income") to which First Pacific serves as investment advisor. The
Company has been advised that FPA has sole voting power and shared
dispositive power with respect to 510,000 shares, Source Capital has
sole voting power and shared dispositive power with respect to 262,363
shares and New Income has sole voting power and shared dispositive
power with respect to 339,328 shares. First Pacific has advised the
Company that it has shared dispositive power with respect to 1,717,955
shares.
(e) Includes 257,381 shares of Class B Common Stock held by Mr. Gross for
which he has sole voting and dispositive power and the beneficial
ownership of an additional 25,000 shares of Class B Common Stock
through the assumed conversion of Class A Common Stock owned, as
described in note (c) above. Also included are 6,000 shares of Class
B Common Stock held by Mrs. Gross' wife personally, 6,440 shares of
Class B Common Stock held by her as custodian for her two children and
the beneficial ownership of an additional 40,880 shares of Class B
Common Stock through the assumed conversion of the shares of Class A
Common Stock owned by Mr. Gross' wife and held by her as custodian for
her two children, as described in note (c) above. Mr. Gross has
neither voting power nor investment power over the shares of Class A
Common Stock and Class B Common Stock held by his wife, either
personally or as custodian for her children, and disclaims any
beneficial interest in such shares.
(f) Consists of 126,150 shares of Class B Common Stock held by Lancer
Partners, 4,000 shares of Class B Common Stock held by Antrade, 5,000
shares of Class B Common Stock held by Album, 4,000 shares of Class B
Common Stock held by Ralco, 85,750 shares of Class B Common Stock held
by Lancer Offshore, 18,400 shares of Class B Common Stock held by
Michael Lauer and the assumed conversion of the shares of Class A
Common Stock owned by each of such entities, respectively, as
described in note (b) above. The Company has been advised that
Messrs. Taglich and Lauer share voting and dispositive authority over
the shares held by Album, Antrade and Ralco resulting in shared voting
and shared dispositive power with respect to a total of 224,700 shares
of the Class B Common Stock and assuming the conversion of the Class A
Common Stock, with respect to an additional 282,700 shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was a party to a loan agreement, as amended
March 30, 1993, entered into with Leonard Newman as the Chairman
of the Board, Chief Executive Officer and Secretary of the
Company (the "Newman Loan"). At March 31, 1995, the outstanding
principal amount due to the Company was $160,257. The original
Newman Loan in the principal amount of $267,000 was made in March
1984 to provide financing for the purchase of a new house, closer
to the offices of the Company, during the time required to sell
his old house. The loan was restructured in October 1986 with
the Board of Directors authorizing a new loan to Mr. Newman in
the principal amount of $111,430, which was used to pay all
amounts then due and outstanding under the original Newman Loan.
With the concurrence of the Board of Directors and Mr. Newman, an
advance of $77,500 made to Mr. Newman by the Company in October
1989 against an anticipated bonus was converted subsequently into
a loan in that amount from the Company. In March 1990, the Board
of Directors authorized a consolidation of the then outstanding
principal amount and accrued interest on each of the two
outstanding Newman Loans. The consolidated loan in the principal
amount of $160,257 was evidenced by a promissory note bearing
interest at the rate of 1% over the prime commercial rate of
interest as announced from time to time by Morgan Guaranty Trust
Company of New York and was secured by a pledge of 109 shares
owned by Mr. Newman in, and an assignment of his interest in a
proprietary lease from, an apartment corporation in New York
City. Pursuant to approval by the Board of Directors effective
March 1993, the maturity date of the consolidated loan was
extended from March 30, 1993 to March 30, 1996. Principal and
interest on the consolidated loan was due in one installment at
maturity and could be paid in cash or in shares of Class A Common
Stock or Class B Common Stock of the Company, or in any
combination of cash or such shares. At March 31, 1995, the
largest aggregate amount of indebtedness under the consolidated
Newman Loans since April 1, 1994 was $244,355. The loan was
repaid as of June 1995.
The Company is currently occupying and leasing a building at
138 Bauer Drive (the "LDR Building") owned by LDR Realty Co.
("LDR"), a partnership wholly owned, in equal amounts, by Leonard
Newman and David E. Gross, the former President and Chief
Technical Officer of the Company. The current renegotiated lease
agreement is for a ten-year term beginning June 1, 1988 at a
monthly rental of $19,439. The Company is required to pay all
real estate taxes and is responsible for all repairs and
maintenance, structural and otherwise, subject to no cumulative
limits. The terms of the LDR lease were determined by the
Company and LDR, based on the formal appraisal of an appraisal
firm and informal appraisals from real estate brokers in the
area. Such appraisals indicated that the rental provided for in
the LDR lease is not in excess of the range of fair market
rentals in the relevant area. The Company believes that the LDR
lease was consummated on terms no less favorable than those that
could have been obtained by the Company from an unrelated third
party in a transaction negotiated on an arms-length basis.
Skadden, Arps, Slate, Meagher & Flom, a law firm of which
Mark N. Kaplan, a director, is a member, provided legal services
to the Company during its 1995 fiscal year.
In July 1993, the Company and Donald C. Fraser, a director,
entered into a consulting agreement pursuant to which Dr. Fraser
will provide consultation to the Company concerning defense
technologies. Under the terms of the consulting agreement, as
amended, consulting services are to be provided to the Company
through July 5, 1995 on an as-requested basis, for a fee of
$1,500 per day plus approved travel and miscellaneous expenses.
During fiscal 1995, total remuneration paid to Dr. Fraser under
this agreement approximated $9,000.
In October 1993, the Company issued a Demand Grid Note (the
"Grid Note") in the principal amount of $100,000 to Paul G.
Casner, Jr. The loan bears interest at the applicable federal
rate necessary under the Internal Revenue Code of 1986, as
amended, to avoid an imputed rate of interest.
In May 1995, the Company became a party to a loan with Mark
S. Newman, the President and Chief Executive Officer of the
Company, to provide an amount equal to the exercise price of
incentive stock options which had been granted to him under the
Company's 1981 Incentive Stock Option Plan. The loan is
evidenced by a promissory note in the principal amount of
$104,500 and bears interest at an annual rate of 8%. The loan
is payable on the earlier of (i) the sale or disposition of the
shares of stock obtained pursuant to the exercise of the stock
options, (ii) cessation of Mr. M. Newman's employment by the
Company or (iii) May 25, 2005. Interest is payable on May 25 of
each calendar year or at such earlier time as the loan is repaid.
DESCRIPTION OF THE DEBENTURES
The Debentures were issued under an indenture (the
"Indenture") dated as of September 22, 1995, between the Company
and The Trust Company of New Jersey, as trustee (the "Trustee"),
a copy of which is available upon request from the Company. The
statements under this caption address the material terms of the
Debentures but are summaries and do not purport to be complete.
The summaries make use of terms defined in the Indenture and are
qualified in their entirety by reference to the Indenture,
including the definitions therein of certain terms. Whenever
reference is made to defined terms of the Indenture and not
otherwise defined herein, such defined terms are incorporated
herein by reference.
GENERAL
The Debentures are general unsecured senior subordinated
obligations of the Company, are limited to $25,000,000 aggregate
principal amount and will mature on October 1, 2003. As of
February 20, 1996, $25 million aggregate principal amount of the
Debentures were outstanding. The Debentures bear interest at the
rate per annum shown on the cover page hereof from the date of
original issue, or from the most recent Interest Payment Date (as
defined below) to which interest has been paid or duly provided
for, and accrued but unpaid interest will be payable semi-
annually on April 1 and October 1 of each year commencing April
1, 1996 (each, an "Interest Payment Date"). Interest will be
paid to Debentureholders of record ("Holders") at the close of
business on the March 15 or September 15, respectively,
immediately preceding the relevant Interest Payment Date (each, a
"Regular Record Date"). Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
Principal of and premium, if any, and interest on the
Debentures will be payable, the transfer of the Debentures will
be registrable and the Debentures will be exchangeable at the
office or agency of the Company maintained for that purpose in
Jersey City, New Jersey (which initially will be the corporate
trust office of the Trustee), except that, at the option of the
Company, payment of interest may be made by check mailed to the
address of the Holder entitled thereto as it appears in the
Debenture Register on the related record date.
The Debentures were issued in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple
thereof. No service charge will be made for any transfer or
exchange of Debentures, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
All monies paid by the Company to the Trustee or any Paying
Agent for the payment of principal of and premium, if any, and
interest on any Debenture which remain unclaimed for two years
after such principal, premium or interest became due and payable
may be repaid to the Company. Thereafter the Holder of such
Debenture may, as an unsecured general creditor, look only to the
Company for payment thereof.
Initially, the Trustee will act as paying agent and
registrar of the Debentures. The Company may change any paying
agent and registrar without notice.
CONVERSION RIGHTS
Holders are entitled, at any time and from time to time
prior to maturity (subject to earlier redemption or repurchase,
as described below), to convert their Debentures (or any portion
thereof that is an integral multiple of $1,000), at 100% of the
principal amount thereof, into Class A Common Stock of the
Company at the conversion price set forth on the cover page
hereof, subject to adjustment under certain circumstances as
described below. After a call for redemption of Debentures,
through optional redemption or otherwise, the Debentures or
portion thereof called for redemption will be convertible if duly
surrendered on or before, but not after, the business day
preceding the date fixed for redemption in respect thereof.
The conversion price is subject to adjustment upon certain
events, including: (i) the issuance of Common Stock (including a
distribution of Common Stock held in the Company's treasury) as a
dividend or distribution on any class of Capital Stock of the
Company or any Subsidiary which is not wholly owned by the
Company; (ii) a subdivision, combination or reclassification of
outstanding shares of Common Stock; (iii) the issuance or
distribution of Capital Stock of the Company or of rights or
warrants to acquire Capital Stock of the Company at less than the
Current Market Price (as defined below) on the date of issuance
or distribution (provided that the issuance of Capital Stock upon
the exercise of warrants or options will not cause an adjustment
in the conversion price if no such adjustment would have been
required at the time such warrant or option was issued); and (iv)
the distribution to the holders of any class of Capital Stock of
the Company generally and to holders of Capital Stock of any
Subsidiary which is not wholly owned by the Company of evidences
of indebtedness or assets (including cash and securities, but
excluding dividends or distributions payable in shares of Common
Stock and warrants and options for which adjustment is made as
described above and further excluding cash dividends paid out of
cumulative retained earnings of the Company arising after the
date of the Indenture).
Notwithstanding the foregoing, (a) if the rights or warrants
described in clause (iii) of the preceding paragraph are
exercisable only upon the occurrence of certain triggering
events, then the conversion price will not be adjusted until such
triggering events occur and (b) if rights or warrants expire
unexercised, the conversion price shall be readjusted to take
into account only the actual number of such rights or warrants
which were exercised. In addition, the provisions of the
preceding paragraph will not apply to the issuance of Common
Stock upon the exercise of the Company's outstanding stock
options under the 1981 Incentive Stock Option Plan, 1981 Non-
Qualified Stock Option Plan and 1991 Stock Option Plan, unless
the exercise price thereof is changed after the date of the
Indenture (other than solely by operation of the anti-dilution
provisions thereof), or the issuance of Common Stock upon the
conversion of currently outstanding 1998 Debentures, unless the
conversion price thereof is changed after the date of the
Indenture (other than solely by operation of the anti-dilution
provisions thereof).
No adjustment will be made to the conversion price until
cumulative adjustments to the conversion price amount to at least
1% of the conversion price, as last adjusted. Except as stated
above, the conversion price will not be adjusted for the issuance
of Common Stock, or any securities convertible into or
exchangeable for Common Stock or carrying the right to purchase
any of the foregoing, or the payment of dividends on the Common
Stock.
Fractional shares of Class A Common Stock will not be issued
upon conversion. A person otherwise entitled to a fractional
share of Class A Common Stock upon conversion shall receive cash
equal to the equivalent fraction of the Current Market Price of a
share of Class A Common Stock on the business day prior to
conversion. The Company from time to time may, to the extent
permitted by law, reduce the conversion price by any amount for
any period of at least 20 days, in which case the Company shall
give at least 15 days' notice of such reduction to each Holder,
if the Board of Directors of the Company has made a determination
that such reduction would be in the best interests of the
Company, which determination shall be conclusive. The Company is
entitled to make such reductions in the conversion price as it
may in its discretion determine to be advisable in order that any
stock dividend, subdivision of shares, distribution of rights to
purchase stock or securities, or distribution of securities
convertible into or exchangeable for stock shall not be taxable
to its stockholders. If at any time the Company makes a
distribution of property to its stockholders which would be
taxable to such stockholders as a dividend for federal income tax
purposes (e.g., distribution of evidence of indebtedness or
assets of the Company, but generally not stock dividends or
rights to subscribe for Common Stock) and, pursuant to the anti-
dilution provisions of the Indenture, the conversion price of the
Debentures is reduced or the conversion price of the Debentures
is reduced other than in connection with certain anti-dilution
adjustments, such a reduction may be considered as resulting in
the distribution of a dividend to Holders for federal income tax
purposes.
A Holder who surrenders a Debenture (or portion thereof) for
conversion between the close of business on a Regular Record Date
and the next Interest Payment Date will receive interest on such
Interest Payment Date with respect to such Debenture (or portion
thereof) so converted through such Interest Payment Date.
Subject to such payments in the event of conversion after the
close of business on a Regular Record Date, no payment or
adjustment shall be made upon any conversion on account of any
interest accrued but unpaid on the Debentures surrendered for
conversion.
Subject to any applicable right of the Holders to cause the
Company to purchase Debentures upon a Change of Control (as
described below), in case of any consolidation or merger to which
the Company is a party, other than a transaction in which the
Company is the continuing corporation, or in case of any sale or
conveyance to another corporation of the property of the Company
as an entirety or substantially as an entirety, or in the case of
any statutory exchange of securities with another corporation or
other entity, there will be no adjustment of the conversion
price, but each Holder will have the right thereafter to convert
such Holder's Debentures into the kind and amount of securities,
cash or other property which the Holder would have owned or have
been entitled to receive immediately after such consolidation,
merger, statutory exchange, sale or conveyance had such Debenture
been converted immediately prior to the effective date of such
consolidation, merger, statutory exchange, sale or conveyance.
In the case of a cash merger of the Company with another
corporation or other entity or any other cash transaction of the
type mentioned above, the effect of these provisions would be
that the conversion features of the Debentures would thereafter
be limited to converting the Debentures at the conversion price
then in effect into the same amount of cash that such Holder
would have received had such Holder converted the Debentures into
Class A Common Stock immediately prior to the effective date of
such cash merger or transaction. Depending upon the terms of
such cash merger or transaction, the aggregate amount of cash so
received on conversion could be more or less than the principal
amount of the Debentures.
The Company has covenanted under the Indenture to reserve
and keep available at all times out of its authorized but
unissued Class A Common Stock, for the purpose of effecting
conversions of Debentures, the full number of shares of Class A
Common Stock deliverable upon the conversion of all outstanding
Debentures.
REDEMPTION
Optional Redemption by the Company. The Debentures are not
redeemable at the option of the Company prior to October 1, 1998.
Thereafter, the Debentures will be redeemable at any time prior
to maturity, at the option of the Company, in whole or from time
to time in part, upon not less than 30 days' nor more than 60
days' prior notice of the redemption date, mailed by first class
mail to each Holder's last address as it appears in the Debenture
Register, at the Redemption Prices established for the
Debentures, together with accrued but unpaid interest, if any, to
the date fixed for redemption. The Redemption Prices for the
Debentures (expressed as a percentage of the principal amount)
shall be as follows:
AFTER OCTOBER 1, PERCENTAGE
1998 105 %
1999 103.75
2000 102.50
2001 101.25
Selection of Debentures Redeemed. If less than all the
Debentures are to be redeemed, selection of the Debentures for
redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if
any, on which the Debentures are listed, or, if the Debentures
are not listed, on a pro rata basis by lot or by such method that
complies with applicable legal requirements and that the Trustee
considers fair and appropriate. The Trustee may select for
redemption portions of the principal of Debentures that have a
denomination larger than $1,000. Debentures and portions thereof
will be redeemed in the amount of $1,000 or integral amounts of
$1,000. The Trustee will make the selection from Debentures
outstanding and not previously called for redemption.
CHANGE OF CONTROL
If a Change of Control occurs, the Company shall offer to
repurchase each Holder's Debentures pursuant to an offer as
described below (the "Change of Control Offer") at a purchase
price equal to 100% of the principal amount of such Holder's
Debentures, plus accrued but unpaid interest, if any, to the date
of purchase. The Change of Control purchase feature of the
Debentures may in certain circumstances make more difficult or
discourage a takeover of the Company.
Under the Indenture, a "Change of Control" means the
occurrence of any of the following events: (i) any person (as the
term "person" is used in Section 13(d) or Section 14(d) of the
Exchange Act) is or becomes the direct or indirect beneficial
owner of shares of the Company's Capital Stock representing
greater than 50% of the total voting power of all shares of
Capital Stock of the Company entitled to vote in the election of
directors under ordinary circumstances; (ii) the Company sells,
transfers or otherwise disposes of all or substantially all of
the assets of the Company; or (iii) during any period of two
consecutive years (or, in the case this event occurs within the
first two years after the date of issue of the Debentures, such
shorter period as shall have commenced on the date of original
issue), Continuing Directors cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
Within 30 days after any Change of Control, unless the
Company has previously mailed a notice of optional redemption by
the Company of all of the Debentures, the Company shall mail a
notice of the Change of Control Offer to each Holder by first
class mail at such Holder's last address as it appears on the
Debenture Register stating: (i) that a Change of Control has
occurred and that the Company is offering to repurchase all of
such Holder's Debentures; (ii) the circumstances and relevant
facts regarding such Change of Control (including, but not
limited to, information with respect to pro forma income, cash
flow and capitalization of the Company after giving effect to
such Change of Control); (iii) the repurchase price; (iv) the
expiration date of the Change of Control Offer, which shall be no
earlier than 30 days nor later than 60 days from the date such
notice is mailed; (v) the date such purchase shall be effected,
which shall be no later than 30 days after expiration date of the
Change of Control Offer; (vi) that any Debentures not accepted
for payment pursuant to the Change of Control Offer shall
continue to accrue interest; (vii) that, unless the Company
defaults in the payment of the Change of Control Payment, all
Debentures accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest after the Change of Control
Payment Date; (viii) the name and address of the paying agent;
(ix) that Debentures must be surrendered to the paying agent to
collect the repurchase price; (x) any other information required
by applicable law to be included therein; and (xi) the procedures
determined by the Company, consistent with the Indenture, that a
Holder must follow in order to have such Debentures repurchased.
In the event that the Company is required to make a Change
of Control Offer, the Company will comply with any applicable
securities laws and regulations, including, to the extent
applicable, Section 14(e), Rule 14e-1 and any other tender offer
rules under the Exchange Act which may then be applicable in
connection with any offer by the Company to purchase Debentures
at the option of the Holders thereof.
The Company, could, in the future, enter into certain
transactions, including certain recapitalizations of the Company,
that would not constitute a Change in Control under the
Debentures, but that would increase the amount of Senior
Indebtedness (or any other indebtedness) outstanding at such
time. The Company's ability to create any additional Senior
Indebtedness or additional Subordinated Indebtedness is limited
as described in the Debentures and the Indenture although, under
certain circumstances, the incurrence of significant amounts of
additional indebtedness could have an adverse effect on the
Company's ability to service its indebtedness, including the
Debentures. If a Change in Control were to occur, there can be
no assurance that the Company would have sufficient funds at the
time of such event to pay the Change in Control purchase price
for all Debentures tendered by the Holders. A default by the
Company on its obligation to pay the Change in Control purchase
price could, pursuant to cross-default provisions, result in
acceleration of the payment of other indebtedness of the Company
outstanding at that time.
Certain of the Company's existing and future agreements
relating to its indebtedness could prohibit the purchase by the
Company of the Debentures pursuant to the exercise by a Holder of
the foregoing option, depending on the financial circumstances of
the Company at the time any such purchase may occur, because such
purchase could cause a breach of certain covenants contained in
such agreements. Such a breach may constitute an event of
default under such indebtedness and thereby restrict the
Company's ability to purchase the Debentures. See "--Ranking."
MAINTENANCE OF CONSOLIDATED NET WORTH
The Company is required to maintain a Consolidated Net Worth
of at least $18 million. The Indenture provides that if the
Company's Consolidated Net Worth is less than $18 million at the
end of any fiscal quarter, the Company is required to furnish to
the Trustee an Officer's Certificate within 45 days after the end
of such fiscal quarter (90 days after the end of any fiscal year)
notifying the Trustee that the Company's Consolidated Net Worth
has declined below $18 million. If, at any time or from time to
time, the Company's Consolidated Net Worth at the end of each of
any such two consecutive fiscal quarters (the last day of the
second fiscal quarter being referred to as a "Deficiency Date")
is less than $18 million, then the Company shall, in each such
event, no later than 50 days after each Deficiency Date (100 days
if a Deficiency Date is also the end of the Company's fiscal
year), mail to the Trustee and each Holder at such Holder's last
address as it appears on the Debenture Register a notice (the
"Deficiency Notice") of the occurrence of such deficiency, which
shall include an offer by the Company (the"Deficiency Offer") to
repurchase Debentures as described below. The Deficiency Notice
shall state: (i) that a deficiency has occurred; (ii) that the
Company is offering to repurchase 10% of the aggregate principal
amount of Debentures originally issued (or such lesser amount as
may be outstanding at the time of the Deficiency Notice) (the
"Deficiency Repurchase Amount"); (iii) that the repurchase price
shall be 100% of the principal amount of the Debentures
repurchased plus accrued but unpaid interest, if any, to the date
of purchase; (iv) the expiration date of the Deficiency Offer,
which shall be no earlier than 30 days nor later than 45 days
after the date such notice is mailed; (v) the date such purchase
shall be effected, which shall be no later than 20 days after
expiration date of the Deficiency Offer; (vi) that Debentures not
accepted for payment pursuant to the Deficiency Offer shall
continue to accrue interest; (vii) that, unless the Company
defaults in payment of the Deficiency Repurchase Amount, all
Debentures accepted for payment pursuant to the Deficiency Offer
shall cease to accrue interest after the Deficiency Payment Date;
(viii) that if any Debenture is repurchased in part, a new
Debenture or Debentures in principal amount equal to the
unrepurchased portion will be issued; (ix) the name and address
of the paying agent; (x) that Debentures to be repurchased must
be surrendered to the paying agent to collect the repurchase
price; (xi) any other information required by applicable law to
be included therein; and (xii) the procedures determined by the
Company, consistent with the Indenture, that a Holder must follow
in order to have such Debentures repurchased.
The Company shall purchase the Deficiency Repurchase Amount
of Debentures or, if less than the Deficiency Repurchase Amount
has been delivered for repurchase, all Debentures delivered for
repurchase in response to the Deficiency Offer. If the aggregate
principal amount of Debentures delivered for repurchase exceeds
the Deficiency Repurchase Amount, the Company will purchase the
Debentures delivered to it pro rata (in $1,000 increments only)
among the Debentures delivered based on principal amount. The
Company will comply with all applicable securities laws and
regulations in connection with each Deficiency Offer. In no
event shall the failure to meet the minimum Consolidated Net
Worth requirement set forth above at the end of any fiscal
quarter be counted toward the making of more than one Deficiency
Offer.
The Company may credit against the principal amount of
Debentures to be repurchased in any Deficiency Offer 100% of the
principal amount (excluding premium) of Debentures acquired by
the Company subsequent to the Deficiency Date through purchase
(otherwise than pursuant to this provision or a Change of Control
Offer), optional redemption, conversion or exchange and
surrendered for cancellation.
If a Consolidated Net Worth deficiency were to occur, there
can be no assurance that the Company would have sufficient funds
at the time of such event to purchase the Deficiency Repurchase
Amount of Debentures. A default by the Company to so purchase
the Deficiency Repurchase Amount of Debentures could, pursuant to
cross-default provisions, result in acceleration of the payment
of other indebtedness of the Company outstanding at that time.
Certain of the Company's existing and future agreements
relating to its indebtedness could prohibit the purchase by the
Company of the Debentures pursuant to the exercise by a Holder of
the foregoing option, depending on the financial circumstances of
the Company at the time any such purchase may occur, because such
purchase could cause a breach of certain covenants contained in
such agreements. Such a breach may constitute an event of
default under such indebtedness and thereby restrict the
Company's ability to purchase the Debentures. See "--Ranking."
RANKING
The payment of principal of and premium, if any, and
interest on the Debentures will, to the extent set forth in the
Indenture, be subordinated in right of payment to the prior
payment in full of all Senior Indebtedness (as defined below).
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment
for the benefit of creditors or marshalling of assets, whether
voluntary, involuntary or in receivership, bankruptcy, insolvency
or similar proceedings, the holders of all Senior Indebtedness
will be first entitled to receive payment in full of all amounts
due or to become due thereon before any payment is made on
account of principal of and premium, if any, and interest on the
Debentures or on account of any other monetary claims under or in
respect of the Debentures, and before any distribution is made to
acquire any of the Debentures for any cash, property or
securities. No payments on account of principal of and premium,
if any, and interest on the Debentures shall be made if at the
time thereof: (i) there is a default in the payment of all or
any portion of the obligations under any Senior Indebtedness or
(ii) there shall exist a default in any covenant with respect to
the Senior Indebtedness (other than as specified in clause (i) of
this sentence), and, in such event, such default shall not have
been cured or waived or shall not have ceased to exist, the
Trustee and the Company shall have received written notice from
any holder of such Senior Indebtedness stating that no payment
shall be made with respect to the Debentures and such default
would permit the maturity of such Senior Indebtedness to be
accelerated, provided that no such default will prevent any
payment on, or in respect of, the Debentures for more than 120
days unless the maturity of such Senior Indebtedness has been
accelerated.
The Holders will be subrogated to the rights of the holders
of the Senior Indebtedness to the extent of payments made on
Senior Indebtedness upon any distribution of assets in any such
proceedings out of the distributive share of the Debentures.
"Senior Indebtedness" is defined to mean the principal of
and premium, if any, and interest on (a) the Debt of the Company
or any of its Subsidiaries which is outstanding on the date of
the Indenture and has been provided by a bank that is not an
Affiliate of the Company or by any State or local government or
agency thereof, (b) any Debt incurred after the date of the
Indenture by the Company or any of its Subsidiaries which
expressly states that it is senior in right of payment to the
Debentures and is provided by a bank that is not an Affiliate of
the Company, (c) any Debt, whether outstanding on the date of the
Indenture or thereafter incurred, which evidences the Company's
obligation to refund any progress payments or deposits to the
United States or any foreign government or any instrumentality
thereof or any prime contractor for any such government or
instrumentality and (d) amendments, renewals, extensions,
modifications and refundings of any such Debt, whether any such
Debt described in (a), (b) or (c) is outstanding on the date of
the Indenture or thereafter created, incurred or assumed, unless
in any case, the instrument creating or evidencing any such Debt
pursuant to which the same is outstanding provides that such Debt
is not superior in right of payment to the Debentures. The
Company's ability to incur Senior Indebtedness after the date of
the Indenture is limited. See "-- Certain Covenants of the
Company - Limitation of Debt and Senior Indebtedness." Only
indebtedness of the Company that is Senior Indebtedness will rank
senior to the Debentures in accordance with the provisions of the
Indenture. The Company has agreed that it will not issue or
incur any Debt (other than Senior Indebtedness or Capitalized
Lease Obligations) unless such Debt (other than Senior
Indebtedness or Capitalized Lease Obligations) will be
subordinate in right of payment to the Debentures at least to the
same extent that the Debentures are subordinate to Senior
Indebtedness. The Company has also agreed that it will not
permit any of its Subsidiaries to issue or incur any Debt (other
than Senior Indebtedness or Capitalized Lease Obligations) unless
such Debt (other than Senior Indebtedness or Capitalized Lease
Obligations) shall provide that such Debt (other than Senior
Indebtedness or Capitalized Lease Obligations) will be
subordinate in right of payment to distributions and dividends
from such Subsidiary to the Company in an amount sufficient to
satisfy the Company s obligations under the Debentures at least
to the same extent the Debentures are subordinate to Senior
Indebtedness. The Debentures are senior in right of payment to
the Company's 1998 Debentures.
The Debentures are unsecured obligations of the Company,
and, accordingly, will rank pari passu with all trade debt and
obligations of the Company and its Subsidiaries that arise by
operation of law or are imposed by any judicial or governmental
authority, except that any such trade debt or other obligation
may be senior in right of payment to the Debentures to the extent
the same is entitled to any security interest arising by
operation of law.
The Debentures are obligations exclusively of the Company,
and the Debentures, as a practical matter, will be effectively
subordinated to all indebtedness and other liabilities and
commitments (including trade payables and lease obligations) of
the Subsidiaries. The right of the Company, and, therefore, the
right of creditors of the Company (including Holders) to receive
assets of any such Subsidiary upon the liquidation or
reorganization of such Subsidiary or otherwise, as a practical
matter, will be effectively subordinated to the claims of such
Subsidiary's creditors, except to the extent the Company is
itself recognized as a creditor of such Subsidiary or such other
creditors have agreed to subordinate their claims to the payment
of the Debentures, in which case the claims of the Company would
still be subordinate to any secured claim on the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that
held by the Company.
At December 31, 1995, Senior Indebtedness (excluding
current installments) was approximately $2.8 million and the
indebtedness (excluding liability for income taxes) of the
Company's subsidiaries was approximately $16.6 million. The
Company expects that it will from time to time incur additional
indebtedness constituting Senior Indebtedness.
CERTAIN COVENANTS OF THE COMPANY
The Indenture contains, among others, the covenants
summarized below, which are applicable (unless waived or amended)
so long as any of the Debentures are outstanding.
Limitation on Debt and Senior Indebtedness. The Company
will not, and will not permit any of its Subsidiaries to, create,
incur, assume or directly or indirectly guarantee or in any other
manner become directly or indirectly liable for ("incur") any
Debt (including Acquired Debt) or Senior Indebtedness other than
Permitted Debt (as defined); provided, however, that the Company
and, subject to the other limitations set forth herein, its
Subsidiaries may incur Debt or Senior Indebtedness if the Debt to
Operating Cash Flow Ratio of the Company and its Subsidiaries at
the time of incurrence of such Debt, after giving pro forma
effect thereto, is 6.5:1 or less; provided that any such Debt
incurred by the Company that is not Senior Indebtedness shall
have a Weighted Average Life to Maturity longer than the Weighted
Average Life to Maturity of the Debentures. Notwithstanding the
foregoing, at any time the Debt to Operating Cash Flow Ratio of
the Company exceeds 6.5:1, the Company will be permitted to incur
additional Senior Indebtedness pursuant to lines of credit for
working capital of up to $5 million.
For purposes of the foregoing limitations "Permitted Debt"
means (i) Debt evidenced by the Debentures in an aggregate
principal amount not to exceed $25.0 million, (ii) Debt owed by
the Company to any wholly owned Subsidiary of the Company, (iii)
Debt owed by any wholly owned Subsidiary of the Company to the
Company or any other wholly owned Subsidiary of the Company, (iv)
Debt owed to Leonard Newman pursuant to the Newman Agreement, (v)
Capitalized Lease Obligations not in excess of an aggregate of $2
million at any one time outstanding, plus any Capitalized Lease
Obligations from an acquisition outstanding on the date of such
acquisition, (vi) performance bonds or letters of credit incurred
in the ordinary course of business or in connection with
government contracts, (vii) deferred income taxes as defined in
accordance with GAAP, (viii) Debt constituting inter-company
payables or receivables between or among the Company and its
Subsidiaries incurred in the ordinary course of business or (ix)
Refinancing Debt.
A calculation of the Debt to Operating Cash Flow Ratio as
required by this covenant shall be made, in each case, for the
period of four full consecutive fiscal quarters next preceding
the date on which Debt is proposed to be incurred ("Reference
Period"). In addition, for purposes of the pro forma
calculations required to be made above, (i) (x) the amount of
Debt to be incurred (plus all other Debt previously incurred
during such Reference Period), and the amount (valued at its
liquidation value and including any accrued but unpaid dividends)
of Disqualified Stock to be issued (plus all other Disqualified
Stock previously issued during such Reference Period) will be
presumed to have been incurred or issued on the first day of such
Reference Period and (y) the amount of any Debt redeemed,
refinanced or repurchased with the proceeds of the Debt referred
to in clause (x) will be presumed to have been redeemed,
refinanced or repurchased on the first day of such Reference
Period, (ii) if any Asset Disposition occurred during such
Reference Period, the calculations included in the computation of
the Debt to Operating Cash Flow Ratio shall be adjusted to give
effect to such Asset Disposition on a pro forma basis as if such
Asset Disposition had occurred on the first day of such Reference
Period, (iii) if an acquisition of a business or entity occurred
during such Reference Period, the calculations included in the
computation of the Debt to Operating Cash Flow Ratio will be
adjusted to give effect to such acquisition on a pro forma basis
as if such acquisition had occurred on the first day of such
Reference Period and (iv) if such new Debt is being incurred in
connection with an acquisition, no pro forma effect will be given
to negative operating cash flow or losses attributable to the
assets or business so acquired.
Limitation on Additional Debt After Default. The Company
will not, and will not permit any of its Subsidiaries to, incur
any additional Debt (other than Permitted Debt) or Senior
Indebtedness following the occurrence of an Event of Default (as
defined below) unless such Event of Default (and all other Events
of Default then pending) is cured or waived.
Limitation on Preferred Stock. The Company will not, and
will not permit any of its Subsidiaries to, issue any shares of
Disqualified Stock.
Limitation on Dividend Restrictions Affecting Subsidiaries.
The Company may not, and may not permit any of its Subsidiaries
to, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction of any kind on the
ability of any Subsidiary of the Company to (a) pay to the
Company dividends or make to the Company any other distribution
on its Capital Stock, (b) pay any Debt owed to the Company or any
of its Subsidiaries, (c) make loans or advances to the Company or
any of the Company's Subsidiaries or (d) transfer any of its
property or assets to the Company or any of its Subsidiaries,
other than such encumbrances or restrictions existing or created
under or by reason of (i) applicable law, (ii) the Indenture,
(iii) covenants or restrictions contained in any instrument
governing Debt of the Company or any of its Subsidiaries existing
on the date of the Indenture, (iv) customary provisions
restricting subletting, assignment and transfer of any lease
governing a leasehold interest of the Company or any of its
Subsidiaries or in any license or other agreement entered into in
the ordinary course of business, (v) any agreement governing Debt
of a person acquired by the Company or any of its Subsidiaries in
existence at the time of such acquisition (but not created in
contemplation thereof), which encumbrances or restrictions are
not applicable to any person, or the property or assets of any
person, other than the person, or the property or assets of the
person so acquired, (vi) any restriction with respect to a
Subsidiary imposed pursuant to an agreement entered into in
accordance with the terms of the Indenture for the sale or
disposition of Capital Stock or property or assets of such
Subsidiary, pending the closing of such sale or disposition,
(vii) with respect to any Subsidiary, the terms of any contract
with the United States or any foreign government or any
instrumentality thereof or any prime contractor for any such
contract pertaining to retention of funds by such Subsidiary
equivalent to any progress payments or deposits made pursuant to
such contract or (viii) any Refinancing Debt; provided, however,
that the encumbrances or restrictions contained in the agreements
governing any such Refinancing Debt shall be no more restrictive
than the encumbrances or restrictions set forth in the agreements
governing the Debt being refinanced as in effect on the date of
the Indenture.
Limitation on Liens. The Company will not, and will not
permit any of its Subsidiaries, directly or indirectly, to
create, incur, assume or permit to exist any Lien (other than
Permitted Liens) upon or with respect to any of the Property of
the Company or any such Subsidiary, whether owned on the date of
the Indenture or thereafter acquired, or on any income or profits
therefrom, to secure any Debt which is pari passu with or
subordinate in right of payment to the Debentures.
Limitation on Restricted Payments and Investments. The
Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, (i) declare or pay any distribution or
dividend on or in respect of any class of its Capital Stock
(except dividends or distributions payable by wholly owned
Subsidiaries of the Company and dividends or distributions
payable in Qualified Stock of the Company or in options, warrants
or other rights to purchase Qualified Stock of the Company); (ii)
purchase, repurchase, prepay, redeem, defease or otherwise
acquire or retire for value (other than in Qualified Stock of the
Company or in options, warrants or other rights to purchase
Qualified Stock of the Company) any Capital Stock in the Company
or any of its Subsidiaries (other than a wholly owned Subsidiary
of the Company); (iii) make or permit any Subsidiary to make an
Investment (other than Permitted Investments) in any of its or
their Affiliates or any Related Person, or any payment on a
guaranty of any obligation of any of its or their Affiliates or
any Related Person (other than (a) of any wholly owned Subsidiary
or (b) of any other Subsidiary in an amount equal to the amount
of the obligation with respect to which such guaranty relates
multiplied by the fraction whose numerator is the ownership
percentage of such Subsidiary by the Company and its wholly owned
Subsidiaries and whose denominator is 100%); or (iv) repay,
prepay, redeem, defease, retire or refinance, prior to scheduled
maturity or scheduled sinking fund payment, any other Debt which
is pari passu with, or subordinate to, the Debentures (other than
(x) by the payment of Qualified Stock of the Company or of
options, warrants or other rights to purchase Qualified Stock of
the Company or (y) up to $10.0 million aggregate principal amount
of the 1998 Debentures) except, in the case of this clause (iv),
if the proceeds used for such repayment, prepayment, redemption,
defeasance, retirement or refinancing are generated from the
issuance of Refinancing Debt (any such declaration, payment,
distribution, purchase, repurchase, prepayment, redemption,
defeasance or other acquisition or retirement or Investment
referred to in clauses (i) through (iv) above being hereinafter
referred to as a "Restricted Payment"); unless at the time of and
after giving effect to a proposed Restricted Payment (the value
of any such payment, if other than cash, as determined by the
Board of Directors, including the affirmative vote of the
Independent Directors, whose determination shall be conclusive
and evidenced by a board resolution) (a) no Event of Default (and
no event that, after notice or lapse of time, or both, would
become an Event of Default) shall have occurred and be continuing
and, (b) the Company could incur an additional $1.00 of Debt
pursuant to the first sentence under "Limitation on Debt and
Senior Indebtedness" above.
Limitation on Stock Splits, Consolidations and
Reclassifications. The Company will not effect a stock split,
consolidation or reclassification of any class of its Capital
Stock unless (a) an equivalent stock split, consolidation or
reclassification is simultaneously made with respect to each
other class of Capital Stock of the Company and all securities
exchangeable or exercisable for or convertible into any Capital
Stock of the Company, and (b) after such stock split,
consolidation or reclassification all of the relative voting,
dividend and other rights and preferences of each class of
Capital Stock of the Company are identical to those in effect
immediately preceding such stock split, consolidation or
reclassification. Notwithstanding the foregoing, the Company may
combine its Class A Common Stock and Class B Common Stock into a
single class of Common Stock, such that the holder of each share
of Class A Common Stock or Class B Common Stock outstanding
immediately prior to such combination shall, from and after such
combination, be entitled to the same voting, dividend,
liquidation and other rights and preferences with respect to such
share as every other holder of Class A Common Stock or Class B
Common Stock.
Limitation on Sales of Assets and Subsidiary Stock. The
Company will not, and will not permit any of its Subsidiaries to,
make any Asset Disposition having a fair market value or
resulting in gross proceeds to the Company or any such Subsidiary
in excess of $1.0 million in any single transaction or series of
related transactions or $5.0 million in the aggregate over the
life of the Debentures, unless the Company or any such Subsidiary
receives consideration at the time of such Asset Disposition at
least equal to the fair market value (as determined by the Board
of Directors of the Company and evidenced by a board resolution)
of the interests and assets subject to such Asset Disposition.
Transactions with Related Persons. The Company will not,
and will not permit any of its Subsidiaries to, directly or
indirectly, enter into any transaction or series of related
transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with (a) any
beneficial owner of 20% or more of the outstanding voting
securities of the Company (as determined in accordance with
Section 13(d) of the Exchange Act) at the time of such
transaction, (b) any officer, director or employee of the
Company, of any of its Subsidiaries or of any such beneficial
owner of 20% or more of the outstanding voting securities of the
Company as described in clause (a) above or (c) any Related
Person unless such transaction or series of transactions (i)
involves an amount of $250,000 or less or (ii)(A) is on terms
that are no less favorable to the Company or any such Subsidiary,
as the case may be, than would be available in a comparable
transaction with an unrelated third party and (B)(x) if such
transaction or series of related transactions involve aggregate
payments in excess of $400,000, the Company delivers an officers'
certificate to the Trustee certifying that such transaction
complies with clause (ii)(A) above and such transaction or series
of transactions is approved by a majority of the Board of
Directors of the Company including the approval of each of the
Independent Directors or (y) if such transaction or series of
related transactions involve aggregate payments in excess of $1.5
million, the Company obtains an opinion as to the fairness to the
Company or such Subsidiary from a financial point of view issued
by an investment banking firm, appraisal firm or accounting firm,
in each case of national standing. Notwithstanding the
foregoing, this provision will not apply to (i) any transaction
entered into between the Company and Subsidiaries of the Company
(but excluding transactions with any Subsidiary of which more
than 20% of the outstanding voting securities (as determined in
accordance with Section 13(d) under the Exchange Act) are
beneficially owned by Persons who are (a) officers, directors or
employees of the Company, of any of its Subsidiaries or of any
beneficial owner of 20% or more of the outstanding voting
securities of the Company (as determined in accordance with
Section 13(d) under the Exchange Act) at the time of such
transaction, (b) a beneficial owner of 20% or more of the
outstanding voting securities of the Company (as determined in
accordance with Section 13(d) under the Exchange Act) or (c)
Related Persons), (ii) the payment of compensation and provision
of benefits to officers and employees of the Company and loans
and advances to such officers and employees in the ordinary
course of business, or any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise
(including the grant of stock options or similar rights to
officers, employees and directors of the Company or any
Subsidiary) pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans or other
benefit plans approved by the Independent Directors, (iii) the
Newman Agreement and the Gross Agreement and (iv) transactions
with any Person who is a director of the Company or of any of its
Subsidiaries and, who is not (a) the beneficial owner of 20% or
more of the outstanding voting securities of the Company (as
determined in accordance with Section 13(d) under the Exchange
Act) or (b) an officer or employee of the Company, of any of its
Subsidiaries or of any such beneficial owner of 20% or more of
the outstanding voting securities of the Company at the time of
such transaction.
Limitation of Payments to Affiliates after Default. The
Company shall not enter into any transaction with any Person who
is an officer or director of the Company, or of any of its
Subsidiaries, or of any beneficial owner of 20% or more of the
outstanding voting securities of the Company (as determined in
accordance with Section 13(d) under the Exchange Act) at the time
of such transaction (but excluding the Persons identified below)
unless it is provided that the Company's monetary obligations
with respect thereto are subordinate in right of payment to the
Debentures at least to the same extent as the Debentures are
subordinate to Senior Indebtedness. The Company shall not permit
any of its Subsidiaries to enter into any transaction with any
Person who is an officer or director of the Company, or of any of
its Subsidiaries or of any beneficial owner of 20% or more of the
outstanding voting securities of the Company (as determined in
accordance with Section 13(d) under the Exchange Act) at the time
of such transaction (but excluding the Persons identified below)
unless it is provided that such Subsidiary's monetary obligations
with respect thereto are subordinate in right of payment to
distributions and dividends from such Subsidiary to the Company
in an amount sufficient to satisfy the Company's obligations
under the Debentures at least to the same extent that the
Debentures are subordinate to Senior Indebtedness.
Notwithstanding the foregoing, such limitation shall not apply to
(i) the regular compensation payable to any person who is an
employee of the Company, (ii) payments made pursuant to any
pension or other plan made available to employees (including
officers) of the Company and either existing on the date of the
Indenture or thereafter approved by the Independent Directors,
(iii) payments pursuant to the Newman Agreement or the Gross
Agreement or (iv) any payment made to a director of the Company
or of any of its Subsidiaries who is not (a) the beneficial owner
of 20% or more of the outstanding voting securities of the
Company (as determined in accordance with section 13(d) under the
Exchange Act) or (b) an officer or employee of the Company, of
any of its Subsidiaries or of any such beneficial owner of 20% or
more of the outstanding voting securities of the Company at the
time of such transaction.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the Holders of any of
the Debentures, may consolidate with or merge into any other
entity or convey, transfer, sell or lease its assets
substantially as an entirety to any person or entity, provided
that: (i) either (a) the Company is the continuing corporation or
(b) the corporation or other entity formed by such consolidation
or into which the Company is merged or the person or entity to
which such assets are conveyed, transferred, sold or leased is
organized under the laws of the United States or any state
thereof or the District of Columbia and expressly assumes all
obligations of the Company under the Debentures and the
Indenture, (ii) immediately after and giving effect to such
merger, consolidation, conveyance, transfer, sale or lease no
Event of Default, and no event which, after notice or lapse of
time, would become an Event of Default, under the Indenture shall
have occurred and be continuing, (iii) upon consummation of such
consolidation, merger, conveyance, transfer, sale or lease, the
Debentures and the Indenture will be a valid and enforceable
obligation of the Company or such successor and (iv) the Company
has delivered to the Trustee an officer's certificate and an
opinion of counsel, each stating that such consolidation, merger,
conveyance, transfer, sale or lease complies with the provisions
of the Indenture.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture:
(a) failure to pay principal of or premium, if any, on any
Debenture when due and payable at maturity, upon redemption, upon
a Change of Control Offer, Deficiency Offer or otherwise, whether
or not such payment is prohibited by the subordination provisions
of the Indenture; (b) failure to pay any interest on any
Debenture when due and payable, which failure continues for 30
days, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (c) failure to perform
the other covenants of the Company in the Indenture, which
failure continues for 60 days after written notice as provided in
the Indenture; (d) a default occurs (after giving effect to any
applicable grace periods or any extension of any maturity date)
in the payment when due of principal of and or acceleration of,
any indebtedness for money borrowed by the Company or any of its
Subsidiaries in excess of $1.0 million, individually or in the
aggregate, if such indebtedness is not discharged, or such
acceleration is not annulled, within 10 days after written notice
as provided in the Indenture; and (e) certain events of
bankruptcy, insolvency or reorganization of the Company or any
Subsidiary. Subject to the provisions of the Indenture relating
to the duties of the Trustee in case an Event of Default shall
occur and be continuing, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at
the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable indemnity.
Subject to such provisions for the indemnification of the
Trustee, the Holders of a majority in aggregate principal amount
of the outstanding Debentures will have the right to direct the
time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power
conferred on the Trustee.
If an Event of Default shall occur and be continuing, either
the Trustee or the Holders of at least 25% in aggregate principal
amount of the then outstanding Debentures may accelerate the
maturity of all Debentures; provided, however, that after such
acceleration, but before a judgment or decree based on
acceleration, the Holders of a majority in aggregate principal
amount of the then outstanding Debentures may, under certain
circumstances, rescind and annul such acceleration if all Events
of Default, other than the non-payment of accelerated principal,
have been cured or waived as provided in the Indenture. For
information as to waiver of defaults, see "Modification and
Waivers."
No Holder of any Debenture will have any right to institute
any proceeding with respect to the Indenture or for the
appointment of a receiver or trustee or for any other remedy
thereunder unless (i) such Holder shall have previously given to
the Trustee written notice of a continuing Event of Default, (ii)
the Holders of at least 25% in aggregate principal amount of the
then outstanding Debentures shall have made written request, and
offered indemnity satisfactory to the Trustee to institute such
proceeding as trustee, (iii) the Trustee shall have failed to
institute such proceeding within 60 days after the receipt of
such notice and (iv) no direction inconsistent with such request
shall have been given to the Trustee during such 60-day period by
the Holders of a majority in aggregate principal amount of the
then outstanding Debentures.
The Company will be required to furnish annually to the
Trustee a statement as to the performance by the Company of
certain of its obligations under the Indenture and as to any
default in such performance.
MODIFICATIONS AND WAIVERS
Modifications and amendments of the Indenture may be made by
the Company and the Trustee with the consent of the Holders of
not less than a majority in aggregate principal amount of the
then outstanding Debentures held by persons other than Affiliates
of the Company; provided, however, that no such modification or
amendment may, without the consent of the Holder of each
outstanding Debenture affected thereby, (i) change the stated
maturity of, or any installment of interest on, any Debenture,
(ii) reduce the principal amount of any Debenture or reduce the
rate or extend the time of payment of interest on any Debenture,
(iii) increase the conversion price (other than in connection
with a reverse stock split as provided in the Indenture), (iv)
change the place or currency of payment of principal of, or
premium or repurchase price, if any, or interest on, any
Debenture, (v) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debenture,
(vi) adversely affect the right to exchange or convert
Debentures, (vii) reduce the percentage of the aggregate
principal amount of outstanding Debentures, the consent of the
Holders of which is necessary to modify or amend the Indenture,
(viii) reduce the percentage of the aggregate principal amount of
outstanding Debentures, the consent of the Holders of which is
necessary for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults, (ix) modify the
provisions of the Indenture with respect to the subordination of
the Debentures in a manner adverse to the Holders, (x) modify the
provisions of the Indenture with respect to the right to require
the Company to repurchase Debentures in a manner adverse to the
Holders or (xi) modify the provisions of the Indenture with
respect to the vote necessary to amend this provision.
The Holders of a majority in aggregate principal amount of
the outstanding Debentures held by persons other than Affiliates
of the Company may, on behalf of all Holders, waive any past
default under the Indenture or Event of Default, except a default
in the payment of principal, premium, if any, or interest on any
of the Debentures or in respect of a provision which under the
Indenture cannot be modified without the consent of the Holder of
each outstanding Debenture.
DISCHARGE OF INDENTURE
The Indenture provides that the Company may defease and be
discharged from its obligations in respect of the Debentures
while the Debentures remain outstanding (except for certain
obligations to convert the Debentures into Common Stock, register
the transfer, substitution or exchange of Debentures, to replace
stolen, lost or mutilated Debentures and to maintain an office or
agency and the rights, obligations and immunities of the
Trustee), if all outstanding Debentures will become due and
payable at their scheduled maturity within one year and the
Company has irrevocably deposited, or caused to be deposited,
with the Trustee (or another trustee satisfying the requirements
of the Indenture), in trust for such purpose, (a) money in an
amount, (b) U.S. Government Obligations (as defined below) which
through the payment of principal, premium, if any, and interest
in accordance with their terms will provide money in an amount,
or (c) a combination thereof, sufficient in the opinion of a
nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the
Trustee, to pay the principal of, premium, if any, and interest
on the outstanding Debentures at maturity or upon redemption,
together with all other amounts payable by the Company under the
Indenture. Such defeasance will become effective 91 days after
such deposit only if, among other things, (x) no Default or Event
of Default with respect to the Debentures has occurred and is
continuing on the date of such deposit or occurs as a result of
such deposit or at any time during the period ending on the 91st
day after the date of such deposit, (y) such defeasance does not
result in a breach or violation of, or constitute a default
under, any other agreement or instrument to which the Company is
a party or by which it is bound, and (z) the Company has
delivered to the Trustee (A) either a private Internal Revenue
Service ruling or an opinion of counsel that Holders will not
recognize income, gain or loss for federal income tax purposes as
a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount, in the same
manner, and at the same times, as would have been the case if
such deposit, defeasance and discharge had not occurred, (B) an
opinion of counsel to the effect that the deposit shall not
result in the Company, the Trustee or the trust being deemed to
be an "investment company" under the Investment Company Act of
1940, as amended, and (C) an officers' certificate and an opinion
of counsel, each stating that all conditions precedent relating
to a defeasance have been complied with. Notwithstanding the
foregoing, the Company's obligations to pay principal, premium,
if any, and interest on the Debentures shall continue until the
Internal Revenue Service ruling or opinion of counsel referred to
in clause (z) (B) above is provided.
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting
requirements of the Exchange Act it will continue to furnish the
information required thereby to the Commission. The Indenture
provides that even if the Company is entitled under the Exchange
Act not to furnish such information to the Commission or to the
Holders, it will nonetheless continue to furnish information
under Section 13 of the Exchange Act to the Commission and the
Trustee as if it were subject to such periodic reporting
requirements.
GOVERNING LAW
The Indenture and the Debentures are governed by, and
construed in accordance with, the laws of the State of New York,
without giving effect to such State's conflicts of law
principles.
INFORMATION CONCERNING THE TRUSTEE
The Company and its Subsidiaries may maintain deposit
accounts and conduct other banking transactions with the Trustee
or its affiliates in the ordinary course of business, and the
Trustee and its affiliates may from time to time in the future
provide the Company and its Subsidiaries with banking and
financial services in the ordinary course of their businesses.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used
in the Indenture. Reference is made to the Indenture for the
full definition of all such terms and for the definitions of
other defined terms used in the Prospectus and not defined below.
"Acquired Debt" of any specified person means Debt of any
other person existing at the time such other person merged with
or into or became a Subsidiary of such specified person,
including Debt incurred in connection with, or in contemplation
of, such other person becoming a Subsidiary of such specified
person.
"Affiliate" of any specified Person means (i) any other
Person who, directly or indirectly, is in control of, is
controlled by or is under common control with such specified
Person or (ii) any Person who is a director or officer (a) of
such specified Person, (b) of any Subsidiary of such specified
Person or (c) of any Person described in clause (i) above. For
purpose of this definition, control of a person means the power,
directly or indirectly, to direct or cause the direction of the
management and policies of such person whether by contract or
otherwise; and the terms "controlling" or "controlled" have
meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or
dispositions) of Capital Stock of a Subsidiary, property or other
asset (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Subsidiaries other
than (i) any disposition by any Subsidiary of the Company to the
Company or by the Company or any Subsidiary of the Company to a
wholly owned Subsidiary of the Company, (ii) a disposition of
property or assets in the ordinary course of business and (iii)
any issuance or sale by the Company of its Capital Stock,
including any disposition by means of a merger, consolidation or
similar transaction.
"Capital Stock" of any person means any and all shares,
interests, rights to purchase, warrants, options, participations
or other equivalents of or interests in the common or preferred
equity (however designated) of such person, including, without
limitation, partnership interests.
"Capitalized Lease Obligation" means, with respect to any
person for any period, an obligation of such person to pay rent
or other amounts under a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP; and the
amount of such obligation shall be the capitalized amount shown
on the balance sheet of such person as determined in accordance
with GAAP.
"Common Stock" as applied to the Capital Stock of any
corporation, means the common equity (however designated) of such
Person.
"Consolidated Net Income" means, for any fiscal period, the
Net Income or loss of the Company and its Subsidiaries as the
same would appear on a consolidated statement of earnings of the
Company for such fiscal period prepared in accordance with GAAP,
provided that (i) any extraordinary gain (but not loss) and any
gain (but not loss) on sales of assets outside the ordinary
course of business, in each case together with any related
provisions for taxes, realized during such period shall be
excluded, (ii) the results of operations of any person acquired
in a pooling of interests transaction for any period prior to the
date of such acquisition shall be excluded, (iii) Net Income
attributable to any person other than a Subsidiary that is at
least 50% owned by the Company shall be included only to the
extent of the amount of cash dividends or distributions actually
paid to the Company or a Subsidiary of the Company during such
period, (iv) any extraordinary charge resulting from the
repurchase of the Debentures shall be excluded and (v) the
cumulative effect of a change in accounting principles based upon
the implementation of a change required by the Financial
Accounting Standards Board shall be excluded.
"Consolidated Net Worth" means, for any fiscal period, the
net stockholders' equity of the Company and its Subsidiaries as
the same would appear on the consolidated balance sheet of the
Company as at the end of such fiscal period prepared in
accordance with GAAP.
"Continuing Directors" means any member of the Board of
Directors of the Company who (i) is a member of that Board of
Directors on the date of the Indenture or (ii) was nominated for
election or elected to the Board of Directors with the
affirmative vote of a majority of the Continuing Directors who
were members of the Board at the time of such nomination or
election.
"Current Market Price" means, when used with respect to any
security as of any date, the last sale price, regular way, or, in
case no such sale takes place on such date, the average of the
closing bid and asked prices, regular way, in either case as
reported for consolidated transactions on the New York Stock
Exchange or, if the security is not listed or admitted to trading
on the New York Stock Exchange, as reported for consolidated
transactions with respect to securities listed on the principal
national securities exchange on which such security is listed or
admitted to trading or, if the security is not listed or admitted
to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated
Quotations System or such other system then in use or, if the
security is not quoted by any such organization, the average of
the closing bid and asked prices furnished by a New York Stock
Exchange member firm selected by the Company. "Current Market
Price" means, when used with respect to any Property other than a
security as of any date, the market value of such Property on
such date as determined by the Board of Directors of the Company
in good faith, which shall be entitled to rely for such purposes
on the advice of any firm of investment bankers or appraisers
having familiarity with such Property.
"Debt" of any person as of any date means and includes,
without duplication, (i) the principal of and premium, if any, in
respect of indebtedness of such person, contingent or otherwise,
for borrowed money, including, without limitation, all interest,
fees and expenses owed with respect thereto (whether or not the
recourse of the lender is to the whole of the assets of such
person or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments, or representing the
deferred and unpaid balance of the purchase price of any property
or interest therein or services, if and to the extent such
indebtedness would appear as a liability (other than a liability
for accounts payable and accrued expenses incurred in the
ordinary course of business) upon a balance sheet of such person
prepared on a consolidated basis in accordance with GAAP, (ii)
all obligations issued or contracted for as payment in
consideration of the purchase by such person of the Capital Stock
or substantially all of the assets of another person or as a
result of a merger or a consolidation (other than any earn-outs
or installment payments), (iii) all Capitalized Lease Obligations
of such person, (iv) all obligations of such person in respect of
letters of credit or similar instruments or reimbursement of
letters of credit or similar instruments (whether or not such
items would appear on the balance sheet of such person), (v) all
net obligations of such person in respect of interest rate
protection and foreign currency hedging arrangements, (vi) all
guarantees by such person of items that would constitute Debt
under this definition (whether or not such items would appear on
such balance sheet), and (vii) the amount of all obligations of
such person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock, but only to the extent such
obligations arise on or prior to January 1, 2004; provided,
however, that Debt issued at a discount from par shall be treated
as if issued at par. The amount of Debt of any person at any
date shall be the outstanding balance on such date of all
unconditional obligations as described above and the maximum
determinable liability, upon the occurrence of the liability
giving rise to the obligation, of any contingent obligations
referred to in clauses (i), (iv), (vi) and (vii) above at such
date.
"Debt to Operating Cash Flow Ratio" means, as of any date of
determination, the ratio of (i) (a) the aggregate principal
amount of all outstanding Debt of the Company and its
Subsidiaries as of such date on a consolidated basis plus (b) the
aggregate par or stated value of all outstanding Preferred Stock
of the Company and its Subsidiaries as reflected on the Company's
most recent consolidated balance sheet prepared in accordance
with GAAP (excluding any such Preferred Stock held by the Company
or a wholly owned Subsidiary of the Company) or, if greater with
respect to any class of Capital Stock which is Disqualified
Stock, the aggregate redemption amount thereof as reflected on
the Company's most recent consolidated balance sheet (excluding
any such Disqualified Stock held by the Company or a wholly owned
Subsidiary of the Company) to (ii) Operating Cash Flow of the
Company and its Subsidiaries on a consolidated basis for the four
most recent full fiscal quarters ending immediately prior to such
date, determined on a pro forma basis as set forth in the
covenant "Limitation on Debt and Senior Indebtedness."
"Disqualified Stock" means any Capital Stock which, by its
terms or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the
holder thereof or mandatorily (except to the extent that such
exchange or conversion right cannot be exercised or such
mandatory conversion cannot occur prior to January 1, 2004), is,
or upon the happening of an event or the passage of time would
be, (a) required to be redeemed or repurchased by the Company or
any of its Subsidiaries, including at the option of the holder,
in whole or in part, or has, or upon the happening of an event or
passage of time would have, a redemption or similar payment due
prior to January 1, 2004 or (b) exchangeable or convertible into
debt securities of the Company or any of its Subsidiaries at the
option of the holder thereof or mandatorily, except to the extent
that such exchange or conversion right cannot be exercised or
such mandatory conversion cannot occur on or prior to January 1,
2004.
"GAAP" means, as of any date, generally accepted accounting
principles in the United States and does not include any
interpretations or regulations that have been proposed but that
have not become effective.
"Independent Directors" means directors that (i) are not 20%
or greater stockholders of the Company or the designee of any
such stockholder, (ii) are not officers or employees of the
Company, any of its Subsidiaries or of a stockholder referred to
above in clause (i), (iii) are not Related Persons and (iv) do
not have relationships that, in the opinion of the Board of
Directors, would interfere with their exercise of independent
judgment in carrying out the responsibilities of the directors.
"Investment" means any loan or advance to any person, any
acquisition of any interest in any other person (including (i)
with respect to a corporation, any and all shares, interests,
rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) corporate
stock, including any Preferred Stock and any securities
convertible or exchangeable for any of the foregoing, bonds,
notes, debentures, loans or other securities or Debt of such
other person and (ii) with respect to a partnership or similar
person, any and all units, interests, rights to purchase,
warrants, options, participations or other equivalents of or
other partnership interests in (however designated) such person
and any securities convertible or exchangeable for any of the
foregoing), any capital contribution to any other person, or any
other investment in any other person, other than (a) advances to
officers and employees in the ordinary course of business, (b)
creation of receivables in the ordinary course of business and
(c) negotiable instruments endorsed for collection in the
ordinary course of business.
"Lien" means any mortgage, lien, pledge, charge, security
interest or other encumbrance of any nature whatsoever (including
any conditional sale or other title retention agreement, any
lease in the nature thereof and any agreement to give any
security interest).
"Net Income" of any person means the net income (or loss) of
such person, determined in accordance with GAAP, excluding,
however, from the determination of Net Income any extraordinary
gain (but not loss) and any gain (but not loss) realized upon the
sale or other disposition (including, without limitation,
dispositions pursuant to sale-leaseback transactions) of any real
property or equipment of such person, which is not sold or
otherwise disposed of in the ordinary course of business, or of
any Capital Stock of a Subsidiary of such person.
"Operating Cash Flow" means, with respect to the Company and
its Subsidiaries for any period, the Consolidated Net Income of
the Company and its Subsidiaries for such period, plus (i)
extraordinary net losses and net losses on sales of assets other
than in the ordinary course of business during such period, to
the extent such losses were deducted in computing Consolidated
Net Income, plus (ii) provision for taxes based on income or
profits, to the extent such provision for taxes was included in
computing such Consolidated Net Income, and any provision for
taxes utilized in computing the net losses under clause (i)
hereof, plus (iii) to the extent deducted in calculating
Consolidated Net Income, Total Interest Expense of the Company
and its Subsidiaries for such period, plus (iv) depreciation,
amortization and all other non-cash charges, to the extent such
depreciation, amortization and other non-cash charges (excluding
any such non-cash charges to the extent that they require an
accrual of or reserve for cash charges for any future periods)
were deducted in calculating such Consolidated Net Income
(including amortization of goodwill and other intangibles).
"Permitted Investments" means (i) Investments in the Company
or in a Subsidiary of the Company; (ii) Investments by the
Company or any Subsidiary of the Company in a person, if as a
result of such Investment (a) such person becomes or is a wholly
owned Subsidiary of the Company or the Subsidiary making such
Investment or (b) such person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company, the
Subsidiary making such Investment or a wholly owned Subsidiary of
either the Company or such Subsidiary making such Investment
(provided that any subsequent issuance or transfer of any
interests or other transaction which results in any such wholly
owned Subsidiary ceasing to be a wholly owned Subsidiary of the
Company, the Subsidiary making such Investment or another wholly
owned Subsidiary of either the Company or such Subsidiary making
such Investment, or any subsequent transfer of such Permitted
Investment (other than to the Company, the Subsidiary making such
Investment or another wholly owned Subsidiary of either the
Company or such Subsidiary making such Investment) shall be
deemed for the purposes hereof to constitute the making of a new
Investment by the maker thereof and therefore subject to a new
determination of whether such Investment qualifies as a Permitted
Investment); (iii) U.S. Government Obligations maturing within
one year of the date of acquisition thereof; (iv) certificates of
deposit maturing within one year of the date of acquisition
thereof issued by a bank or trust company that is organized under
the laws of the United States or any state thereof having
capital, surplus and undivided profits aggregating in excess of
$100,000,000; (v) repurchase agreements with respect to U.S.
Government Obligations; and (vi) Investments in commercial paper
rated at least A1 or the equivalent thereof by Standard & Poor's
Corporation or P1 or the equivalent thereof by Moody's Investor
Services, Inc. and maturing not more than 90 days from the date
of the acquisition thereof.
"Permitted Liens" means (i) Liens for taxes, assessments or
governmental charges or claims that either (a) are not yet
delinquent or (b) are being contested in good faith by
appropriate proceedings and as to which appropriate reserves have
been established or other provisions have been made in accordance
with GAAP; (ii) statutory Liens of landlords and carriers',
warehousemen's, mechanics', suppliers', materialmen's,
repairmen's or other Liens imposed by law and arising in the
ordinary course of business and with respect to amounts that, to
the extent applicable, either (a) are not yet delinquent by more
than 30 days or (b) are being contested in good faith by
appropriate proceedings and as to which appropriate reserves have
been established or other provisions have been made in accordance
with GAAP; (iii) Liens (other than any Lien imposed by the
Employee Retirement Income Security Act of 1974, as amended)
incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security; (iv) judgment or other similar
Liens arising in connection with court proceedings, provided that
(a) the execution or enforcement of each such Lien is effectively
stayed within 30 days after entry of such judgment (or such
judgment has been discharged within such 30 day period), the
claims secured thereby are being contested in good faith by
appropriate proceedings timely commenced and diligently
prosecuted and the aggregate amount of the claims secured thereby
does not exceed $1,000,000 at any time or (b) the payment of
which is covered in full by insurance and the insurance company
has not denied or contested coverage thereof; (v) Liens existing
on property or assets of any entity at the time it becomes a
Subsidiary or existing on property or assets at the time of the
acquisition thereof by the Company or any of its Subsidiaries,
which Liens were not created or assumed in contemplation of, or
in connection with, such entity becoming a Subsidiary or such
acquisition, as the case may be, and which attach only to such
property or assets, provided that the Debt secured by such Liens
is not thereafter increased; (vi) Liens incurred in connection
with Capitalized Lease Obligations otherwise permitted under the
Indenture; (vii) Liens securing Refinancing Debt, provided that
such Liens only extend to the property or assets securing the
Debt being refinanced, such Refinanced Debt was previously
secured by similar Liens on such property or assets and the Debt
or other obligations secured by such Liens is not increased;
(viii) Liens securing the advance of progress payments or
deposits made by the United States or any foreign government or
any instrumentality thereof or any prime contractor for any such
government or instrumentality and received by the Company in the
ordinary course of its business; (ix) the Lien created by the
Master Security Agreement between General Electric Capital
Corporation and OMI Acquisition Corporation dated as of August
28, 1995; and (x) any other Liens existing on the date of the
Indenture.
"Preferred Stock" means, with respect to any person, Capital
Stock of such person of any class or classes (however designated)
which is preferred as to the payments of dividends or
distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such
person, over any other class of the Capital Stock of such person.
"Property" of any person means all types of real, personal,
tangible, intangible or mixed property owned by such person
whether or not included on the most recent consolidated balance
sheet of such person in accordance with GAAP.
"Qualified Stock" means Capital Stock of the Company that is
not Disqualified Stock.
"Refinancing Debt" means Debt that refunds, refinances or
extends any Debentures, or other Debt existing on the date of the
Indenture or thereafter incurred by the Company or its
Subsidiaries pursuant to the terms of the Indenture, but only to
the extent that (i) the Refinancing Debt is subordinated to the
Debentures to the same extent as the Debt being refunded,
refinanced or extended, if at all, (ii) the Refinancing Debt is
scheduled to mature either (a) no earlier than the Debt being
refunded, refinanced or extended, or (b) after the maturity date
of the Debentures, (iii) the portion, if any, of the Refinancing
Debt that is scheduled to mature on or prior to the maturity date
of the Debentures has a Weighted Average Life to Maturity at the
time such Refinancing Debt is incurred that is equal to or
greater than the Weighted Average Life to Maturity of the portion
of the Debt being refunded, refinanced or extended that is
scheduled to mature on or prior to the maturity date of the
Debentures, (iv) such Refinancing Debt is in an aggregate
principal amount that is equal to or less than the aggregate
principal amount then outstanding under the Debt being refunded,
refinanced or extended, plus customary fees and expenses
associated with refinancing and (v) such Refinancing Debt is
incurred by the same person that initially incurred the Debt
being refunded, refinanced or extended, except that (a) the
Company may incur Refinancing Debt to refund, refinance or extend
Debt of any Subsidiary of the Company, and (b) any Subsidiary of
the Company may incur Refinancing Debt to refund, refinance or
extend Debt of any other wholly owned Subsidiary of the Company.
"Related Person" means an individual related to an officer,
director or employee of the Company or any of its Affiliates
which relation is by blood, marriage or adoption and not more
remote than first cousin.
"Subsidiary" of any person means a corporation or other
entity a majority of whose Capital Stock with voting power, under
ordinary circumstances, entitling holders of such Capital Stock
to elect the board of directors or other governing body, is at
the time, directly or indirectly, owned by such person and/or a
Subsidiary or Subsidiaries of such person.
"Total Interest Expense" means, for any period, the interest
expense of the Company and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP,
whether paid or accrued (including amortization of original issue
discount, non-cash interest payments and the interest component
of capital leases, but excluding amortization of debt and
Preferred Stock issuance costs).
"U.S. Government Obligations" means non-callable (i) direct
obligations (or certificates representing an ownership interest
in such obligations) of the United States for which its full
faith and credit are pledged and (ii) obligations of a person
controlled or supervised by, and acting as an agency or
instrumentality of, the United States, the payment of which is
unconditionally guaranteed as a full faith and credit obligation
of the United States.
"Weighted Average Life to Maturity" means, when applied to
any Debt or Preferred Stock or portions thereof (if applicable)
at any date, the number of years obtained by dividing (i) the
then outstanding principal amount or liquidation amount of such
Debt or Preferred Stock or portions thereof (if applicable) into
(ii) the sum of the products obtained by multiplying (a) the
amount of each then remaining installment, sinking fund, serial
maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by (b) the number
of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Debentures were initially
issued in the form of registered debentures in global form
without coupons (each, a "Global Debenture"). The Global
Debentures were deposited on the date of the closing of the sale
of the Debentures (the "Closing Date") with, or on behalf of, the
Depository Trust Company (the "Depository") and registered in the
name of Cede & Co., as nominee of the Depository. Interests in
the Global Debentures were available for purchase pursuant to the
Debenture Offering only by "qualified institutional buyers," as
defined in Rule 144A under the Securities Act ("QIBs"). The
Debentures to be resold as set forth herein will be initially
issued in global form (the "New Global Debentures").
Debentures that were (i) originally issued to or transferred
to institutional "accredited investors," as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act (an
"Institutional Accredited Investor"), who are not QIBs or to any
other persons who are not QIBs or (ii) issued as described below
under "-- Certificated Debentures," were issued in registered
form without coupons (the "Certificated Debentures").
The Depository has advised the Company that it is (i) a
limited purpose trust company organized under the laws of the
State of New York, (ii) a member of the Federal Reserve System,
(iii) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The
Depository was created to hold securities for its participants
(collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants
through electronic book-entry changes to the accounts of its
Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Depository's Participants
include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and
certain other organizations. Access to the Depository's system
is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly.
The Company expects that pursuant to procedures established
by the Depository (i) upon deposit of the Global Debentures or
New Global Debentures, the Depository will credit the accounts of
Participants with an interest in the Global Debenture or New
Global Debentures, as applicable, and (ii) ownership of the
Debentures will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the
Depository (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some
states require that certain persons take physical delivery in
definitive form of securities that they own and that security
interest in negotiable instruments can only be perfected by
delivery of certificates representing the instruments.
Consequently, the ability to transfer Debentures or to pledge the
Debentures as collateral will be limited to such extent.
So long as the Depository or its nominee is the registered
owner of the Global Debentures or the New Global Debentures, as
the case may be, the Depository or such nominee, as the case may
be, will be considered the sole owner or Holder of the Debentures
represented by the Global Debentures or the New Global
Debentures, as the case may be, for all purposes under the
Indenture. Except as provided below, owners of beneficial
interests in the Global Debentures or the New Global Debentures,
as the case may be, will not be entitled to have Debentures
represented by such Global Debentures or New Global Debentures,
registered in their names, will not receive or be entitled to
receive physical delivery of Certificated Debentures, and will
not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to giving of
any directions, instruction or approval to the Trustee
thereunder. As a result, the ability of a person having a
beneficial interest in Debentures represented by a Global
Debenture or a New Global Debenture, as the case may be, to
pledge such interest to persons or entities that do not
participate in the Depository's system or to otherwise take
action with respect to such interest, may be affected by the lack
of a physical certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a
Global Debenture or a New Global Debenture, as the case may be,
must rely on the procedures of the Depository and, if such holder
is not a Participant or an Indirect Participant, on the
procedures of the Participant through which such holder owns its
interest, to exercise any rights of a Holder under the Indenture
or such Global Debenture or New Global Debenture. The Company
understands that under existing industry practice, in the event
the Company requests any action of Holders that is an owner of a
beneficial interest in a Global Debenture or a New Global
Debenture, as the case may be, desires to take any action that
the Depository, as the Holder of such Global Debenture or New
Global Debenture, is entitled to take, the Depository would
authorize the Participants to take such action and the
Participant would authorize holders owning through such
Participants to take such action or would otherwise act upon the
instruction of such holders. Neither the Company nor the Trustee
will have any responsibility or liability for any aspect of the
records relating to or payments made on account of Debentures by
the Depository, or for maintaining, supervising or reviewing any
records of the Depository relating to such Debentures.
Payments with respect to the principal of, premium, if any,
and interest on any Debentures represented by a Global Debenture
or a New Global Debenture, as the case may be, registered in the
name of the Depository or its nominee on the applicable record
date will be payable by the Trustee to or at the direction of the
Depository or its nominee in its capacity as the registered
Holder of the Global Debenture or a New Global Debenture, as the
case may be, representing such Debentures under the Indenture.
Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the Debentures, including the
Global Debentures or the New Global Debentures, as the case may
be, are registered as the owners thereof for the purpose of
receiving such payment and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee
has or will have any responsibility or liability for the payment
of such amounts to beneficial owners of Debentures (including
principal, premium, if any, and interest), or to immediately
credit the accounts of the relevant Participants with such
payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Debentures
or the New Global Debentures, as the case may be, as shown on the
records of the Depository. Payments by the Participants and the
Indirect Participants to the beneficial owners of Debentures will
be governed by standing instructions and customary practice and
will be the responsibility of the Participants or the Indirect
Participants.
CERTIFICATED DEBENTURES
If (i) the Company notifies the Trustee in writing that the
Depository is no longer willing or able to act as a depository
and the Company is unable to locate a qualified successor within
90 days or (ii) the Company, at its option, notifies the Trustee
in writing that it elects to cause the issuance of Debentures in
definitive form under the Indenture, then, upon surrender by the
Depository of its Global Debentures or the New Global Debentures,
as the case may be, Certificated Debentures will be issued to
each person that the Depository identifies as the beneficial
owner of the Debentures represented by the Global Debentures or
the New Global Debentures, as the case may be. In addition,
subject to certain conditions, any person having a beneficial
interest in a Global Debenture or a New Global Debenture, as the
case may be, may, upon request to the Trustee, exchange such
beneficial interest for Certificated Debentures. Upon any such
issuance, the Trustee is required to register such Certificated
Debentures in the name of such person or persons (or the nominee
of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any
delay by the Depository or any Participant or Indirect
Participant in identifying the beneficial owners of the related
Debentures and each such person may conclusively rely on, and
shall be protected in relying on, instructions from the
Depository for all purposes (including with respect to the
registration and delivery, and the respective principal amounts,
of the Debentures to be issued).
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchaser entered into the
Registration Rights Agreement dated as of September 22, 1995.
Pursuant to the Registration Rights Agreement, the Company has
agreed to file with the Securities and Exchange Commission (the
"Commission") a registration statement under the Securities Act
(the "Shelf Registration Statement") to cover public resales of
the Debentures by Holders and of the Class A Common Stock
issuable upon conversion of the Debentures by holders thereof, in
each case who satisfy certain conditions relating to the
providing of information in connection with the Shelf
Registration Statement. The Company has agreed to use its
reasonable best efforts to (a) cause the Shelf Registration
Statement to be filed with the Commission within 90 days after
September 29, 1995 (the "Closing Date"); (b) cause the Shelf
Registration Statement to be declared effective by the Commission
within 150 days after the Closing Date; and (c) keep the Shelf
Registration Statement effective until at least the third
anniversary of the Closing Date or such shorter period that will
terminate when all the shares of the Class A Common Stock and the
Debentures covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement. The Company
has filed a Registration Statement of which this Prospectus is a
part in compliance with its obligation under the Registration
Rights Agreement to file a Shelf Registration Statement.
Notwithstanding the foregoing, the Company will be permitted to
suspend the use of the Shelf Registration Statement during
certain periods under certain conditions.
</R >
The Registration Rights Agreement provides that, if (i) the
Shelf Registration Statement is not filed with the Commission or
is not declared effective by the Commission within the time
periods set forth above or (ii) at any time during which the
Shelf Registration Statement is required to kept effective, it
shall cease to be effective (other than as a result of the
effectiveness of a successor registration statement) and such
effectiveness is not restored within 45 days thereafter (each
such event referred to in clause (i) or (ii), a "Registration
Default"), the Company will pay liquidated damages (the
"Liquidated Damages") to each Holder of Debentures or holder of
Class A Common Stock which are "restricted" securities under the
Securities Act intended to be eligible for resale under the Shelf
Registration Statement and who has complied with its obligations
under the Registration Rights Agreement. During the first 90-day
period immediately following the occurrence of a Registration
Default, such Liquidated Damages shall be in an amount equal to
$.05 per week per $1,000 principal amount of Debentures and $.01
per week per share (subject to adjustment in the event of stock
splits or consolidations, stock dividends and the like) of Class
A Common Stock constituting restricted securities held by such
person. The amount of the Liquidated Damages will increase by an
additional $.05 per week per $1,000 principal amount and $.01 per
week per share (subject to adjustment as set forth above) of
Class A Common Stock constituting restricted securities for each
subsequent 90-day period until the applicable Registration
Default is cured, up to a maximum amount of liquidated damages of
$.20 per week per $1,000 principal amount of Debentures and $.04
per week per share (subject to adjustment as set forth above) of
Class A Common Stock constituting restricted securities. All
accrued Liquidated Damages shall be paid by wire transfer of
immediately available funds or by federal funds check by the
Company on each Damages Payment Date (as defined in the
Registration Rights Agreement). Following the cure of all
Registration Defaults, the payment of Liquidated Damages will
cease.
In addition, for so long as the Debentures are outstanding
and during any period in which the Company is not subject to the
Exchange Act, the Company will provide to holders of Debentures
and to prospective purchasers of the Debentures the information
required by Rule 144A(d)(4) under the Securities Act. The
Company will provide a copy of the Registration Rights Agreement
to prospective investors upon request.
DESCRIPTION OF 1998 DEBENTURES
The following summary describes certain provisions of the
indenture governing the 1998 Debentures (the "1998 Indenture")
and the 1998 Debentures. The following summary does not purport
to be complete and is subject to and is qualified in its entirety
by reference to the 1998 Indenture and the form of the 1998
Debentures.
The Company's 1998 Debentures were issued on August 1, 1983
in an aggregate principal amount of $25,000,000. The 1998
Debentures are unsecured obligations of the Company which are
subordinated in right of payment to all existing and future
Senior Indebtedness (as defined below) of the Company. The 1998
Indenture does not contain any restrictions upon the incurrence
of Senior Indebtedness or any other indebtedness by the Company
or by any of its subsidiaries.
The 1998 Debentures bear interest at a rate of 8-1/2% per
annum payable semiannually on February 1 and August 1 of each
year and mature on August 1, 1998. Mandatory sinking fund
payments sufficient to retire $2.5 million principal amount of
the 1998 Debentures annually, which commenced on August 1, 1990,
are calculated to retire 80% of the issue prior to maturity. See
"Capitalization."
The 1998 Debentures are redeemable on not less than 30 days'
notice at the option of the Company, in whole or in part, at a
redemption price of 100% of the principal amount, plus accrued
interest to the date of redemption. The 1998 Debentures are
convertible at any time prior to maturity, unless previously
redeemed, into shares of Class B Common Stock of the Company at a
conversion price of $15.00 per share, subject to adjustment under
certain conditions.
The 1998 Indenture contains certain limitations on the
Company's right to distribute dividends or purchase, redeem or
otherwise acquire or retire any of its capital stock and to merge
or consolidate unless it meets the criteria set forth therein.
Senior Indebtedness is defined in the 1998 Indenture to
include the principal of (and premium, if any) and interest on
(a) all indebtedness of the Company, whether outstanding on the
date of the 1998 Indenture or thereafter created, incurred,
assumed or guaranteed, for borrowed money (other than the 1998
Debentures), whether short-term or long-term and whether secured
or unsecured (including all indebtedness evidenced by notes,
bonds, debentures or other securities sold by the Company for
money), (b) indebtedness incurred by the Company in the
acquisition (whether by way of purchase, merger, consolidation or
otherwise and whether by the Company or another person) of any
business, real property or other assets (except assets acquired
in the ordinary course of the conduct of the acquirer's usual
business), (c) guarantees by the Company of indebtedness for
borrowed money, whether short-term or long-term and whether
secured or unsecured, of any corporation in which the Company
owns, directly or indirectly, 50% or more of the stock having
general voting power and (d) renewals, extensions, refundings,
deferrals, restructurings, amendments and modifications of any
such indebtedness, obligation or guarantee, unless in each case
by the terms of the instrument creating or evidencing such
indebtedness, obligation or guarantee or such renewal, extension,
refunding, deferral, restructuring, amendment or modification it
is provided that such indebtedness, obligation or guarantee is
not superior in right of payment of the 1998 Debentures.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently
consists of 2,000,000 shares of Preferred Stock, 10,000,000
shares of Class A Common Stock and 20,000,000 shares of Class B
Common Stock. As of February 20, 1996, there were 3,307,324
shares of Class A Common Stock and 2,154,808 shares of Class B
Common Stock issued and outstanding (exclusive of 432,639 shares
of Class A Common Stock and 65,795 shares of Class B Common Stock
held in treasury). No shares of Preferred Stock have been
issued. All outstanding shares of Class A Common Stock and Class
B Common Stock are fully paid and nonassessable. The Class A
Common Stock together with the Class B Common Stock is referred
to herein as the "Common Stock". The Board of Directors of the
Company has authorized and is currently soliciting proxies from
the stockholders of the Company with respect to a proposal to
amend the Company's Certificate of Incorporation to convert the
Class A Common Stock and Class B Common Stock into a single class
of common stock, as well as to include certain other charter
amendments.
PREFERRED STOCK
The terms of the Preferred Stock have not been determined
and are not designated in the Restated Certificate of
Incorporation of the Company, as amended. Instead, the Board of
Directors is authorized to issue the Preferred Stock in series,
each of which may vary as to the designation and number of shares
in such series, the voting power of the holders thereof, and the
dividend rate, the redemption terms and prices, the voluntary and
involuntary liquidation preferences, the conversion rights and
the sinking fund requirements, if any, of such series. The Board
of Directors, however, may not create any series of Preferred
Stock with more than one vote per share or with voting rights
which would limit, reduce or otherwise abridge the right of the
holders of Class B Common Stock to elect a number of Class B
Directors equal to one-fourth of the number of directors
constituting the whole Board of Directors. The foregoing
restriction may be changed only by the affirmative vote of
holders of 60% of the outstanding shares of Class A Common Stock
and Class B Common Stock, voting as separate classes.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Voting Rights. The Board of Directors of the Company is
divided into two classes of directors, Class A Directors and
Class B Directors. So long as the number of shares of Class B
Common Stock outstanding is not less than 10% of the total number
of outstanding shares of Class A Common Stock and Class B Common
Stock, the holders of Class B Common Stock, voting as a class,
will be entitled to one vote for each such share held to elect a
number of Class B Directors equal to one-fourth of the number of
directors constituting the whole Board of Directors (rounded up
to the nearest whole number). The holders of Class A Common
Stock, voting as a class, are entitled to one vote for each such
share held to elect the remaining directors, who will be
designated Class A Directors. Neither the Class A Common Stock
nor the Class B Common Stock has cumulative voting rights, and
thus holders of 50% or more of the outstanding shares of each
class are able to elect all of the directors to be elected by
that class. On all matters other than the election or removal of
directors, and matters as to which class voting is required by
Delaware law, holders of Class A Common Stock are entitled to one
vote per share and holders of Class B Common Stock are entitled
to one-tenth vote per share, voting together as a single class.
However, if the number of shares of Class B Common Stock
outstanding should be less than 10% of the total number of shares
of Class A Common Stock and Class B Common Stock outstanding at
some future record date for a meeting of stockholders of the
Company at which directors are to be elected, then the holders of
Class B Common Stock would not be entitled to elect any Class B
Directors and the holders of Class A Common Stock and Class B
Common Stock would vote together as a single class on all matters
coming before such meeting, including the election of the Class A
Directors to be elected at such meeting, with the holders of
Class A Common Stock entitled to one vote per share and the
holders of Class B Common Stock entitled to one-tenth vote per
share. Alternatively, if at any record date for such a meeting
the number of outstanding shares of Class A Common Stock should
be less than 875,000, then the holders of Class B Common Stock
would continue to elect a number of Class B Directors equal to
one-fourth of the total number of directors constituting the
whole Board and, in addition, would vote together with the
holders of Class A Common Stock to elect the Class A Directors to
be elected at such meeting, with the holders of Class A Common
Stock entitled to cast one vote per share and the holders of
Class B Common Stock entitled to cast one-tenth vote per share.
The Class A Directors are divided into three subclasses,
with each subclass consisting of as nearly an equal number of
directors as possible. The members of one such subclass are
elected each year to hold office for a three-year term and until
their successors have been elected and qualified. The term of
office of each Class B Director is one year. The classification
and subclassification of the Board of Directors may be changed
only by the affirmative vote of holders of 60% of the outstanding
shares of both the Class A Common Stock and the Class B Common
Stock, voting as separate classes. Stockholders of a particular
class may effect the removal of a director of that class during
his term by a like vote, but only for cause.
Dividends and Distributions. Holders of Class A Common
Stock and Class B Common Stock each are entitled to dividends
only if, as and when declared payable by the Board of Directors
out of funds legally available for such payment. For so long as
any shares of the Class B Common Stock are outstanding, the Board
of Directors may not (i) declare any dividends in cash or
property with respect to the Class A Common Stock unless an equal
dividend per share, payable in the same consideration, shall have
been declared with respect to the outstanding Class B Common
Stock and set aside for payment, or (ii) declare any dividend
payable in securities of the Company with respect to the Class A
Common Stock, or distribute any rights or warrants to purchase
securities of the Company with respect to the Class A Common
Stock, unless at the same time it declares an equivalent dividend
or makes an equivalent distribution with respect to the Class B
Common Stock so as to maintain, as nearly as may be practicable,
the relative voting and other rights of the holders of each class
immediately before such action. In addition, the Company may not
combine, subdivide or reclassify the Class A Common Stock or
Class B Common Stock unless at the same time it takes such action
as may be necessary with respect to the other class so as to
maintain, as nearly as may be practicable, the relative voting
and other rights of the holders of each class immediately before
such action. The foregoing provisions may be changed only by the
affirmative vote of holders of 60% of the outstanding shares of
both the Class A Common Stock and Class B Common Stock, voting as
separate classes. The Board of Directors is permitted to declare
a dividend in cash, property or securities with respect to the
Class B Common Stock without declaring a dividend with respect to
the Class A Common Stock, although at this time it does not
foresee any circumstances under which it would consider taking
such action.
Conversion Rights. Holders of Class A Common Stock have the
right at any time, and from time to time, to convert each share
of Class A Common Stock into one share of Class B Common Stock.
Holders of Class B Common Stock do not have the right to convert
their shares into Class A Common Stock nor do they have any other
conversion rights.
In General. Holders of Class A Common Stock and Class B
Common Stock have no redemption or preemptive rights and are not
liable for further calls or assessments. Upon liquidation of the
Company, neither the holders of Class A Common Stock nor the
holders of Class B Common Stock will have any preferences over
each other. Holders of both classes of stock will be entitled,
after satisfaction of the Company's liabilities and payment of
the liquidation preferences, if any, of any outstanding shares of
Preferred Stock, to share the remaining assets of the Company, if
any, equally in proportion to the number of shares of each class
held.
Transfer Agent and Registrar. The Trust Company of New
Jersey, 35 Journal Square, Jersey City, New Jersey, 07306, is the
transfer agent and the registrar of both the Class A Common Stock
and the Class B Common Stock.
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from this
offering. The Selling Security Holders may sell all or a portion
of the Debentures and shares of Class A Common Stock offered
hereby from time to time on terms to be determined at the times
of such sales. The Debentures and shares of Class A Common Stock
may be sold from time to time to purchasers directly by any of
the Selling Security Holders. Alternatively, any of the Selling
Security Holders may from time to time offer the Debentures or
shares of Class A Common Stock through underwriters, including
the Initial Purchaser, dealers or agents, who may receive
compensation in the form of underwriting discounts, commissions
or concessions from the Selling Security Holders and the
purchasers of the Debentures or shares of Class A Common Stock
for whom they may act as agent. To the extent required, the
aggregate principal amount of Debentures and number of shares of
Class A Common Stock to be sold, the names of the Selling
Security Holders, the purchase price, the name of any such agent,
dealer or underwriter and any applicable commissions with respect
to a particular offer will be set forth in an accompanying
Prospectus Supplement or, if appropriate, a post-effective
amendment to the Registration Statement of which this Prospectus
is a part. There is no assurance that the Selling Security
Holders will sell any or all of the Debentures or shares of Class
A Common Stock offered hereby. The Selling Security Holders and
any broker-dealers, agents or underwriters that participate with
the Selling Security Holders in the distribution of the
Debentures or shares of Class A Common Stock may be deemed to be
"underwriters" within the meaning of the Securities Act, in which
event any discounts, commissions or concessions received by such
broker-dealers, agents or underwriter and any profit on the
resale of the Debentures or shares of Class A Common Stock
purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
The Debentures and the shares of Class A Common Stock issued
upon conversion of the Debentures may be sold from time to time
in one or more transactions at fixed offering prices, which may
be changed, or at varying prices determined at the time of sale
or at negotiated prices. Such prices will be determined by the
holders of such securities or by agreement between such holders
and underwriters or dealers who may receive fees or commissions
in connection therewith.
To comply with the securities laws of certain states, if
applicable , the Debentures and shares of Class A Common Stock
will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition in certain states the
Debentures and shares of Class A Common Stock may not be offered
or sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The Debentures were originally sold to the Initial Purchaser
on September 29, 1995 in a private placement (including the over-
allotment option for $5,000,000 aggregate principal amount of the
Debentures which was exercised on November 3, 1995) at a purchase
price of 95% of their principal amount. The Company agreed to
indemnify the Initial Purchaser against certain liabilities in
connection with the offer and sale of the Debentures, including
liabilities under the Securities Act, and to contribute to
payments that the Initial Purchaser may be required to make in
respect thereof.
The Company will pay substantially all expenses incident to
the offering and sale of the Debentures and Class A Common Stock
to the public other than underwriting discounts and selling
commissions and fees. The Company and the Selling Security
Holders have agreed to indemnify each other against certain
liabilities arising under the Securities Act. In addition, any
underwriter utilized by the Selling Security Holders may be
indemnified against certain liabilities, including liabilities
under the Securities Act. See "Selling Security Holders."
Prior to this offering there has not been any public market
for the Debentures and there can be no assurance regarding the
future development of a market for the Debentures. The Company
has applied for listing of the Debentures and the shares of Class
A Common Stock which are issuable upon conversion of the
Debentures on the AMEX. The Debentures are eligible for trading
in the PORTAL Market; however, no assurance can be given as to
the liquidity of, or trading market for, the Debentures. The
Company has been advised by the Initial Purchaser that it intends
to make a market in the Debentures. However, it is not obligated
to do so and any market-making activities with respect to the
Debentures may be discontinued at any time without notice. See
"Description of the Debentures -- Registration Rights; Liquidated
Damages." Accordingly, no assurance can be given as to the
liquidity of or the trading market for the Debentures. See "Risk
Factors -- Lack of Public Market for the Debentures; Restrictions
on Resale."
SELLING SECURITY HOLDERS
The following table sets forth information concerning the
principal amount of Debentures beneficially owned by each Selling
Security Holder which may be offered from time to time pursuant
to this Prospectus. Other than as a result of the ownership or
placement of Debentures or Class A Common Stock, none of the
Selling Security Holders has had any material relationship with
the Company within the past three years, except as noted herein.
The table has been prepared based upon information furnished to
the Company by or on behalf of the Selling Security Holders.
Principal
Amount Principal
of Amount of Percent
Debentures Debentures of
Beneficially Being Outstanding
Name Owned Registered Debentures
___________ ____________ ___________
BT Holdings . . . . . . . . . . . $1,650,000 $1,650,000 6.6%
Castle Convertible Fund Inc. . . 500,000 500,000 2.0
Catholic Mutual Relief Society of
America . . . . . . . . . . . . . 250,000 250,000 1.0
Cincinnati Financial Corp. . . . 2,000,000 2,000,000 8.0
CNA Income Shares, Inc. . . . . . 1,000,000 1,000,000 4.0
First Pacific Advisers, Inc.* . . 4,500,000 4,500,000 18.0
Forest Fulcrum Ltd. . . . . . . . 570,000 570,000 2.3
Forest Fulcrum Fund . . . . . . . 980,000 980,000 3.9
Franklin Investors Securities
Trust Convertible Securities
Fund . . . . . . . . . . . 750,000 750,000 3.0
ICI American Holdings . . . . . . 250,000 250,000 1.0
IDS Bond Fund, Inc.** . . . . . . 3,000,000 3,000,000 12.0
Laterman Strategies 90's L.P. . . 300,000 300,000 1.2
Laterman & Co. . . . . . . . . . 200,000 200,000 *
Merrill Lynch Convertible
Securities Holdings, Inc. . . . 1,000,000 1,000,000 4.0
Nalco Chemical Retirement . . . . 100,000 100,000 *
Nesbitt Burns . . . . . . . . . . 400,000 400,000 1.6
Offshore Strategies Ltd. . . . . 500,000 500,000 2.0
Oregon Equity Fund . . . . . . . 1,000,000 1,000,000 4.0
The Putnam Advisory Company, Inc.
on behalf of Boston College
Endowment . . . . . . . . . . . 200,000 200,000 *
The Putnam Advisory Company, Inc.
on behalf of New Hampshire
Retirement System . . . . . . . 525,000 525,000 2.1
The Putnam Advisory Company, Inc.
on behalf of The Museum of
Fine Art, Boston . . . . . . . 90,000 90,000 *
Putnam Convertible Income-Growth
Trust . . . . . . . . . . . . . 1,850,000 1,850,000 7.4
Putnam Convertible Opportunities
and Income Trust . . . . . . . . 485,000 485,000 1.9
Putnam High Income Convertible
and Bond Fund . . . . . . . . . 600,000 600,000 2.4
State of Delaware . . . . . . . . 400,000 400,000 1.6
United National Insurance Company 150,000 150,000 *
Winchester Convertible Plus
Limited . . . . . . . . . . . . . 1,000,000 1,000,000 4.0
Zazove Convertible Fund, L.P. . . 500,000 500,000 2.0
Zeneca Holdings . . . . . . . . . 250,000 250,000 1.0
Total . . . . . . . . . . . $25,000,000 $25,000,000 100%
_____________________________
* Less than 1%.
* First Pacific Advisers, Inc. may be deemed to be the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of more than
ten percent of each of the Class A Common Stock and Class B Common
Stock of the Company. Such information has been derived from
statements on Schedule 13D and 13G filed with the SEC by First Pacific
Advisers, Inc.
** IDS Bond Fund, Inc. is an investment company registered under the
Investment Company Act of 1940, as amended, and is a fund in the IDS
Mutual Fund Group ("IDS Funds"). American Express Financial
Corporation (formerly known as IDS Financial Corporation) ("AEFC"), an
investment adviser registered under the Investment Advisers Act of
1940, as amended, provides investment advisory services to each of the
IDS Funds and to certain other registered investment companies. AEFC
is a wholly owned subsidiary of American Express Company. The
information set forth in the table with respect to IDS Bond Fund, Inc.
and the information set forth in this footnote was provided by AEFC.
Because the Selling Security Holders may sell all or some of
the Debentures which they hold and shares of Class A Common Stock
issued upon conversion thereof pursuant to the offering
contemplated by this Prospectus, no estimate can be given as to
the aggregate amount of Debentures or shares of Class A Common
Stock that are to be offered hereby or that will be owned by the
Selling Security Holders upon completion of this offering to
which this Prospectus relates. Accordingly, the aggregate
principal amount of Debentures offered hereby may increase or
decrease. As of the date of this Prospectus, the aggregate
principal amount of Debentures outstanding is $25,000,000. See
"Plan of Distribution."
LEGAL MATTERS
Certain legal matters in connection with this offering will
be passed upon for the Company by Skadden, Arps, Slate, Meagher &
Flom, 919 Third Avenue, New York, New York 10022. Mark N.
Kaplan, a director and owner of 1,000 shares of the Class A
Common Stock of the Company, is a partner in the firm of Skadden,
Arps, Slate, Meagher & Flom.
EXPERTS
The consolidated financial statements and consolidated
financial statement schedule of the Company as of March 31, 1995
and 1994, and for each of the years in the three-year period
ended March 31, 1995, included herein and in the Registration
Statement, have been included herein and in the Registration
Statement, in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere
herein and in the Registration Statement, and upon the authority
of said firm as experts in accounting and auditing.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements of Diagnostic/Retrieval
Systems, Inc. and Subsidiaries
Page
Independent Auditors' Report . . . . . . . . F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1995 and 1994
and December 31, 1995 (unaudited) . . . . . . . F-3
Consolidated Statements of Earnings for the fiscal years
ended March 31, 1995, 1994 and 1993 and for the nine months
ended December 31, 1995 and 1994 (unaudited) . . F-4
Consolidated Statements of Stockholders'
Equity for the fiscal years ended March 31, 1995, 1994
and 1993 and for the nine months ended December 31,
1995 (unaudited) . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the fiscal
years ended March 31, 1995, 1994 and 1993 and for the
nine months ended December 31, 1995 and 1994 (unaudited) F-6
Notes to Consolidated Financial Statements . F-7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders,
Diagnostic/Retrieval Systems, Inc.:
We have audited the accompanying consolidated
balance sheets of Diagnostic/Retrieval Systems, Inc. and
subsidiaries as of March 31, 1995 and 1994, and the
related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the
years in the three-year period ended March 31, 1995.
These consolidated financial statements are the responsi-
bility 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 state-
ments are free of material misstatement. An audit in-
cludes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting princi-
ples used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all
material respects, the financial position of Diagnos-
tic/Retrieval Systems, Inc. and subsidiaries as of March
31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three-
year period ended March 31, 1995 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
May 18, 1995
CONSOLIDATED BALANCE SHEETS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
December 31,
March 31, 1995
1995 1994 (unaudited)
___________ __________ __________
Assets
Current Assets:
Cash and Cash Equivalents . . . . . . . . $11,197,000 $15,465,000 $23,069,000
Accounts Receivable (Notes 2 and 6) . . . 17,432,000 15,538,000 20,594,000
Inventories, Net of Progress Payments
(Note 3) . . . . . . . . . . . . . . . . 11,724,000 5,042,000 16,558,000
Other Current Assets . . . . . . . . . . 2,445,000 2,563,000 2,477,000
___________ __________ __________
Total Current Assets . . . . . . . . . . 42,798,000 38,608,000 62,698,000
___________ __________ __________
Property, Plant and Equipment, at Cost
(Notes 4 and 6) . . . . . . . . . . . . . 33,661,000 32,182,000 39,958,000
Less Accumulated Depreciation and Amorti-
zation . . . . . . . . . . . . . . . . . 23,812,000 23,289,000 25,230,000
___________ __________ __________
Net Property, Plant and Equipment . . . . 9,849,000 8,893,000 14,728,000
___________ __________ __________
Intangible Assets, Less Accumulated Amor-
tization of $3,457,000, $3,008,000 and
$3,883,000 at March 31, 1995 and 1994 and
December 31, 1995, respectively . . . . . 8,920,000 8,414,000 8,494,000
Other Assets . . . . . . . . . . . . . . 3,023,000 2,921,000 4,850,000
___________ __________ __________
Total Assets . . . . . . . . . . . . . . $64,590,000 $58,836,000 $90,770,000
___________ __________ __________
___________ __________ __________
Liabilities and Stockholders' Equity
Current Liabilities:
Current Installments of Long-Term Debt
(Note 6) . . . . . . . . . . . . . . . . $ 2,492,000 $ 2,664,000 $ 3,436,000
Accounts Payable and Accrued Expenses
(Note 5) . . . . . . . . . . . . . . . . 19,989,000 16,141,000 18,677,000
___________ __________ __________
Total Current Liabilities . . . . . . . . 22,481,000 18,805,000 22,113,000
Long-Term Debt, Excluding Current In-
stallments (Note 6) . . . . . . . . . . . 11,732,000 14,515,000 35,319,000
Deferred Income Taxes (Note 8) . . . . . 4,605,000 4,624,000 4,605,000
Other Liabilities (Notes 10 and 11) . . . 3,263,000 1,133,000 3,826,000
___________ __________ __________
Total Liabilities . . . . . . . . . . . . 42,081,000 39,077,000 65,863,000
___________ __________ __________
Stockholders' Equity (Notes 6 and 9):
Class A Common Stock, $.01 par Value per
Share. Authorized 10,000,000 Shares;
Issued 3,699,963 Shares, 3,674,963 Shares
and 3,739,963 Shares at March 31, 1995
and 1994 and December 31, 1995, respec-
tively . . . . . . . . . . . . . . . . . 37,000 37,000 37,000
Class B Common Stock, $.01 par Value per
Share. Authorized 20,000,000 Shares;
Issued 2,163,253, 2,105,528 and 2,216,353
Shares at March 31, 1995 and 1994, and
December 31, 1995, respectively . . . . 22,000 21,000 22,000
Additional Paid-in Capital . . . . . . . 13,435,000 12,970,000 13,579,000
Retained Earnings . . . . . . . . . . . . 10,919,000 8,315,000 13,414,000
24,413,000 21,343,000 27,052,000
Treasury Stock, at Cost: 432,639 Shares
of Class A Common Stock and 21,619 Shares
of Class B Common Stock at March 31,
1995, 423,419 Shares of Class A Common
Stock and 21,440 Shares of Class B Common
Stock at March 31, 1994, and 432,639
Shares of Class A Common Stock and 65,795
Shares of Class B Common Stock at
December 31, 1995 (Note 10) . . . . . . (1,617,000) (1,579,000) (1,918,000)
Unamortized Restricted Stock Compensation (287,000) (5,000) (227,000)
___________ __________ __________
Net Stockholders' Equity . . . . . . . . 22,509,000 19,759,000 24,907,000
___________ __________ __________
Commitments and Contingencies (Note 10)
Total Liabilities and Stockholders' Equi-
ty . . . . . . . . . . . . . . . . . . . $64,590,000 $58,836,000 $90,770,000
__________________
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF EARNINGS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended March 31, December 31
------------------------------------------- --------------------------
1995 1994 1993 1995 1994
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues ...................... $ 69,930,000 $ 57,820,000 $ 47,772,000 $ 65,628,000 $ 47,404,000
Costs and Expenses (Note 3) ... 64,836,000 54,372,000 45,461,000 60,289,000 44,143,000
Operating Income .............. 5,094,000 3,448,000 2,311,000 5,339,000 3,261,000
Interest and Related Expenses . (1,372,000) (1,574,000) (1,735,000) (1,675,000) (1,020,000)
Other Income, Net (Notes 7
and 11) ....................... 534,000 834,000 1,224,000 425,000 613,000
Earnings before Income Taxes .. 4,256,000 2,708,000 1,800,000 4,089,000 2,854,000
Income Taxes (Note 8) ......... 1,652,000 1,093,000 715,000 1,594,000 1,142,000
------------ ------------ ------------ ------------ ------------
Net Earnings .................. $ 2,604,000 $ 1,615,000 $ 1,085,000 $ 2,495,000 $ 1,712,000
============ ============ ============ ============ ============
Earnings per Share of Class A and Class B Common Stock:
Primary .............. $ .50 $ .30 $ .20 $ .44 $ .34
Fully diluted ........ $ .50 $ .30 $ .20 $ .44 $ .34
Weighted Average Number of
Shares of Class A and Class
B Common Stock Outstanding:
Primary ............... 5,231,000 5,334,000 5,324,000 5,647,000 5,026,000
Fully diluted ......... 5,231,000 5,334,000 5,324,000 6,552,000 5,026,000
<FN>
- -----------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended March
31, 1995, 1994 and
1993, and Nine
Months Ended
December 31, 1995
(unaudited)
Common Stock
---------------------------------------
Additional Unamortized
Class A Class B Paid Restricted Net
------------------ ------------------ In Retained Treasury Stock Stockholders'
Shares Amount Shares Amount Capital Earnings Stock Compensation Equity
- ----------------- --------- ------- --------- ------- ------------ ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at March
31, 1992 ........ 3,674,963 $ 37,000 2,089,528 $ 21,000 $ 12,984,000 $ 5,615,000 $ (1,579,000) $ (31,000) $ 17,047,000
Net Earnings .... -- -- -- -- -- 1,085,000 -- -- 1,085,000
Stock Options
Exercised ....... -- -- 5,000 -- -- -- -- -- --
Compensation
Relating to Stock -- -- -- -- (39,000) -- -- 22,000 (17,000)
Options, Net .... _________ _______ _________ ________ ___________ ___________ ___________ _________ ___________
Balances at March
31, 1993 ........ 3,674,963 37,000 2,094,528 21,000 12,945,000 6,700,000 (1,579,000) (9,000) 18,115,000
Net Earnings .... -- -- -- -- -- 1,615,000 -- -- 1,615,000
Stock Options
Exercised ....... -- -- 11,000 -- 2,000 -- -- -- 2,000
Compensation
Relating to Stock
Options, Net .... -- -- -- -- 23,000 -- -- 4,000 27,000
_________ _______ _________ _______ ___________ ___________ ___________ _________ ___________
Balances at March
31, 1994 ........ 3,674,963 37,000 2,105,528 21,000 12,970,000 8,315,000 (1,579,000) (5,000) 19,759,000
Net Earnings .... -- -- -- -- ... 2,604,000 ... ... 2,604,000
Stock Options
Exercised ....... 25,000 -- 57,725 1,000 188,000 -- -- -- 189,000
Compensation
Relating to Stock
Options, Net .... -- -- -- -- 388,000 -- -- (282,000) 106,000
Purchase of
Treasury Stock .. -- -- -- -- -- -- (2,900,000) -- (2,900,000)
Sale of Treasury
Stock ........... -- -- -- -- (111,000) -- 2,862,000 -- 2,751,000
_________ _______ _________ _______ ___________ ___________ ___________ _________ ___________
Balances at March
31, 1995 ........ 3,699,963 37,000 2,163,253 22,000 13,435,000 10,919,000 (1,617,000) (287,000) 22,509,000
Net Earnings
(unaudited) ..... -- -- -- -- -- 2,495,000 -- -- 2,495,000
Stock Options
Exercised
(unaudited) ..... 40,000 -- 53,100 -- 220,000 -- -- -- 220,000
Expenses relating
to the Sale of
Treasury Stock
(unaudited) ..... -- -- -- -- (76,000) -- -- -- (76,000)
Receipt of Stock
Into Treasury
(unaudited) ... -- -- -- -- -- -- (301,000) -- (301,000)
Compensation
Relating to Stock
Options Net ..... -- -- -- -- -- -- -- 60,000 60,000
(unaudited) ..... _________ _______ _________ _______ ___________ ___________ ___________ _________ ___________
Balances at
December 31, 1995
(unaudited) ..... 3,739,963 $ 37,000 2,216,353 $ 22,000 $ 13,579,000 $ 13,414,000 $(1,918,000) $(227,000) $ 24,907,000
_________ _______ _________ _______ ___________ ___________ ___________ _________ ___________
<FN>
- --------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended March 31, December 31,
--------------------------------------- ------------------------
1995 1994 1993 1995 1994
------------- ----------- ----------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings..................... $2,604,000 $1,615,000 $1,085,000 $2,495,000 $1,712,000
Adjustments to Reconcile Net
Earnings to Cash Flows from
Operating Activities:
Depreciation and Amortization. 2,480,000 2,558,000 3,202,000 2,226,000 1,967,000
Deferred Income Taxes......... 26,000 (15,000) (31,000) -- --
Other, Net.................... (77,000) (233,000) (446,000) 305,000 (235,000)
Changes in Assets and
Liabilities, Net of Effects
from Business Combinations:
(Increase) Decrease in Accounts
Receivable.................. (1,415,000) 1,443,000 (880,000) (2,859,000) 2,265,000
(Increase) Decrease in
Inventories....................... (6,408,000) 2,069,000 2,186,000 (4,141,000) (5,543,000)
(Increase) Decrease in Other
Current Assets.................... (7,000) (133,000) 1,400,000 667,000 (130,000)
Increase (Decrease) in Accounts
Payable and Accrued Expenses . 3,640,000 2,928,000 (400,000) (2,381,000) (182,000)
Other, Net..................... 1,643,000 (62,000) (357,000) 194,000 160,000
---------- --------- --------- ---------- --------
Net Cash Provided by (Used in)
Operating 2,486,000 10,170,000 5,759,000 (3,494,000) 14,000
Activities:...................... ---------- --------- --------- ---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures............. (2,543,000) (988,000) (922,000) (3,712,000) (1,014,000)
Sales of Fixed Assets............ -- -- -- 2,380,000 --
Payments Pursuant to Business
Combinations, Net of Cash
Acquired......................... (1,514,000) (696,000) -- (4,140,000) (1,514,000)
Cash Advanced to Company
Acquired for Repayment of Debt
Prior to Acquisition............. -- (1,800,000) -- -- --
Other, Net....................... 263,000 11,000 2,000 -- 236,000
---------- --------- --------- ---------- --------
Net Cash Used in Investing (3,794,000) (3,473,000) (920,000) (5,472,000) (2,292,000)
Activities....................... ---------- --------- --------- ---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Long-Term Debt....... (275,000) (168,000) (262,000) (374,000) (56,000)
Repurchases of Convertible
Subordinated
Debentures....................... (2,667,000) (2,354,000) (1,880,000) (2,242,000) (2,639,000)
Net Proceeds From Issuance of
Senior Subordinated -- -- -- 23,360,000 --
Convertible Debentures...........
Other Borrowings................. 20,000 325,000 -- 55,000 75,000
Purchase of Treasury Stock....... (2,900,000) -- -- -- (2,900,000)
Sale of Treasury Stock........... 2,862,000 -- -- -- 2,625,000
Other, Net....................... -- -- -- 39,000 --
---------- --------- --------- ---------- --------
Net Cash Used in Financing (2,960,000) (2,197,000) (2,142,000) 20,838,000 (2,895,000)
Activities....................... ---------- --------- --------- ---------- --------
Net Increase (Decrease) in
Cash and
Cash Equivalents................. (4,268,000) 4,500,000 2,697,000 11,872,000 (5,173,000)
Cash and Cash Equivalents,
Beginning of Period.............. 15,465,000 10,965,000 8,268,000 11,197,000 15,465,000
---------- --------- --------- ---------- --------
Cash and Cash Equivalents, End
of Period........................ $11,197,000 $15,465,000 $10,965,000 $23,069,000 $10,292,000
---------- --------- --------- ---------- --------
<FN>
- --------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of
Diagnostic/Retrieval Systems, Inc., its subsidiaries, all of which are wholly
owned, and a joint venture consisting of an 80% controlling partnership interest
(the "Company"). All significant intercompany transactions and balances have
been eliminated in consolidation.
The Consolidated Financial Statements include information as
of December 31, 1995 and for the nine months ended December 31, 1995 and 1994,
which is unaudited. In the opinion of Management, the accompanying unaudited
consolidated financial statements of the Company contain all adjustments
(consisting of only normal and recurring adjustments) necessary for the fair
presentation of the Company's consolidated financial position as of December 31,
1995, the statements of earnings for the nine months ended December 31, 1995 and
1994, cash flows for the nine months ended December 31, 1995 and 1994 and the
statement of stockholders' equity for nine months ended December 31, 1995. The
results of operations for the nine months ended December 31, 1995 are not
necessarily indicative of the results to be expected for the full year.
B. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
C. REVENUE RECOGNITION
Revenues related to long-term, firm fixed-price contracts,
which principally provide for the manufacture and delivery of finished units,
are recognized as shipments are made. The estimated profits applicable to such
shipments are recorded pro rata based upon estimated total profit at completion
of the contracts.
Revenues on contracts with significant engineering as well as
production requirements are recorded using the percentage-of-completion method
measured by the costs incurred on each contract to estimated total contract
costs at completion (cost-to-cost) with consideration given for risk of
performance and estimated profit.
Revenues related to incentive-type contracts also are
determined on a percentage-of- completion basis measured by the cost-to-cost
method. Revenues from cost-reimbursement contracts are recorded, together with
the fees earned, as costs are incurred.
Revenues recognized under the cost-to-cost
percentage-of-completion basis during fiscal 1995, 1994 and 1993 approximated
16%, 26% and 37% of total revenues, respectively, with remaining revenues
recognized as delivery of finished units is made, or as costs are incurred under
cost-reimbursement contracts. Included in revenues for fiscal 1995, 1994 and
1993 are $18,771,000, $27,496,000 and $19,155,000 respectively, of
customer-sponsored research and development.
Revisions in profit estimates are reflected in the year in
which the facts, which require the revisions, become known, and any estimated
losses and other future costs are accrued in full.
Approximately 84%, 94% and 83% of the Company's revenues in
fiscal 1995, 1994 and 1993, respectively, were derived directly or indirectly
from defense-industry contracts with the United States Government (principally
the U.S. Navy). In addition, approximately 7%, 3% and 17% of the Company's
revenues in fiscal 1995, 1994 and 1993, respectively, were derived directly or
indirectly from sales to foreign governments. Sales to commercial customers
comprised 9% and 3% of revenues in fiscal 1995 and 1994, respectively.
D. INVENTORIES
Costs accumulated under contracts are stated at actual cost,
not in excess of estimated net realizable value, including, for long-term
government contracts, applicable amounts of general and administrative expenses,
which include research and development costs, where such costs are recoverable
under customer contracts.
In accordance with industry practice, inventories include
amounts relating to contracts having production cycles longer than one year, and
a portion thereof will not be realized within one year.
E. DEPRECIATION AND AMORTIZATION OF PROPERTY,
PLANT AND EQUIPMENT
Depreciation and amortization have been provided on the
straight-line method. The ranges of estimated useful lives are: office
furnishings, motor vehicles and equipment, 3-10 years; building and building
improvements, 15-40 years; and leasehold improvements, over the shorter of the
estimated useful lives or the life of the lease.
Maintenance and repairs are charged to operations as incurred;
renewals and betterments are capitalized. The cost of assets retired, sold or
otherwise disposed of are removed from the accounts, and any gains or losses
thereon are reflected in operations.
F. EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED
Intangibles resulting from acquisitions represent the excess
of cost of the investments over the fair-market values of the underlying net
assets at the dates of investment. All intangibles are being amortized on the
straight-line method, over five to thirty years. The carrying value of
intangible assets periodically is reviewed by the Company, and impairments are
recognized when the expected undiscounted future operating cash flows derived
from such intangible assets are less than their carrying value.
G. INCOME TAXES
In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. A valuation allowance is provided when it is more likely than not that
some portion or all of a deferred tax asset will not be realized. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. SFAS 109 supersedes Statement of Financial
Accounting Standards No. 96, "Accounting for Income Taxes" ("SFAS 96").
Effective April 1, 1993, the Company adopted SFAS 109. The
cumulative effect of adopting SFAS 109 was not material to the Company's
consolidated results of operations or financial position.
Prior-year financial statements have not been restated to
apply the provisions of SFAS 109. Until March 31, 1993, the Company used the
asset and liability method of accounting for income taxes, as set forth in SFAS
96. Under SFAS 96, deferred income taxes are recognized by applying statutory
tax rates to the difference between the financial statement carrying amounts and
tax bases of assets and liabilities. The statutory tax rates applied are those
applicable to the years in which the differences are expected to reverse.
Deferred tax expense represents the change in the liability for deferred taxes
from year to year.
H. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In December 1990, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"). The
Company adopted SFAS 106 during the first quarter of fiscal 1994, and its
adoption did not have a material impact on the Company's consolidated results of
operations or financial position.
I. POSTEMPLOYMENT BENEFITS
In November 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS 112"). The Company adopted SFAS
112 during the first quarter of fiscal 1995, and its adoption did not have a
material impact on the Company's consolidated results of operations or financial
position.
J. EARNINGS PER SHARE (UNAUDITED WITH RESPECT TO THE NINE
MONTHS ENDED DECEMBER 31, 1995)
Earnings per share of common stock is computed by dividing net
earnings by the weighted average number of shares of Class A and Class B
Common Stock outstanding during each period. In fiscal 1995, the
computation of earnings per share included approximately 123,000 shares
from the assumed exercise of dilutive stock options computed using the
treasury stock method. Options outstanding to purchase shares of common
stock are not included in the computation of earnings per share for fiscal
1994 and 1993, because their effect was not material. Furthermore,
additional shares assumed to be outstanding applicable to the Company's 8
1/2% Convertible Subordinated Debentures also are not included for any of
the periods presented, because their effet on earnings per share was
antidilutive.
For the nine month period ended December 31, 1995, the computation
of primary earnings per share included approximately 174,000 shares from the
assumed exercise of dilutive stock options computed using the treasury stock
method. Options outstanding to purchase shares of common stock were excluded
from the computation of earnings per share for the nine month period ended
December 31, 1994, because their effect was not material. The computation
of fully diluted earnings per share for the nine month period ended
December 31, 1995 included approximately 185,000 shares, also from the assumed
exercise of dilutive stock options and, in addition, included approximately
894,000 shares from the assumed conversion of the Company's 9% Senior
Subordinated Convertible Debentures (the "Debentures"). Additional shares
assumed to be outstanding applicable to the Company's 8 1/2% Convertible
Subordinated Debentures were excluded from the computations for the interim
periods presented, as their effect on earnings per share was antidilutive.
NOTE 2. ACCOUNTS RECEIVABLE
The component elements of accounts receivable are as follows:
==============================================================================
March 31,
----------------------------------
1995 1994
-------- -------
U.S. Government:
Amounts Billed................. $ 5,885,000 $ 5,746,000
Recoverable Costs and
Accrued Profit
on Progress Completed, Not 7,264,000 5,374,000
Billed......................... --------------- --------------
13,149,000 11,120,000
--------------- --------------
Other U.S. Defense Contracts:
Amounts Billed................. 1,418,000 2,981,000
Recoverable Costs and
Accrued Profit
on Progress Completed, Not 639,000 537,000
Billed......................... --------------- --------------
2,057,000 3,518,000
---------------- --------------
Other Amounts Billed........... 2,226,000 900,000
--------------- --------------
Total.......................... $ 17,432,000 $ 15,538,000
--------------- ---------------
=============================================================================
Generally, no accounts receivable arise from retainage
provisions in contracts. The Company receives progress payments on certain
contracts from the U.S. Government of between 80- 100% of allowable costs
incurred; the remainder, including profits and incentive fees, if any, is billed
upon delivery and final acceptance of the product. In addition, the Company may
bill based upon units delivered.
NOTE 3. INVENTORIES
Inventories are summarized as follows:
==============================================================================
March 31, December 31,
------------------------------ ----------------
1995 1994 1995
------------- ------------- ----------------
(unaudited)
Work-in-Process....... 23,017,000 14,639,000 $38,356,000
Raw Material.......... 2,573,000 2,917,000 836,000
------------- ------------- -------------
25,590,000 17,556,000 39,192,000
Less Progress Payments 13,866,000 12,514,000 22,634,000
------------- ------------- -------------
Total................. $ 11,724,000 $ 5,042,000 $ 16,558,000
------------- ------------- -------------
==============================================================================
General and administrative costs included in work-in-process
were $6,584,000 and $3,753,000 at March 31, 1995 and 1994 and $9,111,000 at
December 31, 1995 (unaudited), respectively. General and administrative costs
included in costs and expenses amounted to $17,681,000, $16,896,000, $14,028,000
and $14,622,000 in fiscal 1995, 1994, 1993, and for the nine months ended
December 31, 1995 (unaudited), respectively. Included in those amounts are
expenditures for Company-sponsored independent research and development,
amounting to approximately $795,000, $537,000, $470,000 and $218,000 in
fiscal 1995, 1994, 1993, and for the nine months ended December 31, 1995
(unaudited), respectively.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1995 and 1994 are
summarized as follows:
===============================================================================
March 31,
---------------------------------
1995 1994
--------------- ---------------
Land......................... $ 1,350,000 $ 1,350,000
Building and Building 2,384,000 2,289,000
Improvements.................
Office Furnishings and 3,621,000 3,754,000
Equipment....................
Laboratory and Production 15,639,000 14,457,000
Equipment....................
Motor Vehicles............... 235,000 389,000
Computer Equipment........... 7,246,000 7,323,000
Leasehold Improvements....... 3,186,000 2,620,000
--------------- ---------------
TOTAL........................ $ 33,661,000 $ 32,182,000
--------------- ---------------
===============================================================================
Depreciation and amortization of plant and equipment amounted
to $1,833,000, $2,061,000 and $2,748,000 in fiscal 1995, 1994 and 1993,
respectively.
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The component elements of accounts payable and accrued expenses are as follows:
==============================================================================
March 31,
---------------------------------
1995 1994
--------------- ---------------
Payrolls, Including $ 648,000 $ 1,753,000
Payroll Taxes..............
Holiday and Vacation Pay... 1,102,000 849,000
Income Taxes Payable....... 1,821,000 1,917,000
Losses and Future Costs
Accrued on 4,555,000 3,214,000
Uncompleted Contracts......
Other...................... 3,897,000 4,101,000
--------------- ---------------
12,023,000 11,834,000
Accounts Payable........... 7,966,000 4,307,000
--------------- ---------------
TOTAL...................... $ 19,989,000 $ 16,141,000
--------------- ---------------
==============================================================================
NOTE 6. LONG-TERM DEBT
A summary of long-term debt is as follows:
March 31, December 31,
1995 1994 1995
__________ __________ __________
(unaudited)
Convertible Subordinated
Debentures, Due 1998 . . $12,209,000 $14,889,000 $ 9,963,000
Industrial Revenue Bonds,
Due 1998 . . . . . . . . 1,895,000 2,095,000 1,895,000
Senior Subordinated
Convertible Debentures,
Due 2003 . . . . . . . . -- -- 25,000,000
Other Obligations . . . . 120,000 195,000 1,897,000
__________ __________ __________
14,224,000 17,179,000 38,755,000
Less Current Installments
of Long-Term Debt . . . . 2,492,000 2,664,000 3,436,000
Total . . . . . . . . . . $11,732,000 $14,515,000 $35,319,000
The 1998 Debentures bear interest at a rate of
81/2% per annum and are convertible at their face amount
any time prior to maturity into shares of Class B Common
Stock, unless previously redeemed, at a conversion price
of $15.00 per share, subject to adjustment under certain
conditions. The 1998 Debentures are redeemable at the
option of the Company, in whole or in part, at face
value, together with interest accrued to the redemption
date. As of August 1, 1990 and on August 1 of each year
thereafter, to and including August 1, 1997, the Company
is required to provide for the retirement of the 1998
Debentures by mandatory redemption (the "sinking fund")
in the aggregate annual principal amount of $2,500,000.
As of March 31, 1995, the Company had repurchased
$12,791,000 of the 1998 Debentures and has satisfied all
sinking fund requirements to date. The Consolidated
Statements of Earnings for fiscal years 1995, 1994 and
1993 reflect gains resulting from these repurchases of
$13,000, $257,000 and $500,000, respectively.
The 1998 Debentures are subordinate to the
prior payment in full of the principal and interest on
all senior indebtedness of the Company, which amounted to
$2,015,000 at March 31, 1995. The indenture pursuant to
which the 1998 Debentures were issued contains certain
dividend and other restrictions. Under such provisions,
the Company may not distribute dividends or purchase,
redeem or otherwise acquire or retire any of its capital
stock in excess of an aggregate amount which, at March
31, 1995, was approximately $4,400,000.
On December 19, 1991, the Suffolk County
Industrial Development Agency (the "Agency") issued
variable rate demand industrial development revenue
refunding bonds (the "Bonds") in the amount of $2,395,000
to refinance a prior bond issue which provided funds for
the construction of the manufacturing facilities of
Photronics Corp. ("Photronics"), a wholly-owned
subsidiary of the Company. All property, plant and
equipment acquired or constructed from the proceeds of
the original bonds collateralizes the obligation, and
payment of the principal and interest and premium (if
any) on the Bonds is further secured by the unconditional
guaranty of the Company. The Bonds are supported by an
irrevocable, direct-pay letter of credit in an amount
equal to the principal balance plus interest thereon for
45 days. At March 31, 1995, the contingent liability of
the Company as guarantor under the letter of credit was
approximately $1,930,000. The Company has collateralized
the letter of credit with accounts receivable and also
has agreed to certain financial covenants, including the
maintenance of: (i) a certain minimum ratio of
consolidated tangible net worth to total debt (the "Debt
Ratio"), (ii) a certain minimum quarterly ratio of
earnings before interest and taxes to interest (the
"Interest Ratio"), and (iii) a certain minimum balance of
billed and unbilled accounts receivable (the "Eligible
Receivables"), all as defined in the related agreements.
At March 31, 1995, the covenants, all of which the
Company was in compliance with, required (i) a Debt Ratio
of 0.6:1, (ii) an Interest Ratio of 1.5:1, and (iii)
Eligible Receivables of $2,500,000. The financial
covenants also require that the Company realize a certain
level of profits during each quarter of fiscal 1996 in
order to be in compliance. A default under the Bonds
constitutes a default on the Debentures.
Commencing February 1, 1992 and on the first
business day of each month thereafter, interest on the
Bonds is payable at that daily rate determined to be
necessary under prevailing market conditions to enable
the Bonds to be sold at a price equal to 100% of the
principal amount thereof plus accrued interest. Such
rate was 4.5% at March 31, 1995. At the option of the
Company, the interest rate payable on the Bonds may be
changed to a weekly or fixed rate.
Commencing February 1, 1992 and until such time
as the Bonds may be converted to fixed-rate obligations,
the Bonds are subject to redemption, in whole or in part,
at the option of the Company at a price equal to their
principal amount plus accrued interest. On or after the
second anniversary of a conversion, Bonds bearing
interest at a fixed rate are subject to the redemption,
in whole on any date or in part on any interest payment
date, at the option of the Company at an annual
redemption rate of 102% at the second anniversary of such
conversion and diminishing by one percent each year to
100% on or after the fourth anniversary of such
conversion. Commencing January 1, 1993 and on each
January 1 thereafter, to and including January 1, 1998,
the Bonds are subject to a schedule of mandatory sinking
fund redemptions at a price equal to 100% of the
principal amount of the Bonds redeemed plus accrued
interest. The principal amount of the Bonds redeemed at
January 1, 1995 was $200,000.
Cash payments for interest during fiscal 1995,
1994 and 1993 were $1,237,000, $1,448,000 and $1,687,000,
respectively.
The aggregate maturities of long-term debt for
the five years ending March 31, 2000 are as follows:
1996, $2,492,000; 1997, $2,637,000; 1998, $4,095,000;
1999, $5,000,000; and 2000, $0.
NOTE 7. OTHER INCOME, NET
Other income, net includes:
Years Ended March 31,
1995 1994 1993
________ ________ ________
Interest Income $439,000 $370,000 $585,000
Royalty Income 63,000 157,000 221,000
Gain on Repurchase
of Subordinated
Debentures . . 13,000 257,000 500,000
Other . . . . . 19,000 50,000 (82,000)
________ ________ ________
Total . . . . . $534,000 $834,000 $1,224,000
NOTE 8. INCOME TAXES
Income tax expense consists of:
Years Ended March 31,
1995 1994 1993
__________ __________ __________
Current:
Federal $1,498,000 $ 884,000 $ 688,000
State . . 128,000 224,000 58,000
__________ __________ __________
1,626,000 1,108,000 746,000
Deferred:
Federal 172,000 33,000 (103,000)
State . . (146,000) (48,000) 72,000
__________ __________ __________
26,000 (15,000) (31,000)
__________ __________ __________
Total . $1,652,000 $1,093,000 $ 715,000
Deferred income taxes at March 31, 1995 and
1994 reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws. The
tax effects of temporary differences that gave rise to
significant portions of the deferred tax assets and
deferred tax liabilities at March 31, 1995 and 1994 are
as follows:
March 31,
DEFERRED TAX ASSETS: 1995 1994
State Net Operating Loss
Carryforwards . . . . . . . . . . $ 3,977,000 $ 5,849,000
Inventory Capitalization . . . . 1,687,000 1,888,000
Costs Accrued on Uncompleted
Contracts . . . . . . . . . . . . 2,627,000 2,163,000
Other . . . . . . . . . . . . . . 2,287,000 1,846,000
Total Gross Deferred Tax Assets . 10,578,000 11,746,000
Less Valuation Allowance . . . . (2,279,000) (3,575,000)
Net Deferred Tax Assets . . . . . 8,299,000 8,171,000
DEFERRED TAX LIABILITIES:
Depreciation and Amortization . . (5,048,000) (5,540,000)
General and Administrative Costs (4,325,000) (2,740,000)
Federal Impact of the State
Benefits . . . . . . . . . . . . (1,136,000) (1,986,000)
Other . . . . . . . . . . . . . (828,000) (917,000)
Total Gross Deferred Tax
Liabilities . . . . . . . . . . . (11,337,000) (11,183,000)
Net Deferred Tax Liabilities . . $(3,038,000) $(3,012,000)
A valuation allowance is provided when it is more
likely than not that some portion or all of a deferred
tax asset will not be realized. The Company has
established a valuation allowance for the deferred tax
asset attributable to state net operating loss
carryforwards, due to the uncertainty of future Company
earnings attributable to various states and the status of
applicable statutory regulations that could limit or
preclude utilization of these benefits in future periods.
A deferred tax asset of $1,567,000 and $1,612,000 is
included in Other Current Assets in the Consolidated
Balance Sheets at March 31, 1995 and 1994, respectively.
Approximately $47,647,000 of state net operating loss
carryforwards were available in various tax jurisdictions
at March 31, 1995. Of that amount, $29,655,000 will
expire between fiscal years 1997 and 2002; the remaining
$17,992,000 will expire between fiscal years 2005 and
2010.
A reconciliation of the statutory federal income tax
rate to the effective tax rate follows:
Years Ended March 31,
1995 1994 1993
Statutory Tax Rate 34% 34% 34%
State Income Tax,
Net of Federal
Income Tax Benefit 3 4 5
Amortization of
Intangible Assets . 1 2 3
Other . . . . . . . 1 -- (2)
Total . . . . . . . 39% 40% 40%
The provision for income taxes includes all
estimated income taxes payable to federal and state
governments, as applicable.
Cash payments for income taxes during fiscal 1995,
1994 and 1993 amounted to $1,723,000, $311,000 and
$303,000, respectively.
NOTE 9. COMMON STOCK, STOCK OPTION PLANS AND EMPLOYEE
BENEFIT PLANS
The Company has three authorized classes of stock:
A class consisting of 10,000,000 shares of Class A Common
Stock, a class consisting of 20,000,000 shares of Class B
Common Stock, and a class consisting of 2,000,000 shares
of Preferred Stock (none of which has been issued). The
holders of Class A and Class B Common Stock are entitled
to one vote per share and one-tenth vote per share,
respectively.
On February 7, 1991, the Board of Directors (the
"Board") adopted the 1991 Stock Option Plan (the "Stock
Option Plan"), which authorizes the issuance of up to
600,000 shares of Class B Common Stock. The Stock Option
Plan was approved by the Company's stockholders on August
8, 1991. The Stock Option Plan is the successor to the
Company's 1981 Non-Qualified Stock Option Plan (the "Non-
Qualified Plan") that expired on May 12, 1991 and to the
1981 Incentive Stock Option Plan (the "Incentive Plan")
that expired on October 31, 1991. Under the terms of the
Stock Option Plan, options to purchase shares of Class B
Common Stock may be granted to key employees, directors
and consultants of the Company. Options granted under
the Stock Option Plan are at the discretion of the Stock
Option Committee of the Board (the "Stock Option
Committee") and may be incentive stock options or non-
qualified stock options, except that incentive stock
options may be granted only to employees. The option
price is determined by the Stock Option Committee and
must be a price per share which is not less than the par
value per share of the Class B Common Stock, and in the
case of an incentive stock option, may not be less than
the fair-market value of the Class B Common Stock on the
date of the grant. Options may be exercised during the
exercise period, as determined by the Stock Option
Committee, except that no option may be exercised within
six months of its grant date, and in the case of an
incentive stock option, generally, the exercise period
may not exceed ten years from the date of the grant. At
March 31, 1995, 286,250 shares of Class B Common Stock
were reserved for future grants under the Stock Option
Plan.
The Non-Qualified Plan, as amended, provided for the
grant of options to purchase a total of 100,000 shares of
Class A Common Stock and 50,000 shares of Class B Common
Stock through May 12, 1991. Under the Non-Qualified
Plan, the Stock Option Committee had discretion to grant
options to employees, consultants and directors of the
Company. The exercise price of an option granted under
the Non-Qualified Plan was the price, as determined by
the Stock Option Committee, but was not less than the
aggregate par value of the shares subject to the option.
Options granted under the Non-Qualified Plan are
exercisable in accordance with the terms of the grant
during a specified period, which did not exceed five
years. Upon the expiration of the Non-Qualified Plan, a
total of 87,600 shares of Class A Common Stock and a
total of 10,300 shares of Class B Common Stock remained
ungranted.
The Incentive Plan, as amended, provided for the
grant of options to purchase a total of 150,000 shares of
Class A Common Stock and 475,000 shares of Class B Common
Stock through October 31, 1991. Under the Incentive
Plan, options were granted at the discretion of the Stock
Option Committee only to employees of the Company.
Options are exercisable in accordance with the terms of
the grant within a specified period, which may not exceed
ten years. Each option granted provided for the purchase
of a specified number of shares of Class A Common Stock
or Class B Common Stock, or both, at an exercise price
not less than the fair-market value of the shares subject
to the option on the date of grant. Upon the expiration
of the Incentive Plan, options representing a total of
23,665 shares of Class A Common Stock and a total of
269,832 shares of Class B Common Stock remained
ungranted.
Under the Stock Option Plan, pursuant to the terms
of exercise under the grant, the excess of the fair-
market value of shares under option at the date of grant
over the option price may be charged to unamortized
restricted stock compensation or to earnings as
compensation expense and credited to additional paid-in
capital. The unamortized restricted stock compensation,
if any, is charged to expense as the options become
exercisable, in accordance with the terms of the grant.
Under the Non-Qualified Plan, pursuant to the restriction
periods on the exercise of options as stated in the stock
option agreements, the excess of the fair-market value of
shares under option at the date of grant over the option
price was charged to unamortized restricted stock
compensation and credited to additional paid-in capital.
The unamortized restricted stock compensation is charged
to expense as services are performed during the periods
of restriction. As restricted options expire, the amount
of unamortized restricted stock compensation relating to
the options is credited and eliminated through a charge
to additional paid-in capital. In addition, the total
amount of compensation previously charged to expense is
credited. The amount of compensation charged (credited)
to earnings for all plans in fiscal 1995, 1994 and 1993
was $106,000, $27,000 and ($17,000), respectively.
When stock is issued on exercise of options, the par
value of each share ($.01) is credited to common stock
and the remainder of the option price is credited to
paid-in capital. No charge is made to operations.
A summary of all transactions under the Stock
Option, Incentive and Non-Qualified Plans follows:
Number of
Shares of Option Number of
Class A Price Shares of Option
Common per Class B Price per
Stock Share Common Stock Share
___________ _________ __________ _______________
OUTSTANDING
AT MARCH 31,
1992
(of Which
16,250
Shares and
77,238
Shares of
Class A and
Class B,
Respectively
, Were
Exercisable) 65,000 $2.61 205,450 $ .01-4.75
Granted . . -- -- 10,000 $ .01
Exercised . -- -- (5,000) $ .01
Expired . . -- -- (35,600) $ .01-4.75
___________ _________ __________ _______________
OUTSTANDING
AT MARCH 31,
1993 (of Which
32,500 Shares and
111,925 Shares of
Class A and Class
B, Respectively,
Were
Exercisable) 65,000 $2.61 174,850 $ .01-4.75
Granted . . -- -- 142,750 $ .01-3.63
Exercised . -- -- (11,000) $ .01-2.25
Expired . . -- -- (32,250) $ 2.13-2.25
___________ _________ __________ _______________
OUTSTANDING
AT MARCH 31,
1994
(of Which
48,750
Shares and
111,163
Shares of
Class A and
Class B,
Respectively
, Were
Exercisable) 65,000 $2.61 274,350 $ .01-4.75
Granted . . -- -- 150,000 $ .01-4.95
Exercised . (25,000) $2.61 (57,725) $ .01-3.63
Expired . . -- -- (17,000) $ .01-3.63
___________ _________ __________ _______________
OUTSTANDING
AT MARCH 31,
1995 (of Which
40,000
Shares and
145,425
Shares of
Class A and
Class B,
Respectively
, Were
Exercisable) 40,000 $2.61 349,625 $ .01-4.95
The Company also maintains defined contribution
plans covering substantially all full-time eligible
employees. The Company's contributions to these plans,
which are discretionary, for fiscal 1995 and 1994
amounted to $365,000 and $203,000, respectively. The
Company did not make any contributions to these plans
during fiscal 1993.
NOTE 10. COMMITMENTS, CONTINGENCIES AND RELATED PARTY
TRANSACTIONS
At March 31, 1995, the Company was party to
various noncancellable operating leases (principally for
administration, engineering and production facilities)
with minimum rental payments as follows:
1996 $1,909,000
1997 1,555,000
1998 1,133,000
1999 811,000
2000 695,000
Thereafter 72,000
__________
Total $6,175,000
It is not certain as to whether the Company
will negotiate new leases as existing leases expire.
Determinations to that effect will be made as existing
leases approach expiration and will be based on an
assessment of the Company's capacity requirements at that
time.
Total rent expense aggregated $2,490,000,
$1,703,000 and $1,492,000 in fiscal 1995, 1994 and 1993,
respectively.
In April 1984, the Board of Directors approved
a lease agreement with LDR Realty Co. (wholly owned by
the Chairman of the Board of Directors and former
President) for additional office and manufacturing space
for the Company. The LDR lease, which expired on May 31,
1988, was renegotiated for a ten-year term commencing
June 1, 1988 at a net annual rental of $233,000. The
Company is required to pay all real-estate taxes,
maintenance and repairs to the facility.
Effective July 20, 1994, the Company entered
into an Employment, Non-Competition and Termination
Agreement (the "Gross Agreement") and a Stock Purchase
Agreement (the "Stock Purchase Agreement") with David E.
Gross, who retired as President and Chief Technical
Officer of the Company on May 12, 1994. Under the terms
of the Gross Agreement, Mr. Gross will receive a total of
$600,000 as compensation for his services under a five-
year consulting agreement with the Company and a total of
$750,000 as consideration for a five-year non-compete
arrangement. The payments will be charged to expense
over the term of the Gross Agreement as services are
performed and obligations are fulfilled by Mr. Gross. He
will also receive, at the conclusion of such initial
five-year period, an aggregate of approximately $1.3
million payable over a nine-year period as deferred
compensation. The net present value of the payments to
be made to Mr. Gross, pursuant to the deferred
compensation portion of the Gross Agreement, approximated
the amount of the Company's previous deferred
compensation arrangement with Mr. Gross. On July 28,
1994, pursuant to the Stock Purchase Agreement, the
Company purchased 659,220 shares of Class A Common Stock
and 45,179 shares of Class B Common Stock owned by Mr.
Gross for $4.125 and $4.00 per share, respectively,
totaling approximately $2.9 million in cash (the "Buy-
back"). The Stock Purchase Agreement also includes
certain provisions regarding the sale and voting of Mr.
Gross' remaining shares of stock in the Company, as well
as the adjustment which would have been made in the
purchase price paid to Mr. Gross pursuant to the Buy-back
should a change in control of the Company occur within
three years from the date of the Stock Purchase
Agreement.
On October 18, 1994, the Company filed a
Registration Statement on Form S-2, and on November 10,
1994, the Company filed Amendment No. 1 to such
Registration Statement (the "Registration Statement")
with the Securities and Exchange Commission for the
purpose of selling shares of its common stock purchased
by the Company in the Buy-back. Pursuant to the
Registration Statement, the Company offered to sell
650,000 shares of its Class A Common Stock at a purchase
price of between $3.92 per share and $4.33 per share and
45,000 shares of its Class B Common Stock at a purchase
price of between $3.80 per share and $4.20 per share. As
of March 31, 1995, all shares of Class A and Class B
Common Stock offered for sale under the Registration
Statement had been sold at a price of $4.125 per share
and $4.00 per share, respectively, totaling approximately
$2.9 million.
As of March 31, 1995, the Company was in the
process of finalizing an Employment, Non-Competition and
Termination Agreement (the "Newman Agreement") between
the Company and Leonard Newman, the Chairman of the Board
and Secretary of the Company. Pursuant to the Newman
Agreement, it is expected that Mr. Newman will receive
certain compensation from the Company over a five-year
period for consulting services and a non-compete
arrangement. In addition, Mr. Newman will receive
certain retirement benefits payable over a ten-year
period at the conclusion of such initial five-year
period. Results of operations for fiscal 1995 reflect a
charge of $1.5 million representing the estimated net
present value of the Company's obligation under the
Newman Agreement. The corresponding amount was included
in Other Liabilities in the Consolidated Balance Sheet at
March 31, 1995 as an addition to the accrual which had
been established to cover the Company's liability to Mr.
Newman under a previous deferred compensation
arrangement.
The Company is a party to various legal actions
and claims arising in the ordinary course of its
business. In management's opinion, the Company has
adequate legal defenses for each of the actions and
claims and believes that their ultimate disposition will
not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Since substantially all of the Company's
revenues are derived from contracts or subcontracts with
the U.S. Government, future revenues and profits will be
dependent upon continued contract awards, Company
performance and volume of Government business. The books
and records of the Company are subject to audit and post-
award review by the Defense Contract Audit Agency.
NOTE 11. BUSINESS COMBINATIONS
On October 1, 1993, the Company acquired
(through TAS Acquisition Corp., a wholly-owned
subsidiary) a 95.7% equity interest in Technology
Applications and Service Company ("TAS"), a Maryland
corporation, pursuant to a Stock Purchase Agreement (the
"Agreement") dated as of August 6, 1993. Under the terms
of the Agreement, the Company paid $15.10 in cash for a
total of 97,317 issued and outstanding shares of common
stock, par value $.01 per share, of TAS. TAS,
headquartered in Gaithersburg, Maryland, was a privately
held company incorporated in 1991. It applies state-of-
the-art technology to produce emulators that can replace
display consoles and computer peripherals used by the
military. TAS also produces simulators, stimulators and
training products used primarily for testing and training
at military land-based sites, as well as provides
technical services to both Department of Defense and
commercial customers. On September 30, 1993, the
Company, in anticipation of the acquisition, advanced
$1,800,000 to TAS pursuant to a demand promissory note.
Such advance was converted to an intercompany liability
on the date of the acquisition and is eliminated in
consolidation. On November 1, 1993, Articles of Merger
were filed in order to merge TAS into TAS Acquisition
Corp. The name TAS Acquisition Corp. was changed to
Technology Applications & Service Company ("TAS").
The acquisition has been accounted for using
the purchase method of accounting. The excess of cost
over the estimated fair value of net assets acquired was
approximately $405,000 and is being amortized on a
straight-line basis over 30 years, or $14,000 annually.
The Consolidated Statements of Earnings include the
operations of TAS from October 1, 1993.
The following unaudited pro forma financial
information shows the results of operations for the years
ended March 31, 1994 and 1993 as though the acquisition
of TAS had occurred at the beginning of each period
presented. In addition to combining the historical
results of operations of the two companies, the pro forma
calculations include: the amortization of the excess of
cost over the estimated fair value of net assets
acquired; the effect of a reduction in interest expense
arising from the assumed repayment by TAS prior to the
acquisition date of its outstanding borrowings under a
bank line of credit; the effect of a reduction in
interest income from the assumed decrease in cash
associated with the $1,800,000 advanced to TAS prior to
the acquisition and the funding of the TAS operating loss
for the periods presented; and the adjustment to income
taxes (benefit) to reflect the effective income tax
(benefit) rate assumed for the Company and TAS on a
combined basis for each pro forma period presented:
Years Ended March 31,
1994 1993
Revenues . . . . . . . . . . . $ 65,944,000 $ 56,652,000
Net Earnings (Loss) before
Extraordinary Item . . . . . . $ 1,291,000 $ (2,364,000)
Net Earnings (Loss) per Share
before Extraordinary
Item . . . . . . . . . . . . . $ .24 $ (.44)
The unaudited pro forma financial information
is not necessarily indicative either of the results of
operations that would have occurred had the acquisition
been made at the beginning of the period, or of the
future results of operations of the combined companies.
On December 13, 1993, pursuant to a Joint
Venture Agreement dated November 3, 1993 and a
Partnership Agreement dated December 13, 1993, by and
between DRS Systems Management Corporation, a wholly-
owned subsidiary of the Company, and Laurel Technologies,
Inc. ("Laurel") of Johnstown, Pennsylvania, the Company
entered into a partnership with Laurel (the
"Partnership") for the purposes of electronic cable and
harness manufacturing, military-quality circuit card
assembly and other related activities. The Company's
contribution to the Partnership consisted of cash, notes
and equipment valued at approximately $600,000,
representing an 80% controlling interest in the
Partnership. As a result, the financial position of the
Partnership has been consolidated with that of the
Company's, and the Consolidated Statements of Earnings
include the operations of Laurel from December 13, 1993.
The related minority interest in the Partnership has been
included in Other Liabilities and Other Income, Net,
respectively, in the Company's consolidated financial
statements for the periods ended March 31, 1995 and 1994.
The Company also made one other asset
acquisition in December 1993 which was not significant to
the Company's consolidated financial statements.
On November 17, 1994, Precision Echo, Inc., a
wholly-owned subsidiary of the Company, acquired, through
its wholly-owned subsidiary ("Precision Echo"), the net
assets of Ahead Technology Corporation ("Ahead"),
pursuant to an Asset Purchase Agreement dated October 28,
1994. Under the terms of the Asset Purchase Agreement,
Precision Echo paid, on the date of acquisition,
approximately $1,100,000 for the net assets of Ahead. In
addition, Precision Echo entered into a Covenant and
Agreement Not to Compete ("Covenant"), dated October 28,
1994, with the chairman of the board of Ahead. Under the
terms of the Covenant, the total cash consideration to be
paid by Precision Echo consisted of approximately
$400,000 payable at the acquisition date, and an
additional $540,000 payable in equal monthly installments
over a period of five years from the acquisition date.
Ahead, located in Los Gatos, California, designs and
manufactures a variety of consumable magnetic head
products used in the production of computer disk drives.
It products include burnish heads, glide heads and
specialty test heads.
The acquisition has been accounted for using
the purchase method of accounting and, therefore, Ahead's
financial statements are included in the consolidated
financial statements of the Company from the date of
acquisition. The excess of cost over the estimated fair
value of net assets acquired was approximately $940,000
and will be amortized on a straight-line basis over five
years, or approximately $188,000 annually. The financial
position and results of operations of Ahead were not
significant to those of the Company's at the date of
acquisition.
NOTE 12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables set forth unaudited
quarterly financial information for the fourth quarter of
fiscal 1994, each quarter of fiscal 1995 and the first,
second and third quarters of fiscal 1996:
First Quarter Second Quarter
1996 1995 1996 1995
___________ ___________ ___________ __________
Revenues . $ 17,279,000 $ 16,012,000 $ 22,786,000 $ 15,650,000
Operating
Income . . $ 1,314,000 $ 1,076,000 $ 1,844,000 $ 1,180,000
Income
Taxes . . . $ 420,000 $ 382,000 $ 584,000 $ 335,000
Net Earnings $ 656,000 $ 508,000 $ 915,000 $ 570,000
Net Earnings
per Share . $ .12 $ .10 $ .16 $ .12
______________________________________________________________________
Third Quarter Fourth Quarter
1996 1995 1995 1994
___________ ___________ ___________ __________
Revenues . . $ 25,563,000 $ 15,742,000 $ 22,526,000 $ 22,451,000
Operating
Income . . . $ 2,181,000 $ 1,005,000 $ 1,833,000 $ 1,275,000
Income
Taxes . . . . $ 590,000 $ 425,000 $ 510,000 $ 413,000
Net Earnings $ 924,000 $ 634,000 $ 892,000 $ 617,000
Net Earnings
per Share . . $ .16 $ .13 $ .16 $ .12
Primary and fully diluted net earnings per
share amounts are the same for each of the periods presented above.
NOTE 13. SUBSEQUENT EVENTS AND OTHER MATTERS (UNAUDITED)
On July 5, 1995 (the "OMI Closing Date"), Photronics
Corp., a New York corporation and a wholly-owned subsidiary
of the Company ("Photronics Corp."), acquired (through OMI
Acquisition Corp. ("OMI"), a Delaware corporation and a
wholly-owned subsidiary of Photronics Corp.), substantially all of
the assets of Opto Mechanik, Inc. ("Opto"), a Delaware
corporation, pursuant to an Agreement for Acquisition of
Assets dated May 24, 1995, as amended July 5, 1995, between
Photronics Corp. and Opto (the "OMI Agreement"), and approved by
the United States Bankruptcy Court for the Middle District
of Florida on June 23, 1995. OMI, now located in Palm Bay,
Florida, designs and manufactures electro-optical sighting
and targeting systems used primarily in military fire
control devices and in various weapons systems.
Pursuant to the OMI Agreement, the Company paid a
total of $5,450,000 consisting of i) $1,150,000 in cash to
PNC Bank, Kentucky, Inc. ("PNC"), ii) a note to PNC in the
principal amount of $1,450,000 payable in forty eight (48)
equal monthly installments of principal and interest
commencing with the first day of the month subsequent to the
OMI Closing Date (the "PNC Note"), iii) $2,550,000 in cash to
MetLife Capital Corporation and iv) a note in the principal
amount of $300,000 to Opto payable in six (6) equal monthly
installments of principal and interest commencing on August
5, 1995 (the "Opto Note"). The PNC Note bears interest at a
floating rate equal to the of i) PNC's stated prime interest
rate plus 0.5% or ii) the prime rate as reported by the Wall
Street Journal plus 0.5%. The Opto Note bears interest at a
rate of 9.5% per annum. Professional fees and other costs
associated with the acquisition were capitalized as part of
the total purchase price. Total cash consideration paid in
the acquisition was obtained from the Company's working
capital.
The acquisition of the assets of Opto has been
accounted for under the purchase method. The operating
results of OMI, the acquisition corporation, have been
included in the Company's reported operating results since the
date of acquisition. The cost of the acquisition has been allocated
on the basis of the estimated fair market value of the
assets acquired and the liabilities assumed.
On September 29, 1995 (the "Debenture Closing
Date"), the Company issued $20,000,000 in aggregate
principal amount of the Company's 9% Senior Subordinated
Convertible Debentures due 2003 (the "Senior Subordinated
Convertible Debentures") pursuant to a private placement.
Net proceeds from the private placement of these Senior
Subordinated Convertible Debentures were approximately
$19,000,000. On November 3, 1995, the Company issued an
additional $5,000,000 in aggregate principal amount of
the Senior Subordinated Convertible Debentures, upon
exercise of the over-allotment option pursuant to the
Purchase Agreement between the Company and Forum Capital
Markets L.P. ("Forum") , dated September 22, 1995. Net
proceeds from the exercise of the over-allotment option
were approximately $4,750,000. Pursuant to the related
Registration Rights Agreement dated September 22, 1995
between the Company and Forum, acting on behalf of
holders of the Senior Subordinated Convertible Debentures
(the "Registration Rights Agreement"), the Company has
agreed to file, within ninety (90) days after the
Debenture Closing Date, a shelf registration statement
relating to the Senior Subordinated Convertible
Debentures and the shares of Class A Common Stock which
are issuable from time to time upon conversion of the
Senior Subordinated Convertible Debentures, and to cause
the shelf registration statement to become effective
within one hundred fifty (150) days after the Debenture
Closing Date. In addition, the Company has agreed to use
its reasonable best efforts to keep the shelf
registration statement effective until at least the third
anniversary of the issuance of the Senior Subordinated
Convertible Debentures. In connection with these
transactions, the Company expects to incur approximately
$500,000 of professional fees and other costs. These
costs, together with Forum's commissions in connection
with the private placement of the Senior Subordinated
Convertible Debentures, will be amortized ratably through
the maturity date of the Senior Subordinated Convertible
Debentures.
The Company's Bonds are supported by an
irrevocable, direct-pay letter of credit in an amount
equal to the principal balance plus interest thereon for
45 days. At December 31, 1995, the contingent liability
of the Company as guarantor under the letter of credit
was approximately $1,930,000. The Company has
collateralized the letter of credit with accounts
receivable and has also agreed to certain financial
covenants, including the maintenance of: (i) a certain
minimum ratio of consolidated tangible net worth to total
debt (the "Debt Ratio"), (ii) a certain minimum quarterly
ratio of earnings before interest and taxes to interest
(the "Interest Ratio"), and (iii) a certain minimum
balance of billed and unbilled accounts receivable
("Eligible Receivables"). At December 31, 1995, the
covenants required: (i) a Debt Ratio of 0.6:1, (ii) an
Interest Ratio of 1.5:1 and (iii) Eligible Receivables of
$2,500,000. As a result of the issuance of $25,000,000
aggregate principal amount of the Senior Subordinated
Convertible Debentures on September 29, 1995, the Debt
Ratio at December 31, 1995 was 0.4:1. The Company has
obtained a waiver, renewable quarterly, from the bank of
the required debt ratio and is in compliance with all
covenants under the letter of credit.
On February 6, 1996, pursuant to a Joint
Venture Agreement, dated February 6, 1996, by and among
DRS/MS, Inc. ("DRS/MS"), a wholly-owned subsidiary of
the Company, Universal Sonics Corporation ("Universal
Sonics"), a New Jersey corporation, Ron Hadani, Howard
Fidel and Thomas S. Soulos, and a Partnership Agreement,
dated February 6, 1996, by and between DRS/MS and
Universal Sonics, the Company entered into a partnership
with Universal Sonics (the "Partnership") for the
purpose of developing, manufacturing and marketing
medical ultrasound imaging equipment. The Company's
contribution to the Partnership consisted of $400,000 in
cash and certain managerial expertise and manufacturing
capabilities, representing a 90% interest in the
Partnership.
On February 9, 1996, Precision Echo acquired
(through Ahead Technology Acquisition Corporation
("Ahead Acquisition"), a Delaware corporation and a
wholly-owned subsidiary of Precision Echo), certain
assets and assumed certain liabilities (principally,
obligations under property leases) of Mag-Head
Engineering Company, Inc. ("Mag-Head"), a Minnesota
corporation, pursuant to an Asset Purchase Agreement,
dated as of February 9, 1996, by and among Mag-Head and
Ahead Acquisition for approximately $400,000 in cash.
Mag-Head produces audio and flight recorder heads.
NO PERSON IS AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION NOT
CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS,
AND ANY INFORMATION OR $25,000,000
REPRESENTATION NOT CONTAINED OR
INCORPORATED BY REFERENCE
HEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY DIAGNOSTIC/RETRIEVAL
THE COMPANY OR ANY UNDERWRITER. SYSTEMS, INC.
THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY
SECURITY OTHER THAN THE
REGISTERED SECURITIES TO WHICH 9% SENIOR SUBORDINATED
IT RELATES OR AN OFFER TO ANY CONVERTIBLE
PERSON IN ANY JURISDICTION DEBENTURES DUE 2003
WHERE SUCH OFFER WOULD BE
UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY _______________
IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE PROSPECTUS
COMPANY SINCE THE DATE HEREOF. ______________
_____________
TABLE OF CONTENTS
Page
Available Information . . . 2
Prospectus Summary . . . . 3
Risk Factors . . . . . . . 7
The Company . . . . . . . . 11
Use of Proceeds . . . . . . 13
Capitalization . . . . . . 13 , 1996
Market Prices of Capital Stock
14
Dividend Policy . . . . . . 14
Selected Consolidated Financial
Data . . . . . . . . . . . 15
Management's Discussion and
Analysis of Financial
Condition
and Results of Operations 17
Business . . . . . . . . . 26
Management . . . . . . . . 38
Security Ownership . . . . 47
Certain Relationships and
Related Transactions . . . 49
Description of the Debentures
51
Description of 1998 Debentures
72
Description of Capital Stock
73
Plan of Distribution . . . 75
Selling Security Holders . 77
Legal Matters . . . . . . . 79
Experts . . . . . . . . . . 79
Index to Financial Statements
F-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses (other than
underwriting discounts and commissions) payable by the Company in
connection with the sale of the Debentures and the Class A Common
Stock being registered. All amounts (other than the registration
fee) are estimated.
Item Amount
Securities and Exchange Commission registration fee $ 8,620.69
AMEX listing fee . . . . . . . . . . . . . . . . . 22,500.00
Blue Sky fees and expenses . . . . . . . . . . . . 2,500.00
Accountants' fees and expenses . . . . . . . . . . 100,000.00
Legal fees and expenses . . . . . . . . . . . . . 250,000.00
Trustee's fees . . . . . . . . . . . . . . . . . . 12,500.00
Transfer agent and registrar fees and expenses . . 2,500.00
Miscellaneous . . . . . . . . . . . . . . . . . . 101,379.31
Total . . . . . . . . . . . . . . . . . $500,000.00
_____________________________________
ITEM 14. Indemnification of Directors and Officers.
Set forth below is a description of certain provisions of
the Company's Restated Certificate of Incorporation, as amended
(the "Restated Certificate of Incorporation"), the Bylaws (the
"Bylaws") of the Company and the General Corporation Law of the
State of Delaware, as such provisions relate to the
indemnification of the directors and officers of the Company.
This description is intended only as a summary and is qualified
in its entirety by reference to the Restated Certificate of
Incorporation, Bylaws, and the General Corporation Law of the
State of Delaware.
The Company's Restated Certificate of Incorporation provides
that the Company shall, to the full extent permitted by Sections
102 and 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify all persons
whom it may indemnify pursuant thereto and eliminates the
personal liability of its directors to the full extent permitted
by Section 102(b)(7) of the General Corporation Law of the State
of Delaware, as amended from time to time.
Section 145 of the General Corporation Law of the State of
Delaware permits a corporation to indemnify its directors and
officers against expenses (including attorney's fees), judgments,
fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or
proceeding brought by third parties, if such directors or
officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right
of the corporation, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in
connection with the defense or settlement of an action or suit,
and only with respect to a matter as to which they shall have
acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made if such person shall
have been adjudged liable for negligence or misconduct in the
performance of his respective duties to the corporation, although
the court in which the action or suit was brought may determine
upon application that the defendant officers or directors are
reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Section 102(b)(7) of the General Corporation Law of the
State of Delaware provides that a corporation may eliminate or
limit the personal liability of a director to the corporation or
its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach
of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit. No such provision
shall eliminate or limit the ability of a director for any act or
omission occurring prior to the date when such provision becomes
effective.
ITEM 15. Recent Sales of Unregistered Securities.
Other than the Debenture Offering, there were no recent
sales by the Registrant of securities which were not registered
under the Securities Act.
ITEM 16. Exhibits and Financial Statement Schedules.
(a) Certain of the following exhibits, designated with an
asterisk (*), have been previously filed and certain of the
following exhibits, designated with two asterisks (**), are filed
herewith. The exhibits not so designated have been previously
filed with the Commission and are incorporated herein by
reference to the documents indicated in brackets following the
descriptions of such exhibits.
Exhibit Description
No.
*1.1 - Purchase Agreement, dated September
22, 1995 between the Company and
Forum Capital Markets L.P.
3.1 - Restated Certificate of
Incorporation of the Company
[Registration Statement No. 2-
70062-NY, Amendment No. 1, Exhibit
2(a)]
3.2 - Certificate of Amendment of the
Restated Certificate of
Incorporation of the Company, as
filed July 7, 1983 [Registration
Statement on Form 8-A of the
Company, dated July 13, 1983,
Exhibit 2.2]
3.3 - Composite copy of the Restated
Certificate of Incorporation of the
Company, as amended [Registration
Statement No. 2-85238, Exhibit 3.3]
3.4 - By-laws of the Company, as amended
to November 7, 1994 [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 3.4]
3.5 - Certificate of Amendment of the
Certificate of Incorporation of
Precision Echo Acquisition Corp.,
as filed March 10, 1995 [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 3.5]
3.6 - Form of Advance Notice By-Laws of
the Company [Form 10-Q, quarter
ended December 31, 1995, File No.
1-8533, Exhibit 3]
*4.1 - Indenture, dated as of September
22, 1995, between the Company and
The Trust Company of New Jersey, as
Trustee, in respect of the
Company's 9% Senior Subordinated
Convertible Debentures Due 2003
*4.2 - Form of 9% Senior Subordinated
Convertible Debenture Due 2003
(included as part of Exhibit 4.1)
*4.3 - Registration Rights Agreement,
dated as of September 22, 1995
between the Company and Forum
Capital Markets L.P.
4.4 - Indenture, dated as of August 1,
1983, between the Company and
Bankers Trust Company, as Trustee
[Form 10-Q, quarter ended September
30, 1983, File No. 1-8533, Exhibit
4.2]
4.5 - Indenture of Trust, dated December
1, 1991, among Suffolk County
Industrial Development Agency,
Manufacturers and Traders Trust
Company, as Trustee and certain
bondholders [Form 10-K, fiscal year
ended March 31, 1992, File No. 1-
8533, Exhibit 4.2]
4.6 - Reimbursement Agreement, dated
December 1, 1991, among Photronics
Corp., the Company and Morgan
Guaranty Trust Company of New York
[Form 10-K, fiscal year ended March
31, 1992, File No. 1-8533, Exhibit
4.3]
**5.1 - Opinion of Skadden, Arps, Slate,
Meagher & Flom
10.1 - Stock Purchase Agreement, dated as
of August 6, 1993, among TAS
Acquisition Corp., Technology
Applications and Service Company,
Paul G. Casner, Jr. and Terrence L.
DeRosa [Form 10-Q, quarter ended
December 31, 1993, File No. 1-8533,
Exhibit 6(a)(1)]
10.2 - Waiver Letter, dated as of
September 30, 1993, among TAS
Acquisition Corp., Technology
Applications and Service Company,
Paul G. Casner, Jr. and Terrence L.
DeRosa [Form 10-Q, quarter ended
December 31, 1993, File No. 1-8533,
Exhibit 6(a)(2)]
10.3 - Joint Venture Agreement, dated as
of November 3, 1993, by and between
DRS Systems Management Corporation
and Laurel Technologies, Inc. [Form
10-Q, quarter ended December 31,
1993, File No. 1-8533, Exhibit
6(a)(3)]
10.4 - Waiver Letter, dated as of December
13, 1993, by and between DRS
Systems Management Corporation and
Laurel Technologies, Inc. [Form 10-
Q, quarter ended December 31, 1993,
File No. 1-8533, Exhibit 6(a)(4)]
10.5 - Partnership Agreement, dated
December 13, 1993, by and between
DRS Systems Management Corporation
and Laurel Technologies, Inc. [Form
10-Q, quarter ended December 31,
1993, File No. 1-8533, Exhibit
6(a)(5)]
10.6 - Lease, dated June 28, 1979, between
the Company and J.L. Williams &
Co., Inc. ("Williams")
[Registration Statement No. 2-
70062-NY, Exhibit 9(b)(4)(i)]
10.7 - Lease, dated as of June 1, 1983,
between LDR Realty Co. and the
Company [Form 10-K, fiscal year
ended March 31, 1984, File No. 1-
8533, Exhibit 10.7]
10.8 - Renegotiated Lease, dated June 1,
1988, between LDR Realty Co. and
the Company [Form 10-K, fiscal year
ended March 31, 1989, File No. 1-
8533, Exhibit 10.8]
10.9 - Lease, dated July 20, 1988, between
Precision Echo, Inc. and Bay 511
Corporation [Form 10-K, fiscal year
ended March 31, 1991, File No. 1-
8533, Exhibit 10.9]
10.10 - Amendment to Lease, dated July 1,
1993, between Precision Echo, Inc.
and Bay 511 Corporation [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.12]
**10.11 - Second Amendment to Lease, dated
October 17, 1995 between Precision
Echo, Inc. and Bay 511 Corporation
10.12 - Lease Modification Agreement, dated
February 22, 1994, between
Technology Applications and Service
Company and Atlantic Real Estate
Partners II [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.13]
10.13 - Amendment to Lease Modification,
dated June 1, 1994, between
Technology Applications and Service
Company and Atlantic Estate
Partners II [Form 10-K, fiscal year
ended March 31, 1995, File No. 1-
8533, Exhibit 10.11]
10.14 - Triple Net Lease, dated October 22,
1991, between Technology
Applications and Service Company
and Marvin S. Friedberg [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.14]
10.15 - Lease, dated November 10, 1993,
between DRS Systems Management
Corp. and Skateland Roller Rink,
Inc. [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533,
Exhibit 10.17]
10.16 - Lease, dated March 23, 1992,
between Ahead Technology
Corporation and Vasona Business
Park [Form 10-K, fiscal year ended
March 31, 1995, File No. 1-8533,
Exhibit 10.15]
10.17 - Amendment to Lease, dated May 21,
1992, between Ahead Technology
Corporation and Vasona Business
Park [Form 10-K, fiscal year ended
March 31, 1995, File No. 1-8533,
Exhibit 10.16]
10.18 - Revision to Lease Modification,
dated August 25, 1992, between
Ahead Technology Corporation and
Vasona Business Park [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 10.17]
10.19 - Lease, dated January 13, 1995,
between the Company and Sammis New
Jersey Associates [Form 10-K,
fiscal year ended March 31, 1995,
File No.-8533, Exhibit 10.18]
10.20 - Memorandum of Understanding, dated
March 23, 1995, between Laurel
Technologies and West Virginia Air
Center [Form 10-K, fiscal year
ended March 31, 1995, File No. 1-
8533, Exhibit 10.19]
10.21 - 1991 Stock Option Plan of the
Company [Registration Statement No.
33-42886, Exhibit 28.1]
10.22 - Contract No. N00024-92-C-6102,
dated September 28, 1992, between
the Company and the Navy [Form 10-
K, fiscal year ended March 31,
1993, File No. 1-8533, Exhibit
10.45]
10.23 - Modification No. P00005, dated
August 24, 1994, to Contract No.
N00024-92-C-6102 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.22]
10.24 - Modification No. P00006, dated
September 7, 1994, to Contract No.
N00024-92-C6102 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.23]
10.25 - Contract No. N00024-92-C-6308,
dated April 1, 1992, between the
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1993,
File No. 1-8533, Exhibit 10.46]
10.26 - Modification No. P00001, dated July
30, 1992, to Contract No. N00024-
92-C-6308 [Form 10-K, fiscal year
ended March 31, 1993, File No. 1-
8533, Exhibit 10.47]
10.27 - Modification No. P00002, dated
September 25, 1992, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.48]
10.28 - Modification No. P00003, dated
October 22, 1992, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.49]
10.29 - Modification No. P00004, dated
February 24, 1993, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.50]
10.30 - Modification No. P00005, dated June
11, 1993, to Contract No. N00024-
92-C-6308 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.26]
10.31 - Modification No. P00006, dated
March 26, 1993, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.51]
10.32 - Modification No. P00007, dated May
3, 1993, to Contract No. N00024-92-
C-6308 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.28]
10.33 - Modification No. PZ0008, dated June
11, 1993, to Contract No. N00024-
92-C-6308 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.29]
10.34 - Contract No. N39998-94-C-2228,
dated November 30, 1993, between
the Company and the Navy [Form 10-
K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.30]
10.35 - Order No. 87KA-SG-51484, dated
December 10, 1993, under Contract
No. N00024-93-G-6336, between the
Company and Westinghouse Electric
Corporation Oceanic Division [Form
10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.31]
10.36 - Purchase Order Change Notice Order
No. 87KA-SX-51484-P, dated April
21, 1994, under Contract No.
N00024-93-G-6336, between the
Company and Westinghouse Electric
Corporation Oceanic Division [Form
10-K, fiscal year ended March 31,
1995, File No. 1-8533, Exhibit
10.35]
10.37 - Letter Subcontract No. 483901(L),
dated February 18, 1994, under
Contract No. N00024-94-D-5204,
between the Company and Unisys
Government Systems Group [Form 10-
K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.32]
10.38 - Subcontract No. 483901(D), dated
June 24, 1994, under Contract No.
N00024-94-D-5204, between the
Company and Unisys Corporation
Government Systems Group [Form 10-
K, fiscal year ended March 31,
1995, File No. 1-8533,
Exhibit 10.37]
10.39 - Contract No. N00019-90-G-0051,
dated March 1, 1990, between
Precision Echo, Inc. and the Navy
[Form 10-K, fiscal year ended March
31, 1994, File No. 1-8533, Exhibit
10.35]
10.40 - Amendment 1A, dated February 26,
1992, to Contract No. N00019-90-G-
0051 [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533,
Exhibit 10.36]
10.41 - Amendment 1B, dated April 23, 1993,
to Contract No. N00019-90-G-0051
[Form 10-K, fiscal year ended March
31, 1994, File No. 1-8533, Exhibit
10.37]
10.42 - Contract No. N00019-93-C-0041,
dated January 29, 1993, between
Photronics Corp. and the Navy [Form
10-K, fiscal year ended March 31,
1993, File No. 1-8533, Exhibit
10.54]
10.43 - Modification No. P00001, dated
March 29, 1993, to Contract No.
N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.39]
10.44 - Modification No. PZ0002, dated
November 12, 1993, to Contract No.
N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.40]
10.45 - Modification No. P00003, dated
February 1, 1994, to Contract No.
N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.41]
**10.46 - Modification No. P00004, dated
January 29, 1993, to Contract No.
N00019-93-C-0041 [P]
**10.47 - Modification No. P00005, dated
January 29, 1993, to Contract No.
N00019-93-C-0041 [P]
10.48 - Contract No. N00019-93-C-0202,
dated August 30, 1993, between
Photronics Corp. and the Navy [Form
10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.42]
10.49 - Modification No. P00001, dated
March 30, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.43]
10.50 - Modification No. P00002, dated
April 29, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.44]
10.51 - Modification No. P00003, dated
August 9, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.55]
10.52 - Modification No. P00004, dated
March 30, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.56]
**10.53 - Modification No. P00005, dated
August 30, 1993, to Contract No.
N00019-93-C-0202 [P]
**10.54 - Modification No. P00006, dated
August 30, 1993, to Contract No.
N00019-93-C-0202 [P]
10.55 - Contract No. N00024-93-C-5204,
dated November 18, 1992, between
Technology Applications and Service
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.53]
10.56 - Modification No. P00001, dated May
6, 1993, to Contract No. N00024-93-
C-5204 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.54]
10.57 - Modification No. P00002, dated
August 24, 1993, to Contract No.
N00024-93-C-5204 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.55]
10.58 - Modification No. PZ0003, dated
September 30, 1993, to Contract No.
N00024-93-C-5204 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.56]
10.59 - Contract No. N00174-94-D-0006,
dated February 17, 1994, between
Technology Applications & Service
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.57]
10.60 - Modification No. P00001, dated
March 7, 1994, to Contract No.
N00174-94-D-0006 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.58]
10.61 - Modification No. P00003, dated May
19, 1994, to Contract No. N00174-
94-D-0006 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.59]
10.62 - Purchase Order No. N538010, dated
March 28, 1994, between Laurel
Technologies, Inc. and Short
Brothers PLC [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.60]
10.63 - Purchase Order No. 2285, dated June
6, 1994, between Photronics Corp.
and International Precision
Products N.V. [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.73]
10.64 - Amendment No. 1, dated December 1,
1994, to Purchase Order No. 2285
[Form 10-K, fiscal year ended March
31, 1995, File No. 1-8533, Exhibit
10.74]
10.65 - Purchase Order No. 2286, dated June
6, 1994, between Photronics Corp.
and International Precision
Products N.V. [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.75]
10.66 - Purchase Order No. CN74325, dated
December 14, 1994, between
Precision Echo and Lockheed
Aeronautical Systems Company [Form
10-K, fiscal year ended March 31,
1995, File No. 1-8533, Exhibit
10.76]
**10.67 - Amendment, dated February 14, 1995,
to Purchase Order No. CN74325,
between Precision Echo and Lockheed
Aeronautical Systems Company [P]
**10.68 - Amendment, dated April 4, 1995, to
Purchase Order No. CN74325, between
Precision Echo and Lockheed
Aeronautical Systems Company [P]
**10.69 - Amendment, dated June 20, 1995, to
Purchase Order No. CN74325, between
Precision Echo and Lockheed
Aeronautical Systems Company [P]
**10.70 - Amendment, dated September 28,
1995, to Purchase Order No.
CN74325, between Precision Echo and
Lockheed Aeronautical Systems
Company [P]
**10.71 - Amendment, dated November 7, 1995,
to Purchase Order No. CN74325
between Precision Echo and Lockheed
Aeronautical Systems Company [P]
10.72 - Contract No. N39998-94-C-2239,
dated July 26, 1993, between the
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 10.77]
10.73 - Contract No. N00019-95-C-0057,
dated December 16, 1994, between
Precision Echo, Inc. and Naval Air
Systems Command [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.78]
10.74 - Employment, Non-Competition and
Termination Agreement, dated July
20, 1994, between
Diagnostic/Retrieval Systems, Inc.
and David E. Gross [Form 10-Q,
quarter ended June 30, 1994, File
No. 1-8533, Exhibit 1]
10.75 - Stock Purchase Agreement, dated as
of July 20, 1994, between
Diagnostic/Retrieval Systems, Inc.
and David E. Gross [Form 10-Q,
quarter ended June 30, 1994, File
No. 1-8533, Exhibit 2]
10.76 - Asset Purchase Agreement, dated
October 28, 1994, Acquisition by PE
Acquisition Corp., a subsidiary of
Precision Echo, Inc. of all of the
Assets of Ahead Technology
Corporation [Form 10-Q, quarter
ended December 31, 1994, File No.
1-8533, Exhibit 1]
10.77 - Amendment to Agreement for
Acquisition of Assets, dated July
5, 1995, between Photronics Corp.
and Opto Mechanik, Inc. [Form 8-K,
Amendment No. 1, July 5, 1995, File
No. 1-8533, Exhibit 1]
**10.78 - Contract No. N00421-95-D-1067,
dated September 30, 1995, between
the Company and the Navy [P]
**10.79 - Lease, dated August 17, 1995,
between Ahead Technology, Inc. and
South San Jose Interests
**10.80 - Contract No. DAAH01-95-C-0308,
dated July 21, 1995, between
Photronics Corp. and the Army [P]
**10.81 - Lease, dated May 25, 1995, between
Technology Applications and Service
Company and Sports Arena Village,
Ltd., L.P.
**10.82 - Contract No. 2025, dated December
20, 1993, between Opto Mechanik,
Inc. and the Government of Israel,
Ministry of Defense [P]
**10.83 - Amendment to Contract No. 2025,
dated August 31, 1995 between Opto
Mechanik, Inc. and the Government
of Israel, Ministry of Defense [P]
**10.84 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties
**10.85 - Lease, dated August, 1995, by and
between OMI Acquisition Corp and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties
**10.86 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties
**10.87 - Memorandum of Lease, dated August,
1995, by and between OMI
Acquisition Corp. and Fred E.
Sutton and Harold S. Sutton d/b/a
Sutton Properties
**10.88 - Master Lease, dated August 31,
1995, between OMI Acquisition Corp.
and General Electric Capital Corp.
**10.89 - Schedule No. 001, dated September
1, 1995, to Master Lease between
OMI Acquisition Corp. and General
Electric Capital Corp.
**10.90 - Schedule No. 002, dated October 20,
1995, to Master Lease between OMI
Acquisition Corp. and General
Electric Capital Corp.
**10.91 - Joint Venture Agreement, dated as
of February 6, 1996, by and among
DRS/MS, Inc., Universal Sonics
Corporation, Ron Hadani, Howard
Fidel and Thomas S. Soulos
**10.92 - Partnership Agreement, dated as of
February 6, 1996, by and between
DRS/MS, Inc. and Universal Sonics
Corporation
**10.93 - Asset Purchase Agreement, dated as
of February 9, 1996, by and among
Mag-Head Engineering Company, Inc.
and Ahead Technology Acquisition
Corporation, a subsidiary of
Precision Echo, Inc.
11.1 - Computation of earnings (loss) per
share [Form 10-K, fiscal year ended
March 31, 1995, File No. 1-8533,
Exhibit 11]
11.2 - Computation of earnings per share
[Form 10-Q, quarter ended December
31, 1995, File No. 1-8533, Exhibit
11]
13.1 - 1994 Annual Report to Stockholders
(for the fiscal year ended March
31, 1994). Except for the portions
of the Annual Report which are
incorporated expressly by reference
in the Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533,
this Annual Report was furnished
for the information of the
Commission and is not to be deemed
"filed" as part of the report [Form
10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit 13]
22.1 - List of subsidiaries of the Company
[Form 10-K, fiscal year ended March
31, 1995, File No. 1-8533, Exhibit
21]
**23.1 - Accountants' Consent and Report on
Schedules
**23.2 - Consent of Skadden, Arps, Slate,
Meagher & Flom, contained in their
opinion filed as Exhibit 5.1
*24.1 - Power of Attorney (included in
signature page to Registration
Statement)
*25.1 - Form T-1 Statement of Eligibility
and Qualification of the Trustee
under the Trust Indenture Act of
1939
________________________
* Previously filed.
** Filed herewith.
(b) Financial Statements:
Financial Statements filed as part of this Registration
Statement are listed in the Index to Financial Statements on page
F-1.
(c) Financial Statement Schedules:
Consolidated Financial Statement Schedules as part of
this Registration Statement are listed in the Index to the
Consolidated Financial Schedules on page S-1.
ITEM 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold as of the termination of the offering.
The undersigned Registrant hereby undertakes that:
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as a part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
SIGNATURES AND POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK,
STATE OF NEW YORK ON, FEBRUARY 22, 1996.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
By: /s/Mark S. Newman
_________________________________
Mark S. Newman
Chairman of the Board, President,
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN
SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
Signature Title Date
/s/Mark S. Newman President, February 22, 1996
______________________ Chief Executive
Mark S. Newman Officer, Chairman of the
Board and Director (Principal
Executive Officer)
/s/Nancy R. Pitek Controller, February 22, 1996
______________________ Treasurer
Nancy R. Pitek and Secretary
(Principal Financial
Officer and Principal
Accounting Officer)
__________*__________ Vice President, February 22, 1996
President of
Stuart F. Platt Precision Echo and Director
__________*__________ Director and Chairman February 22, 1996
Emeritus
Leonard Newman
__________*__________ Director February 22, 1996
Theodore Cohn
__________*__________ Director February 22, 1996
Donald C. Fraser
__________*__________ Director February 22, 1996
Mark N. Kaplan
__________*__________ Director February 22, 1996
Jack Rachleff
*By /s/Mark S. Newman
Mark S. Newman
Attorney-in-Fact
DIAGNOSTIC/RETRIEVAL
SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED
FINANCIAL STATEMENT SCHEDULES
Years ended March 31, 1995, 1994 and 1993
Page
Schedule II. Valuation and Qualifying
Accounts.............................................................S-2
<TABLE>
<CAPTION>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
Years Ended March 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------------------------------------------------
Col. A. Col. B Col. C Col. D Col. E
- --------------------------------------------------------------------------------------------------------------------------
Description Balance at Additions (a) Deductions (b) Balance
Beginning of -------------------------- ------------------------------ at End of
Period Period
(1) (2) (1) (2)
Charged to Charged to Credited to Credited to
Costs and Other Cost and Other
Expenses Accounts - Expenses Accounts -
Describe Describe
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVENTORY RESERVE
=============================== -----------
Year ended March 31, 1995 $ 2,409,000 $ 439,000 $ - $ 83,000(d) $ 1,365,000(c) $ 1,400,000
----------- ----------- ----------- ----------- ----------- -----------
Year ended March 31, 1994 $ 2,620,000 $ 674,000 $ - $ 885,000(e) $ - $ 2,409,000
----------- ----------- ----------- ----------- ----------- -----------
Year ended March 31, 1993 $ 8,200,000 $ 2,277,000 $ 33,000(c) $ 7,648,000(d) $ 242,000(c) $ 2,620,000
----------- ----------- ----------- ----------- ----------- -----------
===============================
LOSSES & FUTURE COSTS ACCRUED ON
UNCOMPLETED CONTRACTS
===============================
Year ended March 31, 1995 $ 3,214,000 $ 2,168,000 $ - $ 291,000 $ 536,000(c) $ 4,555,000
----------- ----------- ----------- ----------- ----------- -----------
Year ended March 31, 1994 $ 3,722,000 $ 1,735,000 $ 254,000(g) $ 2,497,000(f) $ - $ 3,214,000
----------- ----------- ----------- ----------- ----------- -----------
Year ended March 31, 1993 $ 3,835,000 $ 2,665,000 $ 242,000(c) $ 2,987,000 $ 33,000(c) $ 3,722,000
----------- ----------- ----------- ----------- ----------- -----------
=============================== -----------
OTHER
Year ended March 31, 1995 $ 290,000 $ - $ - $ - $ - $ 290,000
----------- ----------- ----------- ----------- ----------- -----------
Year ended March 31, 1994 $ 290,000 $ - $ - $ - $ - $ 290,000
----------- ----------- ----------- ----------- ----------- -----------
Year ended March 31, 1993 $ 290,000 $ - $ - $ - $ - $ 290,000
----------- ----------- ----------- ----------- ----------- -----------
<FN>
(a) Represents, on a full-year basis, net credits to reserve accounts.
(b) Represents, on a full-year basis, net charges to reserve accounts.
(c) Represents amounts reclassified.
(d) Represents amounts credited to costs and expenses associated with the
corresponding write-off of related inventory costs.
(e) Includes $801,000 representing amounts credited to costs and expenses
associated with the corresponding write-off of related inventory costs.
(f) Includes $2,302,000 representing amounts credited to costs and expenses
associated with the corresponding write-off of related inventory costs.
(g) Includes an increase to reserves of $111,000 as a result of business
combinations and a charge of $143,000 to revenues.
</TABLE>
EXHIBIT INDEX
Certain of the following exhibits, designated with an asterisk
(*), have been previously filed and certain of the following exhibits,
designated with two asterisks (**), are filed herewith. The exhibits
not so designated have been previously filed with the Commission and
are incorporated herein by reference to the documents indicated in
brackets following the descriptions of such exhibits.
Page No.
Exhibit Description in This
No. Filing
*1.1 - Purchase Agreement, dated September
22, 1995 between the Company and
Forum Capital Markets L.P. . . . .
3.1 - Restated Certificate of
Incorporation of the Company
[Registration Statement No. 2-
70062-NY, Amendment No. 1, Exhibit
2(a)]
3.2 - Certificate of Amendment of the
Restated Certificate of
Incorporation of the Company, as
filed July 7, 1983 [Registration
Statement on Form 8-A of the
Company, dated July 13, 1983,
Exhibit 2.2]
3.3 - Composite copy of the Restated
Certificate of Incorporation of the
Company, as amended [Registration
Statement No. 2-85238, Exhibit 3.3]
3.4 - By-laws of the Company, as amended
to November 7, 1994 [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 3.4]
3.5 - Certificate of Amendment of the
Certificate of Incorporation of
Precision Echo Acquisition Corp.,
as filed March 10, 1995 [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 3.5]
3.6 - Form of Advance Notice By-Laws of
the Company [Form 10-Q, quarter
ended December 31, 1995, File No.
1-8533, Exhibit 3]
*4.1 - Indenture, dated as of September
22, 1995, between the Company and
The Trust Company of New Jersey, as
Trustee, in respect of the
Company's 9% Senior Subordinated
Convertible Debentures Due 2003 .
*4.2 - Form of 9% Senior Subordinated
Convertible Debenture Due 2003
(included as part of Exhibit 4.1)
*4.3 - Registration Rights Agreement,
dated as of September 22, 1995
between the Company and Forum
Capital Markets L.P. . . . . . . .
4.4 - Indenture, dated as of August 1,
1983, between the Company and
Bankers Trust Company, as Trustee
[Form 10-Q, quarter ended September
30, 1983, File No. 1-8533, Exhibit
4.2]
4.5 - Indenture of Trust, dated December
1, 1991, among Suffolk County
Industrial Development Agency,
Manufacturers and Traders Trust
Company, as Trustee and certain
bondholders [Form 10-K, fiscal year
ended March 31, 1992, File No. 1-
8533, Exhibit 4.2]
4.6 - Reimbursement Agreement, dated
December 1, 1991, among Photronics
Corp., the Company and Morgan
Guaranty Trust Company of New York
[Form 10-K, fiscal year ended March
31, 1992, File No. 1-8533, Exhibit
4.3]
**5.1 - Opinion of Skadden, Arps, Slate,
Meagher & Flom . . . . . . . . . .
10.1 - Stock Purchase Agreement, dated as
of August 6, 1993, among TAS
Acquisition Corp., Technology
Applications and Service Company,
Paul G. Casner, Jr. and Terrence L.
DeRosa [Form 10-Q, quarter ended
December 31, 1993, File No. 1-8533,
Exhibit 6(a)(1)]
10.2 - Waiver Letter, dated as of
September 30, 1993, among TAS
Acquisition Corp., Technology
Applications and Service Company,
Paul G. Casner, Jr. and Terrence L.
DeRosa [Form 10-Q, quarter ended
December 31, 1993, File No. 1-8533,
Exhibit 6(a)(2)]
10.3 - Joint Venture Agreement, dated as
of November 3, 1993, by and between
DRS Systems Management Corporation
and Laurel Technologies, Inc. [Form
10-Q, quarter ended December 31,
1993, File No. 1-8533, Exhibit
6(a)(3)]
10.4 - Waiver Letter, dated as of December
13, 1993, by and between DRS
Systems Management Corporation and
Laurel Technologies, Inc. [Form 10-
Q, quarter ended December 31, 1993,
File No. 1-8533, Exhibit 6(a)(4)]
10.5 - Partnership Agreement, dated
December 13, 1993, by and between
DRS Systems Management Corporation
and Laurel Technologies, Inc. [Form
10-Q, quarter ended December 31,
1993, File No. 1-8533, Exhibit
6(a)(5)]
10.6 - Lease, dated June 28, 1979, between
the Company and J.L. Williams &
Co., Inc. ("Williams")
[Registration Statement No. 2-
70062-NY, Exhibit 9(b)(4)(i)]
10.7 - Lease, dated as of June 1, 1983,
between LDR Realty Co. and the
Company [Form 10-K, fiscal year
ended March 31, 1984, File No. 1-
8533, Exhibit 10.7]
10.8 - Renegotiated Lease, dated June 1,
1988, between LDR Realty Co. and
the Company [Form 10-K, fiscal year
ended March 31, 1989, File No. 1-
8533, Exhibit 10.8]
10.9 - Lease, dated July 20, 1988, between
Precision Echo, Inc. and Bay 511
Corporation [Form 10-K, fiscal year
ended March 31, 1991, File No. 1-
8533, Exhibit 10.9]
10.10 - Amendment to Lease, dated July 1,
1993, between Precision Echo, Inc.
and Bay 511 Corporation [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.12]
**10.11 - Second Amendment to Lease, dated
October 17, 1995 between Precision
Echo, Inc. and Bay 511 Corporation
10.12 - Lease Modification Agreement, dated
February 22, 1994, between
Technology Applications and Service
Company and Atlantic Real Estate
Partners II [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.13]
10.13 - Amendment to Lease Modification,
dated June 1, 1994, between
Technology Applications and Service
Company and Atlantic Estate
Partners II [Form 10-K, fiscal year
ended March 31, 1995, File No. 1-
8533, Exhibit 10.11]
10.14 - Triple Net Lease, dated October 22,
1991, between Technology
Applications and Service Company
and Marvin S. Friedberg [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.14]
10.15 - Lease, dated November 10, 1993,
between DRS Systems Management
Corp. and Skateland Roller Rink,
Inc. [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533,
Exhibit 10.17]
10.16 - Lease, dated March 23, 1992,
between Ahead Technology
Corporation and Vasona Business
Park [Form 10-K, fiscal year ended
March 31, 1995, File No. 1-8533,
Exhibit 10.15]
10.17 - Amendment to Lease, dated May 21,
1992, between Ahead Technology
Corporation and Vasona Business
Park [Form 10-K, fiscal year ended
March 31, 1995, File No. 1-8533,
Exhibit 10.16]
10.18 - Revision to Lease Modification,
dated August 25, 1992, between
Ahead Technology Corporation and
Vasona Business Park [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 10.17]
10.19 - Lease, dated January 13, 1995,
between the Company and Sammis New
Jersey Associates [Form 10-K,
fiscal year ended March 31, 1995,
File No.-8533, Exhibit 10.18]
10.20 - Memorandum of Understanding, dated
March 23, 1995, between Laurel
Technologies and West Virginia Air
Center [Form 10-K, fiscal year
ended March 31, 1995, File No. 1-
8533, Exhibit 10.19]
10.21 - 1991 Stock Option Plan of the
Company [Registration Statement No.
33-42886, Exhibit 28.1]
10.22 - Contract No. N00024-92-C-6102,
dated September 28, 1992, between
the Company and the Navy [Form 10-
K, fiscal year ended March 31,
1993, File No. 1-8533, Exhibit
10.45]
10.23 - Modification No. P00005, dated
August 24, 1994, to Contract No.
N00024-92-C-6102 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.22]
10.24 - Modification No. P00006, dated
September 7, 1994, to Contract No.
N00024-92-C6102 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.23]
10.25 - Contract No. N00024-92-C-6308,
dated April 1, 1992, between the
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1993,
File No. 1-8533, Exhibit 10.46]
10.26 - Modification No. P00001, dated July
30, 1992, to Contract No. N00024-
92-C-6308 [Form 10-K, fiscal year
ended March 31, 1993, File No. 1-
8533, Exhibit 10.47]
10.27 - Modification No. P00002, dated
September 25, 1992, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.48]
10.28 - Modification No. P00003, dated
October 22, 1992, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.49]
10.29 - Modification No. P00004, dated
February 24, 1993, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.50]
10.30 - Modification No. P00005, dated June
11, 1993, to Contract No. N00024-
92-C-6308 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.26]
10.31 - Modification No. P00006, dated
March 26, 1993, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.51]
10.32 - Modification No. P00007, dated May
3, 1993, to Contract No. N00024-92-
C-6308 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.28]
10.33 - Modification No. PZ0008, dated June
11, 1993, to Contract No. N00024-
92-C-6302 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.29]
10.34 - Contract No. N39998-94-C-2228,
dated November 30, 1993, between
the Company and the Navy [Form 10-
K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.30]
10.35 - Order No. 87KA-SG-51484, dated
December 10, 1993, under Contract
No. N00024-93-G-6336, between the
Company and Westinghouse Electric
Corporation Oceanic Division [Form
10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.31]
10.36 - Purchase Order Change Notice Order
No. 87KA-SX-51484-P, dated April
21, 1994, under Contract No.
N00024-93-G-6336, between the
Company and Westinghouse Electric
Corporation Oceanic Division [Form
10-K, fiscal year ended March 31,
1995, File No. 1-8533, Exhibit
10.35]
10.37 - Letter Subcontract No. 483901(L),
dated February 18, 1994, under
Contract No. N00024-94-D-5204,
between the Company and Unisys
Government Systems Group [Form 10-
K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.32]
10.38 - Subcontract No. 483901(D), dated
June 24, 1994, under Contract No.
N00024-94-D-5204, between the
Company and Unisys Corporation
Government Systems Group [Form 10-
K, fiscal year ended March 31,
1995, File No. 1-8533, Exhibit
10.37]
10.39 - Contract No. N00019-90-G-0051,
dated March 1, 1990, between
Precision Echo, Inc. and the Navy
[Form 10-K, fiscal year ended March
31, 1994, File No. 1-8533, Exhibit
10.35]
10.40 - Amendment 1A, dated February 26,
1992, to Contract No. N00019-90-G-
0051 [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533,
Exhibit 10.36]
10.41 - Amendment 1B, dated April 23, 1993,
to Contract No. N00019-90-G-0051
[Form 10-K, fiscal year ended March
31, 1994, File No. 1-8533, Exhibit
10.37]
10.42 - Contract No. N00019-93-C-0041,
dated January 29, 1993, between
Photronics Corp. and the Navy [Form
10-K, fiscal year ended March 31,
1993, File No. 1-8533, Exhibit
10.54]
10.43 - Modification No. P00001, dated
March 29, 1993, to Contract No.
N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.39]
10.44 - Modification No. PZ0002, dated
November 12, 1993, to Contract No.
N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.40]
10.45 - Modification No. P00003, dated
February 1, 1994, to Contract No.
N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.41]
**10.46 - Modification No. P00004, dated
January 29, 1993, to Contract No. P
N00019-93-C-0041 . .
**10.47 - Modification No. P00005, dated
January 29, 1993, to Contract No. P
N00019-93-C-0041 . . . . . . . . .
10.48 - Contract No. N00019-93-C-0202,
dated August 30, 1993, between
Photronics Corp. and the Navy [Form
10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.42]
10.49 - Modification No. P00001, dated
March 30, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.43]
10.50 - Modification No. P00002, dated
April 29, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.44]
10.51 - Modification No. P00003, dated
August 9, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.55]
10.52 - Modification No. P00004, dated
March 30, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.56]
**10.53 - Modification No. P00005, dated
August 30, 1993, to Contract No.
N00019-93-C-0202 . . . . . . . . . P
**10.54 - Modification No. P00006, dated
August 30, 1993, to Contract No.
N00019-93-C-0202 . . . . . . . . . P
10.55 - Contract No. N00024-93-C-5204,
dated November 18, 1992, between
Technology Applications and Service
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.53]
10.56 - Modification No. P00001, dated May
6, 1993, to Contract No. N00024-93-
C-5204 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.54]
10.57 - Modification No. P00002, dated
August 24, 1993, to Contract No.
N00024-93-C-5204 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.55]
10.58 - Modification No. PZ0003, dated
September 30, 1993, to Contract No.
N00024-93-C-5204 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.56]
10.59 - Contract No. N00174-94-D-0006,
dated February 17, 1994, between
Technology Applications & Service
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.57]
10.60 - Modification No. P00001, dated
March 7, 1994, to Contract No.
N00174-94-D-0006 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.58]
10.61 - Modification No. P00003, dated May
19, 1994, to Contract No. N00174-
94-D-0006 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.59]
10.62 - Purchase Order No. N538010, dated
March 28, 1994, between Laurel
Technologies, Inc. and Short
Brothers PLC [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.60]
10.63 - Purchase Order No. 2285, dated June
6, 1994, between Photronics Corp.
and International Precision
Products N.V. [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.73]
10.64 - Amendment No. 1, dated December 1,
1994, to Purchase Order No. 2285
[Form 10-K, fiscal year ended March
31, 1995, File No. 1-8533, Exhibit
10.74]
10.65 - Purchase Order No. 2286, dated June
6, 1994, between Photronics Corp.
and International Precision
Products N.V. [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.75]
10.66 - Purchaser Order No. CN74325, dated
December 14, 1994, between
Precision Echo and Lockheed
Aeronautical Systems Company [Form
10-K, fiscal year ended March 31,
1995, File No. 1-8533, Exhibit
10.76]
**10.67 - Amendment, dated February 14, 1995,
to Purchase Order No. CN74325,
between Precision Echo and Lockheed
Aeronautical Systems Company . . . P
**10.68 - Amendment, dated April 4, 1995, to
Purchase Order No. CN74325, between
Precision Echo and Lockheed
Aeronautical Systems Company . . . P
**10.69 - Amendment, dated June 20, 1995, to
Purchase Order No. CN74325, between
Precision Echo and Lockheed
Aeronautical Systems Company . . . P
**10.70 - Amendment, dated September 28,
1995, to Purchase Order No.
CN74325, between Precision Echo and
Lockheed Aeronautical Systems
Company . . . . . . . . . . . . . P
**10.71 - Amendment, dated November 7, 1995,
to Purchase Order No. CN74325,
between Precision Echo and Lockheed
Aeronautical Systems Company . . . P
10.72 - Contract No. N39998-94-C-2239,
dated July 26, 1993, between the
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 10.77]
10.73 - Contract No. N00019-95-C-0057,
dated December 16, 1994, between
Precision Echo, Inc. and Naval Air
Systems Command [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.78]
10.74 - Employment, Non-Competition and
Termination Agreement, dated July
20, 1994, between
Diagnostic/Retrieval Systems, Inc.
and David E. Gross [Form 10-Q,
quarter ended June 30, 1994, File
No. 1-8533, Exhibit 1]
10.75 - Stock Purchase Agreement, dated as
of July 20, 1994, between
Diagnostic/Retrieval Systems, Inc.
and David E. Gross [Form 10-Q,
quarter ended June 30, 1994, File
No. 1-8533, Exhibit 2]
10.76 - Asset Purchase Agreement, dated
October 28, 1994, Acquisition by PE
Acquisition Corp., a subsidiary of
Precision Echo, Inc. of all of the
Assets of Ahead Technology
Corporation [Form 10-Q, quarter
ended December 31, 1994, File No.
1-8533, Exhibit 1]
10.77 - Amendment to Agreement for
Acquisition of Assets, dated July
5, 1995, between Photronics Corp.
and Opto Mechanik, Inc. [Form 8-K,
Amendment No. 1, July 5, 1995, File
No. 1-8533, Exhibit 1]
**10.78 - Contract No. N00421-95-D-1067,
dated September 30, 1995, between
the Company and the Navy . . . . . P
**10.79 - Lease, dated August 17, 1995,
between Ahead Technology, Inc. and
South San Jose Interests . . . . .
**10.80 - Contract No. DAAH01-95-C-0308,
dated July 21, 1995, between
Photronics Corp. and the Army . . P
**10.81 - Lease, dated May 25, 1995, between
Technology Applications and Service
Company and Sports Arena Village,
Ltd., L.P. . . . . . . . . . . . .
**10.82 - Contract No. 2025, dated December
20, 1993, between Opto Mechanik,
Inc. and the Government of Israel,
Ministry of Defense . . . . . . . P
**10.83 - Amendment to Contract No. 2025,
dated August 31, 1995 between Opto
Mechanik, Inc. and the Government
of Israel, Ministry of Defense . . P
**10.84 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties . . . . .
**10.85 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties . . . . .
**10.86 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties . . . . .
**10.87 - Memorandum of Lease, dated August,
1995, by and between OMI
Acquisition Corp. and Fred E.
Sutton and Harold S. Sutton d/b/a
Sutton Properties . . . . . . . .
**10.88 - Master Lease, dated August 31,
1995, between OMI Acquisition Corp.
and General Electric Capital Corp.
**10.89 - Schedule No. 001, dated September
1, 1995, to Master Lease between
OMI Acquisition Corp. and General
Electric Capital Corp . . . . . .
**10.90 - Schedule No. 002, dated October 20,
1995, to Master Lease between OMI
Acquisition Corp. and General
Electric Capital Corp. . . . . . .
**10.91 - Joint Venture Agreement, dated as
of February 6, 1996, by and among
DRS/MS, Inc., Universal Sonics
Corporation, Ron Hadani, Howard
Fidel and Thomas S. Soulos . . . .
**10.92 - Partnership Agreement, dated as of
February 6, 1996, by and between
DRS/MS, Inc. and Universal Sonics
Corporation . . . . . . . . . . .
**10.93 - Asset Purchase Agreement, dated as
of February 9, 1996, by and among
Mag-Head Engineering, Company, Inc.
and Ahead Technology Acquisition
Corporation, a subsidiary of
Precision Echo, Inc. . . . . . . .
11.1 - Computation of earnings per share
[Form 10-K, Amendment No. 1, July
5, 1995, File No. 1-8533, Exhibit
11]
11.2 - Computation of earnings per share
[Form 10-Q, quarter ended December
31, 1995, File No. 1-8533, Exhibit
11]
13.1 - 1994 Annual Report to Stockholders
(for the fiscal year ended March
31, 1994). Except for the portions
of the Annual Report which are
incorporated expressly by reference
in the Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533,
this Annual Report was furnished
for the information of the
Commission and is not to be deemed
"filed" as part of the report [Form
10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit 13]
22.1 - List of subsidiaries of the Company
[Form 10-K, fiscal year ended March
31, 1995, File No. 1-8533, Exhibit
21]
**23.1 - Accountants' Consent and Report on
Schedules . . . . . . . . . . . .
**23.2 - Consent of Skadden, Arps, Slate,
Meagher & Flom, contained in their
opinion filed as Exhibit 5.1 . . .
*24.1 - Power of Attorney (included in
signature page to Registration
Statement) . . . . . . . . . . . .
*25.1 - Form T-1 Statement of Eligibility
and Qualification of the Trustee
under the Trust Indenture Act of
1939 . . . . . . . . . . . . . . .
___________________
* Previously filed.
** Filed herewith.
Exhibit 5.1
February 22, 1995
Diagnostic/Retrieval Systems, Inc.
5 Sylvan Way
Parsippany, New Jersey 07054
Re: Diagnostic/Retrieval Systems, Inc.
Registration Statement (File No.
33-64641)
Ladies and Gentlemen:
We have acted as special counsel to
Diagnostic/Retrieval Systems, Inc., a Delaware
corporation (the "Company"), in connection with the
preparation of a registration statement on Form S-1 (File
No. 33-64641)(the "Registration Statement") relating to
the registration for resale of up to $25,000,000
aggregate principal amount of the Company's 9% Senior
Subordinated Convertible Debentures Due 2003 (the
"Debentures") and the shares (the "Shares") of the
Company's Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"), issuable upon conversion of
the Debentures.
This opinion is delivered in accordance with
the requirements of Item 601(b)(5) of Regulation S-K
under the Securities Act of 1933, as amended (the "Act").
In connection with this opinion, we have
examined originals or copies, certified or otherwise
identified to our satisfaction, of (a) the Registration
Statement as filed with the Securities and Exchange
Commission (the "Commission") on November 30, 1995 under
the Act, and Amendment No. 1 thereto filed with the
Commission on February 22, 1995 (such Registration
Statement, as so amended, being hereafter referred to as
the "Registration Statement"); (b) the Indenture dated as
of September 22, 1995 between the Company and The Trust
Company of New Jersey, as Trustee (the "Indenture")
pursuant to which the Debentures were issued, filed as an
exhibit to the Registration Statement; (c) certain
resolutions of the Board of Directors of the Company and
the Pricing Committee of the Board of Directors of the
Company, in each case relating to the issuance of the
Debentures and related matters; (d) the Restated
Certificate of Incorporation of the Company, as presently
in effect; and (e) the Amended and Restated By-Laws of
the Company as presently in effect. We have also
examined originals or copies, certified or otherwise
identified to our satisfaction, of such records of the
Company and such agreements, certificates of public
officials, certificates of officers or other
representatives of the Company and others, and such other
documents, certificates and records as we have deemed
Diagnostic/Retrieval Systems, Inc.
February 22, 1995
Page 2
necessary or appropriate as a basis for the opinions set
forth herein.
In our examination, we have assumed the legal
capacity of all natural persons, the genuineness of all
signatures, the legal capacity of all natural persons,
the authenticity of all documents submitted to us as
originals, the conformity to original documents of all
documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals
of such latter documents. In making our examination of
documents executed by parties other than the Company, we
have assumed that such parties had the power, corporate
and other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by
all requisite action, corporate and other, and execution
and delivery by such parties of such documents and the
validity and binding effect thereof. As to any facts
material to the opinions expressed herein which we have
not independently established or verified, we have relied
upon statements and representations of officers and other
representatives of the Company and others.
Mark N. Kaplan, a partner of this firm, is a
director of the Company and owner of 1,000 shares of the
Class A Common Stock of the Company.
Members of our firm are admitted to the bar in
the States of Delaware and New York, and we express no
opinion as to the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are
of the opinion that (a) the Debentures are valid and
binding obligations of the Company entitled to the
benefits of the Indenture and enforceable against the
Company in accordance with their terms, except to the
extent that enforcement thereof may be limited by (1)
bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights
generally and (2) general principles of equity
(regardless of whether enforceability is considered in a
proceeding at law or in equity); and (b) the Shares, if
and when the Debentures are converted into Shares in
accordance with their terms and the terms of the
Indenture, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion
with the Commission as Exhibit 5 to the Registration
Statement. We also consent to the reference to our firm
under the caption "Legal Matters" in the prospectus which
constitutes a part of the Registration Statement. In
giving this consent, we do not thereby admit that we are
included in the category of persons whose consent is
required under Section 7 of the Act or the rules and
regulations of the Commission.
Diagnostic/Retrieval Systems, Inc.
February 22, 1995
Page 3
This opinion is furnished by us, as your
special counsel, in connection with the filing of the
Registration Statement and, except as provided in the
immediately preceding paragraph, is not to be used,
circulated, quoted or otherwise referred to for any other
purpose without our express written permission or relied
upon by any other person.
Very truly yours,
/s/Skadden, Arps, Slate,
Meagher & Flom
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE is made as of October 17, 1995, by and between
Green Valley-Ross, a Washington general partnership ("Landlord"), and Precision
Echo, Inc., a Delaware corporation ("Tenant").
WITNESSETH:
Recital of Facts:
Tenant entered into a Lease Agreement dated July 20, 1988 by and between Tenant
and Bay 511 Corporation, a California corporation, and such Lease Agreement is
the "Lease". The term of the Lease commenced on August 31, 1988. The Lease was
amended by an Amendment to Lease ("First Amendment") dated July 1, 1993, wherein
the term of the Lease was extended to August 31, 1996.
Landlord, as assignee in interest from Bay 511 Corporation, and Tenant do hereby
amend the Lease and the First Amendment to Lease as provided in this Second
Amendment to Lease as follows:
1. Term: The extended term of the Lease shall commence on October , 1995. Unless
extended further in accordance with paragraph 3 of the Second Amendment to Lease
or sooner terminated in accordance with the Lease, the term of the Lease shall
end on October 31, 2000.
2. Base Rent: Commencing November 1, 1995, the base rent payable by Tenant to
Landlord pursuant to Section 3.1 of the Lease shall be as follows:
(i) During the period commencing November 1, 1995 through October 31, 1996,
the net annual base rental for the Premises shall be three-hundred and
ninety-six thousand dollars ($396,000), payable in advance in equal monthly
installments of thirty-three thousand dollars ($33,000) each on the first day of
every month during such period.
(ii) During the period commencing November 1, 1996 through October 31,
1997, the net annual base rental for the Premises shall be four-hundred and
fifteen thousand eight hundred dollars ($415,800), payable in advance in equal
monthly installments of thirty-four thousand six hundred and fifty dollars
($34,650) each on the first day of every month during such period.
(iii) During the period commencing November 1, 1997 through October 31,
1998, the net annual base rental for the Premises shall be four-hundred
forty-eight thousand eight hundred dollars ($448,800), payable in advance in
equal monthly
installments of thirty-seven thousand four hundred dollars ($37,400) each
on the first day of every month during such period.
(iv) During the period commencing November 1, 1998 through October 31,
1999, the net annual base rental for the Premises shall be four-hundred ninety
five thousand dollars ($495,000), payable in advance in equal monthly
installments of forty-one thousand two-hundred fifty dollars ($41,250) each on
the first day of every month during such period.
(v) During the period commencing November 1, 1999 through October 31, 2000,
the net annual base rental for the Premises shall be five-hundred twenty-eight
thousand dollars ($528,000), payable in advance in equal monthly installments of
forty-four thousand dollars ($44,000) each on the first day of every month
during such period.
3. Right to Extend and Rent for Extended Term: Subject to the provisions of this
paragraph as well as superseding and replacing Section's 2.2 and 3.3 of the
Lease and Paragraph 3 of the First Amendment to Lease, Tenant shall have the
right to extend the term of the Lease for a period of five (5) years and shall
henceforth be referred to as the "Extended Term". Tenant may exercise such right
only by giving Landlord written notice via certified mail of Tenant's exercise
of such right no earlier than May 1, 1999 and no later than October 31, 1999,
and only if no default by Tenant under the Lease exists when Tenant exercises
such right. If Tenant fails to exercise such right in accordance with this
paragraph, such right shall terminate. If Tenant exercises such right in
accordance with this paragraph, the term of the Lease shall be extended for the
Extended Term.
The Extended Term shall be on and subject to all of the agreements, covenants
and conditions in the Lease, except the base rent shall be increased as provided
below. References in the Lease and the First Amendment to Lease shall mean and
include the term of the Lease as extended for the Extended Term in accordance
with this paragraph. If Tenant exercises the right to extended the term of the
Lease for the Extended Term in accordance with this paragraph, Landlord and
Tenant each shall, promptly after Tenant exercises such right, execute and
deliver to the other a subsequent written amendment to the Lease which sets for
the extension of the term of the Lease for the Extended Term as defined, but the
term of the Lease shall be extended for the Extended Term whether or not such
subsequent amendment is executed.
(a) If Tenant exercises the right to extend the term of the Lease for the
Extended Term in accordance with paragraph 3 of this Second Amendment to Lease
the net annual base rental during the Extended Term shall be increased to the
greater of (i) ninety-five percent (95%) of the prevailing fair market rental
value of the Premises, including annual increases, on and subject to covenants
(except the amount of net annual base rental) in the Lease, based on then
current base rent comparables for buildings within the Marriot Business Park in
Santa Clara, or (ii) forty-four thousand dollars ($44,000) each month, plus
prevailing fair market rental increases.
Such fair market analysis or the acceptance of the conditions provided in
paragraph 3(a)(ii) above shall be determined no later than March 1, 2000 and
acknowledged by written agreement between Landlord and Tenant by such date. If
Landlord and Tenant do not agree in writing on such rental for the Extended
Term, such fair market rental value shall be determined by appraisal in
accordance with Paragraph 4 of this Second Amendment to Lease.
Landlord and Tenant each shall, promptly after any determination of the net
annual base rental pursuant to this paragraph or Paragraph 4 of this Second
Amendment to Lease, execute and deliver to the other a written amendment to the
Lease which sets forth the net annual base rental during the Extended Term, but
such net annaul base rental shall become effective whether or not such
amendment is executed. Such net annual base rental shall be payable in advance
in equal monthly installments on the first day of every month during the
Extended Term.
4. Appraisal Procedure: If Landlord and Tenant do not agree on the fair market
rental value of the Premises by the date set forth in Paragraph 3(a) of this
Second Amendment to Lease, as applicable, such fair market rental value shall be
determined as follows: Landlord and Tenant each shall appoint one (1) appraiser
within fifteen (15) days after a written request for appointment of appraisers
has been given by either Landlord or Tenant to the other. If either Landlord or
Tenant fails to appoint its appraiser within such period of fifteen (15) days,
such appraiser shall be appointed by the Superior Court of the State of
California in and for Santa Clara County upon application of the other party.
Each such appraiser shall appraise the Premises and submit his or her written
report setting forth the appraised fair market rental value to Landlord and
Tenant within thirty (30) days after the appointment of both such appraisers
(or as soon thereafter as practicable). If the higher appraised value in such
two (2) appraisals is not more than one hundred ten percent (110%) of the lower
appraised value, the fair market rental value of the Premises shall be the
average of the two (2) appraised values. If the higher appraised value is more
than one hundred ten percent (110%) of the lower appraised value, Landlord and
Tenant shall agree upon and appoint a neutral third appraiser within fifteen
(15) days after both of the first two (2) appraisals have been submitted to
Landlord and Tenant. If Landlord and Tenant do not agree and fail to appoint
such neutral third appraiser within such period of fifteen (15) days, such
neutral third appraiser shall be appointed by the Superior Court of the State of
California in and for Santa Clara County upon application of either Landlord or
Tenant. The neutral third appraiser shall appraise the Premises and submit his
or her written report setting forth the appraised fair market rental value to
Landlord and Tenant within thirty (30) days after his or her appointment (or as
soon thereafter as practicable). The fair market rental value of the Premises
shall be the average of the two (2) appraised values in such three (3)
appraisals that are closest to each other (unless the differences are equal, in
which case the three (3) appraised values shall be averaged). The fair market
rental value of the Premises, determined in accordance with this paragraph,
shall be conclusive and binding upon Landlord and Tenant. Any proceedings in
connection with the determination of the fair market rental value of the
Premises shall
<PAGE>
be conducted in Santa Clara County in accordance with California Code of Civil
Procedure sections 1280 and 1294.2 (including section 1283.05) or successor
California laws then in effect relating to arbitration. All appraisers appointed
by Landlord or Tenant, or both of them, shall be members of the American
Institute of Real Estate Appraisers of the National Association of Realtors (or
its successor), or real estate professionals qualified by appropriate training
or experience, and have at least ten (10) years of experience dealing with
commerical real estate. The appraiser shall have no power or authority to amend
or modify this Lease in any respect and their jurisdiction is limited
accordingly. Landlord and Tenant each shall pay the fee and expenses charged by
its appraiser plus one-half of the fee and expenses charged by the neutral third
appraiser. If the fair market rental value of the Premises has not been
determined in accordance with this paragraph on or before the Lease expiration
date, Tenant shall continue to pay the base rent then in effect until the fair
market rental value of the Premises has been determined. Within ten (10) days
after such determination, Tenant shall pay to Landlord any deficiency and
Landlord shall so credit any surplus in the amount of base rent which arose
between the effective date in question and such determination.
5. Landlord's Repairs, Residual Obligations and Improvement Reimbursements:
Landlord shall, at its sole cost and expense, reimburse Tenant for the following
repairs and improvements in the following manner:
(a) Upon execution of this Second Amendment to Lease by Landlord and
assignment of the Lease from Bay 511 Corporation to Landlord, Landlord shall
within five (5) days, reimburse Tenant $21,434.50 as the undistributed residual
fund owed to Tenant to make certain repairs and improvements to the HVAC system
as provided in Paragraph 5 of the First Amendment to Lease.
(b) On or before November 10, 1995, Landlord will reimburse Tenant $33,000
for miscellaneous improvements and expenditures made by Tenant prior to
commencing the Extended Term.
(c) During the term of the Extended Term, Landlord shall reimburse Tenant
$100,000 to cover the cost for (i) the phased replacement of carpeting, (ii)
remodel of bathrooms, (iii) retro-fitting the lighting systems, (iv) repair and
resurfacing the parking lot, (v) roof repairs and (vi) miscellaneous items. The
$100,000 improvement fund will be available for Tenant to use as it deems
necessary for the required improvements, subject to Landlord's reasonable
approval. Landlord will reimburse Tenant within fifteen (15) days from receipt
and approval of Tenants request for reimbursement, which will include copies of
receipts from contractors performing the work along with appropriate conditional
and unconditional lien releases.
6. Additional Provisions: It is understood that the above stated rent is a net
rental per the Lease for the Premises dated July 20, 1988. Tenant shall pay as
additional rent all property taxes, assessments, insurance, utilities, repairs
and all other maintenance of the Premises, as detailed in the Lease. As provided
in the First Amendment to Lease, Tenant
<PAGE>
shall have the option to be covered by Landlord's "All Risk" insurance policies
with such premiums being paid by Tenant upon receipt of Landlord's invoice for
same.
7. Representing Brokerage: The parties acknowledge that no real estate
brokerage may claim a fee for this transaction other than J.R. Parrish,
Inc./Colliers International ("Broker") as provided in a listing agreement
entered into by and between Bay 511 Corporation, predecessor in interest to
Landlord, and Broker. Tenant represents that no other person is representing
Tenant who may claim a commission or finders fee for this transaction.
8. Legal Effect and Conflicts: This Second Amendment to Lease shall be
effective as of the date of its execution by Landlord. Any conflicts between the
original Lease and this Amendment to Lease for the Premises shall be resolved in
such Second Amendments favor. Except as amended by this Second Amendment to
Lease, the Lease is unchanged and, as so further amended, the Lease shall remain
in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this SECOND AMENDMENT
TO LEASE as of the date herein written.
GREEN VALLEY-ROSS,
a Washington general partnership
By: Green Valley Corporation,
a California Corporation
Its: General Partner
By: _______________________________________________ Date: ______________________
Its: ______________________________________________
PRECISION ECHO, INC.,
a Delaware corporation
By: ________________________________________________
Its: _______________________________________________
By: ________________________________________________
Its: _______________________________________________
Lease between
South San Jose Interests, a California Limited Partnership
and
Ahead Technology, Inc., a Delaware Corporation
Section Page No.
- ------- --------
Parties ............................................................... 3
Premises .............................................................. 3
Use ................................................................... 3
Term and Rental ....................................................... 3
Security Deposit ...................................................... 4
Late Charges .......................................................... 4
Construction and Possession ........................................... 5
Acceptance of Possession and Covenants to Surrender ................... 5
Uses Prohibited ....................................................... 6
Alterations and Additions ............................................. 6
Maintenance of Premises ............................................... 7
Hazard Insurance ...................................................... 8
Tenant's Use ........................................................ 8
Landlord's Insurance ................................................ 8
Tenant's Insurance .................................................. 8
Waiver .............................................................. 8
Taxes ................................................................. 9
Utilities ............................................................. 9
Abandonment ........................................................... 9
Free From Liens ....................................................... 9
Compliance With Governmental Regulations .............................. 10
Toxic Waste and Environmental Damage .................................. 10
Tenant's Responsibility ............................................. 10
Tenant's Indemnity Regarding Hazardous Materials .................... 10
Landlord's Indemnity Regarding Hazardous Materials .................. 11
Actual Release by Tenant ............................................ 11
Environmental Monitoring ............................................ 12
Indemnity ............................................................. 12
Advertisements and Signs .............................................. 13
Attorney's Fees ....................................................... 13
Tenant's Default ...................................................... 13
Remedies ............................................................ 14
Right to Re-enter ................................................... 15
Abandonment ......................................................... 15
No Termination ...................................................... 15
Surrender of Lease .................................................... 15
Habitual Default ...................................................... 16
Landlord's Default .................................................... 16
Notices ............................................................... 16
<PAGE>
Section Page No.
- ------- --------
Entry by Landlord .................................................... 16
Destruction of Premises .............................................. 17
Destruction by an Insured Casualty ................................. 17
Destruction by an Uninsured Casualty ............................... 18
Assignment or Sublease ............................................... 18
Consent by Landlord ................................................ 18
Assignment or Subletting Consideration ............................. 19
No Release ......................................................... 19
Effect of Default .................................................. 19
Condemnation ......................................................... 20
Effects of Conveyance ................................................ 20
Subordination ........................................................ 21
Waiver ............................................................... 21
Holding Over ......................................................... 22
Successors and Assigns ............................................... 22
Estoppel Certificates ................................................ 22
Option to Extend the Lease Term ...................................... 22
Grant and Exercise of Option ....................................... 22
Determination of Fair Market Rental ................................ 23
Resolution of a Disagreement over the Fair Market Rental ........... 24
Options .............................................................. 24
Quiet Enjoyment ...................................................... 24
Brokers .............................................................. 25
Landlord's Liability ................................................. 25
Authority of Parties ................................................. 25
Transportation Demand Management Programs ............................ 25
Dispute Resolution ................................................... 25
Lease Guaranty ....................................................... 26
Miscellaneous Provisions ............................................. 26
Rent ............................................................... 26
Performance by Landlord ............................................ 26
Interest ........................................................... 26
Rights and Remedies ................................................ 26
Survival of Indemnities ............................................ 26
Severability ....................................................... 26
Choice of Law ...................................................... 26
Time ............................................................... 26
Entire Agreement ................................................... 26
Representations .................................................... 27
Headings ........................................................... 27
Exhibits ........................................................... 27
Exhibit "A" - Premises ............................................... 28
Exhibit "B" - Tenant Improvements .................................... 29
Exhibit "C" - Lease Guaranty ......................................... 30
Exhibit "D" - Permitted Chemicals .................................... 35
Page ii
<PAGE>
1. PARTIES: THIS LEASE, is entered into on this ____ day of July, 1995,
between South San Jose Interests, a California Limited Partnership, whose
address is 10600 North De Anza Boulevard, Suite 200, Cupertino, CA 95014 and
Ahead Technology, Inc., a Delaware Corporation, whose address is 6410 Via Del
Oro, San Jose, California, 95119, hereinafter called respectively Landlord and
Tenant.
2. PREMISES: Landlord hereby leases to Tenant, and Tenant hires from
Landlord those certain Premises with the appurtenances, situated in the City of
San Jose, County of Santa Clara, State of California, and more particularly
described as follows, to-wit:
That certain real property identified as APN 706-09-051, commonly known and
designated as 6410 Via Del Oro, consisting of 32,000 rentable square feet
("Building"), and the adjacent lot identified as APN 706-09-050, as outlined in
red on Exhibit "A".
3. USE: Tenant shall use the Premises only for the following purposes and
shall not change the use of the Premises without the prior written consent of
Landlord: Office, research and development, marketing, light manufacturing,
storage and other incidental uses. Landlord makes no representation or warranty
that any specific use of the Premises desired by Tenant is permitted pursuant
to any Laws.
4. TERM AND RENTAL: The term ("Lease Term") shall be for sixty (60)
months, commencing, as adjusted pursuant to paragraph 7, on the 1st day of
September, 1995 ("Commencement Date"), and ending on the 31st day of August,
2000, ("Expiration Date"). In addition to all other sums payable by Tenant under
this Lease, Tenant shall pay as base monthly rent ("Base Monthly Rent") for the
Premises the following amounts:
Months 01-10 $13,200.00 per month
Months 11-30 $17,600.00 per month
Months 31-60 $20,160.00 per month
Base Monthly Rent shall be due on or before the first day of each calendar
month during Lease Term. All sums payable by Tenant under this Lease shall be
paid in lawful monthy of the United States of America, without offset or
deduction, and shall be paid to Landlord at the address specified in paragraph 1
of this Lease or at such place or places as may be designated from time to time
by Landlord. Base Monthly Rent for any period less than a calendar month shall
be a pro rata portion of the monthly installment.
<PAGE>
Concurrently with Tenant's execution of this Lease, Tenant shall pay to Landlord
the sum of Thirteen Thousand Two Hundred Dollars ($13,200.00) as prepaid rent
for the first month of the Lease.
5. SECURITY DEPOSIT: Concurrently with Tenant's execution of this Lease,
Tenant has deposited with Landlord the sum of Twenty Thousand and No/100 Dollars
($20,000.00) as a security deposit. If Tenant defaults with respect to any
provisions of this Lease, including but not limited to the provisions relating
to payment of Base Monthly Rent or other charges, Landlord may, to the extent
reasonably necessary to remedy Tenant's default, use all or any part of said
deposit for the payment of Base Monthly Rent or other charges in default or the
payment of any other payment of any other amount which Landlord may spend or
become obligated to spend by reason of Tenant's default or to compensate
Landlord for any other loss or damage which Landlord may suffer by reason of
Tenant's default. If any portion of said deposit is so used or applied, Tenant
shall, within ten (10) days after written demand therefor, deposit cash with
Landlord in an amount sufficient to restore said deposit to the full amount
hereinabove stated and shall pay to Landlord such other sums as shall be
necessary to reimburse Landlord for any sums paid by Landlord. If Tenant shall
default more than four (4) times in any twelve (12) month period, irrespective
of whether or not such default is cured, then the security deposit shall, within
ten (10) days after demand by Landlord be increased by Tenant to an amount equal
to two (2) times the aforesaid amount.
Said deposit shall be returned to Tenant within thirty (30) days after the
Expiration Date and surrender of the Premises to Landlord, less any amount
deducted in accordance with this paragraph, together with Landlord's written
notice itemizing the amounts and purposes for such retention. In the event of
termination of Landlord's interest in this Lease, Landlord shall transfer said
deposit to Landlord's successor in interest.
6. LATE CHARGES: Tenant hereby acknowledges that late payment by Tenant to
Landlord of Base Monthly Rent and other sums due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
administrative, processing, accounting charges, and late charges, which may be
imposed on Landlord by the terms of any contract, revolving credit, mortgage or
trust deed covering the Premises. Accordingly, if any installment of Base
Monthly Rent or any other sum due from Tenant shall not be received by Landlord
or Landlord's designee when due, Tenant shall pay to Landlord a late charge
equal to five (5%) percent of such overdue amount which late charge shall be due
and payable on the same date that the overdue amount in question was due.
Landlord agrees to waive said late charge in the event all amounts set forth in
any notice served upon Tenant by Landlord to pay rent or quit, or any delinquent
rent due in connection with the overdue amount are paid in full within five
business (5) days after Landlord's written notice to Tenant of non-payment or
within five business (5) days after Landlord's service upon Tenant of such
notice to quit or pay rent. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant. Acceptance of such late charge
Page 4
<PAGE>
by Landlord shall in no event constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge has
not been waived hereunder for three (3) consecutive installments of Base Monthly
Rent, then subject to written notice from Landlord within sixty (60) days
following the occurrence, rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding any provision of
this Lease to the contrary.
7. CONSTRUCTION AND POSSESSION: As a material part of this Lease, Tenant
agrees to make improvements to the interior of the Premises ("Tenant
Improvements") as generally shown on the preliminary space plan, attached as
Exhibit "B". The Tenant Improvements shall be constructed in accordance with all
existing applicable municipal, local, state and federal laws, statutes, rules,
regulations and ordinances. Tenant shall be responsible and pay all costs
associated with the construction of the Tenant Improvements with the exception
of costs necessary to bring the Premises, in their current condition, (i) into
compliance with all required existing applicable municipal, local, state and
federal laws, statutes, rules, regulations and ordinances, including, but not
limited to, ADA and Title 24; and (ii) into good working order and repair,
including HVAC, plumbing and electrical systems and the parking lot, roof
membrane and landscaping. The aforementioned costs (i) and (ii) shall be borne
by Landlord.
Landlord shall have the right to approve Tenant's selection of the architect
and contractors associated with design and construction of Tenant Improvements,
which approval shall not be unreasonably withheld.
If Landlord, for any reason whatsoever, cannot deliver possession of the said
Premises to Tenant by the Commencement Date, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom; but in that event the Commencement Date and Expiration
Date of the Lease and all other dates affected thereby shall be revised to
conform to the date of Landlord's delivery of possession. Notwithstanding the
foregoing, if Landlord cannot deliver possession of the said Premises to Tenant
on or before October 1, 1995, Tenant, upon written notice to Landlord, shall be
entitled to terminate this Lease without further liability to Landlord or
Tenant. The delay in the commencement of rent and/or the termination of the
Lease provided herein shall be the sole and exclusive remedy of Tenant with
respect by the failure by Landlord to deliver possession of the Premises.
8. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER: On the
Commencement Date, Tenant shall accept the Premises as being in good and
sanitary order, condition and repair and accepts the Premises and the other
improvements in their present condition. Tenant further agrees on Expiration
Date, or on the sooner termination of this Lease, to surrender the Premises to
Landlord in good condition and repair, reasonable wear and tear excepted.
"Good condition" shall mean that the interior walls, floors, suspended ceilings,
and carpeting within the Premises will be cleaned to the same condition as
existed at the commencement
Page 5
<PAGE>
of the Lease, normal wear and tear excepted. Tenant agrees, at its sole cost, to
remove all of Tenant's phone and data cabling from the suspended ceiling and
repair or replace broken ceiling tiles, and relevel the ceiling if required.
Tenant on or before the Expiration Date or sooner termination of this Lease,
shall remove all its personal property and trade fixtures from the Premises, and
all property and fixtures not so removed shall be deemed to be abandoned by
Tenant. If Landlord shall so desire and has notified Tenant pursuant to Lease
paragraph 10 below, then Tenant shall remove such Alterations as Landlord may
require and shall repair and restore said Premises or such part or parts thereof
before the Expiration Date at Tenant's sole cost and expense. Such repair and
restoration shall include causing the Premises to be brought into compliance
with all applicable building codes and laws in effect at the time of the removal
to extent such compliance is necessitated by the repair and restoration work. If
the Premises are not surrendered at the Expiration Date or sooner termination
of this Lease in the condition required by this paragraph, Tenant shall
indemnify, defend, and hold harmless Landlord against loss or liability
resulting from delay by Tenant in so surrendering the Premises including,
without limitation, any claims made by any succeeding tenant founded on such
delay.
9. USES PROHIBITED: Tenant shall not commit, or suffer to be committed, any
waste upon the said Premises, or any nuisance, or other act or thing which may
disturb the quiet enjoyment of any other tenant in or around the Premises or
allow any sale by auction upon the Premises, or allow the Premises to be used
for any unlawful or objectionable purpose, or place any loads upon the floor,
walls, or ceiling which endanger the structure, or use any machinery or
apparatus which will in any manner vibrate or shake the Premises causing damage
to the structure of the Premises, or place any harmful liquids, waste materials,
or hazardous materials in the drainage system of, or upon or in the soils
surrounding the Building. No materials, supplies, equipment, finished products
or semi-finished products, raw materials or articles of any nature or any waste
materials, refuse, scrap or debris shall be stored upon or permitted to remain
on any portion of the Premises outside of the Building proper without Landlord's
prior approval, which approval may be withheld in its sole discretion.
10. ALTERATIONS AND ADDITIONS: Tenant shall not make, or suffer to be made,
any alteration or addition to the said Premises ("Alterations") other than the
Tenant Improvements, or any part thereof, without (i) the written consent of
Landlord first had and obtained, which consent shall not be unreasonably
withheld, and (ii) delivering to Landlord the proposed architectural and
structural plans for all such Alterations. Landlord shall indicate to Tenant in
writing within ten (10) business days following receipt of Tenant's request,
whether or not Landlord will require Tenant to remove such Alteration at the
Expiration Date. After having obtained Landlord's consent, Tenant agrees that it
shall not proceed to make such Alterations until (i) Tenant has obtained all
required governmental approvals and permits, and (ii) Tenant has provided
Landlord reasonable security, in form reasonably approved by Landlord, to
protect Landlord against mechanics' lien claims. Tenant further agrees to
provide Landlord (i) written notice of the anticipated start date and actual
start date of the work, and (ii) a complete set of half-size (15" X 21") vellum
as-built drawings. All Alterations
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shall be constructed in compliance with applicable buildings codes and laws. Any
Alterations, except movable furniture and trade fixtures, shall become at once
a part of the realty and belong to Landlord, but shall nevertheless be subject
to removal by Tenant as provided in paragraph 8 above. Alterations which are not
to be deemed as trade fixtures shall include heating, lighting, electrical
systems, air conditioning, partitioning, carpeting, or any other installation
which has become an integral part of the Premises. All Alterations shall be
maintained, replaced or repaired by Tenant at Tenant's sole cost and expense.
11. MAINTENANCE OF PREMISES: Landlord at its sole cost and expense, shall
maintain in good condition, order, and repair, and replace as and when
necessary, the foundation, exterior load bearing walls and roof structure of the
Building. Tenant shall, at its sole cost, keep and maintain, repair and replace,
said Premises and appurtenances and every part hereof, including but not limited
to, roof membrane, glazing, sidewalks, parking areas, telephone, plumbing,
electrical and air conditioning and heating equipment ("HVAC") systems, and all
the Tenant Improvements in good and sanitary order, condition, and repair.
Tenant shall provide Landlord with a copy of a service contract between Tenant
and a licensed HVAC contractor which contract shall provide for quarterly
maintenance of all HVAC equipment at the Premises. Tenant shall pay the cost of
all HVAC repairs or replacements which are either excluded from such service
contract or any existing equipment warranties. All wall surfaces and floor tile
are to be maintained in an as good a condition as when Tenant took possession
free of holes, gouges, or defacements.
Tenant shall also be responsible, at its sole cost and expense for the
preventive maintenance of the membrane of the roof, which responsibility shall
be deemed properly discharged if (i) Tenant contracts with a licensed roof
contractor who is reasonably satisfactory to both Tenant and Landlord, at
Tenant's sole cost, to inspect the roof membrane at least every six (6) months,
with the first inspection due the 6th month after the Commencement Date, and
(ii) Tenant performs, at Tenant's sole cost, all reasonable preventive
maintenance recommendations made by such contractor within a reasonable time
after such recommendations are made. Such preventive maintenance might include
acts such as clearing storm gutters and drains, removing debris from the roof
membrane, trimming trees overhanging the roof membrane, applying coating
materials to seal roof penetrations, repairing blisters, and other routine
measures. Tenant shall provide to Landlord a copy of such preventive maintenance
contract and paid invoices for the recommended work. Tenant agrees, at its
expense, to water, maintain and replace, when reasonably necessary, any
shubbery and landscaping.
Notwithstanding the foregoing, in the event Tenant's maintenance or repair
obligations hereunder would require Tenant to pay for a capital repair or
replacement costing in excess of Five Thousand and No/100 Dollars ($5,000.00),
Tenant shall only be required to pay (i) the initial $5,000.00; and (ii) that
portion of the cost over the initial $5,000.00 equal to the product of such
total cost multiplied by a fraction, the numerator of which is the number of
years remaining in the Lease Term, the denominator of which is the useful life
(in years) of the replacement.
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12. HAZARD INSURANCE:
A. Tenant's Use: Tenant shall not use, or permit said Premises, or any
part thereof, to be used, for any purpose other than that for which the
said Premises are hereby leased without Landlord's prior written approval;
and no use shall be made or permitted to be made of the said Premises, nor
acts done, which will cause an increase in premiums (unless prior approval
is obtained from Landlord) or a cancellation of any insurance policy
covering said Premises, or any part thereof, nor shall Tenant sell or
permit to be kept, used or sold, in or about said Premises, any article
which may cause an increase in premiums or cancellation of any insurance
policy covering said Premises, without Landlord's prior written approval.
Tenant shall, at its sole cost and expense, comply with any and all
requirements, pertaining to said Premises, of any insurance organization or
company, necessary for the maintenance of reasonable fire and public
liability insurance, covering said Premises and appurtenances.
B. Landlord's Insurance: Landlord agrees to purchase and keep in force
fire, extended coverage, owner's liability, and 12 month rental loss
insurance. The amount of the said insurance shall not exceed the
replacement cost of the Building (not including any Tenant Improvements or
Alterations paid for by Tenant) as determined by Landlord's insurance
company's appraisers. The Tenant agrees to pay to the Landlord as
additional rent, on demand, the full cost of said insurance, to the extent
said cost applies to insurance provided during the Lease Term, as evidenced
by insurance billings to the Landlord, and in the event of damage covered
by said insurance, the amount of any deductible under such policy. Payment
shall be due to Landlord within ten (10) days after written invoice to
Tenant. It is understood and agreed that Tenant's obligation under this
paragraph will be prorated to reflect the commencement and termination
dates of this Lease.
C. Tenant's Insurance: Tenant, at its sole cost, agrees to insure its
personal property, Tenant Improvements paid for by Tenant, and Alterations
for their full replacement value (without depreciation) and to obtain
worker's compensation and public liability and property damage insurance
for occurrences within the Premises with combined limits for bodily injury
and property damage of not less than $1,000,000.00 per occurrence and a
general aggregate limit of not less than $5,000,000.00. Tenant shall name
Landlord and Landlord's lender as an additional insured, shall deliver a
copy of the policies and renewal certificates to Landlord. All such
policies shall provide for thirty (30) days' prior written notice to
Landlord of any cancellation, termination, or reduction in coverage.
D. Waiver: Landlord and Tenant hereby waive any and all rights each
may have against the other on account of any loss or damage occasioned to
the Landlord or the Tenant as the case may be, or to the Premises or its
contents, and which may arise from any risk covered by their respective
insurance policies (or which would have been covered had such insurance
policies been maintained in accordance with this Lease), as set forth
above. The parties shall use their reasonable efforts to obtain from their
respective insurance companies a waiver of any right of subrogation which
said insurance company may have against the Landlord or the Tenant, as the
case may be.
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13. TAXES: Tenant shall be liable for, and shall pay prior to delinquency,
all taxes and assessments levied against personal property and trade or business
fixtures, and agrees to pay, as additional rental, all real estate taxes and
assessment installments (special or general) or other impositions or charges
which may be levied on the Premises, upon the occupancy of the Premises and
including any substitute or additional charges which may be imposed during, or
applicable to the Lease Term including real estate tax increases due to a sale
or transfer of the Premises, as they appear on the City and County tax bills
during the Lease Term, and as they become due. It is understood and agreed that
Tenant's obligation under this paragraph will be prorated to reflect the
Commencement and Expiration Dates. If, at any time during the Lease Term a tax,
excise on rents, business license tax, or any other tax, however described, is
levied or assessed against Landlord, as a subsutitute or addition in whole or in
part for taxes assessed or imposed on land or Buildings, Tenant shall pay and
discharge his pro rata share of such tax or excise on rents or other tax before
it becomes delinquent, except that this provision is not intended to cover net
income taxes, inheritance, gift or estate tax imposed upon the Landlord. In the
event that a tax is placed, levied, or assessed against Landlord and the taxing
authority takes the position that the Tenant cannot pay and discharge his pro
rata share of such tax on behalf of the Landlord, then at the sole election of
the Landlord, the Landlord may increase the rental charged hereunder by the
exact amount of such tax and Tenant shall pay such increase as additional rent
hereunder. If by virtue of any application or proceeding brought by or on behalf
of Landlord, there results a reduction in the assessed value of the Building
during the Lease Term, Tenant agrees to reimburse Landlord its reasonable out of
pocket costs incurred by Landlord in connection with such application or
proceeding.
14. UTILITIES: Tenant shall pay directly to the providing utility all
water, gas, heat, light, power, telephone and other utilities supplied to the
Premises. Landlord shall not be liable for a loss of or injury to property,
however occurring, through or in connection with or incidental to furnishing or
failure to furnish any utilities to the Premises and Tenant shall not be
entitled to abatement or reduction of any portion of the Base Monthly Rent so
long as any failure to provide and furnish the utilities to the Premises is due
to a cause beyond the Landlord's reasonable control.
15. ABANDONMENT: Tenant shall not abandon the Premises at any time during
the Lease Term; and if Tenant shall abandon or surrender said Premises, or be
dispossessed by process of law, or otherwise, any personal property belonging to
Tenant and left on the Premises shall be deemed to be abandoned, at the option
of Landlord, except such property as may be mortgaged to Landlord.
16. FREE FROM LIENS: Tenant shall keep the Premises free from any liens
arising out of any work performed, materials furnished, or obligations incurred
by Tenant or claimed to have been performed for Tenant. In the event Tenant
fails to discharge, stay or bond any such lien within thirty (30) days after
receiving notice of the filing, Landlord shall be entitled to discharge such
lien at Tenant's expense and all resulting costs incurred by Landlord, including
attorney's fees shall be due from Tenant as additional rent.
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17. COMPLIANCE WITH GOVERNMENTAL REGULATIONS: Tenant shall, at its sole
cost and expense, comply with all of the requirements of all Municipal, State
and Federal authorities now in force, or which may hereafter be in force,
pertaining to the said Premises, and shall faithfully observe in the use of the
Premises all Municipal ordinances and State and Federal statutes now in force or
which may hereafter be in force. The judgment of any court of competent
jurisdiction, or the admission of Tenant in any action or proceeding against
Tenant, whether Landlord by a party thereto or not, that Tenant has violated any
such ordinance or statute in the use of the Premises, shall be conclusive of
that fact as between Landlord and Tenant.
18. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:
A. Tenant's Responsibility: Without the prior written consent of
Landlord, Tenant shall not bring, use, or permit upon the Premises (other
than those which shall be allowed in reasonable necessary quantities to
conduct Tenant's business as described on Exhibit "D"), or generate,
create, release, emit, or dispose (nor permit any of the same) from the
Premises any chemicals, toxic or hazardous gaseous, liquid or solid
materials or waste, including without limitation, material or substance
having characteristics of ignitability, corrosivity, reactivity, or
toxicity or substances or materials which are listed on any of the
Environmental Protection Agency's lists of hazardous wastes or which are
identified in Sections 66680 through 66685 of Title 22 of the California
Administrative Code as the same may be amended from time to time
("Hazardous Materials"). In order to obtain consent, Tenant shall deliver
to Landlord its written proposal describing the toxic material to be
brought onto the Premises, measures to be taken for storage and disposal
thereof, safety measures to be employed to prevent pollution of the air,
ground, surface and ground water. Landlord's approval may be withheld in
its reasonable judgment. In the event Landlord consents to Tenant's use of
Hazardous Materials on the Premises, Tenant represents and warrants that
Tenant will (i) adhere to all reporting and inspection requirements imposed
by Federal, State, County or Municipal laws, ordinances or regulations and
will provide Landlord a copy of any such reports or agency inspections,
(ii) obtain and provide Landlord copies of all necessary permits required
for the use and handling Hazardous Materials on the Premises, (iii) enforce
Hazardous Materials handling and disposal practices consistent with
industry standards, (iv) surrender the Premises free from any Hazardous
Materials arising from Tenant's bringing, using, permitting, generating,
emitting or disposing of Hazardous Materials, and (v) properly close the
facility with regard to Hazardous Materials including the removal or
decontamination of any process piping, mechanical ducting, storage tanks,
containers, or trenches which have come into contact with Hazardous
Materials and obtain a closure certificate from the local administering
agency prior to the Expiration Date.
B. Tenant's Indemnity Regarding Hazardous Materials: Tenant shall
comply, at its sole cost, with all laws pertaining to, and shall indemnify
and hold Landlord harmless from any claims, liabilities, costs or expenses
incurred or suffered by Landlord arising from such bringing, using,
permitting, generating, emitting or disposing of Hazardous Materials.
Tenant's
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indemnification and hold harmless obligations include, without limitation,
(i) claims, liability, costs or expenses resulting from or based upon
administrative, judicial (civil or criminal) or other action, legal or
equitable, brought by any private or public person under common law or
under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"), the Resource Conservation and Recovery Act of 1980
("RCRA") or any other Federal, State, County or Municipal law, ordinance or
regulation, (ii) claims, liabilities, costs or expenses pertaining to the
identification, monitoring, cleanup, containment, or removal of Hazardous
Materials from soils, riverbeds or aquifers including the provision of an
alternative public drinking water source, and (iii) all costs of defending
such claims.
C. Landlord's Indemnity Regarding Hazardous Materials: Landlord shall
indemnify and hold Tenant harmless from any claims, liabilities, costs or
expenses incurred or suffered by Tenant related to the removal,
investigation, monitoring or remediation of Hazardous Materials which are
present or which come to be present on the Premises except to the extent
the presence of such Hazardous Materials is caused by Tenant or by Tenant's
failure to prevent a third party from dumping Hazardous Materials through
the surface of the Premises. Landlord's indemnification and hold harmless
obligations include, without limitation, (i) claims, liability, costs or
expenses resulting from or based upon administrative, judicial (civil or
criminal) or other action, legal or equitable, brought by any private or
public person under common law or under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Resource
Conservation and Recovery Act of 1980 ("RCRA") or any other Federal, State,
County or Municipal law, ordinance or regulation, (ii) claims, liabilities,
costs or expenses pertaining to the identification, monitoring, cleanup,
containment, or removal of Hazardous Materials from soils, riverbeds or
aquifers including the provision of an alternative public drinking water
source, and (iii) all costs of defending such claims. In no event shall
Landlord be liable for any consequential damages suffered or incurred by
Tenant as a result of any such contamination.
The forgoing indemnity by Landlord to Tenant shall not apply to any
mortgagee or its assignee which takes title to the Premises pursuant to a
deed in lieu of foreclosure, foreclosure or otherwise.
D. Actual Release by Tenant: Tenant agrees to notify Landlord of any
lawsuits which relate to, or orders which relate to the remedying of, the
actual release of Hazardous Materials on or into the soils or groundwater
at or under the Premises. Tenant shall also provide to Landlord all notices
required by Section 25359.7(b) of the Health and Safety Code and all other
notices required by law to be given to Landlord in connection with
Hazardous Materials. Without limiting the foregoing, Tenant shall also
deliver to Landlord, within twenty (20) days after receipt thereof, any
written notices from any governmental agency alleging a material violation
of, or material failure to comply with, any federal, state or local laws,
regulations, ordinances or orders, the violation of which of failure to
comply with, poses a foreseeable and material risk of contamination of the
groundwater or injury to humans (other than injury solely to Tenant, its
agents and employees within the Improvements on the Property).
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In the event of any release on or into the Premises or into the soil
or groundwater under the Premises of any Hazardous Materials used, treated,
stored or disposed of by Tenant, Tenant agrees to comply, at its sole cost
and expense, with all laws, regulations, ordinances and orders of and
federal, state or local agency relating to the monitoring or remediation of
such Hazardous Materials. In the event of any such release of Hazardous
Materials, Tenant agrees to meet and confer with Landlord and its Lender to
attempt to eliminate and mitigate any financial exposure to such Lender and
resultant exposure to Landlord under California Code of Civil Procedure
section 736(b) as a result of such release and promptly to take reasonable
monitoring, cleanup and remedial steps given, inter alia, the historical
uses to which the Property has and continues to be used, the risks to
public health posed by the release, the then available technology and the
costs of remediation, cleanup and monitoring, consistent with all
applicable laws. Nothing in the preceding sentence shall eliminate, modify
or reduce the obligation of Tenant under paragraph 20.B of this Lease to
indemnify and hold Landlord harmless from any claims liabilities, costs or
expenses incurred or suffered by Landlord as provided in paragraph 20.B of
this Lease. Tenant shall provide Landlord prompt written notice of Tenant's
monitoring, cleanup and remedial steps.
In the absence of an order of any federal, state or local governmental
or quasi-governmental agency relating to the cleanup, remediation or other
response action required by applicable law, any dispute arising between
Landlord and Tenant concerning Tenant's obligation to Landlord under this
Paragraph concerning the Level, method, and manner of cleanup, remediation
or response action required in connection with such a release of Hazardous
Materials shall be resolved by mediation and/or arbitration pursuant to the
provisions of paragraph 44 of this Lease.
E. Environmental Monitoring: Landlord and its agents shall have the
right, at Landlord's sole cost and expense, to inspect, investigate, sample
and/or monitor the Premises, including any air, soil, water, groundwater or
other sampling or any other testing, digging, drilling or analysis to
determine whether Tenant is complying with the terms of this paragraph 18.
Landlord shall give Tenant no less than five (5) days advance written
notice of the proposed time for environmental monitoring and shall provide
reasonable opportunity for Tenant to observe the monitoring and take splits
of any samples taken by Landlord. Such monitoring shall be done in a time
and manner minimizing any interference with Tenant's beneficial use of the
Premises. If Landlord discovers that Tenant is not in compliance with the
terms of this paragraph 18, any such costs incurred by Landlord, including
attorneys' and consultants' fees shall be due and payable by Tenant to
Landlord within five days following Landlord's written demand therefore.
19. INDEMNITY: As a material part of the consideration to be rendered to
Landlord, Tenant hereby waives all claims against Landlord for damages to
goods, wares and merchandise, and all other personal property in, upon or about
said Premises and for injuries to persons in or about said Premises, from any
cause arising at any time to the fullest extent permitted by law, and Tenant
shall indemnify and hold Landlord exempt and harmless from any damage or injury
to any
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person, or to the goods, wares and merchandise and all other personal property
of any person, arising from the use of the Premises and/or Building by Tenant,
its employees, contractors, agents and invitees or from the failure of Tenant to
keep the Premises in good condition and repair, as herein provided, except to
the extent due to the active negligence or willful misconduct of Landlord.
Further, in the event Landlord is made party to any litigation due to the acts
or omission of Tenant, its employees, contractors, agents and invitees, Tenant
will indemnify and hold Landlord harmless from any such claim or liability
including Landlord's costs and expenses and reasonable attorney's fees incurred
in defending such claims.
Notwithstanding anything to the contrary in the Lease, (i) Tenant shall neither
release Landlord from, nor indemnify Landlord with respect to the negligence or
willful misconduct of Landlord, or its agents, employees, contractors or
invitees, and (ii) Landlord shall indemnify and hold harmless Tenant from all
damages, liabilities, judgments, actions, attorneys' fees, consultants' fees,
cost and expenses arising from the negligence or willful misconduct of Landlord
and its employees, agents, contractors or invitees.
20. ADVERTISEMENTS AND SIGNS: Tenant will not place or permit to be placed,
in, upon or about the said Premises any unusual or extraordinary signs, or any
signs not approved by the city or other governing authority. The Tenant will not
place, or permit to be placed, upon the Premises, any signs, advertisements or
notices without the written consent of the Landlord as to type, size, design,
lettering, coloring and location, and such consent will not be unreasonably
withheld. Any sign so placed on the Premises shall be removed by Tenant, at its
expense, prior to the Expiration Date or promptly following the earlier
termination of the lease and Tenant shall repair, at its sole cost and expense,
any damage or injury to the Premises caused thereby, and if not so removed by
Tenant then Landlord may have same so removed at Tenant's expense.
21. ATTORNEY'S FEES: In case a suit or alternative form of dispute
resolution should be brought for the possession of the Premises, for the
recovery of any sum due hereunder, or because of the breach of any other
covenant herein, the losing party shall pay to the prevailing party a reasonable
attorney's fee including the expense of expert witnesses, depositions and court
testimony as part of its costs which shall be deemed to have accrued on the
commencement of such action. In addition, the prevailing party shall be entitled
to recover all costs and costs and expenses including reasonable attorney's fees
incurred by the prevailing party in enforcing any judgment or award against the
other party. The foregoing provision relating to post-judgment costs is intended
to be severable from all other provisions of this Lease.
22. TENANT'S DEFAULT: The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant: a) Any
failure by Tenant to pay any rent under this Lease, where such failure
continues after applicable notice and cure periods; b) The abandonment of the
Premises by Tenant; (c) A failure by Tenant to observe and perform any other
provision of this Lease to be observed or performed by Tenant, where such
failure continues for
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thirty (30) days after written notice thereof by Landlord to Tenant; provided,
however, that if the nature of such default is such that the same cannot
reasonably be cured within such thirty (30) day period Tenant shall not be
deemed to be in default if Tenant shall within such period commence such cure
and thereafter diligently prosecute the same to completion; d) The making by
Tenant of any general assignment for the benefit of creditors; the filing by or
against Tenant of a petition to have Tenant adjudged a bankrupt or of 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 after the
filing); 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 thirty
(30) days; or 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, stayed or bonded
against within thirty (30) days. The notice requirements set forth herein are in
lieu of and not in addition to the notices required by California Code of Civil
Procedure Section 1161. Any notice given by Landlord to Tenant pursuant to
California Code of Civil Procedure Section 1161 with respect to any failure by
Tenant to pay rent under this Lease on or before the date the rent is due shall
provide Tenant with a period of no less than ten (10) days to pay such rent or
quit.
A. Remedies: In the event of any such default by Tenant, then in
addition to any other remedies available to Landlord at law or in equity,
Landlord shall have the immediate option to terminate this Lease and all
rights of Tenant hereunder by giving written notice of such intention to
terminate. In the event that Landlord shall elect to so terminate this
lease then Landlord may recover from Tenant: a) the worth at the time of
award of any unpaid rent which had been earned at the time of such
termination; plus b) 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 for the same period
that Tenant proves could have been reasonably avoided; plus c) the worth at
the time of award of the amount by which the unpaid rent for the balance of
the Lease Term after the time of award exceeds that amount of such rental
loss that Tenant proves could be reasonably avoided; plus d) any other
amount necessary to compensate Landlord for all the detriment proximately
caused by Tenant's failure to perform its obligations under this Lease or
which in the ordinary course of things would be likely to result therefrom,
and e) at Landlord's election, such other amounts in addition to or in lieu
of the foregoing as may be permitted from time to time by applicable
California law. The term "rent", as used herein, shall be deemed to be and
to mean the minimum monthly installments of Base Monthly Rent and all other
sums required to be paid by Tenant pursuant to the terms of this Lease, all
other such sums being deemed to be additional rent due hereunder. As used
in (a) and (b) above, the "worth at the time of award" is to be computed by
allowing interest at the rate of the discount rate of the Federal Reserve
Bank of San Francisco plus five (5%) percent per annum. As used in (c)
above, the "worth at the time of award" is to be computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one (1%) percent.
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B. Right to Re-enter: In the event of any such default by Tenant,
Landlord shall also have the right, with or without terminating this Lease,
to re-enter the Premises and remove all persons and property from the
Premises; such property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant and disposed of by
Landlord in any manner permitted by law.
C. Abandonment: In the event of the abandonment of the Premises by
Tenant or in the event that Landlord shall elect to re-enter as provided in
paragraph 22.B above or shall take possession of the Premises pursuant to
legal proceeding or pursuant to any notice provided by law, then if
Landlord does not elect to terminate this Lease as provided in paragraph
22.A above, then the provisions of California Civil Code Section 1951.4,
(Landlord may continue the lease in effect after Tenant's breach and
abandonment and recover rent as it becomes due, if Tenant has a right to
sublet and assign, subject only to reasonable limitations) as amended from
time to time, shall apply and Landlord may from time to time, without
terminating this Lease, either recover all rental as it becomes due or
relet the Premises or any part thereof for such term or terms and at such
rental or rentals and upon such other terms and conditions as Landlord in
its sole discretion may deem advisable with the right to make alterations
and repairs to the Premises. In the event that Landlord shall elect to so
relet, then rentals received by Landlord from such reletting shall be
applied; first, to the payment of any indebtedness other than Base Monthly
Rent due hereunder from Tenant to Landlord; second, to the payment of any
cost of such reletting; third, to the payment of the cost of any
alterations and repairs to the Premises; fourth, to the payment of Base
Monthly Rent due and unpaid hereunder; and the residue, if any, shall be
held by Landlord and applied in payment of future Base Monthly Rent as the
same may become due and payable hereunder. Landlord shall have no
obligation to relet the Premises following a default if Landlord has other
available space within the Building. Should that portion of such rentals
received from such reletting during any month, which is applied by the
payment of rent hereunder, be less than the rent payable during that month
by Tenant hereunder, then Tenant shall pay such deficiency to Landlord
immediately upon demand therefor by Landlord. Such deficiency shall be
calculated and paid monthly. Tenant shall also pay to Landlord, as soon as
ascertained, any costs and expenses incurred by Landlord in such reletting
or in making such alterations and repairs not covered by the rentals
received from such reletting.
D. No Termination: No re-entry or taking possession of the Premises by
Landlord pursuant to 22.B or 2.2C of this Article 22 shall be construed as
an election to terminate this Lease unless a written notice of such
intention be given to Tenant or unless the termination thereof be decreed
by a court of competent jurisdiction. Notwithstanding any reletting without
termination by Landlord because of any default by Tenant, Landlord may at
any time after such reletting elect to terminate this Lease for any such
default.
23. SURRENDER OF LEASE: The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not automatically effect a
merger of the Lease with Landlord's ownership of the Premises. Instead, at the
option of Landlord, Tenant's surrender may terminate all
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or any existing sublease or subtenancies, or may operate as an assignment to
Landlord of any or all such subleases or subtenancies, thereby creating a direct
Landlord-Tenant relationship between Landlord and any subtenants.
24. HABITUAL DEFAULT: Notwithstanding anything to the contrary contained in
paragraph 22, the parties hereto agree that if the Tenant shall have defaulted
in the performance of any (but not necessarily the same) term or condition of
this Lease for three or more times during any twelve month period during the
Lease Term hereof, then such conduct shall, at the election of the Landlord,
represent a separate event of default which cannot be cured by the Tenant.
Tenant acknowledges that the purpose of this provision is to prevent repetitive
defaults by the Tenant under the Lease, which work a hardship upon the Landlord,
and deprive the Landlord of the timely performance by the Tenant hereunder.
25. LANDLORD'S DEFAULT: In the event of Landlord's failure to perform any
of its covenants or agreements under this Lease, Tenant shall give Landlord
written notice of such failure and shall give Landlord thirty (30) days or such
other reasonable opportunity to cure or to commence to cure such failure prior
to any claim for breach or for damages resulting from such failure. In addition,
upon any such failure by Landlord, Tenant shall give notice by registered or
certified mail to any person or entity with a security interest in the Premises
("Mortgagee") that has provided Tenant with notice of its interest in the
Premises, and shall provide such Mortgagee a reasonable opportunity to cure such
failure, including such time to obtain possession of the Premises by power of
sale or judicial foreclosure, if such should prove necessary to effectuate a
cure. Tenant agrees that each of the Mortgagees to whom this Lease has been
assigned is an expressed third party beneficiary hereof. Tenant shall not make
any prepayment of rent more than one (1) month in advance without the prior
written consent of such Mortgagee. Tenant waives any right under California
Civil Code Section 1950.7 or any other present or future law to the collection
of any payment or deposit from such Mortgagee or any purchaser at a foreclosure
sale of such Mortgagee's interest unless such Mortgagee or such purchaser shall
have actually received and not refunded the applicable payment or deposit.
26. NOTICES: All notices, demands, requests, or consents required to be
given under this Lease shall be sent in writing by U.S. certified mail, return
receipt requested, or by personal delivery addressed to the party to be notified
at the address for such party specified in paragraph 1 of this Lease, or to such
other place as the party to be notified may from time to time designate by at
least fifteen (15) days prior to notice to the notifying party.
27. ENTRY BY LANDLORD: Tenant shall permit Landlord and his agents to enter
into and upon said Premises at all reasonable times and with reasonable notice,
subject to any security regulations of Tenant for the purposes of (i) inspecting
the same, (ii) maintaining the Premises, (iii) making repairs, alterations or
additions to the Premises which Landlord is otherwise entitled to make under
this Lease, or (iv) performing any obligations of the Landlord under the Lease
including
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remediation of hazardous materials if determined to be the responsibility of
Landlord, without any abatement or reduction of rent or without any liability to
Tenant for any loss of occupation or quiet enjoyment of the Premises thereby
occasioned; except to the extent that Landlord's occupancy on the Premises
materially affects Tenant's orderly, reasonable use of the Premises, then Tenant
shall be entitled to a proportionate reduction of Base Monthly Rent, such
proportionate reduction to be based upon the extent to which Landlord's entry
and presence shall interfere with the business carried on by Tenant in the
Premises, in the reasonable judgment of Landlord and Tenant. Tenant shall permit
Landlord and his agents, at any time within one hundred eighty (180) days prior
to the Expiration Date (or at any time during the Lease if Tenant is in default
hereunder), to place upon the Premises "For Lease" signs and exhibit the
Premises to real estate brokers and prospective tenants at reasonable hours.
Notwithstanding the foregoing, Landlord (i) shall not enter the Premises
without first giving twenty-four (24) hours notice to Tenant of such entry
except in the case of emergency, (ii) shall be accompanied by an employee of
Tenant at all times while in the Premises, (iii) shall comply with Tenant's
security procedures applicable to the Premises, and (iv) shall not unreasonably
interfere with Tenant's use of the Premises.
28. DESTRUCTION OF PREMISES:
A. Destruction by an Insured Casualty: In the event of a partial
destruction of the Premises by a casualty for which Landlord has received
insurance proceeds sufficient to repair the damage or destruction during
the Lease Term from any cause, Landlord shall forthwith repair the same to
substantially the same condition as immediately before the casualty, to the
extent of such proceeds, provided such repairs can be made within one
hundred eighty (180) days from the date of casualty, and such partial
destruction shall in no way annul or void this Lease, except that Tenant
shall be entitled to a proportionate reduction of Base Monthly Rent while
such repairs are being made, such proportionate reduction to be based upon
the extent to which the making of such repairs shall interfere with the
business carried on by Tenant in the Premises, in the reasonable judgment
of Landlord and Tenant. For purposes of this paragraph "partial
destruction" shall mean destruction of no greater than one-third (1/3) of
the replacement cost of the Premises, including the replacement cost of the
Tenant Improvements paid for by Landlord. In the event the Premises (i) are
more than partially destroyed, or (ii) the repairs cannot be made in 180
days form the date of casualty, Landlord or Tenant may elect to terminate
this Lease by providing written notice to the other within thirty (30) days
of the casualty. Landlord shall not be required to restore Alterations or
replace Tenant's fixtures or personal property. In respect to any partial
destruction which Landlord is obligated to repair or may elect to repair
under the terms of this paragraph, the provision of Section 1932,
Subdivision 2, and of Section 1933, Subdivision 4, of the Civil Code of the
State of California and any other similarly enacted statute are waived by
Tenant and the provisions of this paragraph 28 shall govern in the case of
such destruction.
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B. Destruction by an Uninsured Casualty: In the event of a total or
partial destruction of the Premises by a casualty for which Landlord has
not, through no fault of Landlord, received insurance proceeds sufficient
to repair the damage or destruction during the Lease Term, the Lease shall
automatically terminate unless (i) Landlord elects to rebuild and provides
written notification to Tenant of such election within thirty (30) days of
the destruction, and (ii) the damage can be repaired within one hundred
eighty (180) days from the date of destruction. In the event Landlord
elects to rebuild, Tenant shall be entitled to a proportionate reduction of
Base Monthly Rent while repairs are being made, such proportionate
reduction to be based upon the extent to which the making of such repairs
shall interfere with the business carried on by Tenant in the Premises, in
the reasonable judgment of Landlord and Tenant.
29. ASSIGNMENT OF SUBLEASE:
A. Consent by Landlord: In the event Tenant desires to assign this
Lease or any interest therein including, without limitation, a pledge,
mortgage or other hypothecation, or sublet the Premises or any part therof,
Tenant shall deliver to Landlord executed counterparts of any such
agreement and of all ancillary agreements with the proposed assignee or
subtenant, financial statements, and any additional information as
reasonably required by Landlord to determine whether it will consent to the
proposed assignment or sublease. The notice shall give the name and current
address of the proposed assignee/subtenant, proposed use of the Premises,
rental rate and current financial statement; and upon request to Tenant,
Landlord shall be given additional information as reasonably required by
Landlord to determine whether it will consent to the proposed assignment or
sublease. Landlord shall then have a period of thirty (30) days following
receipt of the foregoing agreement, statements and additional information
within which to notify Tenant in writing that Landlord elects (i) to permit
Tenant to assign or sublet such space to the named assignee/subtenant on
the terms and conditions set forth in the notice, or (ii) to refuse
consent. If Landlord should fail to notify Tenant in writing of such
election within said thirty (30) day period, Landlord shall be deemed to
have elected option (i) above. If Landlord exercises its option to
terminate this Lease in part in the event Tenant desires to sublet or
assign part of the Premises, then (i) this Lease shall end and expire, with
respect to such part of the Premises, on the date upon which the proposed
sublease was to commence, and (ii) from and after such date, the Base
Monthly Rent and Tenant's allocable share of all other costs and charges
shall be adjusted, based upon the proportion that the rentable area of the
Premises remaining bears to the total rentable area of the Premises. If
Landlord does not exercise its option to terminate this Lease, Landlord's
consent (which must be in writing and in form reasonably satisfactory to
Landlord) to the proposed assignment or sublease shall not be unreasonably
withheld, provided and upon condition that: (i) the proposed assignee or
subtenant is engaged in a business that is limited to the use expressly
permitted under the Lease; (ii) the proposed assignee or subtenant is a
company with sufficient financial worth and management ability to undertake
the financial obligation of this Lease, and Landlord has been furnished
with reasonable proof thereof; (iii) the proposed assignment or sublease
shall be in form reasonably satisfactory to Landlord; (iv) Tenant shall
reimburse Landlord
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on demand for any costs that may be incurred by Landlord in connection with said
assignment or sublease, including the costs of making investigations as to the
acceptability of the proposed assignee or subtenant and legal costs incurred in
connection with the granting of any requested consent; and (v) Tenant shall not
have advertised or publicized in any way the availability of the Premises
without prior notice to, and approval by Landlord, which approval shall not be
unreasonably withheld. In the event all or any one of the foregoing conditions
are not satisfied, Landlord may, in its sole discretion, withhold its consent to
the proposed assignment of sublease.
B. Assignment or Subletting Consideration: Any rent or other economic
consideration realized by Tenant under any such sublease and assignment in
excess of the rent payable hereunder, after the net unamortized cost of the
Tenant Improvements for which Tenant has itself paid, and reasonable
subletting and assignment costs, shall be divided and paid fifty percent
(50%) to Landlord and fifty percent (50%) to Tenant. Tenant's obligation to
pay over Landlord's portion of the consideration shall constitute an
obligation for additional rent hereunder. The above provisions relating to
Landlord's right to terminate the Lease and relating to the allocation of
bonus rent are independently negotiated terms of the Lease, constitute a
material inducement for the Landlord to enter into the Lease, and are
agreed as between the parties to be commercially reasonable. No assignment
or subletting by Tenant shall relieve Tenant of any obligation under this
Lease. Any assignment or subletting which conflicts with the provisions
hereof shall be void.
C. No Release: Any assignment or sublease shall be made only if and
shall not be effective until the assignee or subtenant shall execute,
acknowledge and deliver to Landlord an agreement, in form and substance
satisfactory to Landlord, whereby the assignee or subtenant shall assume
all of the obligations of this Lease on the part of Tenant to be performed
or observed and shall be subject to all of the covenants, agreements,
terms, provisions and conditions contained in this Lease. Notwithstanding
any such sublease or assignment and the acceptance of rent by Landlord from
any subtenant or assignee, Tenant and any guarantor shall and will remain
fully liable for the payment of the rent and additional rent due, and to
become due hereunder, for the performance of all of the covenants,
agreements, terms, provisions and conditions contained in this Lease on the
part of Tenant to be performed and for all acts and omissions of any
license, subtenant, assignee or any other person claiming under or through
any subtenant or assignee that shall be in violation of any of the terms
and conditions of this Lease, and any such violation shall be deemed to be
a violation by Tenant. Tenant shall further indemnify, defend and hold
Landlord harmless from and against any and all losses, liabilities,
damages, costs and expenses (including reasonable attorney fees) resulting
from any claims that may be made against Landlord by the proposed assignee
or subtenant or by any real estate brokers or other persons claiming a
commission or similar compensation in connection with the proposed
assignment or sublease.
D. Effect of Default: In the event of Tenant's default, Tenant hereby
assigns all rents due from any assignment or subletting to Landlord as
security for performance of its obligations under this Lease and Landlord
may collect such rents as Tenant's Attorney-in-Fact, except that
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Tenant may collect such rents unless a default occurs as described in paragraph
22 and 24 above. The termination of this Lease due to Tenant's default shall not
automatically terminate any assignment or sublease then in existence; at the
election of Landlord, such assignment or sublease shall survive the termination
of this Lease and, upon such election, the assignee or subtenant shall attorn to
Landlord and Landlord shall undertake the obligations of the Tenant under the
sublease or assignment; provided the Landlord shall not be liable for prepaid
rent, security deposits or other defaults of the Tenant to the subtenant or
assignee, or any acts or omissions of Tenant, its agents, employees, contractors
or invitees.
30. CONDEMNATION: If any part of the Premises shall be taken for any public
or quasi-public use, under any statute or by right of eminent domain or private
purchase in lieu thereof, and only a part thereof remains which is susceptible
of occupation hereunder, this Lease shall as to the part so taken, terminate as
of the day before title shall vest in the condemnor or purchaser ("Vesting
Date"), and the Base Monthly Rent payable hereunder shall be adjusted so that
the Tenant shall be required to pay for the remainder of the Lease Term only
such portion of such Base Monthly Rent as the value of the part remaining after
such taking bears to the value of the entire Premises prior to such taking; but
in such event Landlord shall have the option to terminate this Lease as of the
Vesting Date. If all of the premises, or such part thereof be taken so that
there does not remain a portion susceptible for occupation hereunder, this Lease
shall thereupon terminate on the Vesting Date. If as a result of any taking or
sale in lieu thereof, the Premises are no longer reasonably suitable for
Tenant's intended use, Tenant, upon written notice to Landlord, shall be
entitled to terminate this Lease within thirty (30) days of the date that notice
of such condemnation is received by Tenant. If a part or all of the Premises be
taken, all compensation awarded upon such taking shall go to the Landlord and
the Tenant shall have no claim thereto but Landlord shall cooperate with Tenant,
without cost to Landlord, to recover compensation for damage to or taking of any
Alterations or for Tenant's moving costs. Tenant hereby waives the provisions of
California Code of Civil Procedures Section 1265.130 and any other similarly
enacted statute are waived by Tenant and the provisions of this Paragraph 30
shall govern in the case of such destruction.
Notwithstanding the foregoing, Tenant shall be entitled to receive by a separate
award condemnation proceeds, the value of the condemned improvements which
Tenant has a right to remove from the Premises and Tenant's moving costs.
31. EFFECTS OF CONVEYANCE: The term "Landlord" as used in this Lease, means
only the owner for the time being of the Premises so that, in the event of any
sale or other conveyance of the Premises, or in the event of a master lease of
the Premises, the Landlord shall be and hereby is entirely freed and relieved
of all covenants and obligations of the "Landlord" hereunder to be performed
thereafter, and it shall be deemed and construed, without further agreement
between the parties and the purchaser at any such sale, or the master tenant of
the Premises, that the purchaser or master tenant of the Premises has assumed
and agreed to carry out any and all covenants and obligations of the Landlord
hereunder to be performed thereafter. Such transferor shall transfer and
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deliver Tenant's security deposit to the purchaser at any such sale or the
master tenant of the Premises, and thereupon such transferor shall be discharged
from any further liability in reference thereto. Notwithstanding the foregoing,
this provision shall not apply to environmental liabilities arising during the
time of ownership of any party acting as Landlord.
32. SUBORDINATION: In the event Landlord notifies Tenant in writing, this
Lease shall be subordinate to any ground Lease, deed of trust, or other
hypothecation for security now or hereafter placed upon the real property of
which the Premises are a part and to any and all advances made on the security
thereof and to renewals, modifications, replacements and extensions thereof.
Tenant agrees to promptly execute and deliver any documents which may be
required to effectuate such subordination. Notwithstanding such subordination
but subject to the terms and provisions of this Lease, Tenant's right to quiet
possession of the Premises shall not be disturbed so long as Tenant is not in
default and shall pay the rent and observe and perform all of the provisions of
this Lease. At the request of any lender, Tenant agrees to execute and deliver
any reasonable modifications of this Lease which do not materially adversely
affect Tenant's rights hereunder.
Landlord shall cause the existing lender, Principal Mutual Life Insurance
Company, to furnish to Tenant, within thirty (30) days of the date of both
parties' execution of this Lease, with a written agreement providing for (i)
recognition by the lender of all of the terms and conditions of this Lease; and
(ii) continuation of this lease upon foreclosure of existing lender's security
interest in the Premises. In the event that Landlord is unable to provide such
agreement, Tenant's sole remedy shall be termination of the Lease, which
election shall be made within fourteen (14) days following the expiration of
such 30-day period.
33. WAIVER: The waiver by Landlord of any breach of any term, covenant or
condition, herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant of any term, covenant or condition of this Lease, other than the
failure of Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent. No payment by Tenant or receipt by Landlord of a lesser amount than any
installment of rent due shall be deemed to be other than payment on account of
the amount due. No delay or omission in the exercise of any right or remedy by
Landlord shall impair such right or remedy or be construed as a waiver thereof
by Landlord. No act or conduct of Landlord, including, without limitation, the
acceptance of keys to the Premises, shall constitute acceptance of the surrender
of the Premises by Tenant before the Expiration Date (only written notice from
Landlord to Tenant of acceptance shall constitute such acceptance of surrender
of the Premises). Landlord's consent to or approval of any act by Tenant which
require Landlord's consent or approvals shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
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34. HOLDING OVER: Any holding over after the termination or Expiration
Date, shall be construed to be a tenancy from month to month, terminable on
thirty (30) days written notice from either party, and Tenant shall pay Base
Monthly Rent to Landlord at a rate equal to the greater of (i) one hundred fifty
percent (150%) of the Base Monthly Rent due in the month preceding the
termination or Expiration Date or (ii) one hundred fifty percent (150%) of the
Fair Market Rental (as defined in paragraph 37) plus all other amounts payable
by Tenant under this Lease. Any holding over shall otherwise be on the terms and
conditions herein specified, except those provisions relating to the Lease Term
and any options to extend or renew, which provisions shall be of no further
force and effect following the expiration of the applicable exercise period.
Tenant shall indemnify, defend, and hold Landlord harmless from all loss or
liability (including, without limitation, any loss or liability resulted from
any claim against Landlord made by any succeeding tenant) founded on or
resulting from Tenant's failure to timely surrender the Premises to Landlord and
losses to Landlord due to lost opportunities to lease the Premises to succeeding
tenants.
35. SUCCESSORS AND ASSIGNS: The covenants and conditions herein contained
shall, subject to the provisions of paragraph 29, apply to and bind the heirs,
successors, executors, administrators and assigns of all the parties hereto; and
all of the parties hereto shall be jointly and severally liable hereunder.
36. ESTOPPEL CERTIFICATES: Tenant shall at any time during the Lease Term,
within ten (10) days following written notice from Landlord, execute and deliver
to Landlord a statement in writing certifying (i) that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification); (ii) the date to which the rent and other charges are paid in
advance, if any; (iii) acknowledging that there are not, to Tenant's knowledge,
any uncured defaults on the part of Landlord hereunder or specifying such
defaults if they are claimed; and (iv) such other information as Landlord may
reasonably request. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises. Tenant's failure to
deliver such statement within such time shall be conclusive upon the Tenant
that: (i) this Lease is in full force and effect, without modification except as
may be represented by Landlord; (ii) there are not uncured defaults in
Landlord's performance. Tenant also agrees to provide the most current three (3)
years of audited financial statements within five (5) days of a request by
Landlord for Landlord's use in financing the Premises with commercial lenders.
37. OPTION TO EXTEND THE LEASE TERM:
A. Grant and Exercise of Option: Landlord hereby grants to Tenant,
upon and subject to the terms and conditions set forth in this paragraph,
two (2) options (the "Options") to extend the Lease Term for an additional
term (the "Option Term"), each Option Term shall be for a period of
thirty-six (36) months. Each such Option shall be exercised, if at all, by
written notice to Landlord no earlier than the date that is fifteen (15)
months prior to the Expiration Date (which as used in this Paragraph 37.A
in connection with the second Option, shall mean the date of Expiration of
the first
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Option Term), but no later than the date that is nine (9) months prior to the
Expiration Date. If Tenant exercises the Option, each of the terms, covenants
and conditions of this Lease except this paragraph shall apply during the Option
Term as though the expiration date of the Option Term was the date originally
set forth herein as the Expiration Date, provided that the Base Monthly Rent to
be paid by Tenant during the Option Term shall be the greater of (i) the Base
Monthly Rent applicable to the period immediately prior to the commencement of
the Option Term, or (ii) 95% of the then Fair Market Rental, as hereinafter
defined, for the Premises for the Option Term. Anything contained herein to the
contrary notwithstanding, if Tenant is in monetary or material non-monetary
default under any of the terms, covenants or conditions of this Lease either at
the time Tenant exercises the Option or at any time thereafter prior to the
commencement date of the Option Term, Landlord shall have, in addition to all of
Landlord's other rights and remedies provided in this Lease, the right to
terminate the Option upon notice to Tenant, in which event the expiration date
of this Lease shall be and remain the Expiration Date. As used herein, the term
"Fair Market Rental" for the Premises shall mean the rental and all other
monetary payments including any escalations and adjustments thereto (including
without limitation Consumer Price Indexing) then being obtained for new leases
of space comparable in age and quality to the Premises in the locality of the
Building that Landlord could obtain during the Option Term from a third party
desiring to lease the Premises for the Option Term based upon the current use
and other potential uses of the Premises. Fair Market Rental shall further take
into account (i) that Tenant is in occupancy of the Premises and making
functional use of the space in its then existing condition, and (ii) that no
brokerage commission is payable.
B. Determination of Fair Market Rental: If Tenant exercises the
Option, Landlord shall send to Tenant a notice setting forth the Fair
Market Rental for the Premises for the Option Term, on or before the date
that is twelve (12) months prior to the Expiration Date. If Tenant disputes
Landlord's determination of the Fair Market Rental for the Option Term,
Tenant shall, within (30) days after the date of Landlord's notice setting
forth the Fair Market Rental for the Option Term, send to Landlord a notice
stating that Tenant either (i) elects to terminate its exercise of the
Option, in which event the Option shall lapse and this Lease shall
terminate on the Expiration Date, or (ii) disagrees with Landlord's
determination of Fair Market Rental for the Option Term and elects to
resolve the disagreement as provided in paragraph 37.C below. If Tenant
does not send to Landlord a notice as provided herein, Landlord's
determination of the Fair Market Rental shall be the basis for determining
the Base Monthly Rent to be paid by Tenant hereunder during the Option
Term. If Tenant elects to resolve the disagreement as provided in paragraph
37.C below and such procedures shall not have been concluded prior to the
commencement date of the Option Term, Tenant shall pay as Base Monthly Rent
to Landlord the Fair Market Rental as determined by Landlord in the manner
provided above. If the amount of Fair Market Rental as finally determined
pursuant to paragraph 37.C below is greater than Landlord's determination,
Tenant shall pay to Landlord the difference between the amount paid by
Tenant and the Fair Market Rental as so determined in paragraph 37.C below
within 30 days after the determination. If the Fair Market Rental as
finally determined in paragraph 37.C below is less than Landlord's
determination, the
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difference between the amount paid by Tenant and the Fair Market Rental as so
determined in paragraph 37.C below shall be credited against the next
installments of rent due from Tenant to Landlord hereunder.
C. Resolution of a Disagreement over the Fair Market Rental: Any
disagreement regarding the Fair Market Rental shall be resolved as follows:
1. Within thirty (30) days after Tenant's response to Landlord's
notice to Tenant of the Fair Market Rental, Landlord and Tenant shall
meet no less than two (2) times, at a mutually agreeable time and
place, to attempt to resolve any such disagreement.
2. If within the thirty (30) day period referred to in (1) above,
Landlord and Tenant can not reach agreement as to the Fair Market
Rental, they shall each select one appraiser to determine the Fair
Market Rental. Each such appraiser shall arrive at a determination of
the Fair Market Rental and submit their conclusions to Landlord and
Tenant within thirty (30) days after the expiration of the thirty (30)
day consultation period described in (1) above.
3. If only one appraisal is submitted within the requisite time
period, it shall be deemed to be the Fair Market Rental. If both
appraisals are submitted within such time period, and if the two
appraisals so submitted differ by less than ten percent (10%) of the
higher of the two, the average of the two shall be the Fair Market
Rental. If the two appraisals differ by more than ten percent (10%) of
the higher of the two, then the two appraisers shall immediately
select a third appraiser who shall within thirty (30) days after his
or her selection make a determination of the Fair Market Rental and
submit such determination to Landlord and Tenant. This third appraisal
will then be averaged with the closer of the two previous appraisals
and the result shall be the Fair Market Rental.
4. All appraisers specified pursuant to this paragraph shall be
members of the American Institute of Real Estate Appraisers with not
less than ten (10) years experience appraising office and industrial
properties in the Santa Clara Valley. Each party shall pay the cost of
the appraiser selected by such party and one-half of the cost of the
third appraiser.
38. OPTIONS: All Options provided Tenant in this Lease are personal and
granted to Tenant and are not exercisable by any third party should Tenant
assign or sublet all or a portion of its rights under this Lease, unless
Landlord consents to permit exercise of any option by any assignee or subtenant,
in Landlord's sole discretion. In the event that Tenant hereunder has any
multiple options to extend this Lease, a later option to extend the Lease cannot
be exercised unless the prior option has been so exercised.
39. QUIET ENJOYMENT: Upon Tenant's faithful and timely performance of all
the terms and covenants of the Lease and except as otherwise provided in this
Lease, Tenant shall quietly have
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and hold the Premises for the Lease Term and any extentions thereof.
40. BROKERS: Tenant represents it has not utilized or contacted a real
estate broker or finder with respect to this Lease other than CPS Commercial
Property Services and Tenant agrees to indemnify and hold Landlord harmless
against any claim, cost, liability or cause of action asserted by any other
broker or finder claiming through Tenant.
41. LANDLORD'S LIABILITY: If Tenant should recover a money judgment against
Landlord arising in connection with this Lease, the judgment for any item other
than Landlord's Indemnity Obligation shall be satisfied only out of the greater
of (i) Landlord's interest in the Premises including the improvements and real
property, or (ii) Four Hundred Thousand Dollars ($400,000.00). Neither Landlord
or any of its partners, officers, directors, agents, trustees, shareholders or
employees shall be liable personally for any deficiency. Further, Tenant
expressly waives any and all rights to proceed against the individual partners
or the officers, directors or shareholders of any corporate partner, except to
the extent of their interest in said limited partnership.
42. AUTHORITY OF PARTIES: Tenant represents and warrants that it is duly
formed and in good standing and 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 or in accordance with
the by-laws of said corporation, and that this Lease is binding upon said
corporation in accordance with its terms. At Landlord's request, Tenant shall
provide Landlord with corporate resolutions or other proof in a form acceptable
to Landlord, authorizing the execution of the Lease.
43. TRANSPORTATION DEMAND MANAGEMENT PROGRAMS: Should a government agency
or municipality require Landlord to institute TDM (Transportation Demand
Management) facilities and/or program, Tenant hereby agrees that the cost of TDM
imposed facilities required on the Premises, including but not limited to
employee showers, lockers, cafeteria, or lunchroom facilities, shall be included
as Tenant Improvement Costs and any ongoing costs or expenses associated with a
TDM program, such as an on-site TDM coordinator, which are required for the
Premises and not provided by Tenant shall be provided by Landlord with such
costs being included as additional rent and reimbursed to Landlord by Tenant.
44. DISPUTE RESOLUTION: Except for the failure by Tenant to timely pay Base
Monthly Rent, any controversy, dispute, or claim of whatever nature arising out
of, in connection with, or in relation to the interpretation, performance or
breach of this Lease, including any claim based on contract, tort, or statute,
shall be resolved at the request of any party to this Lease through a two-step
dispute resolution process administered by JAMS or another judicial and
mediation service mutually acceptable to the parties involving first mediation,
followed, if necessary, by final and binding arbitration administered by and in
accordance with the then existing rules and practice of the judicial
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<PAGE>
and mediation service selected, and judgment upon any award rendered by the
arbitrator(s) may be entered by any State or Federal Court having jurisdiction
thereof.
45. LEASE GUARANTY: A material provision of the Lease and a material
inducement of Landlord to enter into this Lease is the guaranty of this Lease by
Precision Echo, Inc., a Delaware Corporation, ("Guarantor") which is attached
hereto as Exhibit "C" and made a part thereof.
46. MISCELLANEOUS PROVISIONS:
A. Rent: All monetary sums due from Tenant to Landlord under this
Lease, including, without limitation those referred to as "additional rent",
shall be deemed to be rent.
B. Performance by Landlord: If Tenant fails to perform any obligation
required under this Lease or by laws or governmental regulation, Landlord in its
sole discretion may, without notice and without releasing Tenant from its
obligations hereunder or waiving any rights or remedies, perform such
obligation, in which event Tenant shall pay Landlord as additional rent all sums
paid by Landlord in connection with such substitute performance including
interest as provided in paragraph 46.D below within 10 days following Landlord's
written notice for payment.
C. Interest: All rent due hereunder, if not paid when due, shall bear
interest at the maximum rate permitted under California law accruing from the
date due until the date paid to Landlord.
D. Rights and Remedies: All rights and remedies hereunder are
cumulative and not alternative to the extent permitted by law and are in
addition to all other rights and remedies in law and in equity.
E. Survival of Indemnities: All indemnification, defense, and hold
harmless obligations of Landlord and Tenant under this Lease shall survive the
expiration or sooner termination of the Lease.
F. Severability: If any term or provision of this Lease is held
unenforceable or invalid by a court of competent jurisdiction, the remainder of
the Lease shall not be invalidated thereby but shall be enforceable in
accordance with its terms, omitting the invalid or unenforceable term.
G. Choice of Law: This Lease shall be governed by and construed in
accordance with California law. Venue shall be Santa Clara County.
H. Time: Time is of the essence hereunder.
I. Entire Agreement: This instrument contains all of the agreements
and conditions
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<PAGE>
made between the parties hereto and may not be modified orally or in any other
manner other than by an agreement in writing signed by all of the parties hereto
or their respective successors in interest.
J. Representations: Tenant acknowledges that neither Landlord nor any
of its employees or agents have made any agreements, representations,
warranties or promises with respect to the demised Premises or with respect to
present or future rents, expenses, operations, tenancies or any other matter.
Except as herein expressly set forth herein, Tenant relied on no statement of
Landlord or its employees or agents for that purpose.
K. Headings: The headings or titles to the paragraphs of this Lease
are not a part of this Lease and shall have no effect upon the construction or
interpretation of any part thereof.
L. Exhibits: All exhibits referred to are attached to this Lease and
incorporated by reference.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day
and year first above written.
Landlord: South San Jose Interests, Tenant: Ahead Technology, Inc.
a California Limited Partnership a Delaware Corporation
By:________________________________ By:________________________________
Its:_______________________________ Its:_______________________________
Page 27
<PAGE>
EXHIBIT "A" - Premises
Page 28
<PAGE>
EXHIBIT "B" - Tenant Improvements
Page 29
<PAGE>
EXHIBIT "C" - Lease Guaranty
This Guaranty of Lease ("Guaranty") is made as of the ___________ day of July by
Precision Echo, Inc., a Delaware Corporation ("Guarantor") in favor of Landlord,
and recites as follows:
WHEREAS, as an inducement for Landlord to enter into the Lease, Guarantor
desires to guarantee the full performance of all obligations of Tenant under the
Lease upon the terms set forth below.
NOW THEREFORE, in consideration of the execution of the Lease by Landlord,
Guarantor unconditionally guarantee and agree as follows:
1. Guaranty. Guarantor, continually, directly and unconditionally hereby
guarantee the full performance by Tenant of each and every term, covenant,
condition and obligation of the Lease to be performed by Tenant (the foregoing
obligations are hereinafter sometimes collectively referred to as the
"Guaranteed Obligations"). The Guaranteed Obligations shall include, without
limitation, the payment of Base Rent, Additional Rent and all other sums
becoming due under the Lease and the compliance with all the provisions of the
Lease which relate to Hazardous Materials.
2. Continuing Guaranty. This Guaranty is a continuing one and shall
terminate only upon the full and complete performance by Tenant of all of the
Guaranteed Obligations. Guarantor's liability under this Guaranty with respect
to the full and unconditional performance of the Guaranteed Obligations shall
continue following the termination of the Lease Term to the extent any of the
Guaranteed Obligations have not otherwise been performed. Guarantor may not
revoke the continuing nature of this Guaranty. In the event that Landlord should
seek to enforce any of its rights provided in this Guaranty, and demand payment
or performance from Guarantor, such demand and compliance thereto shall not
release, extinguish, exonerate or, in any way, affect or diminish Guarantor's
continuing obligations hereunder.
3. Lease Modifications. This Guaranty shall continue in full force and
effect as to any and all renewals, modifications, amendments or extensions of
the Lease, whether or not Guarantor shall have received any notice of or
consented to such renewals, modifications, amendments or extensions. No renewal,
modification, amendment or extension of the Lease shall in any manner release,
discharge or diminish the obligations of Guarantor hereunder. This paragraph
modifies the provision of California Civil Code Section 2819.
4. Assignment by Landlord. Landlord may, without notice, assign, transfer,
hypothecate, encumber or otherwise dispose of, in whole or in part, any of
Landlord's rights, claims or interests in the Lease, the Premises or this
Guaranty. No assignment, hypothecation, encumbrance, disposition or other
transfer of the Lease, the Premises or this Guaranty shall operate to extinguish
or diminish in any way, the obligations of Guarantor hereunder.
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<PAGE>
5. Assignment by Tenant. This Guaranty shall continue and remain
unconditionally unaffected by an assignment of the Lease by Tenant, any sublet
by Tenant of the Premises, or any change in the entity comprising Tenant. Upon
any assignment of the Lease or any sublet, the Guarantor shall continue to
remain liable and obligated for the full performance by Tenant's successor of
the Guaranteed Obligations. "Tenant" as used in this Guaranty shall include all
successors and assigns of Tenant.
6. Addition or Release of Security. This Guaranty shall remain in full
force and effect notwithstanding the receipt by Landlord of any additional
security, whether from Guarantor, Tenant or a third party, securing the
performance of the Guaranteed Obligations. The release by Landlord of any
security held for the performance of any of the Guaranteed Obligations shall not
release, extinguish or, in any way, affect or diminish the obligations of
Guarantor hereunder.
7. Losses Due to Lease Default. Landlord may terminate the Lease upon
default by Tenant of any term, covenant or condition of the Lease. Such
termination, however shall not extinguish, release or, in any way, affect or
diminish the obligations of Guarantor hereunder. In no event shall Landlord be
obligated to lease the Premises to Guarantor after such termination. Upon
termination of the Lease, as a result of Tenant's default thereunder, this
Guaranty shall extend to the payment to Landlord of all damages payable by
Tenant.
Landlord shall permit Guarantor to use the Premises during the Lease Term,
provided (i) Tenant has abandoned the Premises and is in default under the
Lease, (ii) Guarantor has cured Tenant's default, (iii) Guarantor abides by all
the terms and conditions of the Lease, and (iv) such use by Guarantor is does
not conflict with the Tenant's rights under the Lease.
8. Actions of Landlord. This Guaranty shall not be released, extinguished,
modified or, in any way, affected or diminished by failure, on the part of
Landlord, to enforce any or all of the rights or remedies of Landlord under the
Lease, or by Landlord's grant of any indulgences or extensions of time to Tenant
of the performance of any of the Guaranteed Obligations. This Guaranty shall
remain in full force and effect notwithstanding the failure of Landlord to
insist, in any one or more instances, upon a strict performance or observance of
the Guaranteed Obligations or upon the exercise of any of Landlord's rights
under the Lease. Receipt by Landlord of Base Rent or other performance from
Tenant, after breach by Tenant, with knowledge of such breach, shall not be
deemed a waiver of such breach. Any reference herein to any liability of Tenant
shall, at the same time, refer to obligations of Guarantor hereunder.
9. Ability to Proceed Directly Against Guarantor. Landlord may, at
Landlord's option, proceed immediately and directly against Guarantor, jointly
or severally, in order to enforce the performance of the Guaranteed Obligations
under the Lease. Landlord shall not be required, in order to enforce its rights
hereunder upon the default of Tenant, to first institute suit, proceedings, or
otherwise exhaust its legal remedies against Tenant. With respect to defaults by
Tenant for which
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<PAGE>
Landlord elects to proceed against Guarantor, Landlord shall provide Guarantor
with written notice of such default prior to proceeding against Guarantor
hereunder.
10. Guarantor's Additional Covenants. Until all of the Guaranteed
obligations are fully performed and observed, Guarantor covenant that they: (i)
shall have no right of subrogation against Tenant by reason of any payments or
acts of performance by Guarantor in compliance with the obligations of Guarantor
hereunder; (ii) shall have no right to enforce any remedy which Guarantor now or
hereafter shall have against Tenant by reason of any one or more payments or
acts of performance by Guarantor in compliance with the obligations of Guarantor
hereunder; and (iii) shall subordinate any liability or indebtedness of Tenant,
now or hereafter held by Guarantor, to the obligations of Tenant to Landlord
under the Lease, during the period that Tenant is in default under the Lease.
11. Guarantor's Waivers. Guarantor hereby waive: (i) all statues of
limitations as a defense to any action brought against any or all Guarantor, by
Landlord, to enforce this Guaranty with respect to Tenant's obligations to pay
Base Rent, Additional Rent and other sums becoming due under the Lease to the
fullest extent permitted by law; (ii) all defenses based upon any legal
disability of Tenant or any discharge or limitation of liability of Tenant, to
Landlord, whether consensual or arising by operation of law or any bankruptcy,
insolvency or debtor-relief proceeding or from any other cause; and (iii) all
rights to be exonerated hereunder pursuant to the provisions of California Civil
Code Section 2819 and/or 2845 and/or 2850 and pursuant to any other statute or
rule of law of similar import.
12. Status of Tenant. Guarantor represent and warrant that as of the date
of execution and delivery of this Lease Guaranty, (i) Tenant is under no
disability in connection with the execution and delivery of the Lease and (ii)
there are no defenses to Tenant's full performance and payment of the
obligations required by the Lease.
13. Guarantor Remain Liable to Landlord. Tenant, or any persons or entities
comprising Tenant, may be released from Tenant's obligations under the Lease,
with notice to Guarantor and Guarantor's consent, which consent shall be deemed
given unless Guarantor objects within ten (10) business days of receipt of
notice, and Guarantor shall nevertheless remain liable to Landlord under this
Guaranty.
14. Enforcement of Guaranty Upon Default. The enforcement of this Guaranty
upon the default of Tenant shall not constitute an assignment to Guarantor, by
Landlord, of any rights or claims which Landlord may have against Tenant. the
provisions of paragraph 10 above notwithstanding, provided Tenant's default has
been cured by Guarantor and Guarantor continues to perform its obligations to
Landlord under this Lease Guaranty, Landlord shall not restrict Guarantor's
right to seek damages from Tenant.
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<PAGE>
unconditional and independent of those of Tenant under the Lease. Guarantor
shall punctually perform their obligations hereunder upon demand by Landlord.
This Guaranty shall be binding upon the Guarantor, their respective successors
and assigns.
16. Other Guarantor. This Guaranty shall remain in full force and effect,
notwithstanding that other guarantors from time to time may guarantee or
otherwise become responsible for the performance of any of the terms, covenants
and conditions of the Lease.
17. Right of Set-Off. In enforcing this Guaranty, Landlord reserves the
right to set-off any claims or rights Guarantor may have against Landlord,
whether or not such claims or rights arise out of Lease or otherwise. Failure of
Landlord to so set-off shall not constitute a waiver of any future rights of
set-off that Landlord may exercise.
18. Rights Cumulative. All rights of Landlord under this Guaranty are
cumulative and are in addition to any other rights which Landlord may otherwise
have.
19. Provisions Severable. The provisions of this Guaranty are severable,
and if any provision herein in invalid, the balance of this Guaranty shall
remain in force and effect to the fullest extent permitted by law.
20. Condemnation. In the event that the Premises, for any reason, are
condemned by a public entity, Guarantor shall have rights or claims to any
condemnation awards recovered by Landlord or Tenant therefrom.
21. Estoppel Certificate. Upon reasonable request and notice from Landlord,
Guarantor shall deliver to Landlord and to any prospective purchaser, mortgagee
and/or beneficiary under a deed of trust, or other lender designated by
Landlord, an estopped certificate, executed and acknowledged by Guarantor, to
the effect that this Guaranty is in full force and effect and has not been
amended or terminated. Guarantor shall also certify such other matters relating
to the Lease, the Premises or this Guaranty as may be reasonably requested by a
lender making a loan to Landlord or a purchase of the Premises from Landlord.
22. Bankruptcy of Tenant. This Guaranty shall remain and continue in full
force and effect, notwithstanding: (i) the commencement or continuation of any
case, action, or proceeding by, against or concerning Tenant, under any federal
or state bankruptcy, insolvency, or other debtor's relief law, including,
without limitation: (x) a case under Title 11 of the United States Code
concerning Tenant, whether under Chapter 7, 11 or 13 of such Title or under any
other Chapter, or (y) a case, action or proceeding seeking Tenant's financial
reorganization or an arrangement with any of Tenant's creditors; (ii) the
voluntary appointment of a receiver, trustee, keeper or other person who takes
possession of substantially all of Tenant's assets or on any asset used in
Tenant's business on the Premises, regardless of whether such appointment occurs
as result of
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<PAGE>
insolvency or other cause; or (iii) the execution of an assignment for the
benefit of creditors of substantially all assets of Tenant available by law for
the satisfaction of judgment creditors.
23. No Condition Precedent. This Guaranty shall not be subject to any
condition precedent to the effectiveness hereof.
24. Attorney's Fees. In the event any action or proceeding should be
commenced by Landlord against Guarantor to enforce any of the terms, covenants
or conditions of this Guaranty, Landlord shall be entitled to recover from
Guarantor hereunder, in any such action or proceeding in which it shall prevail,
all reasonable attorneys' fees, costs and expenses.
25. Notice Provision. Any notice to be delivered hereunder shall be in
writing and shall be deemed delivered upon personal service or upon seventy-two
(72) hours after deposited in the U.S. Postal Service, postage prepaid,
registered or certified, return receipt requested, addressed as follows:
Precision Echo, Inc.
3105 Patrick Henry Drive
Santa Clara, California 95054
26. Modifications in Writing. This Guaranty may not be changed, waived,
discharged or terminated orally or by course of conduct, but rather only by an
instrument in writing signed by the party against whom enforcement of the
charge, waiver, discharge or termination in sought.
27. Choice of Law. The parties agree that the terms of the Lease and this
Guaranty of Lease were negotiated in the County of Santa Clara, State of
California. This Guaranty of Lease shall be governed by and construed in
accordance with the laws of the State of California. Guarantor hereby submits to
the legal jurisdiction of the State of California and to the service of process
of any court of the State of California. The parties agree that all disputes
shall be determined by resort to the courts of California of competent
jurisdiction, with venue in Santa Clara County.
28. Descriptive Headings. Descriptive headings are for reference purposes
only and shall not affect any meaning, construction or interpretation of this
Guaranty.
IN WITNESS WHEREOF, the undersigned Guarantor has executed this agreement as of
7/28/95, 1995.
GUARANTOR: Precision Echo, Inc.
(sig) VP Finance
By:_____________________________ Its:_____________________________
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<PAGE>
EXHIBIT "D"-Permitted Chemicals
To include the list
submitted to Sobrato
SKC
Page 35
OFFICE BUILDING LEASE
1. PARTIES. This Lease, dated, for reference purposes only, May 25, 1995,
is made by and between SPORTS ARENA VILLAGE, LTD., A LIMITED PARTNERSHIP (herein
called "Landlord") and TECHNOLOGY APPLICATIONS & SERVICE COMPANY, a Delaware
corporation (herein called "Tenant").
2. PREMISES. Landlord does hereby lease to Tenant and Tenant hereby leases
from Landlord that certain office space (herein called "Premises") indicated on
Exhibit "A" attached hereto and hereby reference thereto made a part hereof,
said Premises being agreed, for the purpose of this Lease, to have an area of
approximately 1,543 rentable square feet and being situtated on the first (1st)
floor of that certain Building known as 4055 Hancock Street, Suite 125, San
Diego, California.
Said Lease is subject to the terms, covenants and conditions herein set
forth and the Tenant covenants as a material part of the consideraton for this
Lease to keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed and that this Lease is made upon the condition of
said performance.
3. TERM. The term of this Lease shall be for three (3) years, commencing on
the 1st day of August, 1995 and ending on the 31st day of July, 1998.
4. POSSESSION.
4.a. If the Landlord, for any reason whatsoever, cannot deliver possession
of the said Premises to the Tenant at the commencement of the term hereof, this
Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for
any loss or damage resulting therefrom, nor shall the expiration date of the
above term be in any way extended but in that event, all rent shall be abated
during the period between the commencement of said term and the time when
Landlord delivers possession. SEE Page 1(a).
4.b. In the event that Landlord shall permit Tenant to occupy the Premises
prior to the commencement date of the term, such occupancy shall be subject to
all the provisions of this Lease. Said early possession shall not advance the
termination date hereinabove provided.
5. RENT. Tenant agrees to pay to Landlord as rental, without prior notice
or demand, for the Premises the sum of: One Thousand Six Hundred Ninety-Seven
and 30/100 ($1,697.30) Dollars, on or before the first day of the first full
calendar month of the term hereof and a like sum on or before the first day of
each and every successive calendar month thereafter during the term hereof,
except that the first month's rent shall be paid upon the execution hereof. Rent
for any period during the term hereof which is for less than one (1) month shall
be a prorated portion of the monthly installment herein, based upon a thirty
(30) day month. Said rental shall be paid to Landlord, without deduction or
offset in lawful money of the United States of America, which shall be legal
tender at the time of payment at the Office of the Building, or to such other
person or at such other place as Landlord may from time to time designate in
writing.
6. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of One
Thousand Six Hundred Ninety-Seven and 30/100 ($1,697.30) Dollars. Said sum shall
be held by Landlord as security for the faithful performance by Tenant of all
the terms, covenants, and conditions of this Lease to be kept and performed by
Tenant during the term hereof. If Tenant defaults and the same is not cured
within ???????????? with respect to any provision of this Lease, including, but
not limited to the provisions relating to the payment of rent, Landlord may (but
shall not be required to) use, apply or retain all or any part of this security
deposit for the payment of any rent or any other sum in default, or for the
payment of any amount which Landlord may spend or become obligated to spend by
reason of Tenant's default, or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If any portion
of said deposit is so used or applied, Tenant shall within five (5) days after
written demand therefor, deposit cash with Landlord in an amount sufficient to
restore the security deposit to its original amount and Tenant's failure to do
so shall be a material breach of this Lease. Landlord shall not be required to
keep this security deposit separate from its general funds, and Tenant shall not
be entitled to interest on such deposit. If Tenant shall fully and faithfully
perform every provision of this Lease to be performed by it, the security
deposit or any balance thereof shall be returned to Tenant (or, at Landlord's
option, to the last assignee of Tenant's interest hereunder) at the expiration
of the Lease term. In the event of termination of Landlord's interest in this
Lease, Landlord shall transfer said deposit to Landlord's successor in interest.
7. ??????????
(PAGE 1--OFF. BLDG.)
<PAGE>
4. POSSESSION (Continued)
However, if Landlord cannot deliver the Premises by sixty (60) days after
the date specified in Section 3 above, then Tenant may cancel this Lease without
penalty unless such delays are caused (a) by factors beyond the Landlord's
reasonable control such as acts of God, material shortages, labor strikes,
Landlord's inability to obtain tenant improvement building permits, and/or force
majeure and/or (b) any act or omission of the Tenant in the submission and/or
approval of plans, specifications, or other information to the Landlord. Upon
full execution of the Lease, Tenant may coordinate with Landlord's construction
manager for the purposes of installing communication and computer cabling, etc.
1A
<PAGE>
8. USE. Tenant shall use the Premises for general office purposes or small
equipment repair and shall not use or permit the Premises to be used for any
other purpose without the prior written consent of Landlord.
Tenant shall not do or permit anything to be done in or about the Premises
nor bring or keep anything therein which will in any way increase the existing
rate of or affect any fire or other insurance upon the Building or any of its
contents, or cause cancellation of any insurance policy covering said Building
or any part thereof or any of its contents. Tenant shall not do or permit
anything to be done in or about the Premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Building or
injure or annoy them or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises. Tenant shall not commit or
suffer to be committed any waste in or upon the Premises.
9. COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit
anything to be done in or about the Premises which will in any way conflict with
any law, statute, ordinance or governmental rule or regulation now in force or
which may hereafter be enacted or promulgated. Tenant shall, at its sole cost
and expense, promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force, and with the requirements of any board of fire insurance
underwriters or other similar bodies now or hereafter constituted, relating to,
or affecting the condition, use or occupancy of the Premises, excluding
structural changes not related to or affected by Tenant's improvements or acts.
The judgment of any court of competent jurisdiction or the admission of Tenant
in any action against Tenant, whether Landlord be a party thereto or not, that
Tenant has violated any law, statute, ordinance or governmental rule,
regulation or requirement, shall be conclusive of that fact as between the
Landlord and Tenant.
10. ALTERATIONS AND ADDITIONS. Tenant shall not make or suffer to be made
any alterations, additions or improvements to or of the Premises or any part
thereof without the written consent of Landlord first had and obtained and any
alterations, additions or improvements to or of said Premises, including, but
not limited to, wall covering, paneling and built-in cabinet work, but excepting
movable furniture and trade fixtures, shall on the expiration of the term become
a part of the realty and belong to the Landlord and shall be surrendered with
the Premises. In the event Landlord consents to the making of any alterations,
additions or improvements to the Premises by Tenant, the same shall be made by
Tenant at Tenant's sole cost and expense, and any contractor or person selected
by Tenant to make the same must first be approved of in writing by the Landlord.
Upon the expiration or sooner termination of the term hereof, Tenant shall, upon
written demand by Landlord, given at least thirty (30) days prior to the end of
the term, at Tenant's sole cost and expense, forthwith and with all due
diligence remove any alterations, additions, or improvements made by Tenant,
designated by Landlord to be removed, and Tenant shall, forthwith and with all
due diligence at its sole cost and expense, repair any damage to the Premises
caused by such removal.
11. REPAIRS.
11.a. By taking possession of the Premises, Tenant shall be deemed to have
accepted the Premises as being in good, sanitary order, condition and repair.*
Tenant shall, at Tenant's sole cost and expense, keep the Premises and every
part thereof in good condition and repair, damage thereto from causes beyond the
reasonable control of Tenants fire and other casualty and ordinary wear and tear
excepted. Tenant shall upon the expiration or sooner termination of this Lease
hereof surrender the Premises to the Landlord in good condition, ordinary wear
and tear and damage from causes beyond the reasonable control of Tenant
excepted. Except as specifically provided in an addendum, if any, to this Lease,
Landlord shall have no obligation whatsoever to alter, remodel, improve, repair,
decorate or paint the Premises or any part thereof and the parties hereto affirm
that Landlord has made no representations to Tenant respecting the condition of
the Premises or the Building except as specifically herein set forth.
- -----------
*Subject to a punch list review and repair.
11.b. Notwithstanding the provisions of Article 11.a. hereinabove, Landlord
shall repair and maintain the structural portions of the Building, including the
basic plumbing, air conditioning, heating, and electrical systems, installed or
furnished by Landlord, unless such maintenance and repairs are caused in part or
in whole by the act, neglect, fault or omission of any duty by the Tenant, its
agents, servants, employees or invitees, in which case Tenant shall pay to
Landlord the reasonable cost of such maintenance and repairs. Landlord shall not
be liable for any failure to make any ??????? repairs or to perform any
maintanance unless such failure shall persist for an unreasonable time after
written notice of the need of such repairs or maintenance is given to Landlord
by Tenant. Except as provided in Article 22 hereof, there shall be no abatement
of rent and no liability of Landlord by reason of any injury to or interference
with Tenant's business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or in or to
fixtures, appurtenances and equipment therein. Tenant waives the right to make
repairs at Landlord's expense under any law, statute or ordinance now or
hereafter in effect.
12. LIENS. Tenant shall keep the Premises and the property in which the
Premises are situated free from any liens arising out of any work performed,
materials furnished or obligations incurred by Tenant. Landlord may require, at
Landlord's sole option, that Tenant shall provide to Landlord, at Tenant's sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half (1 1/2) times any and all estimated cost of any improvements,
additions, or alterations in the Premises, to insure Landlord against any
liability for mechanics' and materialmen's liens and to insure completion of the
work.
(PAGE 2--OFF. BLDG.)
<PAGE>
13. ASSIGNMENT AND SUBLETTING. Tenant shall not either voluntarily or by
operation of law, assign, transfer, mortgage, pledge, hypothecate or encumber
this Lease or any interest therein, and shall not sublet the said Premises or
any part thereof, or any right or privilege appurtenant thereto, or suffer any
other person (the employees, agents, servants and invitees of Tenant excepted)
to occupy or use the said Premises, or any portion thereof, without the written
consent of Landlord first had and obtained, which consent shall not be
unreasonably withheld, and a consent to one assignment, subletting, occupation
or use by any other person shall not be deemed to be a consent to any subsequent
assignment, subletting, occupation or use by another person. Any such assignment
or subletting without such consent shall be void, and shall, at the option of
the Landlord, constitute a default under this Lease. Tenant reserves right to
assign to affiliate company provided such affiliate company is of equal or
greater financial capability.
14. HOLD HARMLESS. Tenant shall indemnify and hold harmless Landlord
against and from any and all claims arising from Tenant's use of the Premises
for the conduct of its business or from any activity, work, or other thing done,
permitted or suffered by the Tenant in or about the Building and shall further
indemnify and hold harmless Landlord against and from 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 act or
negligence of the Tenant, or any officer, agent, employee, guest, or invitee of
Tenant, and from all and against all cost, attorney's fees, expenses and
liabilities incurred in or about any such claim or any action or proceeding
brought thereon, and, in any case, 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 reasonable 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, from any cause other than Landlord's negligence, and Tenant hereby
waives all claims in respect thereof against Landlord.
Landlord or its agents shall not be liable for any damage to property
entrusted to employees of the Building, nor for loss or damage to any property
by theft or otherwise, nor for any injury to or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Building or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
from any other place resulting from dampness or any other cause whatsoever,
unless caused by or due to the negligence of Landlord, its agents, servants or
employees. Landlord or its agents shall not be liable for interference with the
light or other incorporeal hereditaments, loss of business by Tenant, nor shall
Landlord be liable for any latent defect in the Premises or in the Building.
Tenant shall give prompt notice to Landlord in case of fire or accidents in the
Premises or in the Building or of defects therein or in the fixtures or
equipment.
15. SUBROGATION. As long as their respective insurers so permit, Landlord
and Tenant hereby mutually waive their respective rights of recovery against
each other for any loss insured by fire, extended coverage and other property
insurance policies existing for the benefit of the respective parties. Each
party shall obtain any special endorsements, if required by their insurer to
evidence compliance with the aforementioned waiver.
16. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep
in force during the term of this Lease a policy of comprehensive public
liability insurance insuring Landlord and Tenant against any liability arising
out of the ownership, use, occupancy or maintenance of the Premises and all
areas appurtenant thereto. The limit of said insurance shall not, however, limit
the liability of the Tenant hereunder. Tenant may carry said insurance under a
blanket policy, providing, however, said insurance by Tenant shall have a
Landlord's protective liability endorsement attached thereto. If Tenant shall
fail to procure and maintain said insurance, Landlord may, but shall not be
required to, procure and maintain same, but at the expense of Tenant. Insurance
required hereunder, shall be in companies rate A+ AAA or better in "Best's
Insurance Guide". Tenant shall deliver to Landlord prior to occupancy of the
Premises copies of policies of liability insurance required herein or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Landlord. No policy shall be cancellable or
subject to reduction of coverage except after ten (10) days' prior written
notice to Landlord.
17. SERVICES AND UTILITIES. Provided that Tenant is not in default
hereunder, Landlord agrees to furnish to the Premises during reasonable hours*
of generally recognized business days, to be determined by Landlord at his sole
discretion, and subject to the rules and regulations of the Building of which
the Premises are a part, electricity for normal lighting and fractional
horsepower office machines, heat and air conditioning required in Landlord's
judgment for the comfortable use and occupation of the Premises, and janitorial
service. Landlord shall also maintain and keep lighted the common stairs, common
entries and toilet rooms in the Building of which the Premises are a part.
Landlord shall not be liable for, and Tenant shall not be entitled to, any
reduction of rental by reason of Landlord's failure to furnish any of the
foregoing when such failure is caused by accident, breakage, repairs, strikes,
lockouts or other labor disturbances or labor disputes of any character, or by
any other cause, similar or dissimilar, beyond the reasonable control of
- -----------------
* Reasonable hours defined as Monday through Friday, 7:00 a.m. to 6:00 p.m.
Other periods Tenant will be allowed to purchase at a reasonable rate.
(PAGE 2--OFF. BLDG.)
<PAGE>
Landlord. Landlord shall not be liable under any circumstances for a loss of or
injury to property, however occurring, through or in connection with or
incidental to failure to furnish any of the foregoing. Wherever heat generating
machines or equipment are used in the Premises which affect the temperature
otherwise maintained by the air conditioning system, Landlord reserves the right
to install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation, and the cost of operation and
maintenance thereof shall be paid by Tenant to Landlord upon demand by Landlord.
Tenant will not, without written consent of Landlord, use any apparatus or
device in the Premises, including, but without limitation thereto, electronic
data processing machines, punch card machines, and machines using in excess of
220 volts, which will in any way increase the amount of electricity usually
furnished or supplied for the use of the Premises as general office space; nor
connect with electric current except through existing electrical outlets in the
Premises, any apparatus or device, for the purpose of using electric current. If
Tenant shall require water or electric current in excess of that usually
furnished or supplied for the use of the Premises as general office space,
Tenant shall first procure the written consent of Landlord, which Landlord may
refuse, to the use thereof and Landlord may cause a water meter or electrical
current meter to be installed in the Premises, so as to measure the amount of
water and electric current consumed for any such use. The cost of any such
meters and of installation, maintenance and repair thereof shall be paid for by
the Tenant and Tenant agrees to pay to Landlord promptly upon demand therefor by
Landlord for all such water and electric current consumed as shown by said
meters, at the rates charged for such services by the local public utility
furnishing the same, plus any additional expense incurred in keeping account of
the water and electric current so consumed. If a separate meter is not
installed, such excess cost for such water and electric current will be
established by an estimate made by a utility company or electrical engineer.
18. PROPERTY TAXES. Tenant shall pay, or cause to be paid, before
delinquency, any and all taxes levied or assessed and which become payable
during the term hereof upon all Tenant's leasehold improvements, equipment,
furniture, fixtures and personal property located in the Premises; except that
which has been paid for by Landlord, and is the standard of the Building. In the
event any or all of the Tenant's leasehold improvements, equipment, furniture,
fixtures and personal property shall be assessed and taxed with the Building.
Tenant shall pay to Landlord its share of such taxes within ten (10) days after
delivery to Tenant by Landlord of a statement in writing setting forth the
amount of such taxes applicable to Tenant's property.
19. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with
the rules and regulations that Landlord shall from time to time promulgate.
Landlord reserves the rights from time to time to make all reasonable
modifications to said rules. The additions and modifications to those rules
shall be binding upon Tenant upon delivery of a copy of them to Tenant. Landlord
shall not be responsible to Tenant for the nonperformance of any said rules by
any other tenants or occupants.
20. HOLDING OVER. If Tenant remains in possession of the Premises or any
part thereof after the expiration of the term hereof, with the express written
consent of Landlord, such occupancy shall be a tenancy from month to month at a
rental in the amount of the last monthly rental, plus all other charges payable
hereunder, and upon all the terms hereof applicable to a month to month tenancy.
21. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times
have the right to enter the Premises, inspect the same, supply jantiorial
service and any other service to be provided by Landlord to Tenant hereunder, to
submit said Premises to prospective purchasers or tenants, to post notices of
non-responsibility, and to alter, improve or repair the Premises and any portion
of the Building of which the Premises are a part that Landlord may deem
necessary or desirable, without abatement of rent and may for that purpose erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, always providing that the entrance to the
Premises shall not be blocked thereby, and further providing that the business
of the Tenant shall not be interfered with unreasonably. Tenant hereby waives
any claim for damages or for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occassioned thereby. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, upon and about the Premises, excluding Tenant's vaults, safes and files, and
Landlord shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency, in order to obtain entry to the
Premises without liability to Tenant except for any failure to exercise due care
for Tenant's property. Any entry to the Premises obtained by Landlord by any of
said means, or otherwise shall not under any circumstances be construed or
deemed to be a forceable or unlawful entry into, or a detainer of, the Premises,
or an eviction of Tenant from the Premises or any portion thereof.
22. RECONSTRUCTION. In the event the Premises or the Building of which the
Premises are a part are damaged by fire or other perils covered by extended
coverage insurance, Landlord agrees to forthwith repair the same; and this Lease
shall remain in full force and effect, except that Tenant shall be entitled to a
proportionate reduction of the rent while such repairs are being made, such
proportionate reduction to be based upon the extent to which the making of such
repairs shall materially interfere with the business carried on by the Tenant in
the Premises. If the damage is due to the fault or neglect of Tenant or its
employees, there shall be no abatement of rent.
<PAGE>
In the event the Premises or the Building of which the Premises are a part
are damaged as a result of any cause other than the perils covered by fire and
extended coverage insurance, then Landlord shall forthwith repair the same,
provided the extent of the destruction be less than ten (10%) per cent of the
then full replacement cost of the Premises or the Building of which the Premises
are a part. In the event the destruction of the Premises or the Building is to
an extent greater than ten (10%) per cent of the full replacement cost, then
Landlord shall have the option; (1) to repair or restore such damage, this Lease
continuing in full force and effect, but the rent to be proportionately reduced
as hereinabove in this Article provided; or (2) give notice to Tenant at any
time within sixty (60) days after such damage terminating this Lease as of the
date specified in such notice, which date shall be no less than thirty (30) and
no more than sixty (60) days after the giving of such notice. In the event of
giving such notice, this Lease shall expire and all interest of the Tenant in
the Premises shall terminate on the date so specified in such notice and the
Rent, reduced by a proportionate amount, based upon the extent, if any, to which
such damage materially interfered with the business carried on by the Tenant in
the Premises, shall be paid up to date of said such termination.
Notwithstanding anything to the contrary contained in this Article,
Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered under
this Article occurs during the last twelve (12) months of the term of this Lease
or any extension thereof.
Landlord shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements of any panels, decoration,
office fixtures, railings, floor covering, partitions, or any other property
installed in the Premises by Tenant.
The Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the premises, Tenant's
personal property or any inconvenience or annoyance occasioned by such damage,
repair, reconstruction or restoration.
23. DEFAULT. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant.
23.a. The vacating or abandonment of the Premises by Tenant.
23.b. The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof by Landlord to Tenant.
23.c. The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Tenant, other than described in Article 23.b. above, where such failure shall
continue for a period of thirty (30) days after written notice thereof by
Landlord to Tenant; provided, however, that if the nature of Tenant's default is
such that more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant commences such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
23.d. The making by Tenant of any general assignment or general arrangement
for the benefit of creditors; or the filing by or against Tenant of a petition
to have Tenant adjudged a bankrupt, or a petition or 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); or
the appointment of a trustee or a 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 thirty (30) days; or
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 in thirty (30) days.
<PAGE>
24. REMEDIES IN DEFAULT. In the event of any such material default or
breach by Tenant, Landlord may at any time thereafter, with or without notice or
demand and without limiting Landlord in the exercise of a right or remedy which
Landlord may have by reason of such default or breach:
24.a. Terminate Tenant's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default including, but not limited to, the cost of recovering
possession of the premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, any real
estate commission actually paid; the worth at the time of award by the court
having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Tenant proves could be reasonably avoided;
that portion of the leasing commission paid by Landlord and applicable to the
unexpired term of this lease. Unpaid installments of rent or other sums shall
bear interest from the date due at the rate of ten (10%) per cent per annum. In
the event Tenant shall have abandoned the Premises, Landlord shall have the
option of (a) taking possession of the Premises and recovering from Tenant the
amount specified in this paragraph, or (b) proceeding under the provisions of
the following Article 24.b.
24.b. Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the Premises. In
such event Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent
(PAGE 3--OFF. BLDG.)
<PAGE>
as it becomes due hereunder.
24.c. Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decision of the State in which the Premises are located.
25. EMINENT DOMAIN. If more than twenty-five (25%) per cent of the Premises
shall be taken or appropriated by any public or quasi-public authority under the
power of eminent domain, either party hereto shall have the right, at its
option, to terminate this Lease, and Landlord shall be entitled to any and all
income, rent, award, or any interest therein whatsoever which may be paid or
made in connection with such public or quasi-public use or purpose, and Tenant
shall have no claim against Landlord for the value of any unexpired term of this
Lease. If either less than or more than twenty-five (25%) per cent of the
Premises is taken, and neither party elects to terminate as herein provided, the
rental thereafter to be paid shall be equitably reduced. If any part of the
Building other than the Premises may be so taken or appropriated, Landlord shall
have the right at its option to terminate this Lease and shall be entitled to
the entire award as above provided.
26. OFFSET STATEMENT. Tenant shall at any time and from time to time upon
not less than ten (10) days' prior written notice from Landlord execute,
acknowledge and deliver to Landlord a statement in writing, (a) 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 rental and other charges
are paid in advance, if any, and (b) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of the Landlord hereunder,
or specifying such defaults if any are claimed. Any such statement may be relied
upon by any prospective purchas??? or encumbrancer of all or any portion of the
real property of which the Premises are a part.
27. PARKING. Tenant shall have the right to use in common with other
tenants or occupants of the Building the parking facilities of the Building, if
any, subject to the monthly rates, rules and regulations, and any other charges
of Landlord for such parking facilities which may be established or altered by
Landlord at any time or from time to time during the term hereof. Tenant's
prorata share of parking is six (6) free, non-reserved spaces.
<PAGE>
28. AUTHORITY OF PARTIES.
28.a. Corporate Authority. If Tenant is a corporation, the corporation
represents and warrants that the individual executing the Lease 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 or in accordance with the by-laws of said corporation, and that this
Lease is binding upon said corporation in accordance with its terms.
28.b. Limited Partnerships. If the Landlord herein is a limited
partnership, it is understood and agreed that any claims by Tenant on Landlord
shall be limited to the assets of the limited partnership, and furthermore,
Tenant expressly waives any and all rights to proceed against the individual
partners or the officers, directors or shareholders of any corporate partner,
except to the extent of their interest in said limited partnership.
29. GENERAL PROVISIONS.
(i) Plats and Riders. Clauses, plats and riders, if any, signed by the
Landlord and the Tenant and endorsed on or affixed to this Lease are a part
hereof.
(ii) Waiver. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of the
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of the acceptance of such rent.
(iii) Notices. All notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent by
United States Mail, postage prepaid, addressed to the Tenant at the Premises, or
to such other place as Tenant may from time to time designate in a notice to the
Landlord. All notices and demands by the Tenant to the Landlord shall be sent by
United States Mail, postage prepaid, addressed to the Landlord at the office of
the Building, or to such other person or place as the Landlord may from time to
time designate in a notice to the Tenant.
(iv) Joint Obligation. If there be more than one Tenant the obligations
hereunder imposed upon Tenants shall be joint and several.
(v) Marginal Headings. The marginal headings and Article titles to the
Articles of this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
(vi) Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(vii) Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
(viii) Recordation. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the prior written consent of the other
party.
(ix) Quiet Possession. Upon Tenant paying the rent reserved hereunder and
observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder. Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.
(x) Late Charges. Tenant hereby acknowledges that late payment by Tenant to
Landlord of rent or other sums due hereunder will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Landlord by
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or of a sum due from Tenant shall not be received by
Landlord or Landlord's designee with ten (10) days after written notice that
said amount is past due, then Tenant shall pay to Landlord a late charge equal
to six (6%) per cent of such overdue amount. The parties hereby agree that such
late charges represent a fair and reasonable estimate of the cost that Landlord
will incur by reason of the late payment by Tenant. Acceptance of such late
charges by the Landlord shall in no event constitute a waiver of Tenant's
default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder.
<PAGE>
(xi) Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter convered or mentioned in this Lease,
and no prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provision of this Lease ?????? amended or added to
except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This Lease shall not be effective or binding
on any party until fully executed by both parties hereto.
(xii) Inability to Perform. Notwithstanding the provisions of Paragraph 4,
Page 1A, this Lease and the obligations of the Tenant hereunder shall not be
affected or impaired because the Landlord is unable to fulfill any of its
obligations hereunder or is delayed in doing so, if such inability or delay is
caused by reason of strike, labor troubles, acts of God, or any other cause
beyond the reasonable control of the Landlord.
(xiii) Attorneys' Fees. In the event of any action or proceeding brought by
either party against the other under this Lease the prevailing party shall be
entitled to recover all costs and expenses including the fees of its attorneys
in such action or proceeding in such amount as the court may adjudge reasonable
as attorneys' fees.
(xiv) Sale of Premises by Landlord. In the event of any sale of the
Building, Landlord shall be and is hereby entirely freed and relieved of all
liability under any and all of its covenants and obligations contained in or
derived from this lease arising out of any act, occurrence or omission occurring
after the consummation of such sale; and the purchaser, at such sale or any
subsequent sale of the Premises shall be deemed, without any further agreement
between the parties or their successors in interest or between the parties and
any such purchaser, to have assumed and agreed to carry out any and all of the
covenants and obligations of the Landlord under this Lease.
(xv) Subordination, Attornment. Upon request of the Landlord, Tenant will
in writing subordinate its rights hereunder to the lien of any first mortgage,
or first deed of trust to any bank, insurance company or other lending
institution, now or hereafter in force against the land and Building of which
the Premises are a part, and upon any buildings hereafter placed upon the land
of which the Premises are a part, and to all advances made or hereafter to be
made upon the security thereof.
In the event any proceedings are brought for foreclosure, or in the event
of the exercise of the power of sale under any mortgage or deed of trust made by
the Landlord covering the premises, the Tenant shall attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Landlord
under this Lease.
The provisions of this Article to the contrary notwithstanding, and so long
as Tenant is not in default hereunder, this Lease shall remain in full force and
effect for the full term hereof.
(xvi) Name. Tenant shall not use the name of the Building or of the
development in which the Building is situated for any purpose other than as an
address of the business to be conducted by the Tenant in the premises.
(xvii) Separability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof and such other provision shall remain in full force and
effect.
(xviii) 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.
(xix) Choice of Law. This Lease shall be governed by the laws of the State
in which the Premises are located.
(xx) Signs and Auctions. Tenant shall not place any sign upon the Premises
or Building or conduct any auction thereon without Landlord's prior written
consent.
(PAGE 4--OFF. BLDG.)
<PAGE>
30. BROKERS. Tenant warrants that it has had no dealings with any real
estate broker or agents in connection with the negotiation of this Lease
excepting only CB Commercial Real Estate Group, Inc. and it knows of no other
real estate broker or agent who is entitled to a commission in connection with
this Lease.
31. DEFAULT BY LANDLORD: Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time, but
in no event later than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage or deed of trust covering
Premises, whose name and address shall have heretofore been furnished to Tenant
in writing, specifying wherein Landlord has failed to perform such obligation;
provided, however, if the nature of Landlord's obligation is such that more than
thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period
and thereafter diligently prosecutes the same to completion. In no event shall
Tenant have the right to terminate this Lease as a result of Landlord's default,
and Tenant's remedies shall be limited to damages and/or an injunction.
32. BUILDING PLANNING: Landlord shall have the right at any time, without
the same constituting an actual or constructive eviction and without incurring
any liability to Tenant therefor, to change the arrangement and/or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets, or other public parts of the Building and the Project and to change the
name, number, or designation by which the Building or the Project is commonly
known. In the event Landlord determines that the efficient leasing or operation
of the Building or the Project requires relocation of Tenant's Premises to
another part of the Building or the Project, Landlord shall have the right, upon
not less than sixty (60) days' prior written notice to Tenant, to substitute
other premises within the Building or the Project for the Premises defined in
this Lease, provided that such substitute premises shall be at least as large as
the Premises defined in this Lease. In such event, Tenant shall vacate the
Premises defined in this Lease and occupy such substitute premises under all of
the terms and conditions of this Lease no later than the date stated in
Landlord's notice. Landlord shall bear all reasonable direct expenses of
relocating Tenant's furnishings, trade fixtures, and equipment to substitute
premises including, without limitation, the cost of installation of Tenant's
then existing telephone system in the substitute premises.
The parties hereto have executed this Lease at the place and on the dates
specified immediately adjacent to their respective signatures.
If this Lease has been filled in, it has been prepared for submission to
your attorney for his approval. No representation or recommendation is made by
the real estate broker or its agents or employees as to the legal sufficiency,
legal effect, or tax consequences of this Lease or the transactions relating
thereto.
SPORTS ARENA VILLAGE, LTD., A LIMITED
PARTNERSHIP
By (Sig.)
----------------------------------------
Address c/o The Wheatcroft Company By (Sig.)
---------------------------- ----------------------------------------
404 Camino Del Rio South, Suite 106 "LANDLORD"
- ------------------------------------
San Diego, CA 92108
TECHNOLOGY APPLICATIONS & SERVICE COMPANY,
------------------------------------------
A DELAWARE CORPORATION
By
---------------------------------------
BY (Sig.)
Address 4055 Hancock Street, Suite 125 ---------------------------------------
------------------------------- David Knott, Controller
San Diego, CA 92110 "TENANT"
(PAGE 5--OFF. BLDG.)
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside or
inside of the Building without the written consent of Landlord first had and
obtained and Landlord shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the expense of
Tenant.
All approved signs or lettering on doors shall be printed, painted affixed
or inscribed at the expense of Tenant by a person approved of by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises; provided, however, that Landlord may furnish and install a
Building standard window covering at all exterior windows. Tenant shall not
without prior written consent of Landlord cause or otherwise sunscreen any
window.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairwells shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress and egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks
or any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the Tenant who, or whose employees or invitees shall have
caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without the prior notice to Landlord and all moving of the same into or
out of the Building shall be done at such time and in such manner as Landlord
shall designate. Landlord shall have the right to prescribed the weight, size
and position of all safes and other heavy equipment brought into the Building
and also the times and manner of moving the same in and out of the Building.
Safes or other heavy objects shall, if considered necessary by Landlord,
stand on supports of such thickness as is necessary to
properly distribute the weight. Landlord will not be responsible for loss of or
damage to any such site or property from any cause and all damage done to the
Building by moving or maintaining any such site of other property shall be
repaired at the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.
8. No cooking shall be done or permitted by any Tenant on the Premises, nor
shall the Premises be used for the storage of merchandise, for washing clothes,
for lodging, or for any improper, objectionable or immoral purposes.
9. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than that supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Landlord. The location of telephones, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 P.M. and 8:00 A.M. the following day, access to the Building, or
to the halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking access is known to the person
or employees of the Building in charge and has a pass or is properly identified.
The Landlord shall in no case be liable for damages for any error with regard to
the admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement, or other commotion, the Landlord
reserves the right to prevent access to the Building during the continuance of
the same by closing of the doors or otherwise for the safety of the tenants and
protection of property in the Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
the rules and regulations of the Building.
13. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Landlord.
14. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building of
which the Premises are a part.
15. Tenant shall not disturb, solicit, or canvas any occupant of the
Building and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name
of the Building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public
portions of the Building, and the public facilities, and heating and air
conditioning, as well as facilities furnished for the common use of the tenants,
in such manner as it deems best for the benefit or the tenants generally.
18. All entrance doors in the Premises shall be left locked when the
Premises are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress and egress from the Premises.
(PAGE 6--OFF. BLDG.)
<PAGE>
ADDENDUM TO THAT CERTAIN OFFICE BUILDING LEASE DATED MAY 25, 1995, BY AND
BETWEEN SPORTS ARENA VILLAGE, LTD., A LIMITED PARTNERSHIP, AS LANDLORD, AND
TECHNOLOGOY APPLICATIONS & SERVICE COMPANY, A DELAWARE CORPORATION, AS TENANT.
33. TENANT IMPROVEMENTS
The Landlord shall provide, at the Landlord's expense, turnkey tenant
improvements subject to the attached Exhibit "A" space plan. Said improvements
shall utilize building standard materials and finishes. Any additional tenant
improvement work shall be performed by the Landlord at the Tenant's sole cost
and expense.
Paint, wallcovering, and carpet color selections shall be made by the
Tenant from an offering provided by the Landlord.
All tenant improvement work shall be performed by the Landlord's
contractor. The costs associated with Landlord provided space planning, working
drawings, and necessary City of San Diego tenant improvement building permits
shall be paid for by the Landlord.
- ---------------------------------- ---------------------------------------
LANDLORD'S INITIALS TENANT'S INITIALS
<PAGE>
EXHIBIT "A"
SPACE PLAN
insert diagram
SUITE 125
1,543 rentable square feet
(Not to full 1/8" = 1' scale due to FAX reduction)
INITIAL INITIAL
<PAGE>
SUPPLEMENT
TO
OFFICE BUILDING LEASE
This supplement is entered into as of the 25th day of May, 1995, by and
between SPORTS ARENA VILLAGE LTD., (herein called "Landlord") and Technology
Applications & Service Company (herein called "Tenant"), as a Supplement to that
certain Office Building Lease between Landlord and Tenant dated May 25, 1995
with respect to space in the Sports Arena Village Office Building. Said Office
Building Lease shall hereinafter be called the "Lease", and all terms referenced
herein shall have the same meaning as specified in the Lease.
WHEREFORE, the parties hereto hereby agree as follows:
1. DEFINITION OF REAL ESTATE TAXES
2. GROUND LEASE
The parties acknowledge and understand that Landlord is the Lessee under
that certain Lease Agreement with the City of San Diego as Lessor covering the
underlying ground on which the office building is constructed, and the
improvements constructed thereon, pursuant to that certain Lease Agreement dated
December 28, 1973, filed on January 2, 1974 in the Office of the City Clerk as
document number 745923 between the City of San Diego and James R. Simpson, as
amended by that certain First Amendment to Lease Agreement between the City of
San Diego and Lion Property Company dated November 17, 1976 (hereinafter
collectively referred to as the "City Lease"). The term of the City Lease
expires on December 31st in the year 2029. Landlord hereby represents and
warrants that the Office Building Lease and this Supplement do not violate any
provisions of the City Lease and are not in conflict with any of the provisions
of the City Lease. As long as Tenant is not in default under any of the
provisions of the Office Building Lease and this Supplement, Landlord shall
perform all obligations as Lessee under the City Lease so that Tenant shall have
quiet enjoyment pursuant to the terms of the Shopping Center Lease.
3. RIGHTS AND OBLIGATIONS UNDER CITY LEASE
If for any reason, the City Lease is terminated prior to the expiration of
its scheduled term, whether by reason of default, cancellation, surrender or for
any other reason, so long as Tenant under the Office Building Lease is not in
default, City shall honor the rights of Tenant under said Office Building Lease.
<PAGE>
3. (Continued)
Tenant shall throughout the term of the Office Building Lease, and any
extensions thereof, promptly and diligently perform all of Tenant's obligations
thereunder, with the City of San Diego, as Lessor under the City Lease, being a
third party beneficiary of those obligations with the right to enforce said
obligations against Tenant. If at any time the City of San Diego or its nominee
shall acquire the interests of the Lessee under the City Lease, Tenant shall
attorn to the City of San Diego or its nominee as the Landlord under the Office
Building Lease.
4. INSURANCE
All insurance policies required to be maintained by Tenant shall (1)
contain an endorsement requiring not less than thirty (30) days prior written
notice from the insurance company to Tenant, Landlord, Landlord's lender, and
the City of San Diego before cancellation or change in the coverage, scope or
amount of the policy, and (2) contain provisions naming the Landlord, the
Landlord's lender, and the City of San Diego as additional insured, as their
interests may appear.
5. DAMAGE TO PREMISES
In the event of any fire or other damage to the Premises, Tenant shall give
written notice thereof to Landlord within one (1) week after the occurrence of
such damage.
6. RATIFICATION
Except as expressly set forth in this Supplement, all terms and provisions
of the Office Building Lease referenced above are hereby ratified, confirmed and
in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above.
TECHNOLOGY APPLICATIONS & SERVICE COMPANY
TENANT: By:________________________________________________________
SPORTS ARENA VILLAGE, LTD., A LIMITED PARTNERSHIP
LANDLORD: By:________________________________________________________
THIS LEASE AGREEMENT dated August ____, 1995, by and between FRED E. SUTTON
and HAROLD S. SUTTON d/b/a SUTTON PROPERTIES, a Florida general partnership,
with its principal office at P. O. Box 060250, Palm Bay, Florida 32906,
hereinafter called the Lessor, and OMI ACQUISITION CORP., a Delaware
corporation, with its principal office at 270 Motor Parkway, P. O. Box 11368,
Hauppauge, New York 11788, hereinafter called the Lessee.
W I T N E S S E T H:
The Lessor hereby leases to the Lessee and Lessee hereby leases from the
Lessor, the following described property, sometimes hereinafter referred to as
the leased premises, to wit:
Space designated as a portion of the Woodlake Commerce Park Building
2330, Suite 2 comprising approximately 35,510 square feet, as shown
on Exhibit "A" attached hereto and made a part hereof, being located
at the following address: 2330 Commerce Park Drive, N.E., City of
Palm Bay, County of Brevard, State of Florida, in "as is" condition,
subject only to the Lessor's demolition obligation in Paragraph 2 below.
1. TERM: Lessee to have and to hold above described premises for a term of
ten (10) year(s) commencing on the 15th day of August, 1995, on the terms and
conditions as set forth herein.
2. USE AND POSSESSION: It is understood that the leased premises are to be
used for the design, development and production of high technology products, and
for such other uses which comply with all applicable regulations regarding the
use and operation of the business located in the leased premises, and for no
other purpose without prior written consent of Lessor. Lessor represents that as
of the date of this lease, the premises can lawfully be used for such purpose.
Lessee shall not use the leased premises for any unlawful purpose or so as to
constitute a nuisance. Lessee shall be responsible for all improvements,
permitting, design work and any other items necessary to complete the leased
premises for its occupancy, except that Lessor agrees to perform any demolition
work within the 8,820 square feet designated and currently being used as office
space, as requested by Lessee pursuant to plans to be submitted to local
permitting agencies by Lessee for making improvements to the leased premises
prior to occupancy. Lessee shall accept possession of the leased premises upon
completion of such demolition work by Lessor. Lessor shall complete the
demolition work by August 15, 1995. The Lessee, at the expiration of the term,
shall deliver up the leased premises in good repair and condition, damages
beyond the control of the Lessee, reasonable use, ordinary decay, fire and
casualty damages, Lessor's repair obligations, wear and tear excepted.
<PAGE>
3. RENT: Lessee covenants and agrees to pay, together with any and all
sales and use taxes levied upon the use and occupancy of the leased premises, as
set forth in Paragraph 6, on August 15, 1995 and September 15, 1995, to Lessor
in advance, a base rent of $3,675.00, plus 6% sales tax in the amount of
S220.50, for a total monthly rent of $3,895.50. This represents the phased move
in rent contemplated by the parties. Thereafter Lessee hereby covenants and
agrees to pay, together with any and all sales and use taxes levied upon the use
and occupancy of the leased premises, as set forth in Paragraph Six, during the
term hereof, to the Lessor, in advance and beginning on October 15, 1995 and on
the fifteenth day of each and every month thereafter for the next twelve month
period, a base rent of $14,795.83, plus 6% tax in the amount or S887.75, for a
total monthly rent of S15,683.58.
4. RENT PAYMENT: Rent will be paid to Lessor at P. O. Box 060250, Palm Bay,
Florida 32906-0250. The obligation to pay rent under Paragraph Three shall be in
addition to "additional rent" as provided for in this Lease.
5. RENT ADJUSTMENT: On January 1st of each year, beginning January 1, 1997,
the monthly rental provided in Paragraph Three, or as previously adjusted, shall
be increased by the "rent adjustment," which shall be a cumulative 4%.
6. SALES AND USE TAX: The Lessee hereby covenants and agrees to pay
monthly, as additional rent, any sales, use or other tax, excluding State and/or
Federal Income Tax, now or hereafter imposed upon rents by the United States of
America, the State, or any political subdivisions thereof, to the Lessor,
notwithstanding the fact that such statute, ordinance or enactment imposing the
same may endeavor to impose the tax on the Lessor.
7. NOTICES: For purpose of notice or demand, the respective parties shall
be served by certified or registered mail, return receipt reguested, addressed
to the Lessee or to the Lessor at their respective principal office addresses as
set forth herein. Additional notice to Lessee shall be to Robert Russo,
Vice-President and General Manager, Photronics, Inc., 270 Motor Parkway,
Hauppauge, New York 11788, until otherwise advised by Lessee.
8. ORDINANCES AND REGULATIONS: The Lessee hereby covenants and agrees to
comply with all the rules and regulations of the Board of Fire Underwriters,
Officers or Boards of the City, County or State having jurisdiction over the
leased premises, and with all ordinances and regulations or governmental
authorities wherein the leased premises are located, at Lessee's sole cost and
expense, but only insofar as any of such rules, ordinances and regulations
pertain to the specific manner in which the Lessee shall use the leased
premises; the obligation to comply in every other case, and also all cases where
such rules, regulations and ordinances require repairs, alterations, changes or
additions to
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<PAGE>
the building (including the leased premises) or building equipment, or any part
of either, being hereby expressly assumed by Lessor, and Lessor convenants and
agrees promptly and duly to comply with all such rules, regulations and
ordinances with which Lessee has not herein expressly agreed to comply.
9. SIGNS: The Lessee will not place any signs or other advertising matter
or material on the exterior, or on the interior where possible to be seen from
the exterior, of the leased premises or of the building in which the leased
premises are located, without the prior written consent of the Lessor. Any
lettering or signs placed on the interior of said building shall be for
directional purposes only, and such signs and lettering shall be of a type,
kind, character and description to be approved by Lessor. All signs shall be
consistent with the common character of signs within the commerce park where the
leased premises are located. If Lessor fails to provide Lessee with notice that
any proposed signs are approved within thirty (30) days of receipt by Lessor of
a request for signs, such inaction shall constitute consent by Lessor. However,
notwithstanding any consent by Lessor, any signs, and the installation thereof,
must comply with any applicable regulations regarding signs.
10. SERVICES: Lessor shall provide a reasonable amount of free parking for
Lessee's employees on Lessor's parking area adjacent to the building in which
the leased premise are situated. Lessor shall provide Lessee with the following
designated parking spaces:
(a) Six (6) reserved visitor spaces;
(b) Two (2) reserved handicap spaces; and
(c) Eight (8) reserved executive spaces.
11. ALTERATIONS: (a) The parties acknowledge that Lessee will be making
alterations and improvements prior to occupancy under the terms of this Lease,
and Lessor approves of the architectural plans attached hereto. If Lessee, after
due diligence, is unable to obtain a building permit to perform said alterations
and improvements pursuant to said plan, or with reasonable modifications
thereto, or after completion of the work, is unable to obtain a certificate of
occupancy for reasons unrelated to the work performed pursuant to said plans,
then Lessee may terminate this Lease. This right to terminate applies only to
the initial alterations and improvements to the leased premises pursuant to the
plans attached hereto.
(b) Lessee, by occupancy and possession hereunder, accepts the leased
premises as being in good repair and condition. Lessee shall maintain the leased
premises and every part thereof in good condition, damages by causes beyond the
control of the Lessee, reasonable use, ordinary decay and wear and tear, fire
and casualty and Lessor repair obligations excepted. Lessee shall not make or
suffer to be made any alterations, additions or improvements to or of the leased
premises or any part thereof
3
<PAGE>
without prior written consent of Lessor, which consent the Lessor covenants
and agrees shall not be unreasonably withheld. If Lessor fails to provide Lessee
with notice of whether such alterations, additions or improvements are approved
within thirty (30) days of receipt by Lessor of a request for same, such
inaction shall constitute approval by Lessor. In the event Lessor consents to
the proposed alterations, additions, or improvements, the same shall be at
Lessee's sole cost and expense, and Lessee shall hold the Lessor harmless on
account of the cost thereof. Any such alterations shall be made at such times in
such manner as not to unreasonably interfere with the occupation, use and
enjoyment of the remainder of the building by the other tenants thereof.
(c) If required by Lessor, any alterations shall be removed by Lessee upon
the termination or sooner expiration of the term of this Lease and Lessee shall
repair damage to the premises caused by such removal, all at Lessee's cost and
expense. All alterations, additions and improvements shall comply with any and
all regulations of all regulatory agencies having jurisdiction thereof.
12. QUIET ENJOYMENT: The Lessor covenants and agrees that Lessee, on paying
said monthly rent and performing the covenants herein, shall and may peaceably
and quietly hold and enjoy the said leased premises and common areas, including
but not limited to parking areas, sidewalks, entrances, exits, lobbies,
restrooms, and lounges for the term aforesaid.
13. LESSOR'S RIGHT TO INSPECT AND DISPLAY: The Lessor shall have the right,
during normal business hours of Lessee on twenty-four (24) hours notice, to
enter the leased premises for the purpose of examining or inspecting same and of
making such repairs or alterations therein as the Lessor shall deem necessary.
Any such repair will be made so as to minimize interference with Lessee's
business. The notice and hour requirements shall be excused in the event of an
emergency. The Lessor shall also have the right to enter the leased premises at
all reasonable hours for the purpose of displaying said premises to prospective
tenants within ninety days prior to termination of this Lease. The parties
acknowledge that Lessee may be performing work for the United States of America
that require security clearances for entry to certain areas of the leased
premises. Lessor agrees to comply with any reasonable requirements necessary for
Lessor to obtain access to these areas, it being agreed that Lessor shall not be
deprived access because of such fact.
14. DESTRUCTION OF PREMISES:
(a) If the leased premises are totally destroyed by fire or other
casualties, or partially damaged so as to materially affect the ability of
Lessee to carry on its business, both the Lessor and Lessee shall have the
option of terminating this Lease or any renewal thereof, upon giving
written notice at any time
4
<PAGE>
within thirty days from the date of such destruction, and if the Lease be
so terminated, all rent shall cease as of the date of such destruction and
any prepaid rent shall be refunded.
(b) If such leased premises are partially damaged by fire or other
casualty, or totally destroyed thereby and neither party elects to
terminate this Lease within the provisions of Paragraph (a) above or (c)
below, then the Lessor agrees, at Lessor's sole cost and expense, to
restore the leased premises to a kind and quality substantially similar to
that immediately prior to such destruction or damage. Said restoration
shall be commenced within a reasonable time and completed without delay on
the part of the Lessor, and in any event shall be accomplished within one
hundred eighty (180) days from the date of the fire or other casualty. In
such case, all rents paid in advance shall be proportioned as of the date
of damage or destruction and all rent thereafter accruing shall be
equitable and proportionately suspended and adjusted pending completion of
rebuilding, restoration or repair, except that in the event the destruction
or damage is so extensive as to make it unfeasible for the Lessee to
conduct Lessee's business on the leased premises, the rent shall be
completely abated until the leased premises are restored by the Lessor or
until the Lessee resumes use and occupancy of the leased premises for the
conduct of business, whichever shall first occur. The Lessor shall not be
liable for any inconvenience or interruption of business of the Lessee
occasioned by fire or other casualty.
(c) If the Lessor undertakes to restore, rebuild or repair the
premises, and such restoration, rebuilding or repair is not accomplished
within one hundred eighty (180) days, the Lessee shall have the right to
terminate this Lease by written notice to the Lessor within thirty (30)
days after expiration of said one hundred eighty (180) day period.
(d) Lessor shall not be liable to carry fire, casualty or extended
damage insurance on the person or property of the Lessee or any person or
property which may now or hereafter be placed in the leased premises.
15. CONDEMNATION: If during the term of this Lease or any renewal thereof,
the whole of the leased premises, or such portion thereof as will materially
affect the use of the leased premises for the purpose leased, be condemned by
public authority for public use, then, in either event, the term hereby granted
shall cease and come to an end as of the date the Lessee is required to vacate
the leased premises by either Lessor or the condemnor. Upon such occurrence, the
rent shall be proportioned as of such date and any prepaid rent shall be
returned to the Lessee. The Lessor shall be entitled to the entire award for
such taking except for any statutory claim on the Lessee for injury, damage or
destruction of Lessee's business accomplished by such taking. If a portion of
the leased premises is taken or condemned by public authority for public use so
as not to materially affect the
5
<PAGE>
ability of the Lessee to use its remaining portion of the leased premises
for the purposes leased, this Lease will not be terminated but shall continue.
In such case, the rent shall be equitably and fairly reduced or abated for the
remainder of the term in proportion to the amount of the leased premises taken.
In no event shall the Lessor be liable to the Lessee for any business
interruption, diminution in use or for the value of any unexpired term of this
Lease.
16. ASSIGNMENT AND SUBLEASE: The Lessee covenants and agrees not to
encumber or assign this Lease or sublet all or any part of the leased premises
without the written consent of the Lessor, which consent the Lessor covenants
and agrees shall not be unreasonably withheld. Lessee shall provide Lessor with
written notice of any proposed assignment or sublease at least thirty (30) days
prior to any proposed effective date of assignment or sublease. If Lessor fails
to provide Lessee with notice of whether such assignment or sublease is approved
within thirty (30) days of receipt by Lessor of such request, such inaction by
Lessor shall constitute consent. Notwithstanding the foregoing, Lessee has the
right to assign or sublet this Lease as long as the guarantee executed by
Diagnostic Retrieval Systems, Inc. remains in full force and effect and said
company has a financial worth at least comparable to that on the date this Lease
and Guarantee are executed. Any such assignment shall in no way relieve the
Lessee from any obligations hereunder for the payment of rents or the
performance of the conditions, covenants and provisions of this Lease.
In no event shall Lessee assign or sublet the leased premises for any
terms, conditions and covenants other than those contained herein, except that
Lessee may assign or sublet to another person for different rent or a different
use as long as such use complies with all applicable regulations regarding the
use and operation of businesses located in the leased premises. In no event
shall this Lease be assigned or be assignable by operation of law or by
voluntary or involuntary bankruptcy proceedings or otherwise, and in no event
shall this Lease or any rights or privileges hereunder be an asset of Lessee
under any bankruptcy, insolvency or reorganization proceedings. Lessor shall not
be liable nor shall the leased premises be subject to any mechanics,
materialmans, or other type liens and Lessee shall keep the premises and
property in which the leased premises are situated free from any such liens
caused by acts of Lessee and shall indemnify Lessor against and satisfy any such
liens which may obtain because of acts of Lessee notwithstanding the foregoing
provision.
17. HOLDOVER: It is further covenanted and agreed that if the Lessee, any
assignee or sublessee shall continue to occupy the leased premises after the
termination of this Lease without prior written consent of the Lessor, such
tenancy shall be Tenancy at Sufferance. Acceptance by the Lessor of rent after
such termination shall not constitute a renewal of this Lease or consent to such
occupancy nor shall it waive Lessor's right of reentry or any other right
contained herein.
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<PAGE>
18. SUBORDINATION: Subject to the last sentence of this paragraph, this
Lease shall be subject and subordinated at all times to the liens of any
mortgages or deeds of trust in any amount or amounts whatsoever now existing or
hereafter encumbering the leased premises, without the necessity of having
further instruments executed by the Lessee to effect such subordination.
Notwithstanding the foregoing, Lessee covenants and agrees to execute and
deliver upon demand, such further instruments evidencing such subordination of
this Lease to such liens of any such mortgages or deeds of trust as may be
requested by Lessor. Lessor shall provide a non-disturbance agreement from the
mortgagee holding the mortgage on the leased premises on or before November 15,
1995. So long as the Lessee hereunder shall pay the rent reserved and comply
with, abide by and discharge the terms, conditions, covenants, and obligations
on its part, to be kept and performed herein and shall attorn to any successor
in title, notwithstanding the foregoing, the peaceable possession of the Lessee
in and to the leased premises for the term of this Lease shall not be disturbed,
in the event of the foreclosure of any such mortgage or deed of trust, by the
purchaser at such foreclosure sale or such purchaser's successor in title.
19. INDEMNIFICATION: The Lessor shall not be liable for any damage or
injury to any person or property whether it be the person or property of the
Lessee, the Lessee's employees, agents, guests, invitees or otherwise by reason
of Lessee's occupancy of the leased premises or because of fire, flood,
windstorm, Acts of God or for any other reason unless caused by the intentional
acts or gross negligence of Lessor. The Lessee agrees to indemnify and save
harmless the Lessor, its agents, employees and contractors from and against any
and all loss, damage, claim, demand, liability or expense by reason of damage to
person or property which may arise or be claimed to have arisen as a result of
the occupancy or use of said leased premises by the Lessee or by reason thereof
or in connection therewith, or in any way arising on account of any injury or
damage caused to any person or property on or in the leased premises providing,
however, that Lessee shall not indemnify as to the loss or damage due to fault
of Lessor.
20. CONSTRUCTION OF LANGUAGE: The terms lease, lease agreement or agreement
shall be inclusive of each other, also to include renewals, extensions or
modifications of this Lease. Words of any gender used in this Lease shall be
held to include any other gender, and in the singular shall be held to include
the plural and the plural to include the singular, when the sense requires. The
paragraph headings and titles are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part hereof.
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<PAGE>
21. DEFAULT: In the event the Lessee shall default in the payment of rent,
those sums designated as additional rent or any other sums payable by the Lessee
herein, and such default shall continue for a period of ten days from the date
of written notice by Lessor to Lessee, or if the Lessee shall default in the
performance of any other covenants or agreements of this Lease and such default
shall continue for thirty days after written notice thereof (or if the default
cannot be cured within thirty (30) days, that Lessee failed to diligently
proceed to cure), or if the Lessee should become bankrupt or insolvent or any
debtor proceedings be taken by or against the Lessee, then and in addition to
any and all other legal remedies and rights, the Lessor may terminate this Lease
and retake possession of the leased premises, or enter the leased premises and
re-let the same without termination, in which later event the Lessee covenants
and agrees to pay any deficiency after Lessee is credited with the rent thereby
obtained less all repairs and expenses (including the expenses of obtaining
possession), or the Lessor may resort to any two or more of such remedies or
rights, and any other remedies provided by law except acceleration, and adoption
of one or more such remedies or rights shall not necessarily prevent the
enforcement of others concurrently or thereafter. Lessor shall be entitled to
its landlord's lien provided by law. Lessor agrees to mitigate damages, if
possible.
The Lessee also covenants and agrees to pay reasonable attorney's fees and
costs and expenses of the Lessor, including court costs, if the Lessor employs
an attorney to collect rent or enforce other rights of the Lessor herein in
event of any breach as aforesaid and the same shall be payable regardless of
whether collection or enforcement is effected by suit or otherwise. In the event
any litigation arises under this Agreement, the prevailing party shall be
entitled to attorney's fees and costs, including attorney's fees for any appeal.
22. SUCCESSORS AND ASSIGNS: This Lease shall bind and inure to the benefit
of the successors, assigns, heirs, executors, administrators and legal
representatives of the parties hereto.
23. NON-WAIVER: No waiver of any covenant or condition of this Lease by
either party shall be deemed to imply or constitute a further waiver of the same
covenant or condition or any other covenant or condition of this Lease.
24. OPTION TO RENEW: Lessee is hereby granted an option to renew this lease
for one additional term of five (5) years. Lessee shall, not less than ninety
days prior to the end of the term hereof, by written notice to the Lessor,
notify Lessor of its intention to exercise this option to renew. Failure of
Lessee to serve such written notice of exercise of option on the Lessor shall
terminate this option. Upon exercise of said option to renew, the lease term
shall be extended for an additional five (5) years upon all of the terms and
conditions of this lease, subject to any rent adjustments of Paragraph 5.
However, there shall be no additional options to renew.
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25. SECURITY DEPOSIT: The Lessee, concurrently with -the execution of this
Lease, has deposited with the Lessor the sum of $20,000.00, the receipt being
hereby acknowledged, which sum shall be retained by Lessor as security for the
payment by the Lessee of the rent herein agreed to be paid and for the faithful
performance of the covenants of this Lease. If at any time the Lessee shall be
in default following notice and the expiration of any applicable grace period in
any of the provisions of this Lease, the Lessor shall have the right to use said
deposit, or so much thereof as may be necessary in payment of any rent in
default aforesaid and/or in payment of any expense incurred by the Lessor in and
about the curing of any default by said Lessee, and/or in payment of any damages
incurred by the Lessor by reason of such default of the Lessee, or at the
Lessor's option, the same may be retained by the Lessor in liquidation of part
of the damages suffered by the Lessor by reason of the default of the Lessee. In
the event that said deposit shall not be utilized for any such purpose, then
such deposit shall be applied to the rent last due for the term of this Lease or
any renewal term thereof. Said deposit shall not bear interest.
26. ADDITIONAL CHARGES: The Lessee shall pay to Lessor as additional rent
on a monthly basis its pro rata share of all costs and expenses related to
operating, managing, equipping, insuring, lighting, repairing, cleaning,
decorating, preserving, altering, replacing, maintaining and enhancing building
1 and building 2 of the commerce park in which the leased property is located
along with parking areas and other areas within the commerce park in which the
buildings are located. Such costs and expenses shall include but not be 1imited
to: pest extermination; inspection of equipment; inspection and repair of fire
sprinkler and alarm service; removal of dirt and debris; planting, replanting
and replacing flowers; landscaping; irrigation and supplies; all costs and
expenses associated with maintaining lighting facilities and storm drainage and
retention systems, whether on or off premises; electric service, sewage
treatment plant and domestic water well, pump and similar costs; audit costs;
all premiums for liability, loss of rents, property damage, fire and worker's
compensation insurance; wages; unemployment taxes; social security taxes;
personal property taxes; management fees; legal fees; solid waste charges;
windows; maintenance, lining, bumpering, top coating and repairing all
impervious surfaces; rental of machinery necessary to implement any of the
foregoing services; and bank charges, along with real property taxes and
assessments. Notwithstanding, Lessee shall not be obligated to pay any portion
of capital items with the exception of parking lot expansion if hereafter
required in writing by Lessee. Nothing contained herein shall be deemed or
construed to modify or negate Lessor's obligations under that memorandum dated
_______________. The only repair obligation of the Lessor is the exterior of the
roof of the building and the structural portions of the building and leased
premises, as long as such repair is not necessitated by the action of the
Lessee, its employees, agents or contractors.
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Current estimated monthly charges are as follows:
(a) Woodlake Commerce Park CAM $ 103.57 (inc. 6% sales tax)
(b) Building CAM $1811.01 (inc. 6% sales tax
(c) Real Property taxes $1707.44
Copies of the proposed budget for the upcoming year are appended hereto.
Lessee's pro rata percentage for the leased premises for determining
Building CAM and Real Property taxes is 21.6%. This represents the Lessee's pro
rata share determined by lease space of 35,510 square feet and tota1 building
square feet of 164,500 square feet. Lessee's pro rata percentage for the
Woodlake Commerce Park CAM is 4.52736%. This percentage is determined as
follows: (i) the percentage of land comprising buildings 1 and 2 of Woodlake
Commerce Park owned by Lessor in the entire Woodlake Commerce Park (20.96%)
multiplied by (ii) the pro rata portion of CAM expenses (21.6%) (20.96%) x
(21.6%) - 4.52736%.
28. IMPACT FEE: It is understood that there is currently on record with the
City of Palm Bay projected water and sewer uses with regard to the demised
premises. Leasor has previously paid to the City of Palm Bay an impact fee based
upon such projected usage. Lessor has been advised by the City of Palm Bay that
Lessee's proposed use wi11 not require the additional payment of impact fees.
However, should the actual usage of water and sewer by Lessee hereunder increase
over and above the projected usage, and should the City of Palm Bay assess an
additional impact fee against the Lessor as a result of such increased usage,
Lessee shall be and become responsible for any increased impact fee. Such
increase shall be due and payable as additiona1 rent hereunder and shall be paid
by Lessee to Lessor within twenty (20) days after submission of invoice for said
amount.
29. PAST DUE RENT: If Lessee shall fail to pay any rents, additional rents
or other charges characterized herein as additiona1 rent when the same become
due and payable, such unpaid amounts shal1 bear interest from the due date
thereof to the date of payment at the rata of five percent (5%} until paid. The
provisions herein for late payment service charges shall not be construed to
extend the dates for payment of any sums required to be paid by Lessee hereunder
or to relieve Lessee of its obligation to pay all such sums at the time or times
herein stipulated. Notwithstanding the imposition of any charges pursuant to
this section, Lessee shall be in default under this Lease if any or all payments
required to be made by Lessee are not made at the time therein stipulated and
neither the demand nor collection by Lessor
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of such late payment service charges shall be construed as a cure for such
default on the part of the Lessee.
Lessor permits a ten (10) day grace period.
30. This information is being provided as required by Florida Statute
404.056:
RADON GAS: Radon is a naturally occurring radioactive gas that, when
it has accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of radon
that exceed federal and state guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may be
obtained from your county public health unit.
31. VENUE. In the event any litigation arises out of this Agreement, venue
shall be in a court of competent jurisdiction in Brevard County, Florida.
32. SEVERABILITY. In the event that any term or provision of this Agreement
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Agreement, or the application
of such term or provision to persons or circumstances other than those to which
it is held invalid or unenforceable shall not be affected thereby and each term
and provision of this Agreement shall be valid and be enforced by the fullest
extent permitted by law.
33. REPAIRS AND MAINTENANCE: Lessor shall not be liable to Lessee for any
repairs necessitated by some act or neglect of Lessee or any Permittee, or any
contractor, agent, employee, invitee of any of the aforesaid or, for any damage
to merchandise, trade fixtures, or personal property of Lessee in the leased
premises caused by water leakage from the roof, water lines, sprinklers or
heating and air conditioning equipment. Lessee shall be liable for all repairs
and replacements, ordinary and extraordinary, other than those for which Lessor
is responsible, and shall maintain in the leased premises in good order and
repair, clean, sanitary and safe, including the replacement and maintenance of
equipment, fixtures, improvements, floor covering, the exterior and interior
portions of all doors, door locks, security gates and windows, plumbing and
sewage facilities, heating and air conditioning equipment, walls, ceilings, and
all plate glass. Lessee shall, as part of its maintenance and repair obligations
hereunder, enter into a service contract with a local, approved contractor for
service, maintenance and repair of all heating, ventilation and air conditioning
equipment within and servicing the leased premises, which shall provide for
servicing by such contractor no less often than quarterly. A copy of such
contract shall be delivered to the Lessor annually. If Lessee refuses or
neglects to make repairs and/or maintain the leased promises, or any part
thereof, in a manner reasonably satisfactory to Lessor, Lessor shall have the
right, upon giving Lessee
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reasonable written notice of its election to do so, to make repair or perform
such maintenance on behalf of and for the account of Lessee. In such event, such
work shall be paid for by Lessee as additional rental promptly upon receipt of a
bill therefor. Lessee further agrees to paint the interior of the leased
premises when necessary in order to maintain at all times a clean and sightly
appearance. Nothing herein shall imply any duty on Lessor to do any work which
Lessor is not specifically and expressly required to perform under this Lease or
which, under any provisions of this Lease, Lessee may be required to perform;
and, the performing thereof by Lessor shall not constitute a waiver of Lessee's
default in failing to perform the same. Lessee acknowledges that the foregoing
provisions of this paragraph shall apply and become effective from and after the
date Lessee or its agents or contractors enter the leased premises or undertake
activities permitted hereunder. Lessee shall indemnify Lessor against, and hold
it harmless from, any claims, demands, or actions against Lessor or its agents,
employees or contractors for losses or damages incurred by Lessor or its agents,
employees or contractors arising out of or in any way connected with Lessee's
failure to perform its obligations or observe any covenants under this
paragraph.
34. HAZARDOUS SUBSTANCES: The term "Hazardous Substances" as used in this
Lease shall include, without limitation: flammables, explosives, radioactive
materials, asbestos, polychlorinated biphenyls (PCBs), chemicals known to cause
cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes,
toxic substances or related materials, petroleum and petroleum products, and
substances declared to be hazardous or toxic under any law or regulation now or
hereafter enacted or promulgated by any governmental authority.
Lessee shall not cause or permit to occur any violation of any federal,
state, or local law, ordinance, or regulation now or hereafter enacted, related
to environmental conditions on, under or about the premises arising from
Lessee's use or occupancy therein, nor shall Lessee cause or permit the use,
generation, release, manufacture, refinement, production, processing, storage or
disposal of any Hazardous Substance which violates any federal, state or local
law, ordinance or regulation now or hereafter enacted related to environmental
conditions without Lessor's prior written consent, which consent may be
withdrawn, conditioned, or modified by Lessor in its sole and absolute
discretion.
Lessee shall indemnify, defend and hold Lessor, its respective officers,
directors, beneficiaries, shareholders, partners, agents, and employees harmless
from all fines, suits, procedures, claims, clean-up and actions of every kind,
and all costs associated therewith, including attorney's and consultant's fees,
arising out of, or in any way connected with, any deposit, spill, discharge or
other release of Hazardous Substances by Lessee, at or from the premises, or
which arises at any time from Lessee's use or occupancy of the premises, or from
Lessee's
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failure to comply with or satisfy government required action on the matter.
Lessee's obligations and liabilities under this paragraph shall survive the
termination of this Lease.
35. CONFIDENTIALITY: Lessee shall not disclose the terms of this agreement
to any person except on a need to know basis.
IN WITNESS WHEREOF, Lessee and Lessor have caused this instrument to be
executed as of the date first above written, by their respective officers or
parties thereunto duly authorized.
Signed, sealed and delivered Lessee: OMI ACQUISITION CORP.
in the presence of:
(Sig) (Sig)
- ----------------------------- By --------------------------
Secretary
(Sig)
- ----------------------------- Title -----------------------
Attest ----------------------
Secretary
(Corporate Seal)
Signed, sealed and delivered
in the presence of:
Lessor: SUTTON PROPERTIES
(Sig)
- ----------------------------
(Sig) (Sig)
- ---------------------------- -----------------------------
Authorized Agent for
Sutton Properties
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<PAGE>
GUARANTEE
In order to induce Lessor to execute the foregoing Lease (the "Lease")
covering 35,510 square feet of space set forth in the foregoing Lease, and dated
August , 1995, by and between FRED E. SUTTON and HAROLD S. SUTTON d/b/a SUTTON
PROPERTIES and OMI ACQUISITION CORP., to which this Guarantee is an integral
part thereof, the undersigned hereby guarantees the payment and performance of
and agrees to pay and perform as a primary obligor all liabilities, obligations
and duties (including, but not limited to, payment of rent) imposed upon Lessee
under the terms of the Lease, as if the undersigned had executed the Lease as
Lessee thereunder as it relates only to the payment of rent, any sums identified
as additional rent, any obligations, duties and liabilities under Paragraph 34
of the Lease and any fines, attorney's fees and any other expenses or costs
incurred by Lessor for code violations and code violation proceedings initiated
by any regulatory agency for code violations alleged to exist in operation and
maintenance of Lessee's business and maintenance of the leased premises by
Lessee.
The undersigned hereby waives notice of acceptance of this guarantee and
all other notices in connection herewith or in connection with the liabilities,
obligations and duties guaranteed hereby, including notices of default by Lessee
under the Lease, and waives diligence, presentment and suit on the part of
Lessor in the enforcement of any liability, obligation or duty guaranteed
hereby.
The undersigned further agrees that Lessor shall not be first required to
enforce against Lessee or any other person any liability, obligation or duty
guaranteed hereby before seeking enforcement thereof against the undersigned.
Suit may be brought and maintained against the undersigned by Lessor to enforce
any liability, obligation or duty guaranteed hereby without joinder of Lessee or
any other person. The liability of the undersigned shall not be affected by any
indulgence, compromise, settlement or termination of the Lease to the extent
that Lessee thereafter continues to be liable thereunder. Lessor and Lessee,
without notice to or consent by the undersigned, may at any time and from time
to time enter into such modifications, extensions, amendments or other covenants
respecting the Lease as they may deem appropriate and the undersigned shall not
be released thereby, but shall continue to be fully liable to the extent
provided for herein for the payment and performance of all liabilities,
obligations and duties of Lessee under the Lease as so modified, extended or
amended.
It is understood that other agreements similar to this agreement may be
executed by other persons with respect to the Lease. This agreement shall be
cumulative of any such other agreements and the liabilities and obligations of
the undersigned hereunder shall in no event be affected or diminished by reason
of such other agreements. In the event that Lessor secures other
<PAGE>
agreements similar to this agreement, or secures the signature of more than
one guarantor to this agreement, or both, the undersigned agrees that Lessor, in
Lessor's sole discretion, may bring suit against all guarantors of the Lease
jointly and severally against any one or more of them, may compound or settle
with any one or more of such guarantors for such consideration as Lessor shall
deem proper, and may release one or more of such guarantors from any liability,
obligation or duty guaranteed hereby. The undersigned further agrees that no
such action shall impair the rights of Lessor to enforce the Lease against any
remaining guarantor(s).
The undersigned agrees that if Lessor shall employ counsel to present,
enforce or defend any or all of the Lessor's rights or remedies hereunder, or
defend any action brought by the undersigned, undersigned shall pay any
reasonable attorney's fees and expenses incurred by Lessor in such connection.
EXECUTED this ____ day of _____________, 199__, to be effective as of the
date of the Lease.
GUARANTOR: DIAGNOSTIC/RETRIEVAL
SYSTEMS, INC.
__________________________________ By: ______________________________
Its:
__________________________________ __________________________________
Attest: Secretary
(Corporate Seal)
THIS LEASE AGREEMENT dated August __, 1995, by and between FRED E. SUTTON
and HAROLD S. SUTTON d/b/a SUTTON PROPERTIES, a Florida general partnership,
with its principal office at P. O. Box 060250, Palm Bay, Florida 32906,
hereinafter called the Lessor, and OMI ACQUISITION CORP., a Delaware
corporation, with its principal office at 270 Motor Parkway, P. O. Box 11368,
Hauppauge, New York 11788, hereinafter called the Lessee.
W I T N E S S E T H:
The Lessor hereby leases to the Lessee and Lessee hereby leases from the
Lessor, the following described property, sometimes hereinafter referred to as
the leased premises, to wit:
Space designated as a portion of the Woodlake Commerce Park Building
2330, Suite 2 comprising approximately 4,000 square feet to be added
to Suite 2 as shown on Exhibit "A" hereto or which may be designated
by another suite number upon completion, being located at the following
address: 2330 Commerce Park Drive, N.E., City of Palm Bay, County of
Brevard, State of Florida.
1. TERM: Lessee to have and to hold above described premises commencing on
the 15th day of November, 1995, and terminating on August 14, 2005, on the terms
and conditions as set forth herein.
2. USE AND POSSESSION: It is understood that the leased premises are to be
used for the design, development and production of high technology products, and
for such other uses which comply with all applicable regulations regarding the
use and operation of the business located in the leased premises, and for no
other purpose without prior written consent of Lessor. Lessor represents that as
of the date of this lease, the premises can lawfully be used for such purpose.
Lessee shall not use the leased premises for any unlawful purpose or so as to
constitute a nuisance. Lessor shall commence construction of such space
immediately upon execution of this Lease and approval by Lessor and Lessee of
architectural plans prepared by Holeman/Suman Architects and shall substantially
complete the same and obtain a certificate of occupancy for the leased premises
by November 15, 1995. Lessor shall provide Lessee with a turnkey space. Lessee
shall accept possession of the leased premises upon issuance of a certificate of
occupancy for the leased premises and substantial completion of such leased
premises. Lessor will warrant workmanship and materials for a period of one year
after certificate of occupancy. The Lessee, at the expiration of the term, shall
deliver up the leased premises in good repair and condition, damages beyond the
control of the Lessee, reasonable use, ordinary decay, fire and casualty
damages, Lessor's repair obligations, wear and tear excepted.
<PAGE>
3. RENT: Lessee hereby covenants and agrees to pay, together with any and
all sales and use taxes levied upon the use and occupancy of the leased
premises, as set forth in Paragraph Six, during the term hereof, to the Lessor,
in advance and beginning on November 15, 1995, or later if Lessor's work has not
been substantially completed or a certificate of occupancy has not been
obtained, and on the first day of each and every month until paid in full as set
forth herein. Monthly rent under this Lease shall be established based upon the
total project costs to Lessor. These costs shall include, but not be limited to,
engineering and other professional fees, all permitting fees, any impact fees,
construction costs, surveys, site work and plans. Said costs will not exceed the
sum of $200,000.00. Lessor shall provide satisfactory evidence to Lessee of the
amount of costs incurred and shall keep Lessee advised on a periodic basis as to
the amount incurred to date. It is acknowledged and agreed that Lessor will
finance all such costs using a ten (10) year amortization. The rent hereunder
shall be equal to the monthly payments, including interest at the interest rate
charged to Lessor by Lessor's lender, plus any sales and use taxes referred to
above. Upon the satisfaction of the loan, i.e., ten year amortization at the
interest rate charged to Lessor by Lessor's lender, Lessee shall not be
obligated to pay rent for the leased space. This termination of rent will not
affect the obligation of Lessee to continue to pay any "additional rent" as
provided for elsewhere in this Lease.
4. RENT PAYMENT: Rent will be paid to Lessor at P. O. Box 060250, Palm Bay,
Florida 32906-0250. The obligation to pay rent under Paragraph Three shall be in
addition to "additional rent" as provided for in this Lease.
5. RENT ADJUSTMENT: deleted
6. SALES AND USE TAX: The Lessee hereby covenants and agrees to pay
monthly, as additional rent, any sales, use or other tax, excluding State and/or
Federal Income Tax, now or hereafter imposed upon rents by the United States of
America, the State, or any political subdivisions thereof, to the Lessor,
notwithstanding the fact that such statute, ordinance or enactment imposing the
same may endeavor to impose the tax on the Lessor.
7. NOTICES: For purpose of notice or demand, the respective parties shall
be served by certified or registered mail, return receipt requested, addressed
to the Lessee or to the Lessor at their respective principal office addresses as
set forth herein. Additional notice to Lessee shall be to Robert Russo,
Vice-President and General Manager, Photronics, Inc., 270 Motor Parkway,
Hauppauge, New York 11788, until otherwise advised by Lessee.
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<PAGE>
8. ORDINANCES AND REGULATIONS: The Lessee hereby covenants and agrees to
comply with all the rules and regulations of the Board of Fire Underwriters,
Officers or Boards of the City, County or State having jurisdiction over the
leased premises, and with all ordinances and regulations or governmental
authorities wherein the leased premises are located, at Lessee's sole cost and
expense, but only insofar as any of such rules, ordinances and regulations
pertain to the specific manner in which the Lessee shall use the leased
premises; the obligation to comply in every other case, and also all cases where
such rules, regulations and ordinances require repairs, alterations, changes or
additions to the building (including the leased premises) or building equipment,
or any part of either, being hereby expressly assumed by Lessor, and Lessor
covenants and agrees promptly and duly to comply with all such rules,
regulations and ordinances with which Lessee has not herein expressly agreed to
comply.
9. SIGNS: The Lessee will not place any signs or other advertising matter
or material on the exterior, or on the interior where possible to be seen from
the exterior, of the leased premises or of the building in which the leased
premises are located, without the prior written consent of the Lessor. Any
lettering or signs placed on the interior of said building shall be for
directional purposes only, and such signs and lettering shall be of a type,
kind, character and description to be approved by Lessor. All signs shall be
consistent with the common character of signs within the commerce park where the
leased premises are located. If Lessor fails to provide Lessee with notice that
any proposed signs are approved within thirty (30) days of receipt by Lessor of
a request for signs, such inaction shall constitute consent by Lessor. However,
notwithstanding any consent by Lessor, any signs, and the installation thereof,
must comply with any applicable regulations regarding signs.
10. SERVICES: Lessor shall provide a reasonable amount of free parking for
Lessee's employees on Lessor's parking area adjacent to the building in which
the leased premise are situated.
11. ALTERATIONS: (a) Lessee, by occupancy and possession hereunder, accepts
the leased premises as being in good repair and condition. Lessee shall maintain
the leased premises and every part thereof in good condition, damages by causes
beyond the control of the Lessee, reasonable use, ordinary decay and wear and
tear, fire and casualty and Lessor repair obligations excepted. Lessee shall not
make or suffer to be made any alterations, additions or improvements to or of
the leased premises or any part thereof without prior written consent of Lessor,
which consent the Lessor covenants and agrees shall not be unreasonably
withheld. If Lessor fails to provide Lessee with notice of whether such
alterations, additions or improvements are approved within thirty (30) days of
receipt by Lessor of a request for same, such inaction shall constitute
approval by Lessor. In the event Lessor consents to the proposed alterations,
additions, or improvements,
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<PAGE>
the same shall be at Lessee's sole cost and expense, and Lessee shall hold the
Lessor harmless on account of the cost thereof. Any such alterations shall be
made at such times in such manner as not to unreasonably interfere with the
occupation, use and enjoyment of the remainder of the building by the other
tenants thereof.
(b) If required by Lessor, any alterations shall be removed by Lessee upon
the termination or sooner expiration of the term of this Lease and Lessee shall
repair damage to the premises caused by such removal, all at Lessee's cost and
expense. All alterations, additions and improvements shall comply with any and
all regulations of all regulatory agencies having jurisdiction thereof.
12. QUIET ENJOYMENT: The Lessor covenants and agrees that Lessee, on paying
said monthly rent and performing the covenants herein, shall and may peaceably
and quietly hold and enjoy the said leased premises and common areas, including
but not limited to parking areas, sidewalks, entrances, exits, lobbies,
restrooms, and lounges for the term aforesaid.
13. LESSOR'S RIGHT TO INSPECT AND DISPLAY: The Lessor shall have the right,
during normal business hours of Lessee on twenty-four (24) hours notice, to
enter the leased premises for the purpose of examining or inspecting same and of
making such repairs or alterations therein as the Lessor shall deem necessary.
Any such repair will be made so as to minimize interference with Lessee's
business. The notice and hour requirements shall be excused in the event of an
emergency. The Lessor shall also have the right to enter the leased premises at
all reasonable hours for the purpose of displaying said premises to prospective
tenants within ninety days prior to termination of this Lease. The parties
acknowledge that Lessee may be performing work for the United States of America
that require security clearances for entry to certain areas of the leased
premises. Lessor agrees to comply with any reasonable requirements necessary for
Lessor to obtain access to these areas, it being agreed that Lessor shall not be
deprived access because of such fact.
14. DESTRUCTION OF PREMISES:
(a) If the leased premises are totally destroyed by fire or other
casualties, or partially damaged so as to materially affect the ability of
Lessee to carry on its business, both the Lessor and Lessee shall have the
option of terminating this Lease or any renewal thereof, upon giving written
notice at any time within thirty days from the date of such destruction, and if
the Lease be so terminated, all rent shall cease as of the date of such
destruction and any prepaid rent shall be refunded.
(b) If such leased premises are partially damaged by fire or other
casualty, or totally destroyed thereby and neither
4
<PAGE>
party elects to terminate this Lease within the provisions of Paragraph (a)
above or (c) below, then the Lessor agrees, at Lessor's sole cost and expense,
to restore the leased premises to a kind and quality substantially similar to
that immediately prior to such destruction or damage. Said restoration shall be
commenced within a reasonable time and completed without delay on the part of
the Lessor, and in any event shall be accomplished within one hundred eighty
(180) days from the date of the fire or other casualty. In such case, all rents
paid in advance shall be proportioned as of the date of damage or destruction
and all rent thereafter accruing shall be equitable and proportionately
suspended and adjusted pending completion of rebuilding, restoration or repair,
except that in the event the destruction or damage is so extensive as to make it
unfeasible for the Lessee to conduct Lessee's business on the leased premises,
the rent shall be completely abated until the leased premises are restored by
the Lessor or until the Lessee resumes use and occupancy of the leased premises
for the conduct of business, whichever shall first occur. The Lessor shall not
be liable for any inconvenience or interruption of business of the Lessee
occasioned by fire or other casualty.
(c) If the Lessor undertakes to restore, rebuild or repair the premises,
and such restoration, rebuilding or repair is not accomplished within one
hundred eighty (180) days, the Lessee shall have the right to terminate this
Lease by written notice to the Lessor within thirty (30) days after expiration
of said one hundred eighty (180) day period.
(d) Lessor shall not be liable to carry fire, casualty or extended damage
insurance on the person or property of the Lessee or any person or property
which may now or hereafter be placed in the leased premises.
15. CONDEMNATION: If during the term of this Lease or any renewal thereof,
the whole of the leased premises, or such portion thereof as will materially
affect the use of the leased premises for the purpose leased, be condemned by
public authority for public use, then, in either event, the term hereby granted
shall cease and come to an end as of the date the Lessee is required to vacate
the leased premises by either Lessor or the condemnor. Upon such occurrence, the
rent shall be proportioned as of such date and any prepaid rent shall be
returned to the Lessee. The Lessor shall be entitled to the entire award for
such taking except for any statutory claim on the Lessee for injury, damage or
destruction of Lessee's business accomplished by such taking. If a portion of
the leased premises is taken or condemned by public authority for public use so
as not to materially effect the ability of the Lessee to use its remaining
portion of the leased premises for the purposes leased, this Lease will not be
terminated but shall continue. In such case, the rent shall be equitably and
fairly reduced or abated for the remainder of the term in proportion to the
amount of the leased premises taken. In
5
<PAGE>
no event shall the Lessor be liable to the Lessee for any business interruption,
diminution in use or for the value of any unexpired term of this Lease.
16. ASSIGNMENT AND SUBLEASE: The Lessee covenants and agrees not to
encumber or assign this Lease or sublet all or any part of the leased premises
without the written consent of the Lessor, which consent the Lessor covenants
and agrees shall not be unreasonably withheld. Lessee shall provide Lessor with
written notice of any proposed assignment or sublease at least thirty (30) days
prior to any proposed effective date of assignment or sublease. If Lessor fails
to provide Lessee with notice of whether such assignment or sublease is approved
within thirty (30) days of receipt by Lessor of such request, such inaction by
Lessor shall constitute consent. Notwithstanding the foregoing, Lessee has the
right to assign or sublet this Lease as long as the guarantee executed by
Diagnostic Retrieval Systems, Inc. remains in full force and effect and said
company has a financial worth at least comparable to that on the date this Lease
and Guarantee are executed. Any such assignment shall in no way relieve the
Lessee from any obligations hereunder for the payment of rents or the
performance of the conditions, covenants and provisions of this Lease.
In no event shall Lessee assign or sublet the leased premises for any
terms, conditions and covenants other than those contained herein, except that
Lessee may assign or sublet to another person for different rent or a different
use as long as such use complies with all applicable regulations regarding the
use and operation of businesses located in the leased premises. In no event
shall this Lease be assigned or be assignable by operation of law or by
voluntary or involuntary bankruptcy proceedings or otherwise, and in no event
shall this Lease or any rights or privileges hereunder be an asset of Lessee
under any bankruptcy, insolvency or reorganization proceedings. Lessor shall not
be liable nor shall the leased premises be subject to any mechanics,
materialmans, or other type liens and Lessee shall keep the premises and
property in which the leased premises are situated free from any such liens
caused by acts of Lessee and shall indemnify Lessor against and satisfy any such
liens which may obtain because of acts of Lessee notwithstanding the foregoing
provision.
17. HOLDOVER: It is further covenanted and agreed that if the Lessee, any
assignee or sublessee shall continue to occupy the leased premises after the
termination of this Lease without prior written consent of the Lessor, such
tenancy shall be Tenancy at Sufferance. Acceptance by the Lessor of rent after
such termination shall not constitute a renewal of this Lease or consent to such
occupancy nor shall it waive Lessor's right of reentry or any other right
contained herein.
18. SUBORDINATION: Subject to the last sentence of this paragraph, this
Lease shall be subject and subordinated at all
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times to the liens of any mortgages or deeds of trust in any amount or amounts
whatsoever now existing or hereafter encumbering the leased premises, without
the necessity of having further instruments executed by the Lessee to effect
such subordination. Lessor shall provide a non-disturbance agreement
from the mortgagee holding the mortgage on the leased premises on or before
November 15, 1995. Notwithstanding the foregoing, Lessee covenants and agrees
to execute and deliver upon demand, such further instruments evidencing such
subordination of this Lease to such liens of any such mortgages or deeds of
trust as may be requested by Lessor. So long as the Lessee hereunder shall pay
the rent reserved and comply with, abide by and discharge the terms, conditions,
covenants, and obligations on its part, to be kept and performed herein and
shall attorn to any successor in title, notwithstanding the foregoing, the
peaceable possession of the Lessee in and to the leased premises for the term of
this Lease shall not be disturbed, in the event of the foreclosure of any such
mortgage or deed of trust, by the purchaser at such foreclosure sale or such
purchaser's successor in title.
l9. INDEMNIFICATION: The Lessor shall not be liable for any damage or
injury to any person or property whether it be the person or property of the
Lessee, the Lessee's employees, agents, guests, invitees or otherwise by reason
of Lessee's occupancy of the leased premises or because of fire, flood,
windstorm, Acts of God or for any other reason unless caused by the intentional
acts or gross negligence of Lessor. The Lessee agrees to indemnify and save
harmless the Lessor, its agents, employees and contractors from and against any
and all loss, damage, claim, demand, liability or expense by reason of damage to
person or property which may arise or be claimed to have arisen as a result of
the occupancy or use of said leased premises by the Lessee or by reason thereof
or in connection therewith, or in any way arising on account of any injury or
damage caused to any person or property on or in the leased premises providing,
however, that Lessee shall not indemnify as to the loss or damage due to fault
of Lessor.
20. CONSTRUCTION OF LANGUAGE: The terms lease, lease agreement or agreement
shall be inclusive of each other, also to include renewals, extensions or
modifications of this Lease. Words of any gender used in this Lease shall be
held to include any other gender, and in the singular shall be held to include
the plural and the plural to include the singular, when the sense requires. The
paragraph headings and titles are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part hereof.
21. DEFAULT: In the event the Lessee shall default in the payment of rent,
those sums designated as additional rent or any other sums payable by the Lessee
herein, and such default shall continue for a period of ten days from the date
of written notice by Lessor to Lessee, or if the Lessee shall default in the
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<PAGE>
performance of any other covenants or agreements of this Lease and such default
shall continue for thirty days after written notice thereof (or if the default
cannot be cured within thirty (30) days, that Lessee failed to diligently
proceed to cure), or if the Lessee should become bankrupt or insolvent or any
debtor proceedings be taken by or against the Lessee, then and in addition to
any and all other legal remedies and rights, the Lessor may terminate this Lease
and retake possession of the leased premises, or enter the leased premises and
re-let the same without termination, in which later event the Lessee covenants
and agrees to pay any deficiency after Lessee is credited with the rent thereby
obtained less all repairs and expenses (including the expenses of obtaining
possession), or the Lessor may resort to any two or more of such remedies or
rights, and any other remedies provided by law except acceleration, and adoption
of one or more such remedies or rights shall not necessarily prevent the
enforcement of others concurrently or thereafter. Lessor shall be entitled to
its landlord's lien provided by law. Lessor agrees to mitigate damages, if
possible.
The Lessee also covenants and agrees to pay reasonable attorney's fees and
costs and expenses of the Lessor, including court costs, if the Lessor employs
an attorney to collect rent or enforce other rights of the Lessor herein in
event of any breach as aforesaid and the same shall be payable regardless of
whether collection or enforcement is effected by suit or otherwise. In the event
any litigation arises under this Agreement, the prevailing party shall be
entitled to attorney's fees and costs, including attorney's fees for any appeal.
22. SUCCESSORS AND ASSIGNS: This Lease shall bind and inure to the benefit
of the successors, assigns, heirs, executors, administrators and legal
representatives of the parties hereto.
23. NON-WAIVER: No waiver of any covenant or condition of this Lease by
either party shall be deemed to imply or constitute a further waiver of the same
covenant or condition or any other covenant or condition of this Lease.
24. OPTION TO RENEW: Lessee is hereby granted an option to renew this lease
for one additional term of five (5) years. Lessee shall, not less than ninety
(90) days prior to the end of the term hereof, by written notice to the Lessor,
notify Lessor of its intention to exercise this option to renew. Failure of
Lessee to serve such written notice of exercise of option on the Lessor shall
terminate this option. Upon exercise of said option to renew, the lease term
shall be extended for an additional five (5) years upon all of the terms and
conditions of this lease. However, there shall be no additional options to
renew.
25. SECURITY DEPOSIT: The Lessee, concurrently with the execution of this
Lease, has deposited with the Lessor the sum of $ - O -, the receipt being
hereby acknowledged, which sum shall be
8
<PAGE>
retained by Lessor as security for the payment by the Lessee of the rent herein
agreed to be paid and for the faithful performance of the covenants of this
Lease. If at any time the Lessee shall be in default following notice and the
expiration of any applicable grace period in any of the provisions of this
Lease, the Lessor shall have the right to use said deposit, or so much thereof
as may be necessary in payment of any rent in default aforesaid and/or in
payment of any expense incurred by the Lessor in and about the curing of any
default by said Lessee, and/or in payment of any damages incurred by the Lessor
by reason of such default of the Lessee, or at the Lessor's option, the same may
be retained by the Lessor in liquidation of part of the damages suffered by the
Lessor by reason of the default of the Lessee. In the event that said deposit
shall not be utilized for any such purpose, then such deposit shall be applied
to the rent last due for the term of this Lease or any renewal term thereof.
Said deposit shall not bear interest.
26. ADDITIONAL CHARGES: The Lessee shall pay to Lessor as additional rent
on a monthly basis its pro rata share of all costs and expenses related to
operating, managing, equipping, insuring, lighting, repairing, cleaning,
decorating, preserving, altering, replacing, maintaining and enhancing building
1 and building 2 of the commerce park in which the leased property is located
along with parking areas and other areas within the commerce park in which the
buildings are located. Such costs and expenses shall include but not be limited
to: pest extermination; inspection of equipment; inspection and repair of fire
sprinkler and alarm service; removal of dirt and debris; planting, replanting
and replacing flowers; landscaping; irrigation and supplies; all costs and
expenses associated with maintaining lighting facilities and storm drainage and
retention systems, whether on or off premises; electric service, sewage
treatment plant and domestic water well, pump and similar costs; audit costs;
all premiums for liability, loss of rents, property damage, fire and worker's
compensation insurance; wages; unemployment taxes; social security taxes;
personal property taxes; management fees; legal fees; solid waste charges;
windows; maintenance, lining, bumpering, top coating and repairing all
impervious surfaces; rental of machinery necessary to implement any of the
foregoing services; and bank charges, along with real property taxes and
assessments. Notwithstanding, Lessee shall not be obligated to pay any portion
of capital items with the exception of parking lot expansion if hereafter
required in writing by Lessee. Nothing contained herein shall be deemed or
construed to modify or negate Lessor's obligations under that memorandum dated
___________________. The only repair obligation of the Lessor is the exterior of
the roof of the building and the structural portions of the building and leased
premises, as long as such repair is not necessitated by the action of the
Lessee, its employees, agents or contractors.
9
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Current estimated monthly charges are as follows:
(a) Woodlake Commerce Park CAM $ 11.33 (inc. 6% sales tax)
(b) Building CAM $199.00 (inc. 6% sales tax)
(c) Real Property taxes $187.67
Copies of the proposed budget for the upcoming year are appended hereto.
Lessee's pro rata percentage for the leased premises for determining
Building CAM and Real Property taxes is 2.4%. This represents the Lessee's pro
rata share determined by lease space of 4,000 square feet and total building
square feet of 168,500 square feet. Lessee's pro rata percentage for the
Woodlake Commerce Park CAM is .5%. This percentage is determined as follows: (i)
the percentage of land comprising buildings 1 and 2 of Woodlake Commerce Park
owned by Lessor in the entire Woodlake Commerce Park (20.96%) multiplied by (ii)
the pro rata portion of CAM expenses (2.4%) (20.96%) x (2.4%) =.5%.
28. IMPACT FEE: It is understood that there is currently on record with the
City of Palm Bay projected water and sewer uses with regard to the demised
premises. Lessor has previously paid to the City of Palm Bay an impact fee based
upon such projected usage. Lessor has been advised by the City of Palm Bay that
Lessee's proposed use will not require the additional payment of impact fees.
However, should the actual usage of water and sewer by Lessee hereunder increase
over and above the projected usage, and should the City of Palm Bay assess an
additional impact fee against the Lessor as a result of such increased usage,
Lessee shall be and become responsible for any increased impact fee. Such
increase shall be due and payable as additional rent hereunder and shall be paid
by Lessee to Lessor within twenty (20) days after submission of invoice for said
amount.
29. PAST DUE RENTS: If Lessee shall fail to pay any rents, additional rents
or other charges characterized herein as additional rent when the same become
due and payable, such unpaid amounts shall bear interest from the due date
thereof to the date of payment at the rate of five percent (5%) until paid. The
provisions herein for late payment service charges shall not be construed to
extend the date for payment of any sums required to be paid by Lessee hereunder
or to relieve Lessee of its obligation to pay all such sums at the time or times
herein stipulated. Notwithstanding the imposition of any charges pursuant to
this section, Lessee shall be in default under this Lease if any or all payments
required to be made by Lessee are not made at the time therein stipulated and
neither the demand nor collection by Lessor of such late payment service charges
shall be construed as a cure for such default on the part of the Lessee.
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Lessor permits a ten (10) day grace period.
30. This information is being provided as required by Florida Statute
404.056:
RADON GAS: Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over time. Levels of radon that exceed federal and
state guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public health
unit.
31. VENUE. In the event any litigation arises out of this Agreement, venue
shall be in a court of competent jurisdiction in Brevard County, Florida.
32. SEVERABILITY. In the event that any term or provision of this Agreement
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Agreement, or the application
of such term or provision to persons or circumstances other than those to which
it is held invalid or unenforceable shall not be affected thereby and each term
and provision of this Agreement shall be valid and be enforced by the fullest
extent permitted by law.
33. REPAIRS AND MAINTENANCE: Lessor shall not be liable to Lessee for any
repairs necessitated by some act or neglect of Lessee or any Permittee, or any
contractor, agent, employee, invitee of any of the aforesaid or, for any damage
to merchandise, trade fixtures, or personal property of Lessee in the leased
premises caused by water leakage from the roof, water lines, sprinklers or
heating and air conditioning equipment. Lessee shall be liable for all repairs
and replacements, ordinary and extraordinary, other than those for which Lessor
is responsible, and shall maintain in the leased premises in good order and
repair, clean, sanitary and safe, including the replacement and maintenance of
equipment, fixtures, improvements, floor covering, the exterior and interior
portions of all doors, door locks, security gates and windows, plumbing and
sewage facilities, heating and air conditioning equipment, walls, ceilings, and
all plate glass. Lessee shall, as part of its maintenance and repair obligations
hereunder, enter into a service contract with a local, approved contractor for
service, maintenance and repair of all heating, ventilation and air conditioning
equipment within and servicing the leased premises, which shall provide for
servicing by such contractor no less often than quarterly. A copy of such
contract shall be delivered to the Lessor annually. If Lessee refuses or
neglects to make repairs and/or maintain the leased premises, or any part
thereof, in a manner reasonably satisfactory to Lessor, Lessor shall have the
right, upon giving Lessee
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<PAGE>
reasonable written notice of its election to do so, to make repair or perform
such maintenance on behalf of and for the account of Lessee. In such event, such
work shall be paid for by Lessee as additional rental promptly upon receipt of a
bill therefor. Lessee further agrees to paint the interior of the leased
premises when necessary in order to maintain at all times a clean and sightly
appearance. Nothing herein shall imply any duty on Lessor to do any work which
Lessor is not specifically and expressly required to perform under this Lease or
which, under any provisions of this Lease, Lessee may be required to perform;
and, the performing thereof by Lessor shall not constitute a waiver of Lessee's
default in failing to perform the same. Lessee acknowledges that the foregoing
provisions of this paragraph shall apply and become effective from and after the
date Lessee or its agents or contractors enter the leased premises or undertake
activities permitted hereunder. Lessee shall indemnify Lessor against, and hold
it harmless from, any claims, demands, or actions against Lessor or its agents,
employees or contractors for losses or damages incurred by Lessor or its agents,
employees or contractors arising out of or in any way connected with Lessee's
failure to perform its obligations or observe any covenants under this
paragraph.
34. HAZARDOUS SUBSTANCES: The term "Hazardous Substances" as used in this
Lease shall include, without limitation: flammables, explosives, radioactive
materials, asbestos, polychlorinated biphenyls (PCBs), chemicals known to cause
cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes,
toxic substances or related materials, petroleum and petroleum products, and
substances declared to be hazardous or toxic under any law or regulation now or
hereafter enacted or promulgated by any governmental authority.
Lessee shall not cause or permit to occur any violation of any federal,
state, or local law, ordinance, or regulation now or hereafter enacted, related
to environmental conditions on, under or about the premises arising from
Lessee's use or occupancy therein, nor shall Lessee cause or permit the use,
generation, release, manufacture, refinement, production, processing, storage or
disposal of any Hazardous Substance which violates any federal, state or local
law, ordinance or regulation now or hereafter enacted related to environmental
conditions without Lessor's prior written consent, which consent may be
withdrawn, conditioned, or modified by Lessor in its sole and absolute
discretion.
Lessee shall indemnify, defend and hold Lessor, its respective officers,
directors, beneficiaries, shareholders,, partners, agents, and employees
harmless from all fines, suits, procedures, claims, clean-up and actions of
every kind, and all costs associated therewith, including attorney's and
consultant's fees, arising out of, or in any way connected with, any deposit,
spill, discharge or other release of Hazardous Substances by Lessee, at or from
the premises, or which arises at any time from
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<PAGE>
Lessee's use or occupancy of the premises, or from Lessee's failure to comply
with or satisfy government required action on the matter.
Lessee's obligations and liabilities under this paragraph shall survive the
termination of this Lease.
35. CONFIDENTIALITY: Lessee shall not disclose the terms of this agreement
to any person except on a need to know basis.
36. NOTE: Lessee and Guarantor under the Lease will execute a note to
Lessor evidencing the obligation under Paragraph 3 of the Lease. Said note shall
be subject to the terms of this Lease and shall provide that no payment shall be
required to be made thereunder if the Lessee would be excused from making rental
payments under this lease.
IN WITNESS WHEREOF, Lessee and Lessor have caused this instrument to be
executed as of the date first above written, by their respective officers or
parties "hereunto duly authorized.
Signed, sealed and delivered Lessee: OMI ACQUISITION CORP.
in the presence of:
___________________________________ By__________________________________
___________________________________ Title_______________________________
Attest______________________________
Secretary
(Corporate Seal)
Signed, sealed and delivered
in the presence of:
__________________________________ Lessor: SUTTON PROPERTIES
__________________________________ _____________________________________
Authorized Agent for
Sutton Properties
13
<PAGE>
GUARANTEE
In order to induce Lessor to execute the foregoing Lease (the "Lease")
covering space set forth in the foregoing Lease and dated _____________________,
by and between FRED E. SUTTON and HAROLD S. SUTTON d/b/a SUTTON PROPERTIES and
OMI ACQUISITION CORP., to which this Guarantee is an integral part thereof, the
undersigned hereby guarantees the payment and performance of and agrees to pay
and perform as a primary obligor all liabilities, obligations and duties
(including, but not limited to, payment of rent) imposed upon Lessee under the
terms of the Lease, as if the undersigned had executed the Lease as Lessee
thereunder as it relates only to the payment of rent, any sums identified as
additional rent, any obligations, duties and liabilities under Paragraph 34 of
the Lease and any fines, attorney's fees and any other expenses or costs
incurred by Lessor for code violations and code violation proceedings initiated
by any regulatory agency for code violations alleged to exist in operation and
maintenance of Lessee's business and maintenance of the leased premises by
Lessee.
The undersigned hereby waives notice of acceptance of this guarantee and
all other notices in connection herewith or in connection with the liabilities,
obligations and duties guaranteed hereby, including notices of default by Lessee
under the Lease, and waives diligence, presentment and suit on the part of
Lessor in the enforcement of any liability, obligation or duty guaranteed
hereby.
The undersigned further agrees that Lessor shall not be first required to
enforce against Lessee or any other person any liability, obligation or duty
guaranteed hereby before seeking enforcement thereof against the undersigned.
Suit may be brought and maintained against the undersigned by Lessor to enforce
any liability, obligation or duty guaranteed hereby without joinder of Lessee or
any other person. The liability of the undersigned shall not be affected by any
indulgence, compromise, settlement or termination of the Lease to the extent
that Lessee thereafter continues to be liable thereunder. Lessor and Lessee,
without notice to or consent by the undersigned, may at any time and from time
to time enter into such modifications, extensions, amendments or other covenants
respecting the Lease as they may deem appropriate and the undersigned shall not
be released thereby, but shall continue to be fully liable to the extent
provided for herein for the payment and performance of all liabilities,
obligations and duties of Lessee under the Lease as so modified, extended or
amended.
It is understood that other agreements similar to this agreement may be
executed by other persons with respect to the Lease. This agreement shall be
cumulative of any such other agreements and the liabilities and obligations of
the undersigned hereunder shall in no event be affected or diminished by reason
of such other agreements. In the event that Lessor secures other
<PAGE>
agreements similar to this agreement, or secures the signature of more than one
guarantor to this agreement, or both, the undersigned agrees that Lessor, in
Lessor's sole discretion, may bring suit against all guarantors of the Lease
jointly and severally against any one or more of them, may compound or settle
with any one or more of such guarantors for such consideration as Lessor shall
deem proper, and may release one or more of such guarantors from any liability,
obligation or duty guaranteed hereby. The undersigned further agrees that no
such action shall impair the rights of Lessor to enforce the Lease against any
remaining guarantor(s).
The undersigned agrees that if Lessor shall employ counsel to present,
enforce or defend any or all of the Lessor's rights or remedies hereunder, or
defend any action brought by the undersigned, undersigned shall pay any
reasonable attorney's fees and expenses incurred by Lessor in such connection.
EXECUTED this ____ day of _________, 199 , to be effective as of the date of
the Lease.
GUARANTOR: DIAGNOSTIC/RETRIEVAL
SYSTEMS, INC.
_____________________________________ By:______________________________
Its:
_____________________________________
_________________________________
Attest: Secretary
(Corporate Seal)
.
<PAGE>
GUARANTEE
In order to induce Lessor to execute the foregoing Lease (the "Lease")
covering 4,000 square feet of space set forth in the foregoing Lease, and dated
August __, 1995, by and between FRED E. SUTTON and HAROLD S. SUTTON d/b/a SUTTON
PROPERTIES and OMI ACQUISITION CORP., to which this Guarantee is an integral
part thereof, the undersigned hereby guarantees the payment and performance of
and agrees to pay and perform as a primary obligor all liabilities, obligations
and duties (including, but not limited to, payment of rent) imposed upon Lessee
under the terms of the Lease, as if the undersigned had executed the Lease as
Lessee thereunder as it relates only to the payment of rent, any sums identified
as additional rent, any obligations, duties and liabilities under Paragraph 34
of the Lease and any fines, attorney's fees and any other expenses or costs
incurred by Lessor for code violations and code violation proceedings initiated
by any regulatory agency for code violations alleged to exist in operation and
maintenance of Lessee's business and maintenance of the leased premises by
Lessee.
The undersigned hereby waives notice of acceptance of this guarantee and
all other notices in connection herewith or in connection with the liabilities,
obligations and duties guaranteed hereby, including notices of default by Lessee
under the Lease, and waives diligence, presentment and suit on the part of
Lessor in the enforcement of any liability, obligation or duty guaranteed
hereby.
The undersigned further agrees that Lessor shall not be first required to
enforce against Lessee or any other person any liability, obligation or duty
guaranteed hereby before seeking enforcement thereof against the undersigned.
Suit may be brought and maintained against the undersigned by Lessor to enforce
any liability, obligation or duty guaranteed hereby without joinder of Lessee or
any other person. The liability of the undersigned shall not be affected by any
indulgence, compromise, settlement or termination of the Lease to the extent
that Lessee thereafter continues to be liable thereunder. Lessor and Lessee,
without notice to or consent by the undersigned, may at any time and from time
to time enter into such modifications, extensions, amendments or other covenants
respecting the Lease as they may deem appropriate and the undersigned shall not
be released thereby, but shall continue to be fully liable to the extent
provided for herein for the payment and performance of all liabilities,
obligations and duties of Lessee under the Lease as so modified, extended or
amended.
It is understood that other agreements similar to this agreement may be
executed by other persons with respect to the Lease. This agreement shall be
cumulative of any such other agreements and the liabilities and obligations of
the undersigned hereunder shall in no event be affected or diminished by reason
of such other agreements. In the event that Lessor secures other
<PAGE>
agreements similar to this agreement, or secures the signature of more than one
guarantor to this agreement, or both, the undersigned agrees that Lessor, in
Lessor's sole discretion, may bring suit against all guarantors of the Lease
jointly and severally against any one or more of them, may compound or settle
with any one or more of such guarantors for such consideration as Lessor shall
deem proper, and may release one or more of such guarantors from any liability,
obligation or duty guaranteed hereby. The undersigned further agrees that no
such action shall impair the rights of Lessor to enforce the Lease against any
remaining guarantor(s).
The undersigned agrees that if Lessor shall employ counsel to present,
enforce or defend any or all of the Lessor's rights or remedies hereunder or
defend any action brought by the undersigned, undersigned shall pay any
reasonable attorney's fees and expenses incurred by Lessor in such connection.
EXECUTED this _____ day of _________, 199 _ , to be effective as of the
date of the Lease.
GUARANTOR: DIAGNOSTIC/RETRIEVAL
SYSTEMS, INC.
____________________________________ By: ______________________________
Its:
____________________________________
__________________________________
Attest: Secretary
(Corporate Seal)
THIS LEASE AGREEMENT dated August __, 1995, by and between FRED E. SUTTON
and HAROLD S. SUTTON d/b/a SUTTON PROPERTIES, a Florida general partnership,
with its principal office at P. O. Box 060250, Palm Bay, Florida 32906,
hereinafter called the Lessor, and OMI ACQUISITION CORP., a Delaware
corporation, with its principal office at 270 Motor Parkway, P. O. Box 11368,
Hauppauge, New York 11788, hereinafter called the Lessee.
W I T N E S S E T H:
The Lessor hereby leases to the Lessee and Lessee hereby leases from the
Lessor, the following described property, sometimes hereinafter referred to as
the leased premises, to wit:
Space designated as a portion of the Woodlake Commerce Park Building 2330,
Suite 8 comprising approximately 14,400 square feet, as shown on Exhibit
"A" attached hereto and made a part hereof, being located at the following
address: 2330 Commerce Park Drive, N.E., City of Palm Bay, County of
Brevard, State of Florida, in "as is" condition.
1. TERM: Lessee to have and to hold above described premises for a term of
ten (10) year(s) commencing on the 15th day of August, 1995, on the terms and
conditions as set forth herein.
2. USE AND POSSESSION: It is understood that the leased premises are to be
used for the design, development and production of high technology products, and
for such other uses which comply with all applicable regulations regarding the
use and operation of the business located in the leased premises, and for no
other purpose without prior written consent of Lessor. Lessor represents that as
of the date of this lease, the premises can lawfully be used for such purpose.
Lessee shall not use the leased premises for any unlawful purpose or so as to
constitute a nuisance. Lessee shall be responsible for all improvements,
permitting, design work and any other items necessary to complete the leased
premises for its occupancy. The Lessee, at the expiration of the term, shall
deliver up the leased premises in good repair and condition, damages beyond the
control of the Lessee, reasonable use, ordinary decay, fire and casualty
damages, Lessor's repair obligations, wear and tear excepted.
3. RENT: Lessee covenants and agrees to pay, together with any and all
sales and use taxes levied upon the use and occupancy of the leased premises, as
set forth in Paragraph 6, beginning September 1, 1995 in advance, a base rent of
$6,000.00, plus 6% sales tax in the amount of $360.00, for a total monthly rent
of $6,360.00. Lessee shall have possession of the leased premises upon execution
of this Lease.
<PAGE>
4. RENT PAYMENT: Rent will be paid to Lessor at P. O. Box 060250, Palm Bay,
Florida 32906-0250. The obligation to pay rent under Paragraph Three shall be in
addition to "additional rent" as provided for in this Lease.
5. RENT ADJUSTMENT: On January 1st of each year, beginning January 1, 1997,
the monthly rental provided in Paragraph Three, or as previously adjusted, shall
be increased by the "rent adjustment," which shall be a cumulative 4%.
6. SALES AND USE TAX: The Lessee hereby covenants and agrees to pay
monthly, as additional rent, any sales, use or other tax, excluding State and/or
Federal Income Tax, now or hereafter imposed upon rents by the United States of
America, the State, or any political subdivisions thereof, to the Lessor,
notwithstanding the fact that such statute, ordinance or enactment imposing the
same may endeavor to impose the tax on the Lessor.
7. NOTICES: For purpose of notice or demand, the respective parties shall
be served by certified or registered mail, return receipt requested, addressed
to the Lessee or to the Lessor at their respective principal office addresses as
set forth herein. Additional notice to Lessee shall be to Robert Russo,
Vice-President and General Manager, Photronics, Inc., 270 Motor Parkway,
Hauppauge, New York 11788, until otherwise advised by Lessee.
8. ORDINANCES AND REGULATIONS: The Lessee hereby covenants and agrees to
comply with all the rules and regulations of the Board of Fire Underwriters,
Officers or Boards of the City, County or State having jurisdiction over the
leased premises, and with all ordinances and regulations or govermental
authorities wherein the leased premises are located, at Lessee's sole cost and
expense, but only insofar as any of such rules, ordinances and regulations
pertain to the specific manner in which the Lessee shall use the leased
premises; the obligation to comply in every other case, and also all cases where
such rules, regulations and ordinances require repairs, alterations, changes or
additions to the building (including the leased premises) or building equipment,
or any part of either, being hereby expressly assumed by Lessor, and Lessor
covenants and agrees promptly and duly to comply with all such rules,
regulations and ordinances with which Lessee has not herein expressly agreed to
comply.
9. SIGNS: The Lessee will not place any signs or other advertising matter
or material on the exterior, or on the interior where possible to be seen from
the exterior, of the leased premises or of the building in which the leased
premises are located, without the prior written consent of the Lessor. Any
lettering or signs placed on the interior of said building shall be for
directional purposes only, and such signs and lettering shall be of a type,
kind, character and description to be approved by Lessor. All signs shall be
consistent with the common character of signs within the commerce park where the
leased
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premises are located. If Lessor fails to provide Lessee with notice that any
proposed signs are approved within thirty (30) days of receipt by Lessor of a
request for signs, such inaction shall constitute consent by Lessor. However,
notwithstanding any consent by Lessor, any signs, and the installation thereof,
must comply with any applicable regulations regarding signs.
10. SERVICES: Lessor shall provide a reasonable amount of free parking for
Lessee's employees on Lessor's parking area adjacent to the building in which
the leased premise are situated.
11. ALTERATIONS: (a) The parties acknowledge that Lessee will be making
alterations and improvements prior to occupancy under the terms of this Lease,
and Lessor approves of the architectural plans attached hereto. If Lessee, after
due diligence, is unable to obtain a building permit to perform said alterations
and improvements pursuant to said plan, or with reasonable modifications
thereto, or after completion of the work, is unable to obtain a certificate of
occupancy for reasons unrelated to the work performed pursuant to said plans,
then Lessee may terminate this Lease. This right to terminate applies only to
the initial alterations and improvements to the leased premises pursuant to the
plans attached hereto.
(b) Lessee, by occupancy and possession hereunder, accepts the leased
premises as being in good repair and condition. Lessee shall maintain the leased
premises and every part thereof in good condition, damages by causes beyond the
control of the Lessee, reasonable use, ordinary decay and wear and tear, fire
and casualty and Lessor repair obligations excepted. Lessee shall not make or
suffer to be made any alterations, additions or improvements to or of the leased
premises or any part thereof without prior written consent of Lessor, which
consent the Lessor covenants and agrees shall not be unreasonably withheld. If
Lessor fails to provide Lessee with notice of whether such alterations,
additions or improvements are approved within thirty (30) days of receipt by
Lessor of a request for same, such inaction shall constitute approval by Lessor.
In the event Lessor consents to the proposed alterations, additions, or
improvements, the same shall be at Lessee's sole cost and expense, and Lessee
shall hold the Lessor harmless on account of the cost thereof. Any such
alterations shall be made at such times in such manner as not to unreasonably
interfere with the occupation, use and enjoyment of the remainder of the
building by the other tenants thereof.
(c) If required by Lessor, any alterations shall be removed by Lessee upon
the termination or sooner expiration of the term of this Lease and Lessee shall
repair damage to the premises caused by such removal, all at Lessee's cost and
expense. All alterations, additions and improvements shall comply with any and
all regulations of all regulatory agencies having jurisdiction thereof.
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12. QUIET ENJOYMENT: The Lessor covenants and agrees that Lessee, on paying
said monthly rent and performing the covenants herein, shall and may peaceably
and quietly hold and enjoy the said leased premises and common areas, including
but not limited to parking areas, sidewalks, entrances, exits, lobbies,
restrooms, and lounges for the term aforesaid.
13. LESSOR'S RIGHT TO INSPECT AND DISPLAY: The Lessor shall have the right,
during normal business hours of Lessee on twenty-four (24) hours notice, to
enter the leased premises for the purpose of examining or inspecting same and of
making such repairs or alterations therein as the Lessor shall deem necessary.
Any such repair will be made so as to minimize interference with Lessee's
business. The notice and hour requirements shall be excused in the event of an
emergency. The Lessor shall also have the right to enter the leased premises at
all reasonable hours for the purpose of displaying said premises to prospective
tenants within ninety days prior to termination of this Lease. The parties
acknowledge that Lessee may be performing work for the United States of America
that require security clearances for entry to certain areas of the leased
premises. Lessor agrees to comply with any reasonable requirements necessary for
Lessor to obtain access to these areas, it being agreed that Lessor shall not be
deprived access because of such fact.
14. DESTRUCTION OF PREMISES:
(a) If the leased premises are totally destroyed by fire or other
casualties, or partially damaged so as to materially affect the ability of
Lessee to carry on its business, both the Lessor and Lessee shall have the
option of terminating this Lease or any renewal thereof, upon giving written
notice at any time within thirty days from the date of such destruction, and if
the Lease be so terminated, all rent shall cease as of the date of such
destruction and any prepaid rent shall be refunded.
(b) If such leased are partially damaged by fire or other casualty, or
totally destroyed thereby and neither party elects to terminate this Lease
within the provisions of Paragraph (a) above or (c) below, then the Lessor
agrees, at Lessor's sole cost and expense, to restore the leased premises to a
kind and quality substantially similar to that immediately prior to such
destruction or damage. Said restoration shall be commenced within a reasonable
time and completed without delay on the part of the Lessor, and in any event
shall be accomplished within one hundred eighty (180) days from the date of the
fire or other casualty. In such case, all rents paid in advance shall be
proportioned as of the date of damage or destruction and all rent thereafter
accruing shall be equitable and proportionately suspended and adjusted pending
completion of rebuilding, restoration or repair, except that in the event the
destruction or damage is so extensive as to make it unfeasible for the Lessee to
conduct Lessee's business on the leased premises the rent shall be completely
abated until the leased premises are restored by the
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Lessor or until the Lessee resumes use and occupancy of the leased premises
for the conduct of business, whichever shall first occur. The Lessor shall not
be liable for any inconvenience or interruption of business of the Lessee
occasioned by fire or other casualty.
(c) If the Lessor undertakes to restore, rebuild or repair the
premises, and such restoration, rebuilding or repair is not accomplished within
one hundred eighty (180) days, the Lessee shall have the right to terminate this
Lease by written notice to the Lessor within thirty (30) days after expiration
of said one hundred eighty (180) day period.
(d) Lessor shall not be liable to carry fire, casualty or extended
damage insurance on the person or property of the Lessee or any person or
property which may now or hereafter be placed in the leased premises.
15. CONDEMNATION: If during the term of this Lease or any renewal thereof,
the whole of the leased premises, or such portion thereof as will materially
affect the use of the leased premises for the purpose leased, be condemned by
public authority for public use, then, in either event, the term hereby granted
shall cease and come to an end as of the date the Lessee is required to vacate
the leased premises by either Lessor or the condemnor. Upon such occurrence, the
rent shall be proportioned as of such date and any prepaid rent shall be
returned to the Lessee. The Lessor shall be entitled to the entire award for
such taking except for any statutory claim on the Lessee for injury, damage or
destruction of Lessee's business accomplished by such taking. If a portion of
the leased premises is taken or condemned by public authority for public use so
as not to materially effect the ability of the Lessee to use its remaining
portion of the leased premises for the purposes leased, this Lease will not be
terminated but shall continue. In such case, the rent shall be equitably and
fairly reduced or abated for the remainder of the term in proportion to the
amount of the leased premises taken. In no event shall the Lessor be liable to
the Lessee for any business interruption, diminution in use or for the value of
any unexpired term of this Lease.
16. ASSIGNMENT AND SUBLEASE: The Lessee covenants and agrees not to
encumber or assign this Lease or sublet all or any part of the leased premises
without the written consent of the Lessor, which consent the Lessor covenants
and agrees shall not be unreasonably withheld. Lessee shall provide Lessor with
written notice of any proposed assignment or sublease at least thirty (30) days
prior to any proposed effective date of assignment or sublease. If Lessor fails
to provide Lessee with notice of whether such assignment or sublease is approved
within thirty (30) days of receipt by Lessor of such request, such inaction by
Lessor shall constitute consent. Notwithstanding the foregoing, Lessee has the
right to assign or sublet this Lease as long as the guarantee executed by
Diagnostic Retrieval Systems, Inc. remains
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in full force and effect and said company has a financial worth at least
comparable to that on the date this Lease and Guarantee are executed. Any such
assignment shall in no way relieve the Lessee from any obligations hereunder for
the payment of rents or the performance of the conditions, covenants and
provisions of this Lease.
In no event shall Lessee assign or sublet the leased premises for any
terms, conditions and covenants other than those contained herein, except that
Lessee may assign or sublet to another person for different rent or a different
use as long as such use complies with all applicable regulations regarding the
use and operation of businesses located in the leased premises. In no event
shall this Lease be assigned or be assignable by operation of law or by
voluntary or involuntary bankruptcy proceedings or otherwise, and in no event
shall this Lease or any rights or privileges hereunder be an asset of Lessee
under any bankruptcy, insolvency or reorganization proceedings. Lessor shall not
be liable nor shall the leased premises be subject to any mechanics,
materialmans, or other type liens and Lessee shall keep the premises and
property in which the leased premises are situated free from any such liens
caused by acts of Lessee and shall indemnify Lessor against and satisfy any such
liens which may obtain because of acts of Lessee notwithstanding the foregoing
provision.
17. HOLDOVER: It is further covenanted and agreed that if the Lessee, any
assignee or sublessee shall continue to occupy the leased premises after the
termination of this Lease without prior written consent of the Lessor, such
tenancy shall be Tenancy at Sufferance. Acceptance by the Lessor of rent after
such termination shall not constitute a renewal of this Lease or consent to such
occupancy nor shall it waive Lessor's right of reentry or any other right
contained herein.
18. SUBORDINATION: Subject to the last sentence of this paragraph, this
Lease shall be subject and subordinated at all times to the liens of any
mortgages or deeds of trust in any amount or amounts whatsoever now existing or
hereafter encumbering the leased premises, without the necessity of having
further instruments executed by the Lessee to effect such subordination.
Notwithstanding the foregoing, Lessee covenants and agrees to execute and
deliver upon demand, such further instruments evidencing such subordination of
this Lease to such liens of any such mortgages or deeds of trust as may be
requested by Lessor. Lessor shall provide a non-disturbance agreement from the
mortgagee holding the mortgage on the leased premises on or before November 15,
1995. So long as the Lessee hereunder shall pay the rent reserved and comply
with, abide by and discharge the terms, conditions, covenants, and obligations
on its part, to be kept and performed herein and shall attorn to any successor
in title, notwithstanding the foregoing, the peaceable possession of the Lessee
in and to the leased premises for the term of this Lease shall not be disturbed,
in the event of the foreclosure of any such mortgage or deed of trust, by the
purchaser at such
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foreclosure sale or such purchasers successor in title.
19. INDEMNIFICATION: The Lessor shall not be liable for any damage or
injury to any person or property whether it be the person or property of the
Lessee, the Lessee's employees, agents, guests, invitees or otherwise by reason
of Lessee's occupancy of the leased premises or because of fire, flood,
windstorm, Acts of God or for any other reason unless caused by the intentional
acts or gross negligence of Lessor. The Lessee agrees to indemnify and save
harmless the Lessor, its agents, employees and contractors from and against any
and all loss, damage, claim, demand, liability or expense by reason of damage to
person or property which may arise or be claimed to have arisen as a result of
the occupancy or use of said leased premises by the Lessee or by reason thereof
or in connection therewith, or in any way arising on account of any injury or
damage caused to any person or property on or in the leased premises providing,
however, that Lessee shall not indemnify as to the loss or damage due to fault
of Lessor.
20. CONSTRUCTION OF LANGUAGE: The terms lease, lease agreement or agreement
shall be inclusive of each other, also to include renewals, extensions or
modifications of this Lease. Words of any gender used in this Lease shall be
held to include any other gender, and in the singular shall be held to include
the plural and the plural to include the singular, when the sense requires. The
paragraph headings and titles are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part hereof.
21. DEFAULT: In the event the Lessee shall default in the payment of rent,
those sums designated as additional rent or any other sums payable by the Lessee
herein, and such default shall continue for a period of ten days from the date
of written notice by Lessor to Lessee, or if the Lessee shall default in the
performance of any other covenants or agreements of this Lease and such default
shall continue for thirty days after written notice thereof (or if the default
cannot be cured within thirty (30) days, that Lessee failed to diligently
proceed to cure), or if the Lessee should become bankrupt or insolvent or any
debtor proceedings be taken by or against the Lessee, then and in addition to
any and all other legal remedies and rights, the Lessor may terminate this Lease
and retake possession of the leased premises, or enter the leased premises and
re-let the same without termination, in which later event the Lessee covenants
and agrees to pay any deficiency after Lessee is credited with the rent thereby
obtained less all repairs and expenses (including the expenses of obtaining
possession), or the Lessor may resort to any two or more of such remedies or
rights, and any other remedies provided by law except acceleration, and adoption
of one or more such remedies or rights shall not necessarily prevent the
enforcement of others concurrently or thereafter. Lessor shall be entitled to
its landlord's lien provided by law. Lessor agrees to mitigate damages, if
possible.
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The Lessee also covenants and agrees to pay reasonable attorney's fees and
costs and expenses of the Lessor, including court costs, if the Lessor employs
an attorney to collect rent or enforce other rights of the Lessor herein in
event of any breach as aforesaid and the same shall be payable regardless of
whether collection or enforcement is effected by suit or otherwise. In the event
any litigation arises under this Agreement, the prevailing party shall be
entitled to attorney's fees and costs, including attorney's fees for any appeal.
22. SUCCESSORS AND ASSIGNS: This Lease shall bind and inure to the benefit
of the successors, assigns, heirs, executors, administrators and legal
representatives of the parties hereto.
23. NON-WAIVER: No waiver of any covenant or condition of this Lease by
either party shall be deemed to imply or constitute a further waiver of the same
covenant or condition or any other covenant or condition of this Lease.
24. OPTION TO RENEW: Lessee is hereby granted an option to renew this lease
for one additional term of five (5) years. Lessee shall, not less than ninety
days prior to the end of the term hereof, by written notice to the Lessor,
notify Lessor of its intention to exercise this option to renew. Failure of
Lessee to serve such written notice of exercise of option on the Lessor shall
terminate this option. Upon exercise of said option to renew, the lease term
shall be extended for an additional five (5) years upon all of the terms and
conditions of this lease, subject to any rent adjustments of Paragraph 5.
However, there shall be no additional options to renew.
25. SECURITY DEPOSIT: The Lessee, concurrently with the execution of this
Lease, has deposited with the Lessor the sum of $-0-, the receipt being hereby
acknowledged, which sum shall be retained by Lessor as security for the payment
by the Lessee of the rent herein agreed to be paid and for the faithful
performance of the covenants of this Lease. If at any time the Lessee shall be
in default following notice and the expiration of any applicable grace period in
any of the provisions of this Lease, the Lessor shall have the right to use said
deposit, or so much thereof as may be necessary in payment of any rent in
default aforesaid and/or in payment of any expense incurred by the Lessor in and
about the curing of any default by said Lessee, and/or in payment of any damages
incurred by the Lessor by reason of such default of the Lessee, or at the
Lessor's option, the same may be retained by the Lessor in liquidation of part
of the damages suffered by the Lessor by reason of the default of the Lessee. In
the event that said deposit shall not be utilized for any such purpose, then
such deposit shall be applied to the rent last due for the term of this Lease or
any renewal term thereof. Said deposit shall not bear interest.
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26. ADDITIONAL CHARGES: The Lessee shall pay to Lessor as additional rent
on a monthly basis its pro rata share of all costs and expenses related to
operating, managing, equipping, insuring, lighting, repairing, cleaning,
decorating, preserving, altering, replacing, maintaining and enhancing building
1 and building 2 of the commerce park in which the leased property is located
along with parking areas and other areas within the commerce park in which the
buildings are located. Such costs and expenses shall include but not be limited
to: pest extermination; inspection of equipment; inspection and repair of fire
sprinkler and alarm service; removal of dirt and debris; planting, replanting
and replacing flowers; landscaping; irrigation and supplies; all costs and
expenses associated with maintaining lighting facilities and storm drainage and
retention systems, whether on or off premises; electric service, sewage
treatment plant and domestic water well, pump and similar costs; audit costs;
all premiums for liability, loss of rents, property damage, fire and worker's
compensation insurance; wages; unemployment taxes; social security taxes;
personal property taxes; management fees; legal fees; solid waste charges;
windows; maintenance, lining, bumpering, top coating and repairing all
impervious surfaces; rental of machinery necessary to implement any of the
foregoing services; and bank charges, along with real property taxes and
assessments. Notwithstanding, Lessee shall not be obligated to pay any portion
of capital items with the exception of parking lot expansion if hereafter
required in writing by Lessee. Nothing contained herein shall be deemed or
construed to modify or negate Lessor's obligations under that memorandum dated
______________ . The only repair obligation of the Lessor is the exterior of the
roof of the building and the structural portions of the building and leased
premises, as long as such repair is not necessitated by the action of the
Lessee, its employees, agents or contractors.
Current estimated monthly charges are as follows:
(a) Woodlake Commerce Park CAM $ 42.00 (inc. 6% sales tax)
(b) Building CAM $734.40 (inc. 6% sales tax)
(c) Real Property taxes $692.40
Copies of the proposed budget for the upcoming year are appended hereto.
Lessee's pro rata percentage for the leased premises for determining
Building CAM and Real Property taxes is 8.8%. This represents the Lessee's pro
rata share determined by lease space of 14,400 square feet and total building
square feet of 164,500 square feet. Lessee's pro rata percentage for the
Woodlake Commerce Park CAM is 1.85%. This percentage is determined as follows:
(i) the percentage of land comprising buildings 1 and 2 of Woodlake Commerce
Park owned by Lessor in the entire Woodlake Commerce Park (20.96%) multiplied by
(ii) the pro rata portion of CAM expenses (8.8%) (20.96%) x (8.8%) = 1.85%.
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28. IMPACT FEE: It is understood that there is currently on record with the
City of Palm Bay projected water and sewer uses with regard to the demised
premises. Lessor has previously paid to the City of Palm Bay an impact fee based
upon such projected usage. Lessor has been advised by the City of Palm Bay that
Lessee's proposed use will not require the additional payment of impact fees.
However, should the actual usage of water and sewer by Lessee hereunder increase
over and above the projected usage, and should the City of Palm Bay assess an
additional impact fee against the Lessor as a result of such increased usage,
Lessee shall be and become responsible for any increased impact fee. Such
increase shall be due and payable as additional rent hereunder and shall be paid
by Lessee to Lessor within twenty (20) days after submission of invoice for said
amount.
29. PAST DUE RENTS: If Lessee shall fail to pay any rents, additional rents
or other charges characterized herein as additional rent when the same become
due and payable, such unpaid amounts shall bear interest from the due date
thereof to the date of payment at the rate of five percent (5%) until paid. The
provisions herein for late payment service charges shall not be construed to
extend the date for payment of any sums required to be paid by Lessee hereunder
or to relieve Lessee of its obligation to pay all such sums at the time or times
herein stipulated. Notwithstanding the imposition of any charges pursuant to
this section, Lessee shall be in default under this Lease if any or all payments
required to be made by Lessee are not made at the time therein stipulated and
neither the demand nor collection by Lessor of such late payment service charges
shall be construed as a cure for such default on the part of the Lessee.
Lessor permits a ten (10) day grace period.
30. This information is being provided as required by Florida Statute
404.056:
RADON GAS: Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over time. Levels of radon that exceed federal and
state guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public health
unit.
31. VENUE. In the event any litigation arises out of this Agreement, venue
shall be in a court of competent jurisdiction in Brevard County, Florida.
32. SEVERABILITY. In the event that any term or provision of this Agreement
or the application thereof to any person or
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circumstance shall, to any extent, be invalid or unenforceable, the remainder of
this Agreement, or the application of such term or provision to persons or
circumstances other than those to which it is held invalid or unenforceable
shall not be affected thereby and each term and provision of this Agreement
shall be valid and be enforced by the fullest extent permitted by law.
33. REPAIRS AND MAINTENANCE: Lessor shall not be liable to Lessee for any
repairs necessitated by some act or neglect of Lessee or any Permittee, or any
contractor, agent, employee, invitee of any of the aforesaid or, for any damage
to merchandise, trade fixtures, or personal property of Lessee in the leased
premises caused by water leakage from the roof, water lines, sprinklers or
heating and air conditioning equipment. Lessee shall be liable for all repairs
and replacements, ordinary and extraordinary, other than those for which Lessor
is responsible, and shall maintain in the leased premises in good order and
repair, clean, sanitary and safe, including the replacement and maintenance of
equipment, fixtures, improvements, floor covering, the exterior and interior
portions of all doors, door locks, security gates and windows, plumbing and
sewage facilities, heating and air conditioning equipment, walls, ceilings, and
all plate glass. Lessee shall, as part of its maintenance and repair obligations
hereunder, enter into a service contract with a local, approved contractor for
service, maintenance and repair of all heating, ventilation and air conditioning
equipment within and servicing the leased premises, which shall provide for
servicing by such contractor no less often than quarterly. A copy of such
contract shall be delivered to the Lessor annually. If Lessee refuses or
neglects to make repairs and/or maintain the leased premises, or any part
thereof, in a manner reasonably satisfactory to Lessor, Lessor shall have the
right, upon giving Lessee reasonable written notice of its election to do so, to
make repair or perform such maintenance on behalf of and for the account of
Lessee. In such event, such work shall be paid for by Lessee as additional
rental promptly upon receipt of a bill therefor. Lessee further agrees to paint
the interior of the leased premises when necessary in order to maintain at all
times a clean and sightly appearance. Nothing herein shall imply any duty on
Lessor to do any work which Lessor is not specifically and expressly required to
perform under this Lease or which, under any provisions of this Lease, Lessee
may be required to perform; and, the performing thereof by Lessor shall not
constitute a waiver of Lessee's default in failing to perform the same. Lessee
acknowledges that the foregoing provisions of this paragraph shall apply and
become effective from and after the date Lessee or its agents or contractors
enter the leased premises or undertake activities permitted hereunder. Lessee
shall indemnify Lessor against, and hold it harmless from, any claims, demands,
or actions against Lessor or its agents, employees or contractors for losses or
damages incurred by Lessor or its agents, employees or contractors arising out
of or in any way connected with Lessee's failure to perform its obligations or
observe any covenants under this paragraph.
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34. HAZARDOUS SUBSTANCES: The term "Hazardous Substances". as used in this
Lease shall include, without limitation: flammables, explosives, radioactive
materials, asbestos, polychlorinated biphenyls (PCBs), chemicals known to cause
cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes,
toxic substances or related materials, petroleum and petroleum~products, and
substances declared to be hazardous or toxic under any law or regulation now or
hereafter enacted or promulgated by any governmental authority.
Lessee shall not cause or permit to occur any violation of any federal,
state, or local law, ordinance, or regulation now or hereafter enacted, related
to environmental conditions on, under or about the premises arising from
Lessee's use or occupancy therein, nor shall Lessee cause or permit the use,
generation, release, manufacture, refinement, production, processing, storage or
disposal of any Hazardous Substance which violates any federal, state or local
law, ordinance or regulation now or hereafter enacted related to environmental
conditions without Lessor's prior written consent, which consent may be
withdrawn, conditioned, or modified by Lessor in its sole and absolute
discretion.
Lessee shall indemnify, defend and hold Lessor, its respective officers,
directors, beneficiaries, shareholders, partners, agents, and employees harmless
from all fines, suits, procedures, claims, clean-up and actions of every kind,
and all costs associated therewith, including attorney's and consultant's fees,
arising out of, or in any way connected with, any deposit, spill, discharge or
other release of Hazardous Substances, at or from the premises, or which arises
at any time from Lessee's use or occupancy of the premises, or from Lessee's
failure to comply with or satisfy government required action on the matter.
Lessee's obligations and liabilities under this paragraph shall survive the
termination of this Lease.
35. CONFIDENTIALITY: Lessee shall not disclose the terms of this agreement
to any person except on a need to know basis.
IN WITNESS WHEREOF, Lessee and Lessor have caused this instrument to be
executed as of the date first above written, by their respective officers or
parties thereunto duly authorized.
Signed, sealed and delivered Lessee: OMI ACQUISITION CORP.
in the presence of:
____________________________ By _____________________________
____________________________ Title___________________________
Attest__________________________
Secretary
(Corporate Seal)
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Signed, sealed and delivered
in the presence of:
____________________________ Lessor: SUTTON PROPERTIES
____________________________ __________________________________
Authorized Agent for
Sutton Properties
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GUARANTEE
In order to induce Lessor to execute the foregoing Lease (the "Lease")
covering 14,400 square feet of space set forth in the foregoing Lease, and dated
August __ , 1995, by and between FRED E. SUTTON and HAROLD S. SUTTON d/b/a
SUTTON PROPERTIES and OMIT ACQUISITION CORP., to which this Guarantee is an
integral part thereof, the undersigned hereby guarantees the payment and
performance of and agrees to pay and perform as a primary obligor all
liabilities, obligations and duties (including, but not limited to, payment of
rent) imposed upon Lessee under the terms of the Lease, as if the undersigned
had executed the Lease as Lessee thereunder as it relates only to the payment of
rent, any sums identified as additional rent any obligations, duties and
liabilities under Paragraph 34 of the Lease and any fines, attorney's fees and
any other expenses or costs incurred by Lessor for code violations and code
violation proceedings initiated by any regulatory agency for code violations
alleged to exist in operation and maintenance of Lessee's business and
maintenance of the leased premises by Lessee.
The undersigned hereby waives notice of acceptance of this guarantee and
all other notices in connection herewith or in connection with the liabilities,
obligations and duties guaranteed hereby, including notices of default by Lessee
under the Lease, and waives diligence, presentment and suit on the part of
Lessor in the enforcement of any liability, obligation or duty guaranteed
hereby.
The undersigned further agrees that Lessor shall not be first required to
enforce against Lessee or any other person any liability, obligation or duty
guaranteed hereby before seeking enforcement thereof against the undersigned.
Suit may be brought and maintained against the undersigned by Lessor to enforce
any liability, obligation or duty guaranteed hereby without joinder of Lessee or
any other person. The liability of the undersigned shall not be affected by any
indulgence, compromise, settlement or termination of the Lease to the extent
that Lessee thereafter continues to be liable thereunder. Lessor and Lessee,
without notice to or consent by the undersigned, may at any time and from time
to time enter into such modifications, extensions, amendments or other covenants
respecting the Lease as they may deem appropriate and the undersigned shall not
be released thereby, but shall continue to be fully liable to the extent
provided for herein for the payment and performance of all liabilities,
obligations and duties of Lessee under the Lease as so modified, extended or
amended.
It is understood that other agreements similar to this agreement may be
executed by other persons with respect to the Lease. This agreement shall be
cumulative of any such other agreements and the liabilities and obligations of
the undersigned hereunder shall in no event be affected or diminished by reason
of such other agreements. In the event that Lessor secures other
<PAGE>
agreements similar to this agreement, or secures the signature of more than one
guarantor to this agreement, or both, the undersigned agrees that Lessor, in
Lessor's sole discretion, may bring suit against all guarantors of the Lease
jointly and severally against any one or more of them, may compound or settle
with any one or more of such guarantors for such consideration as Lessor shall
deem proper, and may release one or more of such guarantors from any liability,
obligation or duty guaranteed hereby. The undersigned further agrees that no
such action shall impair the rights of Lessor to enforce the Lease against any
remaining guarantor(s).
The undersigned agrees that if Lessor shall employ counsel to present,
enforce or defend any or all of the Lessor's rights or remedies hereunder, or
defend any action brought by the undersigned, undersigned shall pay any
reasonable attorney's and expenses incurred by Lessor in such connection.
EXECUTED this __ day of ___________, 199 __, to be effective as of the date
of the Lease.
GUARANTOR: DIAGNOSTIC/RETRIEVAL
SYSTEMS, INC.
_____________________________ By: ___________________________
Its:
_____________________________
_______________________________
Attest: Secretary
(Corporate Seal)
MEMORANDUM OF LEASE AGREEMENT
THIS MEMORANDUM OF LEASE AGREEMENT executed this _____ day of ___________,
1995 by and between FRED E. SUTTON and HAROLD S. SUTTON d/b/a SUTTON
PROPERTIES, a Florida general partnership (hereinafter "Lessor"), OMI
ACQUISITION CORP., a Delaware corporation (hereinafter "Lessee"), and
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. (hereinafter "Guarantor").
WITNESSETH:
WHEREAS, Lessor and Lessee entered into three separate Lease Agreements for
space located at Building 2330, Woodlake Commerce Park, Palm Bay, Brevard
County, Florida whereby Lessee leased premises of 35,510 square feet, 14,400
square feet and 4,000 square feet (hereinafter Lease 1, Lease 2 and Lease 3
respectively); and
WHEREAS, the parties are desirous of setting forth their understanding with
respect to said leases 1, 2 and 3.
NOW THEREFORE, IN CONSIDERATION OF THE SUM OF $1.00, IT IS AGREED BY AND
BETWEEN THE PARTIES, AS FOLLOWS:
1. That Lessor will provide to Lessee for use by its employees, customers,
invitees and guests under said three leases, approximately 135 total parking
spaces, which shall be in addition to those expressly provided for in lease 1.
2. At such time as Lessee takes possession of the demised premises under
Leases 1 and 2, the HVAC, plumbing, electrical and other systems will be in
good working order.
3. Should Lessee be legally entitled to terminate Lease 1, said
termination shall also entitle Lessee at its option to terminate Lease 2
and/or Lease 3.
<PAGE>
4. At such time as Lease 3 is in force, the parties acknowledge that the
office buildings of which the demised premises are a part shall be increased by
4,000 square feet. Accordingly, at such time as the premises under Lease 3 are
completed, the Lessee's obligation for "additional charges" as set forth in
Paragraph 26 of Leases 1, 2 and 3 shall be re-prorated based upon the total
amount of building square footage increasing from 164,500 square feet to
168,500 square feet.
5. Upon request by Lessee, the parties agree to enter into a lease for an
additional 10,000 square feet located within or adjacent to Woodlake Commerce
Park Buildings 1 and 2 at a location to be determined by Lessor.
(a) Said lease space and improvements shall be constructed at the
sole expense of Lessor.
(b) Lessor shall have 180 days after execution of a lease for said
premises within which to complete construction of said space.
(c) The base rent for said space shall be the actual cost of
construction as defined in Paragraph 3 of Lease 3 between the parties,
amortized over the remaining terms of the above-referenced lease at 1.3 times
the interest rate charged by a lender to Lessor at the time such improvements
are completed.
(d) The parties will enter into a lease in substantially the same
form as lease 3. In addition to the rent as set forth in 5(c) above, Lessee
shall pay additional rent as provided in Paragraph 26 of the subject leases
based upon a pro-rata basis.
<PAGE>
IN WITNESS WHEREOF, Lessee, Lessor and Guarantor have caused this
instrument to be executed as of the date first above written, by their
respective officers or parties thereunto duly authorized.
Signed, sealed and delivered Lessee: OMI ACQUISITION CORP.
in the presence of:
- -------------------------------- By
--------------------------------
- -------------------------------- Title Secretary
------------------------------
Attest
----------------------------
Secretary
(Corporate Seal)
Signed, sealed and delivered Lessor: SUTTON PROPERTIES
in the presence of:
- -------------------------------- -----------------------------------
Authorized Agent for
- -------------------------------- Sutton Properties
Signed, sealed and delivered Guarantor: DIAGNOSTIC/RETRIEVAL
in the presence of: SYSTEMS, INC.
- -------------------------------- By:
-------------------------------
- -------------------------------- Title:
----------------------------
Attest:
---------------------------
Secretary
(Corporate Seal)
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT, dated as of 8-31-95 ("Agreement"), between
General Electric Capital Corporation, with an office at 303 International Circle
Suite 300, Hunt Valley, MD 21031 (hereinafter called, together with its
successors and assigns, if any, "Lessor"), and OMI Acquisition Corp., a
corporation organized and existing under the laws of the State of Delaware with
its mailing address and chief place of business at 425 North Drive, Melbourne,
FL 32935 (hereinafter called "Lessee").
WITNESSETH:
I. LEASING:
(a) Subject to the terms and conditions set forth below, Lessor agrees to
lease to Lessee, and Lessee agrees to lease from Lessor, the equipment
("Equipment") described in Annex A to any schedule hereto ("Schedule"). Terms
defined in a Schedule and not otherwise defined herein shall have the meanings
ascribed to them in such Schedule.
(b) The obligation of Lessor to purchase from the manufacturer or supplier
thereof ("Supplier") and to lease the same to Lessee under any Schedule shall
be subject to receipt by Lessor, prior to the Lease Commencement Date (with
respect to such Equipment), of each of the following documents in form and
substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then
to be leased hereunder, (ii) a Purchase Order Assignment and Consent in the form
of Annex B to the applicable Schedule, unless Lessor shall have delivered its
purchase order for such Equipment, (iii) evidence of insurance which complies
with the requirements of Section X, and (iv) such other documents as Lessor may
reasonably request. As a further condition to such obligations of Lessor, Lessee
shall, upon delivery of such Equipment (but not later than the Last Delivery
Date specified in the applicable Schedule) execute and deliver to Lessor a
Certificate of Acceptance (in the form of Annex C to the applicable Schedule)
covering such Equipment, and deliver to Lessor a bill of sale therefor (in form
and substance satisfactory to Lessor). Lessor hereby appoints Lessee its agent
for inspection and acceptance of the Equipment from the Supplier. Upon execution
by Lessee of any Certificate of Acceptance, the Equipment described thereon
shall be deemed to have been delivered to, and irrevocably accepted by, Lessee
for lease hereunder.
II. TERM, RENT AND PAYMENT:
(a) The rent payable hereunder and Lessee's right to use the Equipment
shall commence on the date of execution by Lessee of the Certificate of
Acceptance for such Equipment ("Lease Commencement Date"). The term of this
Agreement shall be the period specified in the applicable Schedule. If any term
is extended, the word "term" shall be deemed to refer to all extended terms, and
all provisions of this Agreement shall apply during any extended terms, except
as may be otherwise specifically provided in writing.
(b) Rent shall be paid to Lessor at its address stated above, except as
otherwise directed by Lessor. Payments of rent shall be in the amount set forth
in, and due in accordance with, the provisions of the applicable Schedule. If
one or more Advance Rentals are payable, such Advance Rental shall be (i) set
forth on the applicable Schedule, (ii) due upon acceptance by Lessor of such
Schedule, and (iii) when received by Lessor, applied to the first rent payment
and the balance, if any, to the final rental payment(s) under such Schedule. In
no event shall any Advance Rental or any other rent payments be refunded to
Lessee. If rent is not paid within ten days of its due date, Lessee agrees to
pay a late charge of five cents ($.05) per dollar on, and in addition to, the
amount of such rent but not exceeding the lawful maximum, if any.
III. RENT ADJUSTMENT:
(a) The periodic rent payments in each Schedule have been calculated on the
assumption (which, as between Lessor and Lessee, is mutual) that the maximum
effective corporate income tax rate (exclusive of any minimum tax rate) for
calendar-year taxpayers ("Effective Rate") will be thirty-five percent (35%)
each year during the lease term.
(b) If, solely as a result of Congressional enactment of any law
(including, without limitation, any modification of, or amendment or addition
to, the Internal Revenue Code of 1986, as amended, (the "Code")), the Effective
Rate is higher than thirty-five percent (35%) for any year during the lease
term, then Lessor shall have the right to increase such rent payments by
requiring payment of a single additional sum equal to the product of (i) the
Effective Rate (expressed as a decimal) for such year less .35 (or, in the event
that any adjustment has been made hereunder for any previous year, the Effective
Rate (expressed as a decimal) used in calculating the next previous adjustment)
times (ii) the adjusted Termination Value divided by the difference between the
new Effective Tax Rate (expressed as a decimal) and one (1). The adjusted
Termination Value shall be the Termination Value (calculated as of the first
rental due in the year for which such adjustment is being made) less the Tax
Benefits that would be allowable under Section 168 of the Code (as of the first
day of the year for which such adjustment is being made and all subsequent years
of the lease term). Lessee shall pay to Lessor the full amount of the additional
rent payment on the later of (i) receipt of notice or (ii) the first day of the
year for which such adjustment is being made.
(c) Lessee's obligations under this Section III shall survive any
expiration or termination of this Agreement.
IV. TAXES: Except as provided in Section III and XV(c), Lessee shall have no
liability for taxes imposed by the United States of America or any State or
political subdivision thereof which are on or measured by the net income of
Lessor. Lessee shall report (to the extent that it is legally permissible) and
pay promptly all other taxes, fees and assessments due, imposed, assessed or
levied against any Equipment (or the purchase, ownership, delivery, leasing,
possession, use or operation thereof), this Agreement (or any rentals or
receipts hereunder), any Schedule, Lessor or Lessee by any foreign, federal,
state or local government or taxing authority during or related to the term of
this Agreement, including, without limitation, all license and registration
fees, and all sales, use, personal property, excise, gross receipts, franchise,
stamp or other taxes, imposts, duties and charges, together with any penalties,
fines or interest thereon (all hereinafter called "Taxes"). Lessee shall (i)
reimburse Lessor upon receipt of written request for reimbursement for any Taxes
charged to or assessed against Lessor, (ii) on request of Lessor, submit to
Lessor written evidence of Lessee's payment of Taxes, (iii) on all reports or
returns show the ownership of the Equipment by Lessor, and (iv) send a copy
thereof to Lessor.
V. REPORTS:
(a) Lessee will notify Lessor in writing, within ten (10) days after any
tax or other lien shall attach to any Equipment, of the full particulars thereof
and of the location of such Equipment on the date of such notification.
(b) Lessee will within ninety (90) days of the close of each fiscal year of
Lessee, deliver to Lessor, Lessee's balance sheet and profit and loss statement,
certified by a recognized firm of certified public accountants. Upon request
Lessee will deliver to Lessor quarterly, within ninety (90) days of the close of
each fiscal quarter of Lessee, in reasonable detail, copies of Lessee's
quarterly financial report certified by the chief financial officer of Lessee.
<PAGE>
---- PAGE MISSING ----
<PAGE>
(a) Lessor may in writing this Agreement in default if: Lessee breaches its
obligation to pay rent or any other sum when due and fails to cure the breach
within ten (10) days; Lessee breaches any of its insurance obligations under
Section X; Lessee breaches any of its other obligations and fails to cure that
breach within thirty (30) days after written notice thereof; any representation
or warranty made by lessee in connection with this Agreement shall be false or
misleading in any material respect; Lessee becomes insolvent or ceases to do
business as a going concern; any Equipment is illegally used; or a petition is
filed by or against Lessee or any guarantor of Lessee's obligations to Lessor
under any bankruptcy or insolvency laws. Such declaration shall apply to all
Schedules except as specifically excepted by Lessor.
(b) After default, at the request of Lessor, Lessee shall comply with the
provisions of Section XI(a). Lessee hereby authorizes Lessor to enter, with or
without legal process, any premises where any Equipment is believed to be and
take possession thereof. Lessee shall, without further demand, forthwith pay to
Lessor (i) as liquidated damages for loss of a bargain and not as a penalty, the
Stipulated Loss Value of the Equipment (calculated as of the rental next
preceding the declaration of default), and (ii) all rentals and other sums then
due hereunder. Lessor may, but shall not be required to, sell Equipment at
private or public sale, in bulk or in parcels, with or without notice and
without having the Equipment present at the place of sale; or Lessor may, but
shall not be required to, lease, otherwise dispose of or keep idle all or part
of the Equipment; and Lessor may use Lessee's premises for any or all of the
foregoing without liability for rent, costs, damages or otherwise. The proceeds
of sale, lease or other disposition, if any, shall be applied in the following
order of priorities: (1) to pay all of Lessor's costs, charges and expenses
incurred in taking, removing, holding, repairing and selling, leasing or
otherwise disposing of Equipment; then, (2) to the extent not previously paid by
Lessee, to pay Lessor all sums due from Lessee hereunder; then (3) to reimburse
to Lessee any sums previously paid by Lessee as liquidated damages; and (4) any
surplus shall be retained by Lessor. Lessee shall pay any deficiency in (1) and
(2) forthwith.
(c) The foregoing remedies are cumulative, and any or all thereof may be
exercises in lieu of or in addition to each other or any remedies at law, in
equity, or under statute. Lessee waives notice of sale or other disposition (and
the time and place thereof), and the manner and place of any advertising. Lessee
shall pay Lessor's actual attorney's fees incurred in connection with the
enforcement, assertion, defense or preservation of Lessor's rights and remedies
hereunder, or if prohibited by law, such lesser sum as may be permitted. Waiver
of any default shall not be a waiver of any other or subsequent default.
(d) Any default under the terms of this or any other agreement between
Lessor and Lessee may be declared by Lessor a default under this and any such
other agreement.
XIII. ASSIGNMENT: Lessor may, without the consent of Lessee, assign this
Agreement or any Schedule. Lessee agrees that if Lessee receives written notice
of an assignment from Lessor, Lessee will pay all rent and all other amounts
payable under any assigned Equipment Schedule to such assignee or as instructed
by Lessor. Lessee further agrees to confirm in writing receipt of the notice of
assignment as may be reasonably requested by assignee. Lessee hereby waives and
agrees not to assert against any such assignee any defense, set-off, recoupment
claim or counterclaim which Lessee has or may at any time have against Lessor
for any reason whatsoever.
XIV. NET LEASE; NO SET-OFF, ETC: This Agreement is a net lease. Lessee's
obligation to pay rent and other amounts due hereunder shall be absolute and
unconditional. Lessee shall not be entitled to any abatement or reductions of,
or set-offs against, said rent or other amounts, including, without limitation,
those arising or allegedly arising out of claims (present or future, alleged or
actual, and including claims arising out of strict tort or negligence of Lessor)
of Lessee against Lessor under this Agreement or otherwise. Nor shall this
Agreement terminate or the obligations of Lessee be affected by reason of any
defect in or damage to, or loss of possession, use or destruction of, any
Equipment from whatsoever cause. It is the intention of the parties that rents
and other amounts due hereunder shall continue to be payable in all events in
the manner and at the times set forth herein unless the obligation to do so
shall have been terminated pursuant to the express terms hereof.
XV. INDEMNIFICATION:
(a) Lessee hereby agrees to indemnify, save and keep harmless Lessor, its
agents, employees, successors and assigns from and against any and all losses,
damages, penalties, injuries, claims, actions and suits, including legal
expenses, of whatsoever kind and nature, in contract or tort, whether caused by
the active or passive negligence of Lessor or otherwise, and including, but not
limited to, Lessor's strict liability in tort, arising out of (i) the selection,
manufacture, purchase, acceptance or rejection of Equipment, the ownership of
Equipment during the term of this Agreement, and the delivery, lease,
possession, maintenance, uses, condition, return or operation of Equipment
(including, without limitation, latent and other defects, whether or not
discoverable by Lessor or Lessee and any claim for patent, trademark or
copyright infringement or environmental damage) or (ii) the condition of
Equipment sold or disposed of after use by Lessee, any sublessee or employees of
Lessee. Lessee shall, upon request, defend any actions based on, or arising out
of, any of the foregoing.
(b) Lessee hereby represents, warrants and covenants that (i) on the Lease
Commencement Date for any unit of Equipment, such unit will qualify for all of
the items of deduction and credit specified in Section C of the applicable
Schedule ("Tax Benefits") in the hands of Lessor (all references to Lessor in
this Section XV include Lessor and the consolidated taxpayer group of which
Lessor is a member), and (ii) at no time during the term of this Agreement will
Lessee take or omit to take, nor will it permit any subleasee or assignee to
take or omit to take, any action (whether or not such act or omission is
otherwise permitted by Lessor or the terms of this Agreement), which will result
in the disqualification of any Equipment for, or recapture of, all or any
portion of such Tax Benefits.
(c) If as a result of a breach of any representation, warrant or covenant
of the Lessee contained in this Agreement or any Schedule (x) tax counsel of
Lessor shall determine that Lessor is not entitled to claim on its Federal
income tax return all or any portion of the Tax Benefits with respect to any
Equipment, or (y) any such Tax Benefit claimed on the Federal income tax return
of Lessor is disallowed or adjusted by the Internal Revenue Service, or (z) any
such Tax Benefit is recomputed or recaptured (any such determination,
disallowance, adjustment, recomputation or recapture being hereinafter called a
"Loss"), then Lessee shall pay to Lessor, as an indemnity and as additional
rent, such amount as shall, in the reasonable opinion of Lessor, cause Lessor's
after-tax economic yields and cash flows, computed on the same assumptions,
including tax rates (unless any adjustment has been made under Section III
hereof, in which case the Effective Rate used in the next preceding adjustment
shall be substituted), as were utilized by Lessor in originally evaluating the
transaction (such yields and flows being hereinafter called the "Net Economic
Return") to equal the Net Economic Return that would have been realized by
Lessor if such Loss had not occurred. Such amount shall be payable upon demand
accompanied by a statement describing in reasonable detail such Loss and the
computation of such amount.
(d) All of Lessor's rights, privileges and indemnities contained in this
Section XV shall survive the expiration or other termination of this Agreement
and the rights, privileges and indemnities contained herein are expressly made
for the benefit of, and shall be enforceable by Lessor, its successors and
assigns.
XVI. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT
ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS
NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE
EQUIPMENT LEASED HEREUNDER OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY
OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR
OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All
such risks, as between Lessor and Lessee, are to be borne by Lessee.
<PAGE>
---- PAGE MISSING ----
<PAGE>
LESSEE AND LESSOR RELATING TO THE SUBJECT-MATTER OF THIS TRANSACTION OR ANY
RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN
LESSEE AND LESSOR. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT
MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE,
ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS
TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS LEASE
MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(b) Unless and until Lessee exercises its rights under Section XIX above,
nothing herein contained shall give or convey to Lessee any right, title or
interest in and to any Equipment except as a lessee. Any cancellation or
termination by Lessor, pursuant to the provision of this Agreement, any
Schedule, supplement or amendment hereto, or the lease of any Equipment
hereunder, shall not release Lessee from any then outstanding obligations to
Lessor hereunder. All Equipment shall at all times remain personal property of
Lessor regardless of the degree of its annexation to any real property and shall
not by reason of any installation in, or affixation to, real or personal
property become a part thereof.
(c) Time is of the essence of this Agreement. Lessor's failure at any time
to require strict performance by Lessee of any of the provisions hereof shall
not waive or diminish Lessor's right thereafter to demand strict compliance
therewith. Lessee agrees, upon Lessor's request, to execute any instrument
necessary or expedient for filing, recording or perfecting the interest of
Lessor. All notices required to be given hereunder shall be deemed adequately
given if sent by registered or certified mail to the addressee at its address
stated herein, or at such other place as such addressee may have designated in
writing. This Agreement and any Schedule and Annexes thereto constitute the
entire agreement of the parties with respect to the subject matter hereof. NO
VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF ANY OF ITS
PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN
AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO.
(d) In case of a failure of Lessee to comply with any provision of this
Agreement, Lessor shall have the right, but shall not be obligated, to effect
such compliance, in whole or in part; and all moneys spent and expenses and
obligations incurred or assumed by Lessor in effecting such compliance shall
constitute additional rent due to Lessor within five days after the date Lessor
sends notice to Lessee requesting payment. Lessor's effecting such compliance
shall not be a waiver of Lessee's default.
(e) Any rent or other amount not paid to Lessor when due hereunder shall
bear interest, both before and after any judgment or termination hereof, at the
lesser of eighteen percent (18%) per annum or the maximum rate allowed by law.
Any provision in this Agreement and any Schedule which are in conflict with any
statute, law or applicable rule shall be deemed omitted, modified or altered to
conform thereto.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be
executed by their duly authorized representative as of the date first above
written.
LESSOR: LESSEE:
General Electric Capital Corporation OMI Acquisition Corp.
By: /s/ KEVIN G. WORTMAN By: /s/ RICHARD ROSS
-------------------------------- --------------------------------
Title: Sr. Credit Analyst Title: President
----------------------------- -----------------------------
- ------------------------------------------------------------------
AMENDMENT NO. 1
TO
MASTER LEASE AGREEMENT
DATED AS OF AUGUST 31, 1995
THIS AMENDMENT amends and supplements the above lease (the "Lease"),
between GENERAL ELECTRIC CAPITAL CORPORATION ("Lessor") and OMI ACQUISITION
CORP. ("Lessee") and is hereby incorporated into the Lease as though fully set
forth therein. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Lease.
The Lease is hereby amended as follows:
1. Section III(c). After "Lessee's" add "and Lessor's"
2. The following is added as paragraph two to Section III(b):
If, solely as a result of congressional enactment of any law (including,
without limitation, an modification of, or amendment or addition to, the
Internal Revenue code of 1986, as amended, (the "Code")), the Effective Rate is
lower than thirty-five percent (35%) for any year during the lease term, then
Lessee shall have the right to request a decrease in the rent payments by
requiring the Lessor to make a payment of a single sum equal to the product of
(i) the Effective Rate (expressed as a decimal) for such year less .35 (or, in
the event that any adjustment has been made hereunder for any previous year, the
Effective Rate (expressed as a decimal) used in calculating the next previous
adjustment) times (ii) the adjusted Termination Value divided by the difference
between the new Effective Tax Rate (expressed as a decimal) and one (1). The
adjusted Termination Value shall be the Termination Value (calculated as of the
first rental due in the year for which such adjustment is being made) less the
Tax Benefits that would be allowable under Section 168 of the code (as of the
first day of the year for which such adjustment is being made and all subsequent
years of the lease term). Lessor shall pay to Lessee the full amount of the
reduction rent payment on the later of (i) receipt of notice or (ii) the first
day of the year for which such adjustment is being made.
Except as expressly modified hereby, all terms and provisions of the Lease
shall remain in full force and effect.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Amendment to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL OMI ACQUISITION CORP.
CORPORATION
(Sig.) (Sig.)
By:______________________________ By: _______________________________
Name: ___________________________ Name: _____________________________
Title: __________________________ Title: ____________________________
Attest:
(Sig.)
By: ________________________________
Name: ______________________________
<PAGE>
AMENDMENT NO. 2
TO
MASTER LEASE AGREEMENT
DATED AS OF AUGUST 31, 1995
THIS AMENDMENT amends and supplements the above lease (the "Lease"),
between GENERAL ELECTRIC CAPITAL CORPORATION ("Lessor") and OMI ACQUISITION
CORP. ("Lessee") and is hereby incorporated into the Lease as though fully set
forth therein. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Lease.
The Lease is hereby amended as follows:
1. Section IV, line 2. After "measured by" delete the remainder of the
sentence and substitute the following: "the Lessor's net income, profits,
receipts, franchise, or conduct of business, and taxes on capital, equity
or net worth relating to any payment to Lessor under this Agreement."
2. Section X, line 5. The sentence that begins with "Lessee hereby
appoints Lessor..." is deleted in its entirety and replaced by the
following: "Lessee shall cause all insurers to issue checks for payments
covering casualty losses to the Equipment payable to the order of Lessor
only, and no other payee. If Lessee fails to do so, or if notwithstanding
Lessee's instructions the insurer issues any check payable jointly to
Lessee and Lessor, then Lessee shall upon Lessor's request promptly endorse
any and every such check as directed by Lessor. Lessee and Lessor agree
that the foregoing provision may be specifically enforced by a court of
competent jurisdiction."
3. Section XV(a), line 8. After "foregoing." Add "Anything in the
foregoing to the contrary notwithstanding, Lessee shall have no obligation
to indemnify, defend or hold harmless Lessor from and against any claims
which are the direct and proximate result of any gross negligence or
willful misconduct of Lessor, its employees or agent (excluding Lessee and
its employees and agents)."
4. Section XVIII(a), line 1. After "hereunder," delete the remainder
of the sentence and substitute the following: "(i) terminate this Agreement
as to any item of Equipment (provided, however, that the aggregate original
Capitalized Lessor's Cost of all items of the Equipment so terminated
pursuant to this Section XVIII shall not exceed twenty-five (25) percent of
the aggregate original Capitalized Lessor's Cost of all Equipment described
on all Schedules executed hereunder) which have not previously been
terminated, or (ii) terminate this Agreement as to all items of the
Equipment then leased pursuant to an individual Schedule, as of a rent
payment date ("Termination Date") upon at least 90 days prior written
notice to Lessor.
Except as expressly modified hereby, all terms and provisions of the Lease
shall remain in full force and effect.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Amendment to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL OMI ACQUISITION CORP.
CORPORATION
(Sig.) (Sig.)
By:______________________________ By: _______________________________
Name: ___________________________ Name: _____________________________
Title: __________________________ Title: ____________________________
<PAGE>
AMENDMENT NO. 3
TO
MASTER LEASE AGREEMENT
DATED AUGUST 31, 1995 (the "Lease")
BY AND BETWEEN
OMI ACQUISITION CORP. ("Lessee")
AND
GENERAL ELECTRIC CAPITAL CORPORATION ("Lessor")
DATED AUGUST 31, 1995
WHEREAS, Lessor and Lessee desire to amend certain provisions of the Lease
as hereinafter provided;
NOW THEREFORE, for good and valuable consideration, receipt and sufficiency of
which are hereby acknowledged, Lessor and Lessee hereby agree to amend the
Lease by adding the following language:
Section XII of the Lease is amended in the following manner:
(e) Lessee shall be deemed to be in default hereunder if Lessee
shall be in default under any material obligation for the payment
of borrowed money, for the deferred purchase price of property or
for the payment of any rent under any material lease agreement, and
the applicable grace period with respect thereto shall have expired.
This Amendment shall be deemed to have been entered into contemporaneously with
and integrated into the terms and conditions of the Lease.
Except as set out herein, the terms and conditions of the Lease shall
remain in full force and effect as entered into by the parties on or prior to
the date hereof.
Dated: August 31, 1995
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL OMI ACQUISITION CORP.
CORPORATION
By:______________________________ By: _______________________________
Name: ___________________________ Name: _____________________________
Title: __________________________ Title: ____________________________
CORPORATE GUARANTY
Date: August 31, 1995
General Electric Capital Corporation
303 International Circle Suite 300
Hunt Valley, MD 21031
To induce you to enter into, purchase or otherwise acquire, now or at any
time hereafter, any promissory notes, security agreements, chattel mortgages,
pledge agreements, conditional sale contracts, lease agreements, and/or any
other documents or instruments evidencing, or relating to, any lease, loan,
extension of credit or other financial accommodation (collectively "Account
Documents" and each an "Account Document") to OMI Acquisition Corp., a
corporation organized and existing under the laws of the State of Delaware
("Customer"), but without in any way binding you to do so, the undersigned, for
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, does hereby guarantee to you, your successors and assigns, the due
regular and punctual payment of any sum or sums of money which the Customer may
owe to you now or at any time hereafter, whether evidenced by an Account
Document, on open account or otherwise, and whether it represents principal,
interest, rent, late charges, indemnities, an original balance, an accelerated
balance, liquidated damages, a balance reduced by partial payment, a deficiency
after sale or other disposition of any leased equipment, collateral or security,
or any other type of sum of any kind whatsoever that the Customer may owe to you
now or at any time hereafter, and does hereby further guarantee to you, your
successors and assigns, the due, regular and punctual performance of any other
duty or obligation of any kind or character whatsoever that the Customer may owe
to you now or at any time hereafter (all such payment and performance
obligations being collectively referred to as "Obligations"). Undersigned does
hereby further guarantee to pay upon demand all losses, costs, attorneys' fees
and expenses which may be suffered by you by reason of Customer's default or
default of the undersigned.
This Guaranty is a guaranty of prompt payment and performance (and not
merely a guaranty of collection). Nothing herein shall require you to first seek
or exhaust any remedy against the Customer, its successors and assigns, or any
other person obligated with respect to the Obligations, or to first foreclose,
exhaust or otherwise proceed against any leased equipment, collateral or
security which may be given in connection with the Obligations. It is agreed
that you may, upon any breach of default of the Customer, or at any time
thereafter, make demand upon the undersigned and receive payment and performance
of the Obligations, with or without notice or demand for payment of performance
by the Customer, its successors or assigns, or any other person. Suit may be
brought and maintained against the undersigned, at your election, without
joinder of the Customer or any other person as parties thereto. The obligations
of each signatory to this Guaranty shall be joint and several.
The undersigned agrees that its obligations under this Guaranty shall be
primary, absolute, continuing and unconditional, irrespective of and unaffected
by any of the following actions or circumstances (regardless of any notice to or
consent of the undersigned): (a) the genuineness, validity, regularity and
enforceability of the Account Documents or any other document; (b) any
extension, renewal, amendment, change, waiver or other modification of the
Account Documents or any other document; (c) the absence of, or delay in, any
action to enforce the Account Documents, this Guaranty or any other document;
(d) your failure or delay in obtaining any other guaranty of the Obligations
(including, without limitation, your failure to obtain the signature of any
other guarantor hereunder); (e) the release of, extension of time for payment
or performance by, or any other indulgence granted to the Customer or any other
person with respect to the Obligations by operation of law or otherwise; (f) the
existence, value, condition, loss, subordination or release (with or without
substitution) of, or failure to have title to or perfect and maintain a security
interest in, or the time, place and manner of any sale or other disposition of
any leased equipment, collateral or security given in connection with the
Obligations, or any other impairment (whether intentional or negligent, by
operation of law or otherwise) of the rights of the undersigned; (g) the
Customer's voluntary or involuntary bankruptcy, assignment for the benefit of
creditors, reorganization, or similar proceedings affecting the Customer or any
of its assets; or (h) any other action or circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety or grantor.
This Guaranty may be terminated upon delivery to you (at your address
shown above) of a written termination notice from the undersigned. However, as
to all Obligations (whether matured, unmatured, absolute, contingent or
otherwise) incurred by the Customer prior to your receipt of such written
termination notice (and regardless of any subsequent amendment, extension or
other modification which may be made with respect to such Obligations), this
Guaranty shall nevertheless continue and remain undischarged until all such
Obligations are indefeasibly paid and performed in full.
The undersigned agrees that this Guaranty shall remain in full force and
effect or be reinstated (as the case may be) if at any time payment or
performance of any of the Obligations (or any part thereof) is rescinded,
reduced or must otherwise be restored or returned by you, all as though such
payment or performance had not been made. If, by reason of any bankruptcy,
insolvency or similar laws effecting the rights of creditors, you shall be
prohibited from exercising any of your rights or remedies against the Customer
or any other person or against any property, then, as between you and the
undersigned, such prohibition shall be of no force and effect, and you shall
have the right to make demand upon, and receive payment from, the undersigned of
all amounts and other sums that would be due to you upon a default with respect
to the Obligations.
Notice of acceptance of this Guaranty and of any default by the Customer or
any other person is hereby waived. Presentment, protest demand, and notice of
protest, demand and dishonor of any of the Obligations, and the exercise of
possessory, collection or other remedies for the Obligations, are hereby waived.
The undersigned warrants that it has adequate means to obtain from the Customer
on a continuing basis financial data and other information regarding the
Customer and is not relying upon you to provide any such data or other
information. Without limiting the foregoing, notice of adverse change in the
Customer's financial condition or of any other fact which might materially
increase the risk of the undersigned is also waived. All settlements,
compromises, accounts stated and agreed balances made in good faith between the
Customer, its successors or assigns, and you shall be binding upon and shall not
effect the liability of the undersigned.
Payment of all amounts now or hereafter owed to the undersigned by the
Customer or any other obligor for any of the Obligations is hereby subordinated
in right of payment to the indefeasible payment in full to you of all
Obligations and is hereby assigned to you as a security therefor. The
undersigned hereby irrevocably and unconditionally waives and relinquishes all
statutory, contractual, common law, equitable and all other claims against the
Customer, any other obligor for any of the Obligations, any collateral therefor,
or any other assets of the Customer or any such other obligor, for subrogation,
reimbursement, exoneration, contribution, indemnification, setoff or other
recourse in respect of sums paid or payable to you by the undersigned hereunder,
and
<PAGE>
the undersigned hereby further irrevocably and unconditionally waives and
relinquishes any and all other benefits which it might otherwise directly or
indirectly receive or be entitled to receive by reason of any amounts paid by,
or collected or due from, it, the Customer or any other obligor for any of the
Obligations, or realized from any of their respective assets.
THE UNDERSIGNED HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, ANY OF THE RELATED
DOCUMENTS, ANY DEALINGS BETWEEN US RELATING TO THE SUBJECT MATTER HEREOF OR
THEREOF, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN US. THE SCOPE
OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS).
THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR
IN WRITING, AND SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, OR ANY
RELATED DOCUMENTS. IN THE EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
As used in this Guaranty, the word "person" include any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, or any government or any political
subdivision thereof.
This Guaranty is intended by the parties as a final expression of the
guaranty of the undersigned and is also intended as a complete and exclusive
statement of the terms thereof. No course of dealing, course of performance or
trade usage, nor any paid evidence of any kind, shall be used to supplement or
modify any of the terms hereof. Nor are there any conditions to the full
effectiveness of this Guaranty. This Guaranty and each of its provisions may
only be waived, modified, varied, released, terminated or surrendered, in whole
or in part, by a duly authorized written instrument signed by you. No failure by
you to exercise your rights hereunder shall give rise to any estoppel against
you, or excuse the undersigned from performing hereunder. Your waiver of any
right to demand performance hereunder shall not be a waiver of any subsequent or
other right to demand performance hereunder.
This Guaranty shall bind the undersigned's successors and assigns and the
benefits thereof shall extend to and include your successors and assigns. In the
event of default hereunder, you may at any time inspect undersigned's records,
or at your option, undersigned shall furnish you with a current independent
audit report.
If any provisions of this Guaranty are in conflict with any applicable
statute, rule or law, then such provisions shall be deemed null and void to the
extent that they may conflict therewith, but without invalidating any other
provisions hereof.
Each signatory on behalf of a corporate guarantor warrants that he had
authority to sign on behalf of such corporation and by so signing, to bind said
guarantor corporation hereunder.
IN WITNESS WHEREOF, this Guaranty is executed the day and year above
written.
Photronics Corp.
By: _____________________________
(Signature)
Title: __________________________
(Officer's Title)
ATTEST: _____________________________
Secretary/Assistant Secretary
<PAGE>
Stockholders Certification
We, the undersigned, being all of the stockholders of ____________________
("Guarantor"), the corporation which is about to execute a guaranty of the
obligations of OMI Acquisition Corp. ("Customer") in favor of General Electric
Capital Corporation (the "GECC Corporation"), do hereby certify to such GECC
Corporation that it is to the benefit of the Guarantor to execute such guaranty,
that the benefit to be received by the Guarantor from such guaranty is
reasonably worth the obligations thereby guaranteed, that the Guarantor is
authorized to execute said guaranty, and that the persons executing the same on
behalf of the Guarantor are duly authorized to do so in their named capacity
and to thereby bind the Guarantor to the terms of said instrument as therein set
forth.
Dated: __________________________, 19___ _____________________________ (L.S.)
_____________________________ (L.S.)
_____________________________ (L.S.)
_____________________________ (L.S.)
_____________________________ (L.S.)
Certified Resolution
The undersigned hereby certifies that he is Secretary of ________________,
that the following resolution was passed at a meeting of the Board of Directors
of said corporation held on __________________________, 19___ duly called, a
quorum being present, that said resolution has not since been revoked or
amended, and that the form of guaranty referred to therein is the form
attached hereto:
"RESOLVED that it is to the benefit of this corporation that it execute a
guaranty of the obligations of OMI Acquisition Corp. ("Customer") to General
Electric Capital Corporation (the "GECC Corporation") and that the benefit to
be received by this corporation from such guaranty is reasonably worth the
obligations thereby guaranteed, and further that such guaranty shall be
substantially in the form annexed to these minutes, and further that the
______________________ and ______________________ (Title of Officers) of this
corporation are authorized to execute such guaranty on the behalf of this
corporation."
WITNESS my hand and the seal of this corporation on this _______________
day of _______________________, 19___.
_____________________________
[Seal] Secretary
Certification and Representation by Signing Officers
We, the undersigned, ______________________ and ____________________ being
the ____________________ and ____________________ of ___________________, the
corporation which executed the guaranty hereto, hereby jointly and severally
certify and represent to General Electric Capital Corporation that each of the
undersigned executed the guaranty for and on behalf of said corporation and
that in so executing said instrument the undersigned were duly authorized to do
so in their named capacity as officers and by so executing to hereby bind said
guarantor corporation to the terms of said instrument as therein set forth.
_____________________________ (L.S.) _____________________________ (L.S.)
Date: ______________________________ Date: ______________________________
<PAGE>
Stockholders Certification
We, the undersigned, being all of the stockholders of ____________________
("Guarantor"), the corporation which is about to execute a guaranty of the
obligations of OMI Acquisition Corp. ("Customer") in favor of General Electric
Capital Corporation (the "GECC Corporation"), do hereby certify to such GECC
Corporation that it is to the benefit of the Guarantor to execute such
guaranty, that the benefit to be received by the Guarantor from such guaranty
is reasonably worth the obligations thereby guaranteed, that the Guarantor is
authorized to execute said guaranty, and that the persons executing the same on
behalf of the Guarantor are duly authorized to do so in their named capacity
and to thereby bind the Guarantor to the terms of said instrument as therein
set forth.
Dated: __________________________, 19___ _____________________________ (L.S.)
_____________________________ (L.S.)
_____________________________ (L.S.)
_____________________________ (L.S.)
_____________________________ (L.S.)
Certified Resolution
The undersigned hereby certifies that he is Secretary of ________________,
that the following resolution was passed at a meeting of the Board of Directors
of said corporation held on __________________________, 19___ duly called, a
quorum being present, that said resolution has not since been revoked or
amended, and that the form of guaranty referred to therein is the form
attached hereto:
"RESOLVED that it is to the benefit of this corporation that it execute a
guaranty of the obligations of OMI Acquisition Corp. ("Customer") to General
Electric Capital Corporation (the "GECC Corporation") and that the benefit to
be received by this corporation from such guaranty is reasonably worth the
obligations thereby guaranteed, and further that such guaranty shall be
substantially in the form annexed to these minutes, and further that the
______________________ and ______________________ (Title of Officers) of this
corporation are authorized to execute such guaranty on the behalf of this
corporation."
WITNESS my hand and the seal of this corporation on this _________________
day of _______________________, 19___.
_____________________________
[Seal] Secretary
Certification and Representation by Signing Officers
We, the undersigned, ____________________ and _____________________ being
the ____________________ and _____________________ of __________________, the
corporation which executed the guaranty hereto, hereby jointly and severally
certify and represent to General Electric Capital Corporation that each of the
undersigned executed the guaranty for and on behalf of said corporation and
that in so executing said instrument the undersigned were duly authorized to
do so in their named capacity as officers and by so executing to hereby bind
said guarantor corporation to the terms of said instrument as therein set
forth.
____________________________ (L.S.) _____________________________ (L.S.)
Date: _____________________________ Date: ______________________________
<PAGE>
CORPORATE GUARANTY
Date: August 31, 1995
General Electric Capital Corporation
303 International Circle Suite 300
Hunt Valley, MD 21031
To induce you to enter into, purchase or otherwise acquire, now or at any
time hereafter, any promissory notes, security agreements, chattel mortgages,
pledge agreements, conditional sale contracts, lease agreements, and/or any
other documents or instruments evidencing, or relating to, any lease, loan,
extension of credit or other financial accommodation (collectively "Account
Documents" and each an "Account Document") to OMI Acquisition Corp., a
corporation organized and existing under the laws of the State of Delaware
("Customer"), but without in any way binding you to do so, the undersigned, for
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, does hereby guarantee to you, your successors and assigns, the due
regular and punctual payment of any sum or sums of money which the Customer may
owe to you now or at any time hereafter, whether evidenced by an Account
Document, on open account or otherwise, and whether it represents principal,
interest, rent, late charges, indemnities, an original balance, an accelerated
balance, liquidated damages, a balance reduced by partial payment, a deficiency
after sale or other disposition of any leased equipment, collateral or security,
or any other type of sum of any kind whatsoever that the Customer may owe to you
now or at any time hereafter, and does hereby further guarantee to you, your
successors and assigns, the due, regular and punctual performance of any other
duty or obligation of any kind or character whatsoever that the Customer may owe
to you now or at any time hereafter (all such payment and performance
obligations being collectively referred to as "Obligations"). Undersigned does
hereby further guarantee to pay upon demand all losses, costs, attorneys' fees
and expenses which may be suffered by you by reason of Customer's default or
default of the undersigned.
This Guaranty is a guaranty of prompt payment and performance (and not
merely a guaranty of collection). Nothing herein shall require you to first seek
or exhaust any remedy against the Customer, its successors and assigns, or any
other person obligated with respect to the Obligations, or to first foreclose,
exhaust or otherwise proceed against any leased equipment, collateral or
security which may be given in connection with the Obligations. It is agreed
that you may, upon any breach of default of the Customer, or at any time
thereafter, make demand upon the undersigned and receive payment and performance
of the Obligations, with or without notice or demand for payment of performance
by the Customer, its successors or assigns, or any other person. Suit may be
brought and maintained against the undersigned, at your election, without
joinder of the Customer or any other person as parties thereto. The obligations
of each signatory to this Guaranty shall be joint and several.
The undersigned agrees that its obligations under this Guaranty shall be
primary, absolute, continuing and unconditional, irrespective of and unaffected
by any of the following actions or circumstances (regardless of any notice to or
consent of the undersigned): (a) the genuineness, validity, regularity and
enforceability of the Account Documents or any other document; (b) any
extension, renewal, amendment, change, waiver or other modification of the
Account Documents or any other document; (c) the absence of, or delay in, any
action to enforce the Account Documents, this Guaranty or any other document;
(d) your failure or delay in obtaining any other guaranty of the Obligations
(including, without limitation, your failure to obtain the signature of any
other guarantor hereunder); (e) the release of, extension of time for payment
or performance by, or any other indulgence granted to the Customer or any other
person with respect to the Obligations by operation of law or otherwise; (f) the
existence, value, condition, loss, subordination or release (with or without
substitution) of, or failure to have title to or perfect and maintain a security
interest in, or the time, place and manner of any sale or other disposition of
any leased equipment, collateral or security given in connection with the
Obligations, or any other impairment (whether intentional or negligent, by
operation of law or otherwise) of the rights of the undersigned; (g) the
Customer's voluntary or involuntary bankruptcy, assignment for the benefit of
creditors, reorganization, or similar proceedings affecting the Customer or any
of its assets; or (h) any other action or circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety or grantor.
This Guaranty may be terminated upon delivery to you (at your address
shown above) of a written termination notice from the undersigned. However, as
to all Obligations (whether matured, unmatured, absolute, contingent or
otherwise) incurred by the Customer prior to your receipt of such written
termination notice (and regardless of any subsequent amendment, extension or
other modification which may be made with respect to such Obligations), this
Guaranty shall nevertheless continue and remain undischarged until all such
Obligations are indefeasibly paid and performed in full.
The undersigned agrees that this Guaranty shall remain in full force and
effect or be reinstated (as the case may be) if at any time payment or
performance of any of the Obligations (or any part thereof) is rescinded,
reduced or must otherwise be restored or returned by you, all as though such
payment or performance had not been made. If, by reason of any bankruptcy,
insolvency or similar laws effecting the rights of creditors, you shall be
prohibited from exercising any of your rights or remedies against the Customer
or any other person or against any property, then, as between you and the
undersigned, such prohibition shall be of no force and effect, and you shall
have the right to make demand upon, and receive payment from, the undersigned
of all amounts and other sums that would be due to you upon a default with
respect to the Obligations.
Notice of acceptance of this Guaranty and of any default by the Customer or
any other person is hereby waived. Presentment, protest demand, and notice of
protest, demand and dishonor of any of the Obligations, and the exercise of
possessory, collection or other remedies for the Obligations, are hereby waived.
The undersigned warrants that it has adequate means to obtain from the Customer
on a continuing basis financial data and other information regarding the
Customer and is not relying upon you to provide any such data or other
information. Without limiting the foregoing, notice of adverse change in the
Customer's financial condition or of any other fact which might materially
increase the risk of the undersigned is also waived. All settlements,
compromises, accounts stated and agreed balances made in good faith between the
Customer, its successors or assigns, and you shall be binding upon and shall
not effect the liability of the undersigned.
Payment of all amounts now or hereafter owed to the undersigned by the
Customer or any other obligor for any of the Obligations is hereby subordinated
in right of payment to the indefeasible payment in full to you of all
Obligations and is hereby assigned to you as a security therefor. The
undersigned hereby irrevocably and unconditionally waives and relinquishes all
statutory, contractual, common law, equitable and all other claims against the
Customer, any other obligor for any of the Obligations, any collateral therefor,
or any other assets of the Customer or any such other obligor, for subrogation,
reimbursement, exoneration, contribution, indemnification, setoff or other
recourse in respect of sums paid or payable to you by the undersigned
hereunder, and
<PAGE>
the undersigned hereby further irrevocably and unconditionally waives and
relinquishes any and all other benefits which it might otherwise directly or
indirectly receive or be entitled to receive by reason of any amounts paid by,
or collected or due from, it, the Customer or any other obligor for any of the
Obligations, or realized from any of their respective assets.
THE UNDERSIGNED HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, ANY OF THE RELATED
DOCUMENTS, ANY DEALINGS BETWEEN US RELATING TO THE SUBJECT MATTER HEREOF OR
THEREOF, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN US. THE SCOPE
OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS).
THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR
IN WRITING, AND SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, OR ANY
RELATED DOCUMENTS. IN THE EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
As used in this Guaranty, the word "person" include any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, or any government or any political
subdivision thereof.
This Guaranty is intended by the parties as a final expression of the
guaranty of the undersigned and is also intended as a complete and exclusive
statement of the terms thereof. No course of dealing, course of performance or
trade usage, nor any paid evidence of any kind, shall be used to supplement or
modify any of the terms hereof. Nor are there any conditions to the full
effectiveness of this Guaranty. This Guaranty and each of its provisions may
only be waived, modified, varied, released, terminated or surrendered, in whole
or in part, by a duly authorized written instrument signed by you. No failure by
you to exercise your rights hereunder shall give rise to any estoppel against
you, or excuse the undersigned from performing hereunder. Your waiver of any
right to demand performance hereunder shall not be a waiver of any subsequent or
other right to demand performance hereunder.
This Guaranty shall bind the undersigned's successors and assigns and the
benefits thereof shall extend to and include your successors and assigns. In the
event of default hereunder, you may at any time inspect undersigned's records,
or at your option, undersigned shall furnish you with a current independent
audit report.
If any provisions of this Guaranty are in conflict with any applicable
statute, rule or law, then such provisions shall be deemed null and void to the
extent that they may conflict therewith, but without invalidating any other
provisions hereof.
Each signatory on behalf of a corporate guarantor warrants that he had
authority to sign on behalf of such corporation and by so signing, to bind said
guarantor corporation hereunder.
IN WITNESS WHEREOF, this Guaranty is executed the day and year above
written.
Diagnostic/Retrieval Systems, Inc.
By: _____________________________
(Signature)
Title: __________________________
(Officer's Title)
ATTEST: _____________________________
Secretary/Assistant Secretary
Stockholders Certification
We, the undersigned, being all of the stockholders of ____________________
("Guarantor"), the corporation which is about to execute a guaranty of the
obligations of OMI Acquisition Corp. ("Customer") in favor of General Electric
Capital Corporation (the "GECC Corporation"), do hereby certify to such GECC
Corporation that it is to the benefit of the Guarantor to execute such guaranty,
that the benefit to be received by the Guarantor from such guaranty is
reasonably worth the obligations thereby guaranteed, that the Guarantor is
authorized to execute said guaranty, and that the persons executing the same on
behalf of the Guarantor are duly authorized to do so in their named capacity
and to thereby bind the Guarantor to the terms of said instrument as therein set
forth.
Dated: __________________________, 19___ _____________________________ (L.S.)
_____________________________ (L.S.)
_____________________________ (L.S.)
_____________________________ (L.S.)
_____________________________ (L.S.)
Certified Resolution
The undersigned hereby certifies that he is Secretary of _________________,
that the following resolution was passed by unanimous written consent of the
Board of Directors of said corporation on __________________________, 19___
duly called, a quorum being present, that said resolution has not since been
revoked or amended, and that the form of guaranty referred to therein is the
form attached hereto:
"RESOLVED that it is to the benefit of this corporation that it execute a
guaranty of the obligations of OMI Acquisition Corp. ("Customer") to General
Electric Capital Corporation (the "GECC Corporation") and that the benefit to be
received by this corporation from such guaranty is reasonably worth the
obligations thereby guaranteed, and further that such guaranty shall be
substantially in the form annexed to these minutes, and further that the
______________________ and ______________________ (Title of Officers) of this
corporation are authorized to execute such guaranty on the behalf of this
corporation."
WITNESS my hand and the seal of this corporation on this __________________
day of _______________________, 19___.
_____________________________
[Seal] Secretary
Certification and Representation by Signing Officers
We, the undersigned, ______________________ and _____________________ being
the _____________________ and _______________________ of ______________________,
the corporation which executed the guaranty hereto, hereby jointly and severally
certify and represent to General Electric Capital Corporation that each of the
undersigned executed the guaranty for and on behalf of said corporation and that
in so executing said instrument the undersigned were duly authorized to do so in
their named capacity as officers and by so executing to hereby bind said
guarantor corporation to the terms of said instrument as therein set forth.
_____________________________ (L.S.) _____________________________ (L.S.)
Date: ______________________________ Date: ______________________________
MACHINE TOOLS EQUIPMENT SCHEDULE
SCHEDULE NO. 001
DATED THIS SEPTEMBER 1, 1995
TO MASTER LEASE AGREEMENT
DATED AS OF AUGUST 31, 1995
Lessor & Mailing Address: Lessee & Mailing Address:
General Electric Capital Corporation OMI Acquisition Corp.
303 International Circle Suite 300 425 North Drive
Hunt Valley, MD 21031 Melbourne, FL 32935
Capitalized terms not defined herein shall have the meanings assigned to them in
the Master Lease Agreement identified above ("Agreement"; said Agreement and
this Schedule being collectively referred to as "Lease").
A. Equipment
Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to Lessee
the Equipment listed on Annex A attached hereto and made a part hereof.
B. Financial Terms
1. Advance Rent (if any): $30,777.53.
2. Capitalized Lessor's Cost: $1,900,000.00.
3. Basic Term Lease Rate Factor: 1.61987%.
4. Daily Lease Rate Factor: 0.053996%.
5. Basic Term (No. of Months): 72.
6. Basic Term Commencement Date: September 1, 1995.
7. Equipment Location: 425 North Drive, Melbourne, FL 32935.
8. Lessee Federal Tax ID No.: 59-3321536.
9. Last Delivery Date: September 1, 1995.
10. First Termination Date: Thirty-six (36) months after the Basic Term
Commencment Date.
C. Tax Benefits
Depreciation Deductions
a. Depreciation Method (check one):
[x] The 200% declining balance method, switching to straight line method
for the 1st taxable year for which using the straight line method with
respect to the adjusted basis as of the beginning of such year will
yield a larger allowance; OR
[ ] The method determined by applying to the unadjusted basis the
applicable percentages set forth in Section 168(b)(1) of the Code, as
in effect prior to the adoption of the Tax Reform Act of 1986.
b. Recovery Period: 7 years
c. Basis: 100% of Capitalized Lessor's Cost.
D. Term and Rent
1. Interim Rent. For the period from and including the Lease Commencement
Date to the Basic Term Commencement Date ("Interim Period"), Lessee shall pay
as rent ("Interim Rent") for each unit of Equipment, the product of the Daily
Lease Rate Factor times the Capitalized Lessor's Cost of such unit times the
number of days in the Interim Period. Interim Rent shall be due on N/A.
2. Basic Term Rent. Commencing on September 1, 1995 and on the same day of
each month thereafter (each, a "Rent Payment Date") during the Basic Term,
Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term
Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on
this Schedule.
3. Adjustment to Capitalized Lessor's Cost. Lessee hereby irrevocably
authorizes Lessor to adjust the Capitalized Lessor's Cost up or down by no
more than ten percent (10%) to account for equipment change orders, equipment
returns, invoicing errors, and similar matters. Leseee acknowledges and
agrees that the Rent shall be adjusted as a result of such change in the
Capitalized Lessor's Cost (Pursuant to paragraphs 1 and 2 above). Lessor
shall send Lessee a written notice stating the final Capitalized Lessor's
cost, if different from that disclosed on this Schedule.
<PAGE>
Except as expressly modified hereby, all terms and provisions of the Agreement
shall remain in full force and effect. This Schedule is not binding or effective
with respect to the Agreement or Equipment until executed on behalf of Lessor
and Lessee by authorized representatives of Lessor and Lessee, respectively.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL OMI ACQUISITION CORP.
CORPORATION
By: /S/ KEVIN G. WORTMAN By: /S/ RICHARD ROSS
-------------------------------- --------------------------------
Name: Kevin G. Wortman Name: Richard Ross
------------------------------ ------------------------------
Title: Sr. Credit Analyst Title: President
----------------------------- -----------------------------
Attest:
By: Nancy R. Pitek
---------------------------------
Name: Nancy R. Pitek
--------------------------------
<PAGE>
ADDENDUM NO. 01
TO EQUIPMENT SCHEDULE NO. 001
TO MASTER LEASE AGREEMENT
DATED AS OF AUGUST 31, 1995
THIS AMENDMENT amends and supplements the above schedule (the "Schedule")
to the above lease (the "Lease"), between GENERAL ELECTRIC CAPITAL CORPORATION
("Lessor") and OMI Acquisition Corp ("Lessee") and is hereby incorporated into
the Schedule as though fully set forth therein. Capitalized terms not otherwise
defined hrein shall have the meanings set forth in the Lease.
The Schedule is hereby amended as follows:
Section D3. is deleted in its entirety.
Except as expressly modified hereby, all terms and provisions of the
Lease shall remain in full force and effect.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Amendment to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL OMI ACQUISITION CORP.
CORPORATION
By: /S/ KEVIN G. WORTMAN By: /S/ RICHARD ROSS
-------------------------------- --------------------------------
Name: Kevin G. Wortman Name: Richard Ross
------------------------------ ------------------------------
Title: Sr. Credit Analyst Title: President
----------------------------- -----------------------------
Attest:
By: Nancy R. Pitek
---------------------------------
Name: Nancy R. Pitek
--------------------------------
<PAGE>
ADDENDUM NO. 02
TO SCHEDULE NO. 001
TO MASTER LEASE AGREEMENT
DATED AS OF AUGUST 31, 1995
THIS ADDENDUM (this "Addendum") amends and supplements the above referenced
schedule (the "Schedule") to the above referenced lease (the "Lease"), between
General Electric Capital Corporation ("Lessor") and OMI Acquisition Corp.
("Lessee") and is hereby incorporated into the Schedule as though fully set
forth therein. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Lease.
For purposes of this Schedule only, the Lease is authorized by adding the
following thereto:
EARLY PURCHASE OPTION.
(a) Provided that the Lease has not been earlier terminated and provided
further that Lessee is not in default under the Lease or any other agreement
between Lessor and Lessee, Lessee may, UPON AT LEAST 30 DAYS BUT NO MORE THAN
270 DAYS PRIOR WRITTEN NOTICE TO LESSOR OF LESSEE'S IRREVOCABLE ELECTION TO
EXERCISE SUCH OPTION, purchase all (but not less than all) of the Equipment
listed and described in this Schedule on the rent payment date (the "Early
Purchase Date") which is 60 months from the Basic Term Commencement Date of the
Schedule for a price equal to $680,067.00 (the "FMV Early Option Price"), plus
all applicable sales taxes on an AS IS BASIS. Lessor and Lessee agree that the
FMV Early Option Price is a reasonable prediction of the Fair Market Value (as
such term is defined in Section XIX(b) hereof) of the Equipment at the time the
option is exercisable. Lessor and Lessee agree that if Lessee makes any
non-severable improvement to the Equipment which increases the value of the
Equipment and is not required or permitted by Section VII or XI of the Lease
prior to lease expiration, then at the time of such option being exercised,
Lessor and Lessee shall adjust the purchase price to reflect any addition to the
price to reflect any addition to the price anticipated to result from such
imProvement. (The purchase option granted by this subsection shall be referred
to herein as the "Early Purchase Option".)
(b) If Lessee exercises its Early Purchase Option with respect to the
Equipment leased hereunder, then on the Early Purchase Option Date, Lessee shall
pay to Lessor any Rent and other sums due and unpaid on the Early Purchase
Option Date and Lessee shall pay the FMV Early Option Price, plus all applicable
sales taxes, to Lessor in cash.
Except as expressly modified hereby, all terms and provisions of the Lease
shall remain in full force and effect. This Addendum is not binding nor
effective with respect to the Lease or the Equipment until executed on behalf of
Lessor and Lessee by authorized representatives of Lessor and Lessee.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Addendum to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
General Electric Capital Corporation OMI Acquisition Corp.
By: /S/ KEVIN G. WORTMAN By: /S/ RICHARD ROSS
-------------------------------- --------------------------------
Name: Kevin G. Wortman Name: Richard Ross
------------------------------ ------------------------------
Title: Sr. Credit Analyst Title: President
----------------------------- -----------------------------
<PAGE>
GE Capital
- ------------------------------------------------------------------------
(Article 2A notice letter) Electronics Financial Services
General Electric Capital Corporation
2200 Powell Street, Suite 600, Emeryville, CA 94608
August 28, 1995
OMI Acquisition Corp.
425 North Drive
Melbourne, FL 32935
Attn: Ms. Diane Maroney
Dear Ms. Maroney:
General Electric Capital Corporation is entering into a financing
Agreement dated ________________ (the "Agreement") with OMI Acquisition Corp.
for the lease of certain equipment set forth on the attached Annex A (the
"Equipment") to the Agreement. In accordance with the requirements of Article 2A
of the Uniform Commercial Code, Lessor hereby makes the following disclosures to
Lessee prior to execution of the Agreement, (a) the person supplying the
Equipment is various--more fully described on Annex A to Schedule No. 001
attached hereto and made a part hereof, (the "Supplier"), (b) Lessee is entitled
to the promises and warranties, including those of any third party, provided to
the Lessor by Supplier, which is supplying the Equipment in connection with or
as part of the contract by which Lessor acquired the Equipment and (c) with
respect to such Equipment, Lessee may communicate with Supplier and receive an
accurate and complete statement of such promises and warranties, including any
disclaimers and limitations of them or of remedies.
General Electric Capital Corporation
By: /s/
---------------------------------
Its: Documentation Specialist
---------------------------------
Acknowledged and Agrees:
OMI Acquisition Corp.
By: /s/
--------------------------------
Its: President
--------------------------------
<PAGE>
ANNEX
TO
SCHEDULE NO. 001
TO MASTER LEASE AGREEMENT
DATED AS OF 8-31-95
DESCRIPTION OF EQUIPMENT
- --------------------------------------------------------------------------------
QTY DESCRIPTION S/N# FMV
- --------------------------------------------------------------------------------
2640 Gages & Measuring Devices: 250 plug pins & $1,000,000.00
ring cages; 100 spectrometers;
collimator, projectors, microscopes,
telescopes, rotary tables, environmental
chambers, granite surface plates,
spectrophotometer; 50 test jigs, stands,
and fixtures; 120 pressure test sets,
V-block, angle plates; 20 freq counters,
meters, power supplies; 100 precision
gages, ID/OD gages, calipers, bore gages,
dial indicators; 2000 test plates.
1 Okuma LC30-2ST chucker, 2 turrets, #3497 1197 $ 75,000.00
1 Matsuura MC1500 vertical machining center, 7191083 1987 $ 120,000.00
40 station ATC, 1987, #5207
1 Matsuura MC560V vertical machining center, 871006315 $ 65,000.00
20 station, ATC, #5208
1 LOH RTM 3 axis CNC milling machine #6728 5307 $ 60,000.00
2 LOH LZ80 laser centering OD grinders, 2651 & 2677 $ 100,000.00
#4679 & 6821
1 Balzers coating chamber BAK 760, #3925 $ 120,000.00
1 Leybold heraeus coating chamber, #6674 7088 $ 60,000.00
1 Howard Strasbaugh planetary polisher, 31087 $ 80,000.00
model 6CX, #5257
1 Thermotron environmental chamber, model 19857 $ 80,000.00
FX-82CHV-25-25, #6658
1 Screening system, #5927 712-060 $ 80,000.00
1 Numerex coordinate measuring machine, X-1125 $ 60,000.00
model 2428-18, #6524
- --------------------------------------------------------------------------------
Total $1,900,000.00
- --------------------------------------------------------------------------------
Equipment listed on Annex A more fully
described in the 7/5/95 Appraisal Report,
performed by Mr. Barry Savage, ASA for Asset
Control Services Equipment Currently Located
at 425 North Dr., Melbourne, FL
Initial
LESSOR: LESSEE:
------------------------------- -------------------------------
<PAGE>
ANNEX
TO
SCHEDULE NO. 001
TO MASTER LEASE AGREEMENT
DATED AS OF 8-31-95
BILL OF SALE
OMI Acquisitions Corp. (the "Seller"), in consideration of the sum of One
Million Nine Hundred Thousand Dollars ($1,900,000.00) plus sales taxes in the
amount of Zero Dollars ($0.00) (if exemption from sales tax is claimed, an
exemption certificae must be furnished to Buyer herewith), paid by General
Electric Capital Corporation (the "Buyer"), receipt of which is acknowledged,
hereby grants, sells, assigns, transfers and delivers to Buyer the equipment
(the "Equipment") described in the above schedule (said schedule and related
lease being collectively referred to as "Lease"), along with whatever claims
and rights Seller may have against the manufacturer and/or supplier of the
Equipment (the "Supplier"), including but not limited to all warranties and
representations. At Buyer's request, Seller will cause Supplier to execute the
attached Acknowledgment.
Buyer is purchasing the Equipment for leasing back to Seller pursuant to the
Lease. Seller represents and warrants to Buyer that (1) Buyer will acquire by
the terms of this Bill of Sale good title to the Equipment free from all liens
and encumbrances whatsoever, (2) Seller has the right to sell the Equipment;
and (3) the Equipment has been delivered to Seller in good order and condition,
and conforms to the specifications, requirements and standards applicable
thereto; and (4) the equipment has been accurately labeled, consistent with the
requirements of 40 CFR part 82 Subpart E, with respect to products manufactured
with a controlled (ozone-depleting) substance.
Seller agrees to save and hold harmless Buyer from and against any and all
federal, state, municipal and local license fees and taxes of any king or
nature, including, without limiting the generality of the foregoing, any and all
excise, personal property, use and sales taxes, and from and against any and all
liabilities, obligations, losses, damages, penalties, claims, actions and suits
resulting therefrom and imposed upon, incurred by or asserted against Buyer as a
consequence of the sale of the Equipment to Buyer.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale this 31st day of
August, 1995.
SELLER:
OMI Acquisition Corp.
By:
-----------------------------
Title: President
-----------------------------
<PAGE>
ANNEX C
TO
SCHEDULE NO. 001
TO MASTER LEASE AGREEMENT
DATED AS OF 8-31-95
CERTIFICATE OF ACCEPTANCE
To: General Electric Capital Corporation ("Lessor")
Pursuant to the provisions of the above schedule and lease (collectively,
the "Lease"), Lessee hereby certifies and warrants that (a) all Equipment listed
in the related Bill of Sale is in good condition and appearance, installed (if
applicable) and in working order; and (b) Lessee accepts the Equipment for all
purposes of the Lease, the purchase documents and all attendant documents.
Lessee does further certify that as of the date hereof (i) Lessee is not in
default under the Lease; (ii) the representations and warranties made by Lessee
pursuant to or under the Lease are true and correct on the date hereof and (iii)
Lessee has reviewed and approves of the purchase documents for the Equipment, if
any.
DESCRIPTION OF EQUIPMENT
Type of Model Number Cost
Manufacturer Serial Numbers of Equipment of Units Per Unit
See Annex A to Equipment Schedule No. 001 Attached hereto and made a part
hereof.
/s/
---------------------------------
Authorized Representative
Dated: 8/29/95
<PAGE>
ANNEX D
TO
SCHEDULE NO. 001
TO MASTER LEASE AGREEMENT
DATED AS OF 8-31-95
STIPULATED LOSS AND TERMINATION VALUE TABLE
-------------------------------------------
TERMINATION VALUE STIPULATED LOSS
RENTAL PERCENTAGE VALUE PERCENTAGE
------ ----------------- ----------------
1 103.807 107.835
2 102.977 107.032
3 102.136 106.220
4 101.284 105.395
5 100.419 104.558
6 99.544 103.710
7 98.659 102.854
8 97.763 101.985
9 96.855 101.105
10 95.935 100.213
11 95.004 99.310
12 94.063 98.396
13 93.110 97.471
14 92.145 96.534
15 91.170 95.587
16 90.183 94.628
17 89.185 93.657
18 88.176 92.676
19 87.157 91.684
20 86.128 90.684
21 85.090 89.673
22 84,042 88.653
23 82.984 87.623
24 81.917 86.583
25 80.839 85.533
26 79.752 84.474
27 78.654 83.404
28 77.546 82.324
29 76.428 81.234
30 75.300 80.133
31 74.161 79.022
32 73.013 77.902
33 71.858 76.774
34 70.694 75.638
35 69.521 74.494
36 68.338 73.338
37 67.147 72.174
38 65.947 71.002
39 64.735 69.819
40 63.516 68.627
41 62.287 67.426
42 61.048 66.214
43 59.797 64.991
44 58.538 63.761
45 57.272 62.522
46 55.999 61.277
47 54.718 60.023 cont.
<PAGE>
PAYMENT AUTHORIZATION
General Electric Capital Corporation
303 International Circle Suite 300
Hunt Valley, MD 21031
You are hereby authorized to pay the proceeds from our sale to you of
certain Equipment as evidenced on the attached Bill of Sale to the following
parties in the amount(s) designated below.
OMI Acquisition Corp. $1,900,000.00
425 North Drive, Melbourne, FL 32925
Reimbursement for funds previously paid for Equipment
listed on Annex A to Equipment Schedule No. 001
attached hereto and made a part hereof.
Very truly yours,
OMI Acquisition Corp.
(Sig)
By: ___________________________________
President
Title: ________________________________
8/29/95
Date: _________________________________
<PAGE>
CERTIFICATE CONCERNING
PAYMENT OF PERSONAL PROPERTY TAXES
To: General Electric Capital Corporation
To insure Lessee's compliance with the provisions of a Master Lease
Agreement dated as of 8-31-95 (the "lease") by and between the undersigned as
Lessee and General Electric Capital Corporation as Lessor, Lessee hereby agrees
to one of the following options with respect to the payment of personal property
taxes on the Equipment described in Annex A to the Lease, such agreement to be
conclusively evidenced by the initials and signature of an authorized agent of
Lessee in the appropriate spaces provided below:
Please choose one of the options below by placing an "X" in the appropriate box
and initialing where indicated. Initial ONLY ONE Choice of Option
----------------------------------
OPTION 1 Lessee's Initials:
----------------------------------
(Applicable in Jurisdictions Requiring Lessor to List Equipment): Lessee agrees
that it will not list any of such Equipment for property tax purposes or report
any property tax assessed against such Equipment until otherwise directed in
writing by Lessor. Upon receipt of any property tax bill pertaining to such
Equipment from the appropriate taxing authority, Lessor will pay such tax
and will invoice Lessee for the expense. Upon receipt of such invoice,
Lessee will promptly reimburse Lessor for such expense;
----------------------------------
OPTION 2 Lessee's Initials:
----------------------------------
(Applicable in Jurisdictions Permitting Lessee to List Equipment): Lessee
agrees that it will (a) list all such Equipment, (b) report all property
taxes assessed against such Equipment and (c) pay all such taxes
when due directly to the appropriate taxing authority until Lessor
shall otherwise direct in writing.
LESSEE:
OMI Acquisition Corp.
(Sig)
By: ___________________________________
President
Title: ________________________________
8/29/95
Date: _________________________________
AMENDMENT NO. 01
TO
MASTER SECURITY AGREEMENT
DATED AS OF AUGUST 31, 1995, 1994
THIS AMENDMENT amends and supplements the above Master Security Agreement
(the "Agreement"), between GENERAL ELECTRIC CAPITAL CORPORATION ("Secured
Party") and OMI Acquisition Corp ("Debtor") and is hereby incorporated into the
Agreement as though fully set forth therein. Capitalized terms not otherwise
defined herein shall have the meanings set forth in the Agreement.
The Agreement is hereby amended as follows:
1. Section 2(i), line 1. After "will remain, in" delete "good condition and
repair" and substitute "a state of condition and repair consistent with the like
evaluation in the Asset Control Services Appraisal dated July 5, 1995,"
2. Section 3(f), line 1. After "Secured Party" delete "may, but shall in no
event be" and substitute "would be"
3. Section 3(f), line 2. after "Collateral" and before "." Insert "so long
as the substitutions and exchanges of property for property, and additions to
property, would not diminish the value or impair the original intended use of
the collateral as determined by a new equipment appraisal ordered at the sole
discretion of Secured Party and paid for by the Debtor.
4. Section 4, line 9. Delete "Secured Party" and insert "Debtor"
5. Section 6(c), line 2. after "limitation," delete "related" and insert
"reasonable"
6. Section 7(h), line 1. after "consolidation" insert "(excepting merger or
consolidation whereby Debtor remains the wholly owned subsidiary of Photronics
Corp and Diagnostic/Retrieval Systems, Inc.)"
7. Section 9(c), line 1. delete "consistent"
8. Section 9(f), line 1. Delete the second sentence in its entirety.
Except as expressly modified hereby, all terms and provisions of the
Agreement shall remain in full force and effect.
MASTER SECURITY AGREEMENT
THIS MASTER SECURITY AGREEMENT, made as of August 31, 1995 ("Agreement"),
by and between GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation with
an address at 303 International Circle Suite 300, Hunt Valley, MD ("Secured
Party"), and OMI Acquisition Corp., a corporation organized and existing under
the laws of the State of Delaware with its chief executive offices located at
425 North Drive, Melbourne, FL ("Debtor").
In consideration of the promises herein contained and of certain other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor and secured Party hereby agree as follows:
1. CREATION OF SECURITY INTEREST.
Debtor hereby gives, grants and assigns to Secured Party, its successors
and assigns forever, a security interest in and against any and all property
listed on any collateral schedule now or hereafter annexed hereto or made a part
hereof ("Collateral Schedule"), and in and against any and all additions,
attachments, accessories and accessions thereto, any and all substitutions,
replacements or exchanges therefor, and any and all insurance and/or other
proceeds thereof (all of the foregoing being hereinafter individually and
collectively referred to as the "Collateral"). The foregoing security interest
is given to secure the payment and performance of any and all debts, obligations
and liabilities of any kind, nature or description whatsoever (whether primary,
secondary, direct, contingent, sole, joint or several, or otherwise, and whether
due or to become due) of Debtor to Secured Party, now existing or hereafter
arising, including but not limited to the payment and performance of certain
Promissory Notes from time to time identified on any Collateral Schedule
(collectively "Notes" and each a "Note"), and any renewals, extensions and
modifications of such debts, obligations and liabilities (all of the foregoing
being hereinafter referred to as the "Indebtedness").
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.
Debtor hereby represents, warrants and covenants as of the date hereof and
as of the date of execution of each Collateral Schedule hereto that:
(a) Debtor is, and will remain, duly organized, existing and in good
standing under the laws of the State set forth in the first paragraph of this
Agreement, has its chief executive offices at the location set forth in such
paragraph, and is, and will remain, duly qualified and licensed in every
jurisdiction wherever necessary to carry on its business and operations;
(b) Debtor has adequate power and capacity to enter into, and to perform
its obligations, under this Agreement, each Note and any other documents
evidencing, or given in connection with, any of the Indebtedness (all of the
foregoing being hereinafter referred to as the "Debt documents");
(c) This Agreement and the other Debt Documents have been duly authorized,
executed and delivered by Debtor and constitute legal, valid and binding
agreements enforceable under all applicable laws in accordance with their terms,
except to the extent that the enforcement of remedies may be limited under
applicable bankruptcy and insolvency laws;
(d) No approval, consent or withholding of objections is required from any
governmental authority or instrumentality with respect to the entry into, or
performance by, Debtor of any of the Debt documents, except such as may have
already been obtained;
(e) The entry into, and performance by, Debtor of the Debt Documents will
not (i) violate any of the organizational documents of Debtor or any judgment,
order, law or regulations applicable to Debtor, or (ii) result in any breach of,
constitute a default under, or result in the creation of any lien, claim or
encumbrance on any of Debtor's property (except for liens in favor of Secured
Party) pursuant to, any indenture mortgage, deed of trust, bank loan, credit
agreement, or other agreement or instrument to which Debtor is a party;
(f) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or
affecting Debtor which could, in the aggregate, have a material adverse effect
on Debtor, its business or operations, or its ability to perform its
obligations under the Debt Documents;
(g) All financial statements delivered to Secured Party in connection with
the Indebtedness have been prepared in accordance with generally accepted
accounting principles, and since the date of the most recent financial
statement, there has been no material adverse change;
(h) The Collateral is not, and will not be, used by Debtor for personal,
family or household purposes;
(i) The Collateral is, and will remain, in good condition and repair and
Debtor will not be negligent in the care and use thereof;
(j) Debtor is, and will remain the sole and lawful owner, and in possession
of, the Collateral, and has the sole right and lawful authority to grant the
security interest described in this Agreement; and
(k) The Collateral is, and will remain, free and clear of all liens, claims
and encumbrances of every kind, nature and description, except for (i) liens in
favor of Secured Party, (ii) liens for taxes not yet due or for taxes being
contested in good faith and which do not involve, in the reasonable judgment of
Secured Party, any risk of the sale, forfeiture or loss of any of the
Collateral, and (iii) inchoate materialmen's, mechanic's, repairmen's and
similar liens arising by operation of law in the normal course of business for
amounts which are not delinquent (all of such permitted liens being hereinafter
referred to as "Permitted Liens").
3. COLLATERAL
(a) Until the declaration of any default hereunder, Debtor shall remain in
possession of the Collateral; provided, however, that Secured Party shall have
the right to possess (i) any chattel paper or instrument that constitutes a part
of the Collateral, and (ii) any other Collateral which because of its nature may
require that Secured Party's security interest therein be perfected by
possession. Secured Party, its successors and assigns, and their respective
agents, shall have the right to examine and inspect any of the Collateral at any
time during normal business hours. Upon any request from Secured Party, Debtor
shall provide Secured Party with notice of the then current location of the
Collateral.
(b) Debtor shall (i) use the collateral only in its trade or business, (ii)
maintain all of the Collateral in good condition and working order, (iii) use
<PAGE>
TO COME
<PAGE>
(a) Debtor fails to pay any installment or other amount due or coming due
under any of the Debt Documents within ten (10) days after its due date;
(b) Any attempt by Debtor, without the prior written consent of Secured
Party, to sell, rent, lease, mortgage, grant a security interest in, or
otherwise transfer or encumber (except for Permitted Liens) any of the
Collateral;
(c) Debtor fails to procure, or maintain in effect at all times, any of the
insurance on the Collateral in accordance with Section 4 of this Agreement;
(d) Debtor breaches any of its other obligations under any of the Debt
Documents and fails to cure the same within thirty (30) days after written
notice thereof;
(e) Any warranty, representation or statement made by Debtor in any of the
Debt Documents or otherwise in connection with any of the Indebtedness shall be
false or misleading in any material respect;
(f) Any of the Collateral being subjected to, or being threatened with,
attachment, execution, levy, seizure or confiscation in any legal proceeding or
otherwise;
(g) Any default by Debtor under any other agreement between Debtor and
Secured Party;
(h) Any dissolution, termination of existence, merger, consolidation,
change in controlling ownership, insolvency, or business failure of Debtor or
any guarantor or other obligor for any of the Indebtedness (collectively
"Guarantor"), or if Debtor or any Guarantor is a natural person, any death or
incompetency of Debtor or such Guarantor;
(i) The appointment of a receiver for all or of any part of the property of
Debtor or any Guarantor, or any assignment for the benefit of creditors by
Debtor or any Guarantor; or
(j) The filing of a petition by Debtor or any Guarantor under any
bankruptcy, insolvency or similar law, or the filing of any such petition
against Debtor or any Guarantor if the same is not dismissed within thirty (30)
days of such filing.
8. REMEDIES ON DEFAULT.
(a) Upon the occurrence of an Event of Default under this Agreement, the
Secured Party, at its option, may declare any or all of the Indebtedness,
including without limitation the Notes, to be immediately due and payable,
without demand or notice to Debtor or any Guarantor. The obligations and
liabilities accelerated thereby shall bear interest (both before and after any
judgment) until paid in full at the lower of eighteen percent (18%) per annum or
the maximum rate not prohibited by applicable law.
(b) Upon such declaration of default, Secured Party shall have all of the
rights and remedies of a Secured Party under the Uniform Commercial Code, and
under any other applicable law. Without limiting the foregoing, Secured Party
shall have the right to (i) notify any account debtor of Debtor or any obligor
on any instrument which constitutes part of the Collateral to make payment to
the Secured Party, (ii) with or without legal process, enter any premises where
the Collateral may be and take possession and/or remove said Collateral from
said premises, (iii) sell the Collateral at public or private sale, in whole or
in part, and have the right to bid and purchase at said sale, and/or (iv) lease
or otherwise dispose of all or part of the Collateral, applying proceeds
therefrom to the obligations then in default. If requested by Secured Party,
Debtor shall promptly assemble the Collateral and make it available to Secured
Party at a place to be designated by Secured Party which is reasonably
convenient to both parties. Secured Party may also render any or all of the
Collateral unusable at the Debtor's premises and may dispose of such Collateral
on such premises without liability for rent or costs. Any notice which Secured
Party is required to give to Debtor under the Uniform Commercial Code of the
time and place of any public sale or the time after which any private sale or
other intended disposition of the Collateral is to be made shall be deemed to
constitute reasonable notice if such notice is given to the last known address
of Debtor at least five (5) days prior to such action.
(c) Proceeds from any sale or lease or other disposition shall be applied:
first, to all costs of repossession, storage, and disposition including without
limitation attorneys', appraisers', and auctioneers' fees; second, to discharge
the obligations then in default; third, to discharge any other Indebtedness of
Debtor to Secured Party, whether as obligor, endorsor, guarantor, surety or
indemnitor; fourth, to expenses incurred in paying or settling liens and claims
against the Collateral; and lastly, to Debtor, if there exists any surplus.
Debtor shall remain fully liable for any deficiency.
(d) In the event this Agreement, any Note or any other Debt Documents are
placed in the hands of an attorney for collection of money due or to become due
or to obtain performance of any provision hereof, Debtor agrees to pay all
reasonable attorneys' fees incurred by Secured Party, and further agrees that
payment of such fees is secured hereunder. Debtor and Secured Party agree that
such fees to the extent not in excess of twenty percent (20%) of subject amount
owing after default (if permitted by law, or such lesser sum as may otherwise be
permitted by law) shall be deemed reasonable.
(e) Secured Party's rights and remedies hereunder or otherwise arising are
cumulative and may be exercised singularly or concurrently. Neither the failure
nor any delay on the part of the Secured Party to exercise any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. Secured
Party shall not be deemed to have waived any of its rights hereunder or under
any other agreement, instrument or paper signed by Debtor unless such waivers be
in writing and signed by Secured Party. A waiver on any one occasion shall not
be construed as a bar to or waiver of any right or remedy on any future
occasion.
(f) DEBTOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY,
THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED
HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY RELATING TO THE SUBJECT
MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP
THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED PARTY. THE SCOPE OF THIS
WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE
FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS
WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DEBT DOCUMENTS, OR TO
ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
<PAGE>
TO COME
<PAGE>
COLLATERAL SCHEDULE
THIS COLLATERAL SCHEDULE is annexed to and made a part of that certain Security
Agreement dated as of August 31, 1995, between General Electric Capital
Corporation as Secured Party and OMI Acquisition Corp., as Account Party and
describes collateral in which Account Party has granted Secured Party a security
interest in connection with the Indebtedness (as defined in the Security
Agreement) including without limitation that certain Master Lease Agreement
dated August 31, 1995.
<TABLE>
<CAPTION>
QTY DESCRIPTION S/N# FMV
- --- ----------- ---- ---
<S> <C> <C> <C>
Fixed tooling & fixtures; #40 taper holders; 24 lg; 149 small;
177 extended; 34 roller lock; 60 collet holders; 21 tapers; #45
taper tool holder; 214 lg; 38 small; 43 roller lock; 50 Jacob &
Ericson chucks; 63 mill arbors; 32 lg borring heads; 18 small
boring heads; 146 tappers; 99 extended holders; other tooling;
1160 collets; 7 speed tappers; 2 shepherd right angle heads;
5 roller burnishers; 72 indexable carbide tools; 25 adjustable
boring bars; 7 rotary indexers; 13 CNC vertical index tables,
10"-16"; 8 sets angle plates; 15 machine viser; 18" face
mill; hardinge lathe tooling; dekel tooling. ........................ 800,000.00
Heavy duty racks, including cantilevered ............................ 28,000.00
Yale electric forklift, 5000 lbs .................................... N451919 8,000.00
Yale electric forklift, 3000 lbs .................................... N451786 8,000.00
Black & Webster drill grinder ....................................... 27654 3,000.00
Harshaw environmental chamber, #0249 ................................ 22A027 4,000.00
Thermotron vibration control, #6892 ................................. 8,000.00
MRAD pneumatic shock machine, #0758 ................................. Z18-32 12,000.00
Profile projector, model PJ311, #6221 ............................... 302-11 9,000.00
Minolta microfiche printer, model RP603, #6558 ...................... 360733 7,000.00
3M microfiche reader, model 630, #5202 .............................. 735777 12,000.00
Brunning blueprint machine, #0832 ................................... 7780798 3,000.00
Brunning copier, #4676 .............................................. 1524 5,000.00
Assembly tables and equipment ....................................... 25,000.00
12436, 16875 867167
Meles griot air balance tables ...................................... & 85106 12,000.00
LOH puddle bench polishing machine, model OLP 200, #3852 ............ 2681 3,000.00
LOH polishers, model LP75, #4680 & 4687 ............................. 2952, 2949 & 2953 24,000.00
LOH polisher, model PLM 400, #4678 .................................. 3035 10,000.00
Walter rotary table, #6751 .......................................... 2617 800.00
Sonicor sonic cleaner, #6295 ........................................ 3,000.00
Branson parts cleaner, #1067 ........................................ Z-6-11389-79 3,000.00
Rite-Hete parts cleaner, #6943 ...................................... 4,000.00
International centrifuge, #1548 ..................................... 800.00
Tennant floor scrubber .............................................. 27012 5,000.00
EZ Go electric lift truck, #5274 .................................... 59351187 800.00
Nord polishing machine, P582VCT, #5141 .............................. 8712P582585 12,000.00
Hand polisher, #6844 ................................................ 1,000.00
547-9-75, 183-6-78,592
9-76, 295-69, 568-3-76,
62-568, 187-678 & 98-8
Howard Strasbaugh grinding machines; 4 four spindle; 4 one spindle .. 69 32,000.00
Meles griot air leveling tables ..................................... 77529, 6296, & 132740 9,000.00
Mikron black body heat source for calibration, #5976, 5702 .......... 36588, 38453 & 35462 12,000.00
Rockwell drill ...................................................... 300.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QTY DESCRIPTION S/N# FMV
- --- ----------- ---- ---
<S> <C> <C> <C>
LOH engine lathe, model DSM, 6" swing, 18" CC ....................... 2275 1,600.00
Beck ealing base optical colimators, #1771 & 1772 ................... 7,500.00
Branson ultrasonic cleaner, model PSD 1216R, #4004 .................. 7995517 5,000.00
Poly cold cryogenerators ............................................ 55126, 55125, 501300 24,000.00
Precision scientific ovens, #1517 & 1546 ............................ 12,000.00
Bridgeport vertical turret mill, #4808 .............................. 270098 4,000.00
Cincinnati vertical turret mill, #4041 .............................. 6J2F1ACF53 2,500.00
Rogers Clark radius cutting machine, #6871 .......................... 01028601 16,000.00
LOH radius cutting machine, #6818 ................................... RF154028 12,000.00
LOH beveling machine, #4045 ......................................... 513 3,000.00
Howard Strasbaugh spherical radius grinders ......................... 88265, 294669 4,800.00
Universal ID/OD grinder, AE100, #3819 ............................... 383 4,800.00
LOH radius cutting machine, 5VC2MI, #4042 ........................... 15737532 14,000.00
Special tools ....................................................... 16,000.00
Shelving ............................................................ 9,000.00
Nint blast cabinet with hopper, 2 hole, #6820 ....................... 916750 1,000.00
476591189Y,
Bridgeport vertical turret mills, accurite III DRO .................. 476591189Y 16,000.00
Diacro hand brake, #3590 ............................................ 100.00
Hand shear, #3718 ................................................... 70.00
Arbor presses ....................................................... 200.00
Makino Universal tool grinder, #3445 ................................ D53-8073 8,000.00
Optical comparator, 10", #3444 ...................................... 8011 2,500.00
Miller DIA-ARC AC/DC welder, HF, #3456 .............................. 8011 300.00
Lincoln 225 AMP ARC welder, #4290 ................................... 150.00
Precision quincy solvent drying oven, 450 degrees, 6'x7'x9', #3513 .. 32-450TDD 7,000.00
Diagraph stencil cutters, #4895 & 4920 .............................. 6,000.00
Binks paint spray booths, PBS 1 & 2, water curtain .................. 10,000.00
Baron-Blakeslee degreaser, #3514 .................................... D-58125 BH320 2,500.00
Sullair 40 HP air compressor, rotary, #5271 & 3502 .................. 20,000.00
Delta drill, #3475 .................................................. 162640 300.00
Ealing electro optic table, 4'x8', #6599 ............................ 867167 2,500.00
Delta drills, #3443, 3474, 3481, 3472, 3476, 3501 ................... 11,500.00
High speed bench drill, #4262 ....................................... 50.00
3 Chamber deburring machine (stone) ................................. 1,500.00
1" belt sander, #3468 ............................................... 50.00
Herrblitz punch ..................................................... 029244 500.00
Trinco blast cabinet, 2 hole, #3448 ................................. 6146-3 2,000.00
Bridgeport vertical turret mills #3466 .............................. 167360 & 2J48179 3,500.00
Electro-ARC disintegrator, #3443 .................................... 3710 1,000.00
Troyke rotary table, 15", vertical & horizontal ..................... 500.00
Powermatic duel head floor type drill, #3478 ........................ 300.00
Jib crane, 1 ton model #B288 ........................................ 10199 1,500.00
Hardinge engine lathe, 10" swing, 2' CC, #3442 ...................... 6,000.00
Mazak engine lathe, 16" swing, 5' CC steady rest, #3437 ............. 29080W 10,000.00
Bridgeport vertical turret mill, #3477 .............................. BR99035 J97012 3,000.00
Rolling racks ....................................................... 6,000.00
Dual wheel bench grinders ........................................... 1,400.00
1" belt sander, #3498 ............................................... 50.00
6" belt sander, #6966 ............................................... 150.00
Lift table, #6633 ................................................... 500.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QTY DESCRIPTION S/N# FMV
- --- ----------- ---- ---
<S> <C> <C> <C>
Pedal type metal shear, #1064 ....................................... 500.00
Powermatic band saw, 20" throat, with welder, #1038 ................. 2,500.00
Methods slant jr. universal lathe, chip conveyor, #3518 ............. 11249 40,000.00
Ro-Tab rotary table calibration device, #6647 ....................... 2,400.00
Shop furniture and equipment ........................................ 100,000.00
Office furniture, including panels .................................. 25,000.00
Office equipment .................................................... 20,000.00
Computer equipment .................................................. 50,000.00
Zygo laser interometer & spheres, #4181 ............................. 7948-126 18,000.00
Ovens, hotpack, FECO, 2 blue M, national, 2 industrial .............. 10,000.00
Do-all C260A band saw with roller, conveyor & clamp, #5669 .......... 459-88291 28,000.00
Matsuura MC500V vertical machining center, 20 station ATC, #3429 .... 85034648 40,000.00
?? Diamond wheels ...................................................... 35,000.00
LOH WG optical centering OD grinders, #4005, 4006 ................... 33,333.33
UV spectro photometer, #7090 ........................................ 2071119 36,000.00
594-9-76, 571-3-76, 591
9-76, 593-9-76, 642-9-
77,567-3-76, 570-3-76,
554-10-75, 185-6-79,
151-4-76, 153-5-76, 18-
12-68, 172-4-76, 164-6-
78, 67-7-68, 22-2-70, 81
Howard Strasbaugh polishing machines, 10 one spindle, 2 ten spindle, 12-68, 82-12-68, 99-8-
21 9 four spindle ...................................................... 60, 186-6-78 72,000.00
3703, 3702, 4115 &
LOH polishers/grinders, model PM250 ................................. 4116 32,000.00
Enirotronics environmental chamber, #6704 ........................... 03911624 10,000.00
13160, 25-2890-04 & 25
Thermotron mini-max environmental chambers .......................... 1661-09 36,000.00
Zygo laser interferometer, model 4, #6530 ........................... 55,000.00
------------
TOTAL ............................ 1,972,753.33
============
</TABLE>
Equipment listed on Collateral Schedule more fully described in the 7/5/95
Appraisal Report, performed by Mr. Barry Savage, ASA for Asset Control
Services Equipment Currently Located at: 425 North Dr., Melbourne, FL
SECURED PARTY: ACCOUNT PARTY:
General Electric Capital Corporation OMI Acquisition Corp
By: By: Richard Ross
------------------------------ ----------------------------
Title: Sr. Credit Analyst Title: President
--------------------------- -------------------------
Date: August 31, 1995 Date: August 31, 1995
---------------------------- --------------------------
REORDER FROM
INSTRUCTIONS 1. PLEASE TYPE ALL INFORMATION, and sign REGISTRE, INC.
with ball point pen. Signature must be 514 PIERCE ST.
legible on Filing Officer Copies. P.O. BOX 218
2. Contact Filing Officer for fee ANOKA, MIN. 55303
schedule or additional information. (612) 421-1713
- --------------------------------------------------------------------------------
STATE OF FLORIDA
UNIFORM COMMERCIAL CODE--FINANCING STATEMENT--FORM UCC-1 REV. 1981
THIS FINANCING STATEMENT is presented to a filing officer for
filing pursuant to the Uniform Commercial Code:
================================================================================
(Last Name First if a Person) Lessee THIS SPACE FOR USE OF FILING OFFICER
NAME OMI Acquisition corporation Date, Time, Number & Filing Office
1A
MAILING ADDRESS 425 North Drive
CITY Melbourne STATE FL 32935
- --------------------------------------------------------------------------------
ONLY ONE NAME PER BOX
MULTIPLE DEBTOR (IF ANY) (Last Name First if a Person)
NAME
1B
MAILING ADDRESS
CITY STATE
- --------------------------------------------------------------------------------
MULTIPLE DEBTOR (IF ANY) (Last Name First if a Person)
NAME
1C
MAILING ADDRESS
CITY STATE
- --------------------------------------------------------------------------------
(Last Name First if a Person) Lessor
NAME General Electric Capital Corporation
2A
MAILING ADDRESS International Circle
Suite 300
CITY Hunt Valley STATE MD 20131
- --------------------------------------------------------------------------------
MULTIPLE SECURED PARTY (IF ANY) (Last Name First if a Person)
NAME
2b
MAILING ADDRESS AUDIT UPDATE
CITY STATE
- --------------------------------------------------------------------------------
ASSIGNEE OF SECURED PARTY (IF ANY) (Last Name First if a Person)
NAME VALIDATION INFORMATION
3
MAILING ADDRESS
CITY STATE
- --------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property
(include description of real property on which located and owner of record
when required). If more space is required, attach additional sheets
81/2" x 11".
All equipment wherever located as more fully described on Annex A attached
hereto and made a part hereof. Including all other attachments, accessories,
* additions, replacements and substitutions and proceeds now or hereafter
attached hereto.
Equipment located at: 425 North Drive; Melbourne, FL 32935
5. Proceeds of collateral are covered as provided in Sections 679.203 and
679.306, F.S.
6. Filed with: Secretary of State-FL
7. No. of additional Sheets presented:
8. (Check [ ]) [ ] All documentary stamp taxes due and payable or to become due
and payable pursuant to Section 201.22, F.S., have been paid.
[X] Florida Documentary Stamp Tax is not required.
9. This statement is filed without the debtor's signature to perfect a security
interest in collateral (Check [ ] if so)
[ ] already subject to a security interest in another jurisdiction when it
was brought into this state or debtor's location changed to this state.
[ ] which is proceeds of the original collateral described above in which
a security interest was perfected.
[ ] as to which the filing has lapsed.
[ ] acquired after a change of name, identify, or corporate structure of the
[ ] debtor or [ ] secured party.
10. (Check [ ] if so)
[ ] Debtor is a transmitting utility
[ ] Products of collateral are covered
11. SIGNATURE(S) OF LESSEE
OMI Acquisition Corporation
13. Return copy to;
Name {Sig)
NAME AND ADDRESS OF PREPARER
REORDER FROM
INSTRUCTIONS: 1. PLEASE TYPE ALL INFORMATION, and sign REGISTRE, INC.
with ball point pen. Signature must be 514 PIERCE ST.
legible on Filing Officer Copies. P.O. BOX 218
2. Contract Filing Officer for fee ANOKA, MN. 55303
schedule or additional information. (612) 421-1713
- --------------------------------------------------------------------------------
STATE OF FLORIDA
UNIFORM COMMERCIAL CODE--FINANCING STATEMENT--FORM UCC-1 REV. 1981
THIS FINANCING STATEMENT is presented to a filing officer for
filing pursuant to the Uniform Commercial Code:
================================================================================
DEBTOR(Last Name First if a Person) THIS SPACE FOR USE OF FILING OFFICER
NAME OMI Acquisition corporation Date, Time, Number & Filing Office
1A
MAILING ADDRESS 425 North Drive
CITY Melbourne STATE FL 32935
- --------------------------------------------------------------------------------
ONLY ONE NAME PER BOX
MULTIPLE DEBTOR (IF ANY) (Last Name First if a Person)
NAME
1B
MAILING ADDRESS
CITY STATE
- --------------------------------------------------------------------------------
MULTIPLE DEBTOR (IF ANY) (Last Name First if a Person)
NAME
1C
MAILING ADDRESS
* CITY STATE
- --------------------------------------------------------------------------------
SECURED PARTY (Last Name First if a Person)
NAME General Electric Capital Corporation
2A
MAILING ADDRESS 303 International Circle
Suite 300
CITY Hunt Valley STATE MD 20131
- --------------------------------------------------------------------------------
MULTIPLE SECURED PARTY (IF ANY) (Last Name First if a Person)
NAME
2B
MAILING ADDRESS AUDIT UPDATE
CITY STATE
- --------------------------------------------------------------------------------
ASSIGNEE OF SECURED PARTY (IF ANY) (Last Name First if a Person)
NAME VALIDATION INFORMATION
3
MAILING ADDRESS
CITY STATE
- --------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property
(include description of real property on which located and owner of record
when required). If more space is required, attach additional sheets
81/2" x 11".
All equipment wherever located as more fully described on Collateral
Schedule to Master Security Agreement dated as of _______________attached
hereto and made a part hereof. Including all other attachments, accessories,
* additions, replacements and substitutions and proceeds now or hereafter
attached hereto. Equipment located at: 425 North Dr.; Melbourne, FL 32935
5. Proceeds of collateral are covered as provided in Sections 679.203 and
679.306, F.S.
6. Filed with: Secretary of State-FL
7. No. of additional Sheets presented:
8. (Check [ ]) [ ] All documentary stamp taxes due and payable or to become due
and payable pursuant to Section 201.22, F.S., have been paid.
[X] Florida Documentary Stamp Tax is not required.
9. This statement is filed without the debtor's signature to perfect a security
interest in collateral (Check [ ] if so)
[ ] already subject to a security interest in another jurisdiction when it
was brought into this state or debtor's location changed to this state.
[ ] which is proceeds of the original collateral described above in which
a security interest was perfected.
[ ] as to which the filing has lapsed.
[ ] acquired after a change of name, identify, or corporate structure of the
[ ] debtor or [ ] secured party.
10. (Check [ ] if so)
[ ] Debtor is a transmitting utility
[ ] Products of collateral are covered
11. SIGNATURE(S) OF Debtor(s)
OMI Acquisition Corporation
13. Return copy to:
Name {Sig)
NAME AND ADDRESS OF PREPARER
[LOGO]
GE Cap
- --------------------------------------------------------------------------------
Electronics Financial Services
General Electric Capital Corporation
2200 Powell Street, Suite 600, Emeryville, CA 94608
3013 (3/91)
August 28, 1995
Fred Sutton
2174 Harris Avenue, Northeast, Suite 5
Palm Bay, FL 32905
Gentlemen/Ladies:
General Electric Capital Corporation ("Lessor") has entered into, or is
about to enter into, a lease agreement, security agreement, chattel mortgage or
similar agreement ("Financing Agreement") with OMI Acquisition Corp. ("Lessee"),
pursuant to which the Lessee has granted, or will grant, to Lessee a security
interest in certain personal property described in the attached Annex A and
Collateral Schedule (such property, together with any replacements thereof,
being the "Personal property"). Some or all of the Personal Property is, or will
be, located at certain premises known as Woodlake Commerce Park Building 2330,
Suite 8, 2330 Commerce Park Drive in the City or Town of Palm Bay, County of
Brevard and State of FL ("Premises"). This letter is being sent to you because
of your interest in the Premises.
By your signature below, you hereby agree (and we shall rely on your
agreement) that: (i) the Personal Property is, and shall remain, personal
property regardless of the method by which it may be, or become, affixed to the
Premises; (ii) your interest in the Personal Property and any proceeds thereof
(including, without limitation, proceeds of any insurance therefor) shall be,
and remain, subject and subordinate to the interests of Lessor; (iii) Lessor,
and its employees and agents, shall have the right, from time to time, to enter
into the Premises for the purpose of inspecting the Personal Property; and (iv)
Lessor Party, and its employees and agents, shall have the right, upon any
default by the Lessee under the Financing Agreement, to enter into the Premises
and to remove the Personal Property from such Premises. Lessor agrees to
reimburse you for any damages actually caused to the Premises or it employees or
agents, during any such removal. These agreements shall be binding upon, and
shall inure to the benefit of, any successors and assigns of the parties hereto.
We appreciate your cooperation in this matter of mutual interest.
General Electric Capital Corporation
By: Patricia A. Favier
Title: Credit Analyst
AGREED TO AND ACCEPTED BY:
Fred Sutton
By: Fred Sutton
Title: President, Sutton Properties
Date: 8-30-95
Interest in the Premises (check applicable box)
[X] Owner
[ ] Morgage
[X] Landlord
[ ] Realty Manager
A GE Capital Services Company
<PAGE>
CORPORATE LESSEE'S
BOARD OF DIRECTORS RESOLUTION
The undersigned hereby certifies (i) that she/he is the Secretary of OMI
Acquisition Corp. (ii) that the following is a true and correct copy of
resolutions duly adopted by unanimous written consent of the Board of
Directors of said Corporation duly held on the 29 day of August, 1995 and
(iii) that the resolutions have not been amended, rescinded, modified or
revoked, and are in full force and effect:
"RESOLVED, that each of the officers of this Corporation, whose name
appears below:
(Sig) (Sig)
---------------------------- -----------------------------
President Controller
---------------------------- -----------------------------
Vice President Secretary
or the duly elected or appointed successor in office of any or all of them, be,
and hereby is, authorized and empowered in the name and on behalf of this
Corporation to enter into, execute and deliver a master lease agreement with
General Electric Capital Corporation ("Lessor") as Lessor, providing for the
leasing to (or sale and leaseback by) this Corporation, from time to time, of
certain equipment, and further providing for this Corporation to indemnify said
lessor against certain occurrences and against the loss of contemplated tax
treatment; and
FURTHER RESOLVED, that each officer of this Corporation be, and hereby is,
authorized and empowered in the name and on behalf of this Corporation to enter
into, execute and deliver any documents and to do and perform all other acts and
deeds which may be necessary and appropriate to effectuate the lease (or sale
and leaseback) for equipment from Lessor, and
FURTHER RESOLVED, that the Lessor may rely upon the aforesaid resolutions
until receipt by it of written notice of any change.
IN WITNESS WHEREOF, I have set my hand and affixed the seal of said
Corporation this __________ day of _____________, 19 __.
(CORPORATE SEAL)
(Sig)
- -------------------------------
Secretary
<PAGE>
CERTIFIED COPY OF RESOLUTION OF BOARD OF DIRECTORS
The undersigned hereby certifies: that he/she is the Secretary of OMI
Acquisition Corp., a Delaware corporation; that the following is a true,
accurate and complete transcript of resolutions duly adopted by unanimous
written consent of the Board of Directors of said Corporation duly held on the
29 day of August, 1995, at which a quorum was present, and that the proceedings
were in accordance with the Articles and by-laws of said Corporation: and that
said resolutions have not been amended or revoked, and are in full force and
effect:
"RESOLVED, that each of the officers of this Corporation, whose name appears
below, or the duly elected or appointed successor in office of any or all of
them, be and hereby is authorized and empowered in the name and on behalf of
this Corporation to borrow from General Electric Capital Corporation
(hereinafter referred so as "GE Capital") from time to time, such sum or sums
of money as in the judgment of such officer or officers the Corporation may
require and to execute on behalf of the Corporation and to deliver to GE
Capital in the form required by GE Capital a promissory note or notes of
this Corporation evidencing the amount or amounts borrowed or any renewals
and/or extensions thereof, such note or notes to bear such rate of interest
and be payable in such installments and on such terms and conditions as such
officer may agree to by his signature thereon.
FURTHER RESOLVED, that any of the aforesaid officers, or his duly elected or
appointed successor in office, be and hereby is authorized and empowered to do
any acts, including, but not limited to, the mortgage, pledge, or hypothecation
from time to time with GE Capital of any or all the assets of this Corporation
to secure such loan or loans and any other indebtedness or obligations, now
existing or hereafter arising, of this Corporation to GE Capital, and to expect
in the name of and on behalf of this Corporation, any chattel mortgages, notes,
security agreements, financing statements, renewal, extension or consolidation
agreement, and any other instruments or agreements deemed necessary or proper by
GE Capital in respect of the collateral securing any indebtedness of this
Corporation, and to affix the seal of this Corporation to any mortgage, pledge,
or other such instrument if so required or requested by GE Capital.
FURTHER RESOLVED, that each said officer of this Corporation is hereby
authorized to do and perform all other acts and deeds that may be requisite or
necessary to carry fully into effect the foregoing resolutions.
FURTHER RESOLVED, that the officers referred to in the foregoing resolutions,
their names and signatures are as follows:
NAME TITLE SIGNATURE
---- ----- ---------
Richard Ross President Richard Ross
Diane M. Maroney Controller Diane M. Maroney
FURTHER RESOLVED, that GE Capital is authorized to rely upon the aforesaid
resolutions until receipt by it of written notice of any change, which changes
of whatever nature shall not be effective as to GE Capital to the extent that it
has theretofore relied upon the aforesaid resolutions in the above form."
IN WITNESS WHEREOF, I have set my hand and affixed the seal of said Corporation
this ____ day of _____________, 19__.
(Sig)
- ----------------------------------
Secretary
(CORPORATE SEAL)
GE Capital
- -----------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT SCHEDULE
SCHEDULE NO. 002
DATED THIS OCTOBER 20, 1995
TO MASTER LEASE AGREEMENT
DATED AS OF AUGUST 31, 1995
Lessor & Mailing Address: Lessee & Mailing Address:
General Electric Capital Corporation OMI Acquisition Corp.
303 International Circle Suite 300 425 North Drive
Hunt Valley, MD 21031 Melbourne, FL 32935
Capitalized terms not defined herein shall have the meanings assigned to them in
the Master Lease Agreement identified above ("Agreement"; said Agreement and
this Schedule being collectively referred to as "Lease").
A. Equipment
Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to Lessee
the telecommunications system(s) and/or other equipment (collectively, the
"Equipment") listed on Annex A attached hereto and made a part hereof.
B. Financial Terms
1. Advance Rent (if any): $762.97.
2. Capitalized Lessor's Cost: $31,999.32.
3. Basic Term Lease Rate Factor: 2.38433.
4. Daily Lease Rate Factor: .07948.
5. Basic Term (No. of Months): 49.
6. Basic Term Commencement Date: October 20, 1995.
7. Equipment Location: 2330 Commerce Park Drive, N.E. Palm Bay, FL 32905.
8. Lessee Federal Tax ID No.: 59-3321536.
9. Supplier: Thistle Communications, Inc.
10. Last Delivery Date: October 10, 1995.
10. First Termination Date: N/A
C. Tax Benefits
Depreciation Deductions
a. Depreciation Method: 200% declining balance method, switching to straight
line method for the 1st taxable year for which using the straight line
method with respect to the adjusted basis as of the beginning of such year
will yield a larger allowance.
b. Recovery Period: 5 Years.
c. Basis: 100% of Capitalized Lessor's Cost.
D. Term and Rent
1. Interim Rent. For the period from and including the Lease Commencement
Date to the Basic Term Commencement Date ("Interim Period"). Lessee shall pay
as rent ("Interim Rent") for each unit of Equipment, the product of the Daily
Lease Rate Factor times the Capitalized Lessor's Cost of such unit times the
number of days in the Interim Period. Interim Rent shall be due on N/A.
2. Basic Term Rent. Commencing on October 20, 1995 and on the same day of
each month thereafter (each, a "Rent Payment Date") during the Basic Term,
Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term
Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on
this Schedule.
3. Adjustment to Capitalized Lessor's Cost. Lessee hereby irrevocably
authorizes Lessor to adjust the Capitalized Lessor's Cost up or down by no
more than ten percent (10%) to account for equipment change orders,
equipment returns, invoicing errors, and similar matters. Lessee acknowledges
and agrees that the Rent shall be adjusted as a result of such change in the
Capitalized Lessor's Cost (pursuant to paragraphs 1 and 2 above). Lessor
shall send Lessee a written notice stating the final Capitalized Lessor's
Cost, if different from that disclosed on this Schedule.
E. Insurance
1. Public Liability: $1,000,000 total liability per occurrence.
2. Casualty and Property Damage: An amount equal to the higher of the
Stipulated Loss Value or the full replacement cost of the Equipment.
<PAGE>
F. Modifications and Additions to Agreement
For purposes of this Schedule only, the Agreement is amended as follows:
1. Section I shall be deleted in its entirety and the following substituted
in its stead;
(a) Subject to the terms and conditions set forth below, Lessor agrees to
lease to Lessee, and Lessee agrees to lease from Lessor, the
telecommunications system(s) and/or such other equipment (such system(s)
and/or equipment being referred to as "Equipment") described in Annex A
to any schedule hereto ("Schedule"). Terms defined in a Schedule and not
otherwise defined herein shall have the meanings ascribed to them in such
Schedule.
(b) The obligation of Lessor to purchase Equipment from the manufacturer
or supplier thereof ("Supplier") and, to lease the same to Lessee under
any Schedule shall be subject to receipt by Lessor, prior to the Cut-Over
Date for such Equipment (which shall be the date on which such Equipment
is first connected to a public telephone network in a manner permitting
calls to be made through such Equipment to or from the facility in which
such Equipment is located), of the following documents in form and
substance satisfactory to Lessor: (i) a Schedule relating to the Equipment
then to be leased hereunder, (ii) a Purchase Order Assignment and Consent
in the form of Annex B to the applicable Schedule, unless Lessor shall
have delivered its purchase order for the Equipment, (iii) evidence of
insurance which complies with the requirements of Section X, and (iv) such
other documents as Lessor may reasonably request. As a further condition
to such obligations of Lessor, Lessee shall, on the Cut-Over Date (but no
later than the Last Delivery Date) for such Equipment, execute and deliver
to Lessor a Certificate of Acceptance, in the form of Annex C to the
applicable Schedule, covering all such Equipment, and deliver a bill of
sale therefor (in form and substance satisfactory to Lessor). Lessor
hereby appoints Lessee its agent for inspection and acceptance of the
Equipment from the Supplier. Upon execution by Lessee of any Certificate
of Acceptance, the Equipment described thereon shall be deemed to have
been delivered to, and irrevocably accepted by, Lessee for lease
hereunder.
2. Subsection VII(a) shall be amended to add the following sentence at the
end thereof:
Lessee shall protect the Equipment from the elements (except if this is
impossible in light of the normally contemplated use of an item or items
thereof).
3. Section VIII shall be deleted and the following substituted in its stead;
VIII. STIPULATED LOSS VALUE. In the even that title to any Equipment is
taken by eminent domain or otherwise or any Equipment shall be or become
worn out, lost, stolen, destroyed, requisitioned or condemned by
governmental or judicial order or otherwise, or, in the reasonable opinion
of Lessee, irreparably damaged, from any cause whatsoever (any such
occurrence being hereinafter called ("Casualty Occurrence"), Lessee shall
promptly and fully notify Lessor in writing with respect thereto. In the
event of a Casualty Occurrence as to part of the Equipment described on
any Schedule, the same shall be treated as applicable to all the Equipment
described on such Schedule, and Lessee will pay the Stipulated Loss Value
for all Equipment on such Schedule unless it repairs and makes the system
comprised of such Equipment fully functional to the satisfaction of
Lessor. On the rental payment date next succeeding a Casualty Occurrence
(the "Payment Date"). Lessee shall pay Lessor the sum of (x) the
Stipulated Loss Value payment with respect to the rental next preceding
such Casualty Occurrence ("Calculation Date"); and (y) all rentals and
other amounts which are due hereunder as of the Payment Date. Upon
payment of all sums due hereunder, the term of this lease as to such
Equipment shall terminate, and except in the case of the loss, theft
or complete destruction Lessor shall be entitled to return of the
Equipment.
4. MAINTENANCE PROVISIONS: In addition to provisions set forth in the Service
Section VII of this Lease Lessee, at its own expense;
(a) shall keep the Equipment in operation and under the manufacturer's
maintenance agreement acceptable to Lessor throughout the full term of the
Lease; and shall comply with all requirements for enforcing warranty
claims during the term of this Lease, including, but not limited to any
extension or renewal term and including the period during which the
Equipment is being deinstalled and returned to Lessor; and
(b) Lessee shall not modify the terms of the maintenance agreement without
the prior written consent of Lessor. Lessee shall maintain the Equipment
within specifications and conditions recommended by the manufacturer and
any associated maintenance manuals. Lessee will not permit others, other
than the original maintenance provider, to perform any maintenance of the
Equipment unless it is expressly approved by Lessor.
5. RETURN PROVISIONS: In addition to the provisions provided for in Section
XI of the Lease, and provided that Lessee has elected not to exercise its
option to purchase the Equipment Lessee shall, at its expense:
(a) Upon the request of Lessor, Lessee shall no later than ninety (90)
days prior to the expiration or other termination of the Lease provide:
(i) a detailed inventory of the Equipment (including the model and
serial number of each major component thereof), including, without
limitation, all internal circuit boards, module boards, and software
features;
(ii) a complete and current set of all manuals, equipment configuration
diagrams, maintenance records and other data that may be reasonably
requested by Lessor concerning the configuration and operation of the
Equipment; and
(iii) a certification of the manufacturer or of a maintenance provider
acceptable to Lessor that the Equipment (1) has been tested and is
operating in accordance with manufacturers specifications (together with
a report detailing the conditions of the Equipment), the results of such
test(s) and inspection(s) and all repairs that were performed as a
result of such test(s) and inspection(s) and (2) qualifies for the
manufacturers used equipment maintenance program.
(b) Upon the request of Lessor, Lessee shall, no later than sixty (60)
days prior to the expiration or other termination of the Lease, make the
Equipment available for on-site operational inspection by persons
designated by the Lessor who shall be duly qualified to inspect the
Equipment in its operational environment.
(c) All Equipment shall be cleaned and tested with respect to rust,
corrosion and appearance in accordance with manufacturers recommendations
and consistent with the best practices of dealers in used equipment
similar to the Equipment; shall have no Lessee installed markings or
labels which are not necessary for the operation, maintenance or repair of
the Equipment; and shall be in compliance with all applicable governmental
laws, rules and regulations.
<PAGE>
(d) Provide for the deinstallation, packing, transporting, and certifying
of the Equipment to include, but not limited to, the following:
(i) the manufacturer's representative shall de-install all Equipment
(including all wire, cable and mounting hardware) in accordance with the
specifications of the manufacturer; (ii) each item of Equipment will be
returned with a certificate supplied by the manufacturer's
representative qualifying the Equipment to be in good condition and
(where applicable) to be eligible for the manufacturer's maintenance
plan; the certificate of eligibility shall be transferable to another
operator of the Equipment; (iii) the Equipment shall be packed properly
and in accordance to the manufacturer's recommendations; (iv) Lessee
shall provide for the transportation of the Equipment in a manner
consistent with the manufacturer's recommendations and practices to any
locations within the continental United States as Lessor shall direct,
and shall have the Equipment unloaded at such locations; (v) Lessee
shall obtain and pay for a policy of transit insurance for the
redelivery period in an amount equal to the replacement value of the
Equipment and Lessor shall be named as the loss payee on all such
policies of insurance; and (vi) Lessee shall provide insurance and safe,
secure storage for the Equipment for thirty (30) days after expiration
or earlier termination of the Lease at an accessible location
satisfactory to Lessor.
Except as expressly modified hereby, all terms and provisions of the Agreement
shall remain in full force and effect. This Schedule is not binding or effective
with respect to the Agreement or Equipment until executed on behalf of Lessor
and Lessee by authorized representatives of Lessor and Lessee, respectively.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
General Electric Capital Corporation OMI Acquisition Corp.
By: (Signature) By: (Signature)
Name: Kevin C. Wortman Name: Diane M. Maroney
Title: Sr. Credit Analyst Title: Controller
Attest:
By: (Signature)
Name: Rita Donegan
ANNEX A
TO
SCHEDULE NO. 002
TO MASTER LEASE AGREEMENT
DATED AS OF AUGUST 31, 1995
DESCRIPTION OF EQUIPMENT
Serial Type and Model Number Cost
Manufacturer Numbers of Equipment of Units Per Unit
Adix Telephone
Equipment $24,101.00
(46)Single Line Phones 46 $ 1,309.45
(12)Ceiling Speakers 12 $ 456.00
(2)Ship Horns 2 $ 214.00
(1)Power Supply 1 $ 80.00
Bridge Clips, Blocks,
Jumper Wire, Amp Tails $ 405.00
TAX $ 1,593.87
INSTALLATION $ 3,840.00
TOTAL $31,999.32
Initials: _______________ _______________
Lessor Lessee
<PAGE>
ANNEX B
TO
SCHEDULE NO.
TO MASTER LEASE AGREEMENT
DATED AS OF _______________
PURCHASE ORDER ASSIGNMENT AND CONSENT
THIS ASSIGNMENT AGREEMENT, dated as of _________________ ("Agreement"),
between General Electric Capital Corporation ("Lessor") and OMI ACQUISITION
CORP. ("Lessee").
WITNESSETH:
Lesse desires to lease certain equipment ("Equipment from Lessor pursuant
to the above schedule and lease (collectively, "Lease"). All terms used herein
which are not otherwise defined shall have the meaning ascribed to them in the
Lease.
Lesse desires to assign, and Lessor is willing to acquire, cerain of
Lessee's rights and interests under the purchase order(s), agreement(s), and/or
document(s) (the "Purchase Order") Lessee has heretofore issued to the
Supplier(s) of such Equipment.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
Lessor and Lessee hereby agree as follows:
SECTION 1. ASSIGNMENT.
(a) Lessee does hereby assign and set over to Lessor all of Lessee's rights
and interests in and to such Equipment and the Purchase Orders as the same
relate thereto including, without limitation, (i) the rights to purchase, to
take title, and to be named the purchaser in the bill of sale for such
Equipment, (ii) all claims for damages in respect of such Equipment arising as a
result of any default by the Supplier (including, without limitation ? ? ?
indemnity claims) and (iii) any and all rights of Lessee to compel performance
by the Supplier.
(b) If, and so long as no default exists under the Lease, Lessee shall be,
and is hereby, authorized during the term of the Lease to assert and enforce, at
Lessee's sole cost and expense, from time to time, in the name of and for the
account of Lessor and/or Lessee, as their interests may appear, whatever claims
and rights Lessor may have against any Supplier of the Equipment.
SECTION 2. CONTINUING LIABILITY OF LESSEE.
It is expressly agreed that, anything herein contained to the contrary
notwithstanding, (a) Lessee shall at all times remain liable to the Supplier to
perform all of the duties and obligations of the purchaser under the Purchase
Orders to the same extent as if this Agreement had not been executed, (b) the
execution of this Agreement shall not modify any contractual rights of the
Supplier under the Purchase Orders and the liabilities of the Supplier under the
Purchase Orders shall be to the same extent and continue as if this Agreement
had not been executed, (c) the exercise by the Lessor of any of the rights
hereunder shall not release Lessee from any of its duties or obligations to the
Supplier under the Purchasd Orders, and (d) Lessor shall not have any obligation
or liability under the Purchase Orders by reason of, or arising out of, this
Agreement or be obligated to perform any of the obligations or duties of Lessee
under the Purchase Orders or to make any payment (other than under the terms and
conditions set forth in the Lease) or to make any inquiry of the sufficiency of
or authorization for any payment received by any Supplier or to present or file
any clam or to take any other action to collect or enforce any claim for any
payment assigned hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
LESSOR: LESSEE:
General Electric Capital Corporation OMI Acquisition Corp.
By: (Signature) By: (Signature)
Title: Senior Credit Analyst Title: Controller
<PAGE>
CONSENT AND AGREEMENT
Supplier hereby consents to the above assignment agreement ("Agreement")
and agrees not to accept any claims against Lessor or OMI ACQUISITION CORP.
("Lessee") inconsistent with such Agreement. Supplier agrees that the Purchase
Orders are hereby amended as necessary to provide as follows:
(a) Title to and risk of loss of the Equipment shall pass to Lessor upon
Lessee's execution of the Certificate of Acceptance for such Equipment;
and
(b) Supplier hereby waives and discharges any security interest, lien or
other encumbrance in or upon the Equipment and agrees ? ? ? such
documents as Lessor may request evidencing the release of any such
encumbrance and the conveyance of title thereto to Lessor.
(c) Supplier agrees that on and after the date this Consent is executed it
will not make any addition to or delete any items from the Equipment
referred to in the Agreement without the prior written consent of both
Lessor and Lessee.
(d) Seller represents that the Equipment has been accurately labeled,
consistent with the requirements of 40 CFR Part 82 Subpart B, with
respect to products manufactured with a controlled (ozone-depleting)
substance.
IN WITNESS WHEREOF, the undersigned has caused this Consent to be executed
this 10th day of October, 1995.
JANE W. REYNOLDS SUPPLIER:
My Commission CC398033 THISTLE COMMUNICATIONS INC.
[LOGO] Expires Aug. 07, 1998
Bonded by HAJ By: (Signature)
800-422-1555
Title: President
<PAGE>
ANNEX C
TO
SCHEDULE NO. 002
TO MASTER LEASE AGREEMENT
DATED AS OF AUGUST 31, 1995
CERTIFICATE OF ACCEPTANCE
To: General Electric Capital Corporation ("Lessor")
Pursuant to the provisions of the above schedule and lease (collectively,
the "Lease"), Lessee hereby certifies and warrants that (a) all Equipment listed
below has been delivered and installed (if applicable); (b) Lessee has inspected
the Equipment, and all such testing as it deems necessary has been performed by
Lesee, Supplier or the manufacturer; and (c) Lessee accepts the Equipment for
all purposes of the Lease, the purchase documents and all attendant documents.
Lessee does further certify that as of the date hereof (i) Lessee is not in
default under the Lease; (ii) the representations and warranties made by Lessee
pursuant to or under the Lease are true and correct on the date hereof and (iii)
Lessee has reviewed and approves of the purchase documents for the Equipment,
if any.
DESCRIPTION OF EQUIPMENT
Serial Type and Model Number Cost
Manufacturer Numbers of Equipment of Units Per Unit
Adix Telephone
Equipment $24,101.00
(46)Single Line Phones 46 $ 1,309.45
(12)Ceiling Speakers 12 $ 456.00
( 2)Ship Horns 2 $ 214.00
( 1)Power Supply 1 $ 80.00
Bridge Clips, Blocks,
Jumper Wire, Amp Tails $ 405.00
TAX $ 1,593.87
INSTALLATION $ 3,840.00
TOTAL $31,999.32
By: (Signature)
Title: Controller
Dated: October 20, 1995
<PAGE>
ANNEX D
TO
SCHEDULE NO. 002
TO MASTER LEASE AGREEMENT
DATED AS OF AUGUST 31, 1995
STIPULATED LOSS AND TERMINATION VALUE TABLE*
--------------------------------------------
TERMINATION VALUE STIPULATED LOSS
RENTAL PERCENTAGE VALUE PERCENTAGE
------ ----------------- ----------------
1 103.939 108.163
2 102.476 106.925
3 100.973 105.647
4 99.431 104.329
5 97.871 102.994
6 96.293 101.640
7 94.695 100.267
8 93.078 98.874
9 91.441 97.461
10 89.784 96.028
11 88.108 94.577
12 86.412 93.106
13 84.697 91.615
14 82.962 90.105
15 81.207 88.575
16 79.432 87.024
17 77.638 85.454
18 75.824 83.865
19 73.996 82.261
20 72.152 80.641
21 70.292 79.006
22 68.417 77.356
23 66.522 75.685
24 64.612 73.999
25 62.685 72.297
26 60.739 70.575
27 58.776 68.837
28 56.798 67.083
29 54.799 65.309
30 52.779 63.514
31 50.747 61.706
32 48.701 59.885
33 46.642 58.050
34 44.569 56.202
35 42.475 54.332
36 40.367 52.449
37 38.246 50.552
38 36.103 48.634
39 33.946 46.702
40 31.775 44.755
41 29.583 42.787
42 27.369 40.797
43 25.138 38.791
44 22.890 36.768
45 20.626 34.728
46 20.626 32.672
<PAGE>
TERMINATION VALUE STIPULATED LOSS
RENTAL PERCENTAGE VALUE PERCENTAGE
------ ----------------- ----------------
47 20.626 30.593
48 20.626 28.497
49 20.626 26.384
Initials: ________________ ________________
Lessor Lessee
* The Stipulated Loss Value or Termination Value for any unit Equipment shall
be equal to the Capitalized Lessor's Cost of such unit multiplied by the
appropriate percentage derived from the above table. In the event that the
Lease is for any reason extended, then the loss percentage figure shown above
shall control throughout any such extended term.
<PAGE>
Date: October 10, 1995
General Electric Capital Corporation
303 International Circle Suite 300
Hunt Valley, MD 21031
Gentlemen:
You are hereby irrevocably authorized and directed to deliver and apply the
proceeds due under the assigned in connection with a lease to the undersigned
evidenced by that Master Lease Agreement dated August 31, 1995 and Equipment
Schedule No. 002 dated 10/20/95 as follows:
Thistle Communications, Inc. $31,999.32
2101 S. Waverly Place
Melbourne, FL 32901
Payment in Full of Invoice Nos. 3175, 3176 & 3177
This authorization and direction is given pursuant to the same authority
authorizing the above-mentioned financing.
Very truly yours,
OMI Acquisition Corp.
By: Diane M. Maroney
Title: Controller
<PAGE>
CERTIFICATE OF DELIVERY
To: General Electric Capital Corporation ("Lessor")
The undersigned manufacturer, supplier or vendor ("Supplier") hereby certifies
that all the equipment set forth in Annex A attached hereto and made a part
hereof has been delivered to OMI Acquisition Corp. ("Lessee") at 2330 Commerce
Park Drive, N.E., Palm Bay, FL 32903 ("Equipment Location"); that all
installation, construction, manufacture, assembly and testing required to be
performed by the Supplier in connection with the Equipment has been
satisfactorily completed in a workman like manner, and that the Equipment meets
all applicable specifications and is fully operational for its intended use.
[LOGO] JANE W. REYNOLDS SUPPLIER:
My Commission CC398033
Expires Aug. 07, 1998 Thistle Communications, Inc.
Bonded by HAJ
800-422-1555 By: J. L. Thistle
Title: President
Signature of Jane W. Reynolds
Date: 10-11-95
<PAGE>
CERTIFICATE CONCERNING
PAYMENT OF PERSONAL PROPERTY TAXES
To: General Electric Capital Corporation
To insure Lessee's compliance with the provisions of a Master Lease
Agreement dated as of August 31, 1995 (the "Lease") by and between the
undersigned as Lessee and General Electric Capital Corporation as Lessor, Lessee
hereby agrees to one of the following options with respect to the payment of
personal property taxes on the Equipment described in Annex A to Schedule Number
002 to the Lease, such agreement to be conclusively evidenced by the initials
and signature of an authorized agent of Lessee in the appropriate spaces
provided below:
Please choose one of the options below by placing an "X" in the appropriate box
and initialing where indicated. Initial ONLY ONE Choice of Option
- -----------------------------------------
OPTION 1 Lessee's Initials: DM
- -----------------------------------------
(Applicable in Jurisdictions Requiring Lessor to List Equipment): Lessee agrees
that it will not list any of such Equipment for property tax purposes or report
any property tax assessed against such Equipment until otherwise directed in
writing by lessor. Upon receipt of any property tax bill pertaining to such
Equipment from the appropriate taxing authority, Lessor will pay such tax and
will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will
promptly reimburse Lessor for such expense;
- -----------------------------------------
OPTION 2 Lessee's Initials:
- -----------------------------------------
(Applicable in Jurisdictions Permitting Lessee to List Equipment): Lessee agrees
that it will (a) list all such Equipment, (b) report all property taxes assessed
against such Equipment and (c) pay all such taxes when due directly to the
appropriate taxing authority until Lessor shall otherwise direct in writing.
LESSEE: OMI Acquisition Corp.
By: Diane M. Maroney
Title: Controller
Date: 10/20/95
<PAGE>
Fi 1 With:
STATE OF FLORIDA
FINANCING STATEMENT
UNIFORM COMMERCIAL CODE FORM UCC-1 (REV. 1993)
THIS FINANCING STATEMENT is presented to a filing officer for filing
pursuant to the Uniform Commercial Code:
1. (Last Name First if an Individual)
OMI Acquisition Corporation (Lessee)
1a. Date of Birth or FEI#
59-3321536
1b. Mailing Address
425 North Drive
1c. City, State
Melbourne, FL
1d. Zip Code
32935
2. Additional Debtor or Trade Name (Last Name First if an Individual)
2a. Date of Birth or FEI#
2b. Mailing Address
2c. City, State
2d. Zip Code
3. (Last Name First if an Individual)
General Electric Capital Corporation (Lessor)
3a. Mailing Address
303 International Circle, Suite 300
3b. City, State
Hunt Valley, MD
3c. Zip Code
21031
4. Additional Secured Party (Last Name First if an Individual)
4a. Mailing Address
4b. City, State
4c. Zip Code
5. This Financing Statement covers the following types or items or property
(Include description of real property on which located and owner or record
when required. If more space is required, attach additional sheet(s)).
All equipment wherever located as more fully described on Annex A attached
hereto and made a part hereof. Including all other attachments,
accessories, additions, replacements and substitutions and proceeds now or
hereafter attached hereto.
Equipment currently located at: 2330 Commerce Park Drive N.E.
Palm Bay, FL 32905
6. Check only if Applicable:
[x] Products of collateral are also covered.
[x] Proceeds of collateral are also covered.
[ ] Debtor is transmitting utility.
7. Check appropriate box:
(One box must be marked)
[ ] All documentary stamp taxes due and payable or to become due and
payable pursuant to s. 201.22 F.S., have been paid.
[x] Florida Documentary Stamp Tax is not required.
8. In accordance with s. 679.402(2), F.S., this statement is filed without the
Debtor's signature to perfect a security interest in collateral:
[ ] already subject to a security interest in another jurisdiction when it
was brought into this state or debtor's location changed to this state.
[ ] which is proceeds of the original collateral described above in which
a security interest was perfected.
[ ] as to which the filing has lapsed. Date filed______________and previous
UCC-1 file number______________.
[ ] acquired after a change of name, identity, or corporate structure of
the debtor.
9. Number of additional sheets presented:___________
10. Signature(s) of
OMI Acquisition Corporation (Lessee)
Diane M. Maroney
11. Signature(s) of or if Assigned, by Assignee(s).
General Electric Capital Corporation (Lessor)
---signature---
12. Return Copy to:
Name
Address
Address
City, State, Zip
This Space for Use of Filing Officer
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT is made as of February 6,
1996 ("Agreement") by and among DRS/MS, INC. ("DRS/MS"), a
Delaware corporation, UNIVERSAL SONICS CORPORATION ("USC"), a New
Jersey corporation, RON HADANI, an individual residing at 1486
West Terrace Circle, Teaneck, New Jersey 07666 ("Hadani"),
HOWARD FIDEL, an individual residing at 24 Scott Place,
Hartsdale, New York, 10530 ("Fidel"), and THOMAS S. SOULOS, an
individual residing at 1199 Park Avenue, Apt. 11 C, New York, New
York 10128 ("Soulos") (collectively, Hadani, Fidel and Soulos
shall hereinafter be referred to as the "Shareholders").
A. Diagnostic/Retrieval Systems, Inc. ("DRS"), a
Delaware corporation, and USC have entered into a nonbinding
letter of intent describing their interest in forming a joint
venture for the purpose of developing, manufacturing and
marketing low cost, high performance ultrasound medical imaging
equipment and products that perform three-dimensional ultrasound
medical imaging.
B. Each of DRS/MS and USC desires to make an
investment in the business operated by the joint venture.
C. To accomplish such investment, DRS/MS, on the one
hand, and USC, on the other hand, desire to associate themselves
as partners, and desire to form a partnership ("Partnership")
under the laws of the State of New Jersey for the purposes
described in and on the terms of a Partnership Agreement of DRS
Medical Systems substantially in the form of Exhibit A hereto
("Partnership Agreement").
D. DRS/MS desires to contribute $400,000 to the
Partnership as well as certain managerial expertise and
manufacturing capabilities as more specifically set forth herein.
E. USC desires to contribute to the capital of the
Partnership all of the assets, net of certain Royalties (as
defined below), of USC, subject only to certain liabilities of
USC, such liabilities being no greater than such net assets.
NOW, THEREFORE, in consideration of the mutual covenants
and agreements and on the terms and conditions contained herein,
and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings:
"Accounts Receivable" means all of the accounts
receivable of USC due from customers which are contributed to
the Partnership pursuant to the terms of the Partnership
Agreement.
"Affiliate" means, when used with reference to a
specified Person, (i) any Person that directly or indirectly
through one or more intermediaries controls or is controlled by
or is under common control with the specified Person or (ii) any
Person that is an executive officer or director of, partner in,
or trustee of, or serves in a similar capacity with respect to,
the specified Person or of which the specified Person is an
officer, partner or trustee, or with respect to which the
specified Person serves in a similar capacity; and, (iii) when
used with reference to a natural Person, any Person that is
related to the specified Person by blood or marriage in the first
degree of consanguinity; provided, however, that no natural
Person shall be deemed to be controlled by any other Person.
"Applicable Law" has the meaning specified in Section
4.05(a).
"Assumed Liabilities" shall mean the liabilities of USC
to be assumed by the Partnership pursuant to the Partnership
Agreement as set forth in Schedule 4.04 hereof.
"Closing" has the meaning specified in Section 2.03.
"Closing Date" shall have the meaning specified in
Section 2.03.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Contracts" means all contracts, subcontracts,
agreements, options, guarantees, orders, commitments,
undertakings and arrangements, whether written or oral.
"DRS/MS Capital Contribution" means the contribution by
DRS/MS to the capital of the Partnership determined pursuant to
the provisions of Section 2.02(i).
"Employment Agreements" means collectively the
employment agreements with the Partnership to be individually
executed substantially in the form attached hereto as Exhibit B
by each of the Shareholders.
"Environmental Damages" means all claims, judgments,
damages, losses, penalties, fines, liabilities (including
strict liability), costs and expenses, including costs and
expenses of defense of any claim and of any settlement of claims,
including, without limitation, reasonable attorneys' fees and
consultants' fees, which are incurred at any time as a result of
the existence of Hazardous Material upon, about or beneath the
Premises or migrating or threatening to migrate to or from the
Premises, or arising in any manner whatsoever out of any
violation of Environmental Requirements pertaining to the
Premises and the activities thereon or to the past, present or
future operations of USC, including without limitation:
(i) damages for personal injury, or injury to
property or natural resources, including but not limited to
claims brought by or on behalf of employees of USC, occurring
upon or off of the Premises, whether foreseeable or
unforeseeable, including, without limitation, lost profits,
consequential damages, interest and penalties;
(ii) diminution in the value of the Premises and
damages for the loss of or restriction on the use of or adverse
impact on the marketing of rentable or usable space or of any
amenity of the real property containing the Premises;
(iii) fees incurred for the services of attorneys,
consultants, contractors, experts, laboratories and all other
costs and liabilities (including liabilities to
indemnify any Person for costs) incurred in connection with the
investigation or remediation of such Hazardous Materials or
violation of Environmental Requirements including, but not
limited to, the preparation of any feasibility studies or
reports or the performance of any cleanup, remedial, removal,
containment, restoration or monitoring work required by any
Governmental Authority, or reasonably necessary to make full
economic use of the Premises or any other property or otherwise
expended in connection with such conditions; and
(iv) damages and claims resulting from the off-site
disposal of Hazardous Materials which derived from the use,
generation, storage, treatment, transportation or disposal of
Hazardous Materials by USC.
"Environmental Requirements" means all Applicable Laws
relating to the protection of human health or the environment,
including, without limitation:
(i) all requirements pertaining to reporting,
licensing, permitting, investigation or remediation of emissions,
discharges, releases or threatened releases of Hazardous
Materials into the air, surface water, groundwater or land, or
relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials; and
(ii) all requirements pertaining to the protection
of the health and safety of employees or the public.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended (P.L. 93-406).
"GAAP" means generally accepted accounting principles in
the United States of America in effect from time to time, applied
consistently throughout the periods involved.
"Governmental Approval" means an authorization,
consent, approval, permit, license or exemption of, registration
or filing with, or report or notice to, any Governmental
Authority, including, without limitation, federal and New
Jersey environmental authorities.
"Governmental Authority" means any nation or
government, any state or other political subdivision thereof and
any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government, including, without limitation, any government
authority, agency, department, board, commission or
instrumentality of the United States, any State of the United
States or any political subdivision thereof and any tribunal or
arbitrator(s) of competent jurisdiction.
"Hazardous Materials" means any chemical substance:
(i) the presence of which requires investigation,
removal or remediation under any Applicable Law; or
(ii) which is or becomes defined as a "hazardous
waste" or "hazardous substance" under any Applicable Law,
including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601
et seq.) or the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.); or
(iii) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic, or
otherwise hazardous and is or becomes regulated by any
Governmental Authority or Applicable Law; or
(iv) the presence of which causes or threatens to
cause a nuisance upon the Premises or to adjacent properties or
poses or threatens to pose a hazard to the Premises or to the
health or safety of any Person on or about the Premises; or
(v) without limitation which contains gasoline,
diesel fuel or other petroleum hydrocarbons; or
(vi) without limitation which contains PCBs or
asbestos.
"IRS" means the United States Internal Revenue Service.
"Intellectual Property Rights" means any and all
copyrights, trademarks, trademark applications, service marks,
service mark applications, licensing agreements and similar
Contracts, technology, trade secrets, trade names, division
names and other information, property or rights used in or
relating to the business or operations of the Partnership or the
Transferred Assets, as more specifically set forth in Schedule
4.06 hereof.
"Inventories" means all inventories relating to the
business of the Partnership and contributed to the Partnership
including, without limitation, all finished goods, work in
progress, raw materials, stores, all production, shipping and
packaging supplies and all spare parts.
"Liens" has the meaning specified in Section 4.04.
"Material Adverse Effect" means any loss, liability or
expenditure, whether contingent or not, exceeding $10,000.00.
"Material Contract" shall have the meaning specified in
Section 4.08.
"Net Worth Statement" shall have the meaning specified
in Section 5.05.
"Notice" shall have the meaning specified in
Section 11.09.
"Partnership" has the meaning specified in the Recitals.
"Partnership Agreement" has the meaning specified in the
Recitals.
"Permitted Liens" shall have the meaning specified in
Section 4.04.
"Partnership Percentage Interest" shall have the meaning
specified in the Partnership Agreement.
"Person" means any individual, firm, partnership,
corporation, trust, estate, limited liability company, limited
liability partnership, or other entity.
"Personal Property Leases" shall have the meaning
specified in Section 4.24.
"Plan(s)" shall have the meaning specified in Section
4.11.
"Premises" means those locations leased by USC or
otherwise used thereby for the business operations of USC.
"Return" shall mean all reports, estimates,
declarations, information statements and returns due under all
foreign, federal, state or local laws or regulations, as
appropriate, relating to Taxes.
"Royalties" shall mean the dollar value of certain
royalty payments due and to become due during the six years after
the Closing Date to USC, such dollar value not to exceed
$3,000,000, as more specifically described on Schedule 4.04
hereof.
"Subsidiary" of any Person means any corporation or
other entity of which more than 50% of the outstanding capital
stock or other equity having ordinary voting power to elect a
majority of the Board of Directors or other managers of such
corporation (irrespective of whether at the time capital stock
of any other class or classes of such corporation shall or might
have voting power upon the occurrence of any contingency) or
other entity is at the time directly or indirectly owned by such
Person, by such Person and one or more of such Person's other
Subsidiaries or by one or more of such Person's other
Subsidiaries.
"Taxes" means all federal, state and local taxes,
assessments and governmental charges, of any nature, kind or
description (including, without limitation, all income taxes,
franchise taxes, withholding taxes, estimated taxes,
unemployment insurance, social security taxes, payroll taxes,
sales and use taxes, excise taxes, occupancy taxes, real and
personal property taxes, stamp taxes, transfer taxes, workers'
compensation and withholding taxes) and all interest, additions
to tax and penalties with respect thereto, whether such
interest, additions or penalties arise before or after the
Closing Date.
"Transaction Documents" shall mean the collective
reference to the Partnership Agreement, the Employment
Agreements and all other agreements and documents to be delivered
pursuant hereto or thereto on the Closing Date, in each case
with such changes as may be agreed among the parties.
"Transferred Assets" shall mean all of the assets of
USC, less any Royalties, to be contributed to the capital of the
Partnership and/or sold to the Partnership pursuant to Section
2.02 below, including without limitation the Intellectual
Property Rights, as more specifically set forth on Schedule 4.04
hereof.
"USC Capital Contribution" means the contribution by USC
to the capital of the Partnership described in Section 2.02(ii).
ARTICLE II
FORMATION OF PARTNERSHIP AND EXECUTION OF
TRANSACTION DOCUMENTS
SECTION 2.01 Formation of Partnership and Execution of
Transaction Documents. Subject to the fulfillment of the
conditions specified in Article VI of this Agreement, on the
Closing Date the parties (a) shall form the Partnership under the
terms of the Partnership Agreement, and (b) shall execute, and
cause the Partnership and its Affiliates to execute, the
Transaction Documents to which each of them is a party.
SECTION 2.02 Contributions. Subject to the
fulfillment of the conditions specified in Article VI of this
Agreement and pursuant to and in accordance with the provisions
of the Transaction Documents, on the Closing Date the parties
shall make the following initial contributions to the
Partnerships:
(i) DRS/MS shall transfer or cause to be
transferred to the capital of the Partnership, $400,000 in
readily available funds. DRS/MS shall also contribute certain
managerial expertise and manufacturing capabilities as set forth
in Schedule 2.02. The parties agree to use the aggregate of the
$400,000 contributed by DRS/MS hereunder to purchase from USC
certain assets delineated on Schedule 2.02 hereto. DRS/MS shall
prepare an allocation schedule in accordance with Section 1060 of
the Code, and the parties shall cooperate with each other and
provide such information as either of them shall reasonably
request. The parties shall each report the federal, state, local
and other Tax consequences of the purchase and sale contemplated
hereby in a manner consistent with such allocation schedule.
(ii) USC shall transfer or cause to be transferred
to the capital of the Partnership the Transferred Assets (other
than those assets delineated on Schedule 2.02 hereof), subject
only to the Assumed Liabilities, such Assumed Liabilities being
no greater than the Transferred Assets.
SECTION 2.03 Closing. (a) Upon the terms and subject
to the conditions set forth herein, the execution and delivery of
the Transaction Documents to be executed at closing and the
closing of the transactions contemplated hereby and thereby (the
"Closing") shall take place at the offices of Hannoch Weisman, a
Professional Corporation, 4 Becker Farm Road, Roseland, New
Jersey 07068-3788 (or at such different location as the parties
shall mutually agree) at such time as shall be mutually agreed
upon in writing by the parties hereto no later than February 1,
1996 (the "Closing Date"); provided, however, that all of the
conditions precedent in Article VI of this Agreement shall have
been satisfied or waived, as the case may be. All of the actions
contemplated to be taken pursuant to this Agreement on the
Closing Date and taken or occurring on such date shall be
deemed to occur simultaneously.
(b) At the Closing, the following Transaction
Documents associated with the transfer of the Transferred Assets
shall be delivered by each of the parties thereto (such
Transaction Documents hereinafter referred to as the "Asset
Transfer Documents"):
(i) Assignments substantially in the form
attached hereto as Exhibit C;
(ii) assignments and, as required, consents to
such assignments of USC's right, title and interest
under each Contract to be assigned under this Agreement
and the Partnership Agreement;
(iii) assignment in recordable form of USC's
right, title and interest in, or licenses for the use
of, the Intellectual Property Rights to be assigned or
licensed;
(iv) such other instruments of assignment or
conveyance as DRS/MS may reasonably request as
necessary or appropriate to vest in the Partnership
good and marketable title to the Transferred Assets
being contributed to the Partnership.
SECTION 2.04 Method of Payment. All payments to be
made under this Agreement and under the Transaction Documents
shall, unless otherwise specified herein or therein, be made in
lawful money of the United States and in funds immediately
available by wire transfer to the account specified by the party
to receive such payment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DRS/MS
Representations and Warranties of DRS/MS. DRS/MS
represents and warrants to USC as follows:
SECTION 3.01 Corporate Existence. DRS/MS is (or will
be, prior to the Closing Date) a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware; has all requisite power and authority to enter into
this Agreement and each Transaction Document to which it is a
party and to perform its obligations hereunder and thereunder;
and has all requisite corporate power and authority to own its
properties and assets and conduct its business as it is now being
conducted. DRS/MS is (or will be prior to the Closing Date) duly
qualified as a foreign corporation in each jurisdiction where the
nature of its activities makes such qualification necessary.
SECTION 3.02 Authority Relative to this Agreement and
Transaction Documents. The execution, delivery and performance
by DRS/MS of this Agreement and each Transaction Document to
which it is, or on the Closing Date will be, a party and the
consummation of the transactions contemplated hereby and thereby
have been duly authorized and approved by all requisite corporate
action, and no other corporate action on the part of DRS/MS is
necessary for the execution, delivery and performance by DRS/MS
of this Agreement or any Transaction Document to which it is, or
on the Closing Date will be, a party and the consummation by
DRS/MS of the transactions contemplated hereby and thereby.
Neither the execution nor the delivery by DRS/MS of this
Agreement or any Transaction Document to which it is, or on the
Closing Date will be, a party, nor the consummation by DRS/MS of
the transactions contemplated hereby or thereby, nor compliance
with nor fulfillment by DRS/MS of the terms and provisions
hereof or thereof, will (i) conflict with or result in a breach
of the terms, conditions or provisions of or constitute a default
under (A) the Certificate of Incorporation or Bylaws of DRS/MS or
(B) any lease, Contract, instrument, mortgage, deed of trust,
trust deed or deed to secure debt evidencing or securing
indebtedness for borrowed money, any financing lease, any law,
rule, regulation, judgment, order, award, decree or other
restriction of any kind to which DRS/MS is, or on the Closing
Date will be, a party or by which it is bound, (ii) require
DRS/MS to obtain the consent, approval, authorization or other
order or action of, or filing with, any court, Governmental
Authority or regulatory body, (iii) require the consent,
approval, authorization or order of any Person under, and will
not conflict with, or result in the breach, lapse or termination
of, or constitute a default under, or result in the acceleration
of the performance by DRS/MS or any Affiliate thereof under any
material lease, permit, license, Contract, mortgage, deed of
trust, trust deed, deed to secure debt, other lease, indenture or
other instrument to which DRS/MS or any Affiliate thereof is a
party or by which any of them or any of their properties are
subject, (iv) give any party with rights under any instrument,
Contract, lease, mortgage, deed of trust, trust deed, deed to
secure debt, judgment, order, award, decree or other restriction
of any kind to which DRS/MS is bound the right to terminate,
modify or otherwise change the rights or obligations of any
party under such instrument, Contract, lease, mortgage, deed of
trust, trust deed, deed to secure debt, judgment, order, award,
decree or other restriction, causing a Material Adverse Effect,
(v) require any declaration, filing or registration with any
governmental or regulatory authority by DRS/MS, or (vi) otherwise
cause a Material Adverse Effect. This Agreement has been duly
executed and delivered by DRS/MS and, together with each other
Transaction Document and other agreement and instrument required
to be delivered hereunder or thereunder by DRS/MS, when duly
executed and delivered by DRS/MS, is or will
be, as the case may be, a legal, valid and binding obligation of
DRS/MS, enforceable against DRS/MS in accordance with its
respective terms, subject as to enforcement of remedies only to
any applicable bankruptcy, insolvency, reorganization,
moratorium, and similar laws of general application at the time
in effect and general principles of equity.
SECTION 3.03 No Litigation. There is no action,
lawsuit, claim, counterclaim, proceeding, or investigation (or
group of related actions, lawsuits, claims, proceedings or
investigations) pending or, to the knowledge of DRS/MS,
threatened against or affecting DRS/MS that seeks to restrain or
enjoin the consummation of the transactions contemplated by
this Agreement or any Transaction Document.
SECTION 3.04 Full Disclosure; Materiality. No
representation or warranty by DRS/MS herein, nor any statement or
certificate furnished to USC pursuant hereto, or in connection
with the transactions contemplated hereby, contains any untrue
statement of a material fact, or omits to state a material fact
necessary to make the statements contained herein or therein, in
light of the circumstances in which they were made not materially
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF USC AND THE SHAREHOLDERS
Representations and Warranties of USC. USC and each of
the Shareholders jointly and severally represent and warrant to
DRS/MS that:
SECTION 4.01 Corporate Existence. USC is a
corporation duly organized, validly existing and in good
standing under the laws of New Jersey and has all requisite power
and authority to enter into this Agreement and each Transaction
Document to which it is a party and to perform its obligations
hereunder and thereunder; and has all requisite corporate power
and authority to own its properties and assets and conduct its
business as it is now being conducted. USC is duly qualified
as a foreign corporation in each jurisdiction where the nature
of its activities makes such qualification necessary, or where
the failure to so qualify gives rise to a reasonable possibility
of a material adverse effect.
SECTION 4.02 Authority Relative to this Agreement and
Transaction Documents; Consents. The execution, delivery and
performance by USC of this Agreement and each Transaction
Document to which it is, or on the Closing Date will be, a party
and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all requisite corporate
action, and no other corporate action on the part of USC is
necessary for the execution, delivery and performance by USC of
this Agreement or any Transaction Document to which it is, or on
the Closing Date will be, a party and the consummation by it of
the transactions contemplated hereby and thereby. Except as
disclosed on Schedule 4.02, neither the execution nor the
delivery by USC of this Agreement or any Transaction Document to
which it is, or on the Closing Date will be, a party, nor the
consummation by USC of the transactions contemplated hereby or
thereby, nor compliance with nor fulfillment by USC of the terms
and provisions hereof or thereof, will, (i) conflict with or
result in a breach of the terms, conditions or provisions of or
constitute a default under (A) the Certificate of Incorporation
or Bylaws of USC, or (B) any lease, Contract, instrument,
mortgage, deed of trust, trust deed or deed to secure debt
evidencing or securing indebtedness for borrowed money, any
financing lease, any law, rule, regulation, judgment, order,
award, decree or other restriction of any kind to which USC is a
party, or on the Closing Date will be, or by which it is bound,
(ii) require USC to obtain the consent, approval, authorization
or other order or action of, or filing with, any court,
Governmental Authority or regulatory body, (iii) require the
consent, approval, authorization or order of any Person under,
and will not conflict with, or result in the breach, lapse or
termination of, or constitute a default under, or result in the
acceleration of the performance by USC or any Affiliate thereof
under any material lease, permit, license, Contract, mortgage,
deed of trust, trust deed, deed to secure debt, other lease,
indenture or other instrument to which USC or any Affiliate
thereof is a party or by which any of them or any of their
properties are subject, (iv) give any party with rights under any
instrument, Contract, lease, mortgage, deed of trust, trust deed,
deed to secure debt, judgment, order, award, decree or other
restriction of any kind to which USC is bound the right to
terminate, modify or otherwise change the rights or obligations
of any party under such instrument, Contract, lease, mortgage,
deed of trust, trust deed, deed to secure debt, judgment, order,
award, decree or other restriction, causing a Material Adverse
Effect, (v) require any declaration, filing or registration with
any governmental or regulatory authority by USC, or (vi)
otherwise cause a Material Adverse Effect. This Agreement has
been duly executed and delivered by USC and, together with each
other Transaction Document and other agreement and instrument
required to be delivered hereunder or thereunder by USC, when
duly executed and delivered by USC, is or will be, as the case
may be, a legal, valid and binding obligation of USC,
enforceable against USC in accordance with its respective
terms, subject as to enforcement of remedies only to any applicable
bankruptcy, insolvency, reorganization, moratorium, and similar
laws of general application at the time in effect and general
principles of equity.
SECTION 4.03 No Litigation. There is no action,
lawsuit, claim, counterclaim, proceeding or investigation (or
group of related actions, lawsuits, claims, proceedings or
investigations) pending or, to the knowledge of USC, threatened
against or affecting USC that seeks to restrain or enjoin the
consummation of the transactions contemplated by this Agreement
or any Transaction Document.
SECTION 4.04 Title to Transferred Assets; Assumed
Liabilities. USC owns or has the legal right to use all of the
Transferred Assets. Schedule 4.04 hereof lists all of the
machinery, equipment, Intellectual Property Rights, furniture,
fixtures, personalty, and other items constituting the
Transferred Assets of USC. USC has good and marketable title to
all of the Transferred Assets being transferred by it, free and
clear of all liens (including environmental liens), mortgages,
deeds of trust, trust deeds, deeds to secure debt, pledges,
encumbrances, defects, security interests, restrictions,
conditional and installment sale agreements, options, easements
and other legal or equitable encumbrances and claims or charges
of any kind (collectively, "Liens"), except (a) as disclosed in
Schedule 4.04 and (b) liens for current taxes, assessments or
governmental charges not yet due and payable (the Liens referred
to in clauses (a) through (b) being "Permitted Liens"). At the
Closing, USC will deliver or cause to be delivered to the
Partnership good title to the Transferred Assets, except as
permitted or disclosed in this Section, free and clear of any
Liens. Schedule 4.04 hereof lists all of the liabilities
constituting the Assumed Liabilities of USC. Such list of
Assumed Liabilities presents fairly the nature of the liability
to be assumed by the Partnership. In the event that the general
representations and warranties contained in this Section 4.04
conflict with or render ambiguous specific representations or
warranties contained in other provisions of Article IV of this
Agreement, each other more specific provision shall govern.
SECTION 4.05 Compliance with Laws; Permits and
Licenses. (a) Except as disclosed in Schedule 4.05(a), to the best of
its knowledge USC is in compliance with all applicable statutes,
orders, rules and regulations promulgated by Governmental
Authorities (collectively, "Applicable Law") relating
to the Transferred Assets, or the operation or conduct of the
business of USC, or the use of the properties of the business of
USC, including, without limitation, any applicable statute,
order, rule or regulation relating to (i) wages, hours, hiring,
non-discrimination, promotion, retirement, benefits, pensions
and working conditions, (ii) health and safety, (iii) zoning and
building codes or municipal ordinances, violation of which would
substantially interfere with the ability of USC to operate, (iv)
the production, storage, processing, advertising, sale,
transportation, distribution, disposal, use and warranty of
products of the business of USC, (v) obligations of USC to
disabled persons, or (vi) trade and antitrust regulations, and
USC has not received any notice of alleged violation of any such
statute, order, rule or regulation. Except as disclosed in
Schedule 4.05(a), USC has not received any notice that it is in
default and is unaware of any default under or in violation of,
any applicable franchise, permit or license, its Certificate of
Incorporation or other charter document, Bylaws, any promissory
note, indenture or any evidence of indebtedness or security
therefor, lease, Contract or any other instrument to which it is
a party or by which it or any of its properties or assets is or
may be bound.
(b) Schedule 4.05(b) lists all governmental
licenses, permits, product registrations, authorizations,
approvals and indicia of authority and any pending applications
for any thereof material to the conduct of the business of USC.
Except as disclosed in Schedule 4.05(b), such licenses, permits,
product registration, authorizations, approvals and indicia of
authority are (i) all the governmental licenses, permits, product
registrations, authorizations, approvals and indicia of
authority necessary to conduct the business of USC or to use the
Transferred Assets as currently conducted or used and (ii) valid
and in full force and effect and, assuming the related consents
referenced in Section 5.02(f) have been obtained prior to the
Closing, are transferable by USC to the Partnership.
SECTION 4.06 Intellectual Property. (a) Schedule 4.06
hereof sets forth a true and complete list of all Intellectual
Property Rights for USC. The Intellectual Property Rights
constitute all such property forming a part of the business of
USC and, except as disclosed in Schedule 4.06, to the knowledge
of USC, do not conflict with or, to the knowledge of USC,
infringe on the rights of others. There is no Intellectual
Property Right necessary to operate the business of the
Partnership which is not included in the Transferred Assets.
(b) Except as disclosed in Schedule 4.06: (i) all
the Intellectual Property Rights are owned by USC or are licensed
to USC under licenses or written agreements included in the
Transferred Assets; (ii) no claims have been made and are pending
or, to the knowledge of USC, are currently threatened against USC
alleging that any services provided or products manufactured or
sold by USC, or any Intellectual Property Rights, are being
provided, sold or used in violation of any patents or trademarks,
or any other rights of any Person; (iii) USC has not granted any
license to any Person with respect to any Intellectual Property
Rights; (iv) to the knowledge of USC, no other Person is
infringing on any Intellectual Property Rights; (v) all
Intellectual Property Rights of USC are legal, valid and binding,
in full force and effect and freely and fully assignable to the
Partnership; (vi) USC has duly made punctual payments of all
royalties or fees required to be made by it under or in
connection with any Intellectual Property Right; and (vii) no
event has occurred which (with the passing of time or the giving
of notice) would result in or permit the termination of any
Intellectual Property Right or the acceleration of any obligation
thereunder without the consent of USC.
(c) Except as disclosed in Schedule 4.06, all
rights of USC in each item of the Intellectual Property Rights
are transferable to the Partnership as contemplated herein and in
the Partnership Agreement. Following the transactions
contemplated hereby, the Partnership shall own or possess
adequate and enforceable licenses or other rights to use, without
payment of any fee other than as disclosed in Schedule 4.06, all
Intellectual Property Rights.
SECTION 4.07 Litigation. Except as disclosed in
Schedule 4.07, there is no action, lawsuit, claim, counterclaim,
proceeding, or investigation (or group of related actions,
lawsuits, claims, proceedings or investigations) pending or, to
the knowledge of USC, threatened against or affecting USC in any
court, or before any federal, state, provincial, municipal or
other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, or before any arbitrator
of any kind, and as of the Closing Date USC knows of no
reasonable basis for any such action, lawsuit, claim,
proceeding, or investigation (or group of related actions,
lawsuits, claims, proceedings or investigations). USC is
not in default, and no condition exists that with notice or the
lapse of time or both would constitute a default, with respect to
any judgment, order, writ, injunction or decree of any court or
before any federal, state, provincial, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting or relating to
the business of USC. No condemnation proceeding has been
commenced or, to the knowledge of USC, is threatened to be
commenced against any of the Transferred Assets.
SECTION 4.08 Contracts. Schedule 4.08 contains a
complete and correct list as of the date hereof of all
agreements, contracts and commitments of the following types,
written or oral, to which USC is a party or by which USC or its
properties are bound as of the date hereof: (a) mortgages,
indentures, security agreements, letters of credit, loan
agreements and other agreements, guarantees and instruments
relating to the borrowing of money or extension of credit; (b)
employment, consulting, severance and agency agreements; (c)
collective bargaining agreements; (d) bonus, profit-sharing,
compensation, stock option, pension, retirement, deferred
compensation or other plans, trusts or funds for the benefit of
employees, officers, agents and directors (whether or not legally
binding); (e) sales agency, manufacturer's representative or
distributorship agreements; (f) agreements, orders or
commitments for the purchase of raw materials, supplies or
finished products exceeding $5,000; (g) agreements, orders or
commitments for the sale of its products exceeding $5,000; (h)
licenses of patent, copyright, tradenames, trademark, transfer
of technology or know how and other intellectual property
rights; (i) agreements or commitments for
capital expenditures in excess of $5,000 for any single project
(it being warranted that all undisclosed agreements or
commitments for capital projects do not exceed $10,000 in the
aggregate for all projects); (j) brokerage or finder's
agreements; (k) joint venture, partnership and development
agreements; and (1) other agreements, contracts and
commitments which in any case involve payments or receipts of
more than $5,000. USC has delivered to DRS/MS complete and
correct copies of all such written agreements, contracts and
commitments, together with all amendments thereto, and accurate
descriptions of all oral agreements listed in Schedule 4.08.
No reason exists that would not allow each such oral agreement
to be enforceable against any party to such oral agreement.
Except as disclosed in Schedule 4.08, all such agreements,
contracts and commitments governed by this Section 4.08 are in
full force and effect, are enforceable by USC against the other
parties thereto in accordance with their terms, and, except as
disclosed in Schedule 4.08, there does not exist thereunder any
violation or any default or event or condition or course of
dealing which, after notice or lapse of time or both, would
constitute a default thereunder on the part of USC so as to cause
a Material Adverse Effect or, to the best knowledge of USC after
due inquiry, any other party thereto so as to cause a Material
Adverse Effect or would provide a basis for any creditor of USC,
or any party to such agreements, contracts or commitments, to
challenge the extent, validity or priority of the interest of
any other party to such agreements, contracts or commitments so
as to cause a Material Adverse Effect; consummation of the
transactions contemplated under this Agreement and the
Transaction Documents shall not give rise to any violation or
any default or event or condition or course of dealing which,
after notice or lapse of time or both, would constitute a default
thereunder on the part of USC so as to cause a Material Adverse
Effect or, to the best knowledge of USC after due inquiry, any
other party thereto so as to cause a Material Adverse Effect or
would provide a basis for any creditor of USC, or any party to
such agreements, contracts or commitments to challenge the
extent, validity or priority of the interest of any other party
to such agreements, contracts or commitments so as to cause a
Material Adverse Effect. Except as disclosed in Schedule 4.08,
no agreement, contract or commitment to which USC is a party, or
by which it or any of its properties is bound, materially and
adversely affects or in the future may (so far as USC can now
reasonably foresee) materially and adversely affect the business
of USC. Except as disclosed in Schedule 4.08, no agreement,
contract or commitment to which USC is a party, or by which it or
any of its properties is bound, is in conflict, whether by way
of violation of any term or condition or by way of default, with
any other agreement, contract or commitment to which USC is a
party, or by which it or any of its properties is bound. All
agreements, contracts or commitments with Affiliates of USC to
which USC is a party or by which it or any of its properties is
bound reflect terms no less favorable to USC than could be
obtained from unaffiliated third parties. USC has no outstanding
powers of attorney, except routine powers of attorney relating
to representation before governmental agencies or given in
connection with qualification to conduct business in another
jurisdiction.
SECTION 4.09 Labor Union Contracts. USC is not a party
to any collective bargaining or other labor union Contract
applicable to persons employed by USC. There are no unfair
labor practice complaints or there are no current union
representation questions involving persons employed in the
business of USC. Except as disclosed on Schedule 4.09, USC
knows of no current activities or proceedings of any labor union
(or representatives thereof) to organize any unorganized
employees of USC and of no strikes, slowdowns, work stoppages,
lockouts or threats thereof, by or with respect to any employees
of USC. During the 24-month period preceding the date hereof,
there have not been any formally filed grievances involving
employees of USC.
SECTION 4.10 Employees, Labor Matters, etc.
(a) Schedule 4.10 contains a complete and
correct list of the names of all directors, officers and salaried
employees of USC. There is no payment that has not been paid for
more than 30 days past the date on which such payment would
ordinarily be made in the ordinary course of business that is
owed by USC to any of its directors, officers, employees,
trustees, agents, brokers, representatives or other personnel,
current and former, or any beneficiaries, dependents or
survivors of the foregoing (including, without limitation,
expense reimbursement and severance payments), in accordance
with the terms of their respective employment arrangements or
under their employment, severance or agency agreements, if any.
(b) Except as set forth in Schedule 4.10,
there has not been any (i) unfair labor practice complaint
against USC before the National Labor Relations Board; (ii)
labor strike, dispute, or work stoppage actually pending or, to
the best of USC's knowledge after due inquiry, threatened against
or affecting USC; (iii) representation petition respecting the
employees of USC filed with the National Labor Relations Board;
or (iv) arbitration proceeding arising out of or under
collective bargaining agreements pending against USC.
SECTION 4.11 ERISA. Schedule 4.11 lists (i) all
employee benefit plans (as defined in Section 3(3) of ERISA) and
all bonus, stock option, stock purchase, restricted stock,
incentive, deferred compensation, retiree medical, disability or
life insurance, supplemental retirement, or severance benefit
plans, programs or arrangements, and all employment, termination,
or severance contracts to which USC is a party, with respect to
which USC has any obligation, or that are maintained, contributed
to or sponsored by USC for the benefit of any current or former
employee, officer or director, (ii) each employee benefit plan
for which USC could incur liability under Section 4069 of ERISA
in the event such plan has been or were to be terminated and
(iii) any plan in respect of which USC or the Partnership could
incur liability under Section 4212(c) of ERISA (collectively, the
"Plans").
(a) Each Plan that is intended to qualify
under Section 401(a) of the Code or similar provision of foreign
law is so qualified. USC has performed all obligations required
to be performed by it by the terms of the Plans and applicable
laws, rules and regulations. USC has complied in all material
respects with all applicable laws, rules and regulations relating
to each Plan.
(b) USC has not and has no knowledge that any
other "party in interest" (as defined in Section 3(14) of ERISA)
to any Plan has engaged in any transaction with respect to any
Plan in connection with which USC or any other party in interest
could be subjected to either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code.
(c) No Plan which is a "defined benefit plan"
(as defined in Section 3(35) of ERISA) or any trust created
under any such Plan has been terminated since September 2, 1974.
No material liability to the Pension Benefit Guaranty
Corporation (the "PBGC"), other than annual premium payments, has
been or is expected by USC to be incurred by USC with respect to
any Plan. There has been no reportable event (within the meaning
of Section 4043 of ERISA), which at the time of such event
required notification within 30 days to the PBGC. There has
been no other reportable event with respect to any Plan which
could result in a liability to USC as a result thereof. There
has been no event or condition which presents a risk of
termination of any such Plan by the PBGC.
(d) Full payment has been made of all amounts
which USC is required under the terms of each Plan to have paid
as contributions to such Plan as of the last day of the most
recent fiscal year of such Plan ended prior to the date hereof
or, if later, the most recent date as of which such amount is
required to be paid under such Plan (and, with respect to any
Plan that is subject to Section 412(m) of the Code, all payments
required to be made have been paid on or before each required
installment due date (as defined in Section 412(m) of the Code)
preceding the date hereof), and, with respect to any Plan, no
accumulated funding deficiency (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived,
exists. There has been no failure to make any payment due prior
to the date hereof that is or could become a liability of USC
under Section 412(c) of the Code.
(e) The present value as of December 31, 1994
of all accrued benefits under all Plans subject to Section 412
of the Code did not, as of such date, exceed the current value of
the assets of such Plans allocable to such accrued benefits. The
terms "present value," "current value" and "accrued benefit"
have the meanings specified in Section 3 of ERISA.
(f) No Plan is a "multiemployer plan" (as
defined in Sections 3(37) and 4001(3) of ERISA) and USC has not
withdrawn or partially withdrawn from any multiemployer plan
under circumstances giving rise to a withdrawal liability under
ERISA.
(g) Neither USC nor any corporation, trade or
business under common control with USC (within the meaning of
Sections 414(b), (c), (m) or (o) of the Code) has engaged in any
transaction since January 1, 1986 described in Section 4069(a) of
ERISA.
(h) No Plan provides for the payment of any
welfare benefit (as described in Section 3(1) of ERISA) to any
former or retired employee of USC or any of its
Affiliates, except as may be required by Section 4980B
of the Code or Section 601 of ERISA.
(i) No Plan provides for the payment of
severance benefits upon termination of employment.
SECTION 4.12 Brokers' or Finders' Fees. USC has not
paid nor will become obligated to pay any fee or commission to
any broker, finder, consultant or other intermediary for or on
account of the transactions provided for in this Agreement.
SECTION 4.13 Financial Information; Undisclosed
Liabilities. (a) Attached hereto as Schedule 4.13 are copies of
the balance sheet of USC (the "USC Balance Sheet") as of December
31, 1995 (the "Balance Sheet Date"). Except as disclosed on
Schedule 4.13, the USC Balance Sheet, together with the books
and records of the business of USC, present fairly and
consistently the financial condition of the business of USC as
of the Balance Sheet Date.
(b) The books of account of USC reflect all items
of income and expense and all assets and liabilities of the
business of USC.
(c) USC has delivered to DRS/MS a copy of its
balance sheets, together with the notes thereto, as of December
31, 1992, 1993 and 1994 and the related statement of operations
and retained earnings and of cash flows for the year then ended.
Except as disclosed on Schedule 4.13, such financial statements,
together with the notes thereto, (i) are in accordance with the
books and records of USC, (ii) present fairly and consistently
the financial condition of USC as of the date thereof, (iii)
present fairly and consistently the result of operations of USC
for the periods covered by such statements, and (iv) include all
adjustments that are necessary for a fair and consistent
presentation of the financial condition of USC and the results of
USC's business operations for the periods covered by such
statements.
(d) There are no material liabilities of USC
relating to or involving any Transferred Asset of any kind
whatsoever, whether or not accrued or fixed, absolute or
contingent, determined or determinable, known or unknown, other
than liabilities (i) that comprise part of the Assumed
Liabilities, (ii) reflected on and adequately provided for in the
USC Balance Sheet attached hereto as Schedule 4.13, (iii) incurred
since the Balance Sheet Date in the ordinary course of the operation
of USC and not as a result of any violation of law or regulation which,
singly or in the aggregate, are likely to have a Material Adverse Effect,
or (iv) disclosed in Schedule 4.13.
SECTION 4.14 Taxes. (a) Except as disclosed in
Schedule 4.14, USC has duly filed all federal, state and local
Returns which are required to be filed by it prior to the date
hereof and has paid all Taxes which are shown thereon to be due
and all other Taxes imposed by law upon it or any of its
properties, assets, income, receipts, payrolls, transactions,
capital, net worth or franchises which have become due and
payable. Except as disclosed in Schedule 4.14, the Taxes
payable set forth in the USC Balance Sheet are adequate to cover
all liabilities for Taxes of USC with respect to all assets
held and activities conducted by USC on or prior to the Closing
Date, other than liabilities for Taxes incurred in the ordinary
course of business subsequent to the date of the USC Balance
Sheet and permitted by this Agreement. No tax liens have been
filed and neither the Internal Revenue Service nor any other
taxing authority is now asserting or, to the best knowledge of
USC after due inquiry, threatening to assert against USC any
deficiency or claim for additional Taxes. Except as provided
in Schedule 4.14, no Return of USC is currently under audit by
the Internal Revenue Service or by the taxing authorities of any
other jurisdiction. USC has not granted any waiver of any
statute of limitations with respect to, or any extension of a
period for the assessment of any federal, state or local Tax.
Without limiting the foregoing, USC has no knowledge of any
actual claim for any additional Tax to be imposed upon USC
for the periods ending on or prior to the Closing Date in excess
of the accruals of USC set forth in the USC Balance Sheet with
respect to Taxes. The federal, state and local tax Returns of
USC have been examined by the appropriate taxing authority, or
the statutes of limitations with respect to the relevant income
or franchise tax liability have expired, for all tax periods
through and including the tax period listed with respect to each
such jurisdiction set forth in Schedule 4.14.
(b) No consent or agreement under Section
341(f) of the Code is in effect with respect to USC.
(c) Except as provided in Schedule 4.14, USC
has not (i) agreed to and is not required to make any adjustment
under Section 481(a) of the Code or Revenue Procedure 87-32 (or
any successor thereto), by reason of a change in method of
accounting or otherwise; (ii) ever been included in a combined
or consolidated income tax return; (iii) ever owned stock
representing 50% or more of the voting power or value of another
corporation; (iv) entered into any agreement or arrangement
that could result, separately or in the aggregate, in the payment
of any "excess parachute payments" within the meaning of Section
280G of the Code; (v) consummated any transaction with another
corporation that is owned, directly or indirectly, by the
Sellers on other than an arms-length basis within the meaning of
Section 482 of the Code and the regulations thereunder; or (vi)
entered into any tax sharing agreements or similar arrangements.
(d) USC's taxable year for federal and state
income and franchise tax purposes has always been a taxable year
beginning January 1 and ending December 31.
SECTION 4.15 Absence of Changes. Since December 31,
1995 except as specified in Schedule 4.15, USC has not:
(a) undergone any adverse change in its
condition (financial or other), properties, assets,
liabilities, business, operations or prospects, other than
changes in the ordinary course of business;
(b) declared, set aside, made or paid any
dividend or other distribution in respect of its capital stock or
otherwise purchased or redeemed, directly or indirectly, any
shares of its capital stock;
(c) issued or sold any shares of its capital
stock of any class or any options, warrants or conversion or
other rights to purchase any such shares or any securities
convertible into or exchangeable for such shares;
(d) other than in the ordinary course of
business, incurred any indebtedness for borrowed money, issued
or sold any debt securities or prepaid any debt outstanding as of
[date];
(e) mortgaged, pledged or subjected to any
Lien any of its properties or assets, tangible or intangible,
except for Permitted Liens;
(f) acquired or disposed of any assets or
properties, or entered into any agreement or other arrangement
for such acquisition or disposition, except in the ordinary
course of business;
(g) forgiven or cancelled any debts or
claims, or waived any rights except in the ordinary course of
business;
(h) entered into any agreement, commitment or
other transaction other than agreements involving an expenditure
of [$5,000] or less in the aggregate and other than agreements in
the ordinary course of business, or entered into any agreement
which, pursuant to its terms, is not cancellable without
penalty on less than 30 days' notice;
(i) paid any bonus to any officer, director
or employee or granted to any officer, director or employee any
other increase in compensation in any form;
(j) adopted or amended in any material
respect, any employment, collective bargaining, bonus,
profitsharing, compensation, stock option, pension, retirement,
deferred compensation or other plan, agreement, trust, fund or
arrangement for the benefit of employees (whether or not legally
binding);
(k) suffered any damage, destruction or loss
(whether or not covered by insurance) which may have had
(individually or in the aggregate) a Material Adverse Effect;
(1) suffered any strike or other
employmentrelated problem which may have had (individually or in
the aggregate) a Material Adverse Effect;
(m) suffered any loss of employees or
customers which may have had (individually or in the aggregate)
a Material Adverse Effect;
(n) amended its certificate of incorporation
or bylaws (or comparable documents);
(o) changed in any respect its accounting
practices, policies or principles;
(p) incurred any liability or obligation
(whether absolute, accrued, contingent or otherwise and whether
direct or as guarantor or otherwise with respect to the
obligations of others), except in the ordinary course of
business;
(q) granted any rights or licenses under any
of its trademarks, tradenames or patents or entered into any
licensing or distributorship agreements; or
(r) made any material changes in policies or
practices relating to selling practices, returns, discounts or
other terms of sale or accounting therefor or in policies of
employment.
SECTION 4.16 Accounts Receivable. Except as disclosed
in Schedule 4.16, the accounts receivable reflected on the USC
Balance Sheet arose from, and the accounts receivable existing on
the Closing Date will have arisen from, the sale of Inventories
or services in the ordinary course of the businesses of USC and
constitute valid, undisputed and subsisting claims and are not
subject to valid claims, counterclaims or setoffs.
SECTION 4.17 Insurance. The business of USC and the
Transferred Assets are covered by valid and currently effective
insurance policies issued in favor of USC. Schedule 4.17
contains a list and brief description (including the name of the
insurer, the type of coverage provided, the amount of the annual
premium for the current policy period, the amount of remaining
coverage and deductibles and the coverage period) of all policies
and Contracts of insurance held by USC and/or the employees
currently or previously employed in the business of USC. Except
as disclosed in Schedule 4.17, all such policies are in full
force and effect and transferable by USC to the Partnership. All
premiums due thereon have been paid and USC and its
Affiliates have complied in all respects with the
provisions of such policies. Such policies (i) are sufficient
for compliance with all requirements of law and are
substantially consistent with all (A) Contracts to which USC is a
party and (B) leases, mortgages, deeds of trust, trust deeds and
deeds to secure debt to which USC is a party, and (ii) are
reasonable in scope and amount, in light of the risks attendant
to the businesses and activities in which USC is or has been
engaged. There is no default with respect to any provision
contained in any such policy and there has not been any failure
to give any notice or present any claim under any such policy in
a timely fashion or in the manner or detail required by the
policy. Except as disclosed in Schedule 4.17, no notice of
cancellation or non-renewal with respect to, or disallowance of
any claim under, any such policy has been received by USC,
neither has USC been refused insurance with respect to its assets
or operations, nor has its coverage been previously cancelled or
materially limited, by any insurer to which it has applied for
such insurance or with which it has held insurance.
SECTION 4.18 Sufficiency of Transferred Assets.
(a) Except as disclosed in Schedule 4.18, all of
the Transferred Assets are suitable for the uses in which they
are currently employed, are in good operating condition and are
free from any defects (subject to normal wear and tear), except
such minor defects as do not interfere with the continued use of
such properties and equipment in the conduct of the normal
operations of the business of USC, and the Transferred Assets
include supplies of spare parts for the equipment and machinery
included in the Transferred Assets in amounts consistent with
past practices of USC.
(b) None of the Transferred Assets is used by USC
or any of its Affiliates in connection with any business or
enterprise other than the business of USC.
SECTION 4.19 Foreign Assets. The Transferred Assets do
not include any interest in any real property or tangible or
intangible personal property or other assets located outside the
continental limits of the United States of America.
SECTION 4.20 Certain Payments. All payments by USC to
agents, consultants and others have been in payment of bona fide
fees and commissions and not as bribes or illegal or improper
payments. USC has complied with the Foreign Corrupt Practices
Act of 1977, as amended, and the rules and regulations thereunder
("FCPA") and, in each case, have not made any payment to or on
behalf of any person with respect to which a deduction could be
disallowed under Section 162(c) of the Code. Neither the IRS nor
any other U.S. federal, state, local or foreign government agency
or entity has initiated or threatened any investigation of any
payment made by USC of, or alleged to be of, the type described
in this Section.
SECTION 4.21 Affiliate Transactions. Schedule 4.21
contains a complete and correct list of all agreements or
arrangements (whether or not written) between USC and any
shareholder, officer, director or employee (or immediate family
member thereof) of USC currently in effect or to be performed in
the future. Other than such agreements or arrangements, if any,
or as further disclosed on Schedule 4.21, there has been no
transaction between USC and any shareholder, officer, director or
employee (or immediate family member of any thereof) of USC in
effect within the two-year period immediately preceding the date
hereof which involved payments to, or from, or for the benefit
of, any such shareholder, officer, director or employee (or
immediate family member of any thereof) (other than (a) salary
and bonus paid as part of the employment relationship for
services rendered (including directors' fees) and (b)
contributions by USC under any of its Plans). Except as set
forth in Schedule 4.21, no shareholder, officer, director or
employee (or immediate family member of any thereof) of USC owns
directly or indirectly, on an individual or joint basis, greater
than a 5% interest in, or serves as an officer, director or
employee of, any customer, competitor or supplier of USC or any
person or entity which has a contract or arrangement with USC.
SECTION 4.22 Suppliers. Except as disclosed on
Schedule 4.22, to the knowledge of USC none of the suppliers of
inventory, equipment or services of USC will cease to sell such
equipment or services to the Partnership as a result of the
transactions contemplated by this Agreement which cessation
will materially disrupt the business of the Partnership.
SECTION 4.23 Environmental Conditions and Governmental
Authorizations. Except as specified in Schedule 4.23:
(a) All real property owned, leased, occupied or
used by USC is free from contamination from any Hazardous
Materials. USC has not caused or suffered, nor, to the best
knowledge of USC after due inquiry, has any other party
previously involved in operations at any such property caused or
suffered, any Environmental Damages.
(b) Neither USC nor, to the best of its knowledge,
any prior owner or occupant of real property owned, leased,
occupied or used by USC has received notice of any alleged
violation of Environmental Requirements, or notice of any
alleged liability for Environmental Damages, and there exists no
writ, injunction, decree, order or judgment outstanding, nor any
claim, suit, proceeding, citation, fine, penalty, directive,
summons or investigation, pending or threatened, relating to the
ownership, use, maintenance or operation of the Premises by any
Person, or to alleged violation of Environmental Requirements, or
to the suspected presence of Hazardous Material thereon, nor does
there exist any basis for such claim, suit, proceeding, citation,
fine, penalty, directive, summons or investigation being
instituted or filed.
(c) There is not constructed, placed, deposited,
stored, disposed of or located on any real property owned,
leased, occupied or used by USC any polychlorinated biphenyls
("PCBs") or transformers, capacitors, ballasts, or other
equipment which contains dielectric fluid containing PCBs, or
any asbestos.
(d) USC has no knowledge of any alleged liability
for Environmental Damages of any alleged violation of
Environmental Requirements asserted against any of the owners or
occupants of any related property located in the vicinity of any
of any real property owned, leased, occupied or used by USC.
(e) USC has in its possession all permits required
to operate in compliance with all applicable laws, and USC is
presently in material compliance with each of such permits.
SECTION 4.24 Leases of Personal Property. (a) Schedule
4.24 correctly describes each lease under which USC is the lessee
of any personal property (collectively, the "Personal Property Leases").
The property described in all of the Personal Property Leases is presently
used in the businesses of USC. USC has all right, title and interest of the
lessee under the terms of all of the Personal Property Leases to which
it is a party. Other than any related consents listed in
Schedule 4.24, no consent is necessary for the assignment of any
Personal Property Lease held by USC to the Partnership.
(b) No event has occurred which (with the passage
of time or the giving of notice) would materially impair any
right of USC to exercise and obtain the benefits of any options
contained in any Personal Property Lease. There is no
substantial default or basis for acceleration or termination,
nor has any event occurred (assuming any related consent
referenced in Section 5.02(f) is obtained prior to the Closing)
which (with the passage of time or the giving of notice) would
constitute such a default or result in or permit the acceleration
of any Personal Property Lease.
SECTION 4.25 Full Disclosure; Materiality. No
representation or warranty by USC herein, nor any statement or
certificate furnished to DRS and/or DRS/MS pursuant hereto, or
in connection with the transactions contemplated hereby, contains
any untrue statement of a material fact, or omits to state a
material fact necessary to make the statements contained herein
or therein, in light of the circumstances in which they were made
and, together with the Schedules attached hereto, not materially
misleading. The Schedules attached hereto completely and
correctly present the information required by this Agreement to
be set forth therein, do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary
to make the statements contained therein, in light of the
circumstances in which they were made and, together with the
representations and warranties by USC herein, not materially
misleading. The aggregate total of any loss, liability or
expenditure, whether contingent or not, of all Material Adverse
Effects referenced in Sections 4.02, 4.08, 4.13 and 4.15 does not
exceed $25,000.00. Originals or true and complete copies of all
documents listed in such Schedules have heretofore been made
available for examination by DRS and/or DRS/MS, including,
without limitation, deeds, leases, mortgages, deeds of trust,
trust deeds, deeds to secure debt, security instruments, permits,
trademarks, patents and other Intellectual Property Rights,
litigation files, Contracts, employee agreements and licenses in
the form existing on the date hereof.
SECTION 4.26 Books and Records. USC has previously
furnished to DRS/MS true and correct copies of the Certificate of
Incorporation (or other charter document) and Bylaws of USC as in
effect on the date hereof. The minute books and stock books of
USC have been made available to DRS/MS and are correct and
complete as of the date hereof in all material respects, and will
be correct and complete at the Closing.
SECTION 4.27 Accounts. Schedule 4.27 correctly
identifies each bank account maintained by or on behalf or for
the benefit of USC and the name of each Person with any power or
authority to act with respect thereto.
ARTICLE V.
COVENANTS
SECTION 5.01 Covenants of DRS/MS. DRS/MS covenants
with USC that:
(a) Compliance with Laws. DRS/MS is in all
material respects in compliance with all laws applicable to it;
(b) Maintain Accuracy of Representations. DRS/MS
will not take or omit to take any action which would result in
the inaccuracy on the Closing Date of any of their
representations and warranties (including any and all Schedules
thereto) contained in Article III. It is expressly understood by
USC that a change in control of DRS/MS, whether by merger,
acquisition, share exchange, sale or pledge of stock or
otherwise, shall not by such change of control alone constitute a
breach of any representation or warranty or otherwise breach this
Agreement.
(c) Covenant not to Compete. Neither DRS, DRS/MS
nor their Affiliates will own, manage, operate, join or control,
or participate in the ownership, management, operation or
control of, or assist in any manner with, or be connected with
or have any interest in, as a stockholder, agent, consultant,
partner or otherwise, or have any agent as a director, officer,
or employee of, any business which develops, manufactures and/or
markets and/or sells any ultrasound medical imaging equipment (or
other medical imaging products based on the core technology
currently being used by USC) except that either DRS or its
Affiliates or DRS/MS may make passive investments in a
competitive enterprise the shares of which are publicly traded if
such investment constitutes less than one half of one percent of
the equity of such enterprise.
SECTION 5.02 Covenants of USC. USC covenants with DRS
and DRS/MS that:
(a) Compliance with Laws. USC is in all material
respects in compliance with all laws applicable to it;
(b) Maintain Accuracy of Representations. USC
will not take or omit to take any action which would result in
the inaccuracy on the Closing Date of any of their
representations and warranties (including any and all Schedules
thereto) contained in Article IV;
(c) No Shop. Until the earlier of the termination
of this Agreement in accordance with its terms or the Closing,
USC shall not directly or indirectly, through any Affiliate,
agent or otherwise, solicit, initiate or encourage the submission
of any proposal or offer from any Person relating to any
acquisition or purchase of all or (other than in the ordinary
course of business) any portion of the stock of USC or the
Transferred Assets or any business combination with USC or
participate in any negotiations regarding, or furnish to any
other Person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other
Person to do or seek any of the foregoing. USC immediately shall
cease and cause to be terminated any existing discussions or
negotiations with any parties conducted heretofore with respect
to any of the foregoing. USC shall notify DRS/MS promptly of
any such proposal or offer,
or any inquiry or contract with any Person with respect thereto,
is made and shall, in any such notice to DRS/MS, indicate in
reasonable detail the identity of the Person making such
proposal, offer, inquiry or contact;
(d) Access to Information; Confidentiality.
(i) From the date hereof to the Closing Date,
USC shall and shall cause any Affiliates, employees, auditors and
agents of USC to, afford the officers, employees and agents of
DRS and DRS/MS access during regular business hours to the
officers, employees, agents, properties, offices, plants and
other facilities, books and records of USC, and shall make
available to DRS and DRS/MS all financial, operating and other
data and information as DRS and DRS/MS, through their officers,
employees or agents, may reasonably request;
(ii) Pursuant to a Confidentiality Agreement
dated March 30, 1995, all information obtained by DRS and DRS/MS
pursuant to this Section 5.02 shall be kept confidential;
(iii) No investigation or knowledge of any
matter or condition by DRS or DRS/MS shall affect any
representation or warranty or any condition to their obligations
or any right to terminate this Agreement;
(e) Conduct of Business. Between the date hereof
and the Closing Date, without the consent of DRS/MS and except as
contemplated by the Transaction Documents, USC shall:
(i) conduct its business only in the usual,
regular and ordinary course of business consistent with past
practice;
(ii) except either in the usual, regular and
ordinary course of business and consistent with past practice or
as necessary to comply with the provisions of this Agreement,
refrain from:
(A) making any purchases, sales,
transfers, or leases of any Transferred Assets or mortgaging,
pledging or otherwise creating a security interest in, or any
encumbrance of, any of the Transferred Assets (other than
Permitted Liens);
(B) entering into any Contract, license,
or lease in relation to the business of USC or taking any other
action which would, if entered into or taken on the date hereof,
be required to be disclosed on a Schedule to this Agreement or
the Partnership Agreement;
(C) making any change in the
compensation or benefits payable or to become payable to any
employee employed by USC or making any new bonus payment or
arrangement or benefit to or with any such employee;
(D) making any changes in the customary
methods of operation of the business of USC, including
marketing, selling and pricing practices and policy; and
(E) taking any other action which would
have a material negative impact on the business of USC or on the
prospects of the business of USC;
(iii) use all reasonable efforts to preserve
its business organization intact, to keep its insurance policies
intact, to keep available the services of its present employees
and officers, and to preserve the relationships with and the
goodwill of all suppliers, customers, sales representatives and
others having business relations with USC;
(iv) maintain the Premises and all of the
other properties used in the operation of its business in
customary repair, order and condition, reasonable wear and tear
excepted, and perform all of its obligations under any leases;
(v) maintain its books, accounts and records
in connection with its business in the usual manner on a basis
consistent with past practices;
(vi) refrain from amending, modifying in any
material respect or consenting to the termination of any Material
Contract or other material contract to be transferred to the
Partnership under this Agreement and the Partnership Agreement or
USC's material rights with respect thereto;
(vii) except in the ordinary course of
business, refrain from increasing the total number of employees
employed in connection with its business; and
(viii) refrain from agreeing, whether in writing
or otherwise, to do any of the foregoing;
(f) Third Party Consents; Further Actions.
(i) USC shall use its best reasonable
efforts to obtain at the earliest practicable date after the
date hereof, and, in any event, prior to the Closing Date, all
consents of parties to Contracts contemplated by this Agreement
or any Transaction Document;
(ii) USC shall use its best reasonable
efforts to obtain, and to assist DRS/MS or the Partnership in
obtaining, all waivers, licenses, authorizations,
qualifications, orders, permits, consents and approvals
required to be obtained by it or them and to effect, and to
assist DRS/MS or the Partnership in effecting, all
registrations, filings and notices with or to third parties or
governmental or public bodies or authorities
required to be made which are necessary or desirable in
connection with the transactions contemplated by this
Agreement or any Transaction Documents;
(iii) USC shall obtain the release of all Liens
on or against any of the Transferred Assets, other than
Permitted Liens;
(g) Employee Matters. Prior to the Closing, USC
will not terminate without good business reasons, lay off or
transfer any of its employees without the consent of DRS/MS. USC
shall use its reasonable best efforts to preserve intact the
availability of such employees so as to permit the Partnership
to hire those employees as the Partnership desires, effective
upon the Closing Date. USC will not do anything to dissuade any
of the employees of USC from accepting employment with the
Partnership after the Closing;
(h) Renewal of Permits. USC shall take such steps
as are customary in the industry to file any necessary
applications for the renewals of all licenses and permits
referred to in Section 4.23 including, without limitation,
Environmental Permits, if any such license or permit is required
to be obtained prior to the Closing;
(i) Powers of Attorney. USC shall revoke all
powers of attorney relating to the Transferred Assets upon the
Closing;
(j) Notification of Certain Matters. USC shall
give prompt notice to DRS/MS of (i) the occurrence, or
non-occurrence, of any event the occurrence, or non-occurrence,
of which would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate
and (ii) any failure of USC to comply with or satisfy in any
material respect any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section shall
not limit or otherwise affect the remedies available hereunder
to the party receiving such notice;
(k) Disclosure Schedules. No later than four
weeks after the date hereof, USC shall deliver to DRS/MS complete
Schedules to this Agreement and the Transaction Documents which
are to be provided by USC together with any supporting
documentation which DRS/MS may reasonably request and, within
seven business days after receipt of such Schedules and
supporting documentation either (i) DRS/MS will accept such
Schedules in which case they shall become a part of this
Agreement and the appropriate Transaction Documents, (ii) the
parties hereto will agree upon mutually acceptable revisions to
such Schedules in which case such revised Schedules shall become
a part of this Agreement and the appropriate Transaction
Documents or (iii) DRS/MS will terminate this Agreement pursuant
to Article IX hereof.
(l) Covenant Not to Compete. Neither USC nor its
Affiliates (other than the Shareholders whose covenants not to
compete are set forth below) will own, manage, operate, join or
control, or participate in the ownership, management, operation
or control of, or assist in any manner with, or be connected
with or have any interest in, as a stockholder, agent,
consultant, partner or otherwise, or have any agent as a
director, officer, or employee of, any business which develops,
manufactures and markets any ultrasound medical imaging
equipment. Neither USC nor its Affiliates (other than the
Shareholders) will own, manage, operate, join or control, or
participate in the ownership, management, operation or control
of, or assist in any manner with, or be connected with or have
any interest in, as a stockholder, agent, consultant, partner or
otherwise, or have any agent as a director, officer, or employee
of, any business which develops, manufactures, markets, sells
and/or introduces technology or technologically based products
(whether or not based on USC's core technology) to the medical
imaging field in general except that either USC or its Affiliates
may make passive investments in a competitive enterprise the
shares of which are publicly traded if such investment
constitutes less than one half of one percent of the equity of
such enterprise.
For the period beginning on the Closing Date and ending
on the later of the third anniversary of the Closing Date or the
first anniversary of the relevant Shareholder's termination of
employment from the Partnership, neither the Shareholders nor any
of them (nor their Affiliates) will own, manage, operate, join
or control, or participate in the ownership, management,
operation or control of, or assist in any manner with, or be
connected with or have any interest in, as a stockholder, agent,
consultant, partner, director, officer, employee or otherwise:
(i) any business which develops, manufactures, markets and/or
sells any ultrasound medical imaging equipment or any product
developed, manufactured, marketed and/or sold by the Partnership
(or contemplated to be developed, manufactured, marketed and/or
sold by the Partnership in the reasonably foreseeable future);
(ii) any entity which has been or proposes to be a customer of
the Partnership during the 18 month period immediately preceding
the termination of the relevant Shareholder's employment by the
Partnership; and/or (iii) any entity which proposes to supply or
has supplied the Partnership with technologically-related
products during the 18 month period immediately preceding the
termination of the relevant Shareholder's employment by the
Partnership, except that any and all of the Shareholders may make
passive investments in a competitive enterprise the shares of
which are publicly traded if such investment constitutes less
than one half of one percent of the equity of such enterprise.
Each Shareholder additionally agrees that he shall not, directly
or indirectly, in any capacity whatsoever:
(a) hire or solicit for employment, directly
or indirectly, any Partnership personnel in any capacity
whatsoever (which shall be deemed to include, without limitation,
any existing or prospective employee of the Partnership or any
person who has been such an employee of the Partnership within
150 days prior to the Closing Date);
(b) attempt directly or indirectly, to induce
any such Partnership personnel to leave the employ of, or
discontinue such person's business association with, the
Partner-ship;
(c) solicit, directly or indirectly, any
client or account or bona fide prospective client or account of
the Partnership with which the Partnership has had good faith
discussions in connection with the sale of goods and/or services
directly or indirectly competitive with the business of the
Partnership; or
(d) interfere with, disrupt, or attempt to
disrupt, the business relationships, contractual or otherwise,
between the Partnership and any of its customers, suppliers or
employees.
SECTION 5.03 Insurance Matters. Each party agrees to
use its best efforts to assist the Partnership in arranging
insurance coverage for the business of the Partnership to be
effective upon the Closing. Such insurance shall be of the
types, in amounts and of an extent and scope at least equal to
the insurance currently covering such businesses.
SECTION 5.04 Closing Conditions. Each party agrees to
use its best efforts to satisfy the conditions precedent to
Closing specified in Article VI.
SECTION 5.05 Net Worth Statements. Promptly after the
execution of this Agreement, USC and DRS/MS shall prepare a
mutually agreed upon balance sheet (the "Preliminary Balance
Sheet") of USC in accordance with GAAP as of December 31, 1995,
and, based on the Preliminary Balance Sheet, shall prepare a Pro
Forma Statement of Net Worth of the Partnership as of December
31, 1995 (the "Preliminary Pro Forma Net Worth Statement"). The
Preliminary Pro Forma Net Worth Statement shall reflect
agreed-upon adjustments to the net worth of USC as reported in
the Preliminary Balance Sheet and shall eliminate any assets or
liabilities included in the USC Balance Sheet, other than the
Transferred Assets and Assumed Liabilities, as herein defined.
As soon as practicable after the Closing, and in any event no
more than 60 days after the Closing Date, USC will prepare, and
DRS/MS will internally review, a final statement of net worth of
the Partnership as of the most recent date practicable prior to
the Closing (the "Final Pro Forma Net Worth Statement"). All
physical inventories in connection with the Final Pro Forma Net
Worth Statement shall be taken as near as practicable to the
Closing Date. The Final Pro Forma Net Worth Statements shall be
prepared in a manner that is consistent with the preparation of
the Preliminary Pro Forma Net Worth Statement. To the extent
that the Final Pro Forma Net Worth Statements reflects that
Assumed Liabilities are greater than Transferred Assets (a
"deficit"), then for each dollar of such deficit, the
Partnership shall have the option of either reducing on a
dollar-for-dollar basis the Assumed Liabilities, or reducing any
monetary payments, whether or not then due, to the Shareholders
[and/or USC] on a present value basis, or choosing any
combination of such two options so as to eliminate such deficit.
ARTICLE VI.
CONDITIONS PRECEDENT TO THE CLOSING
SECTION 6.01 Conditions Precedent to Obligations of
DRS/MS. The obligation of DRS/MS to make the DRS/MS Capital
Contribution and to perform its other obligations hereunder and
under the Transaction Documents is subject to the satisfaction
or waiver of the conditions precedent that:
(a) Documents. DRS/MS shall have received on or
before the Closing Date the following, each dated the Closing
Date, in form and substance satisfactory to DRS/MS:
(i) counterparts of each of the following
Transaction Documents duly executed and, to the extent
appropriate, acknowledged by all appropriate parties
other than DRS/MS and its affiliates, together with all
documents to be delivered to DRS/MS thereunder on the
Closing Date:
(1) the Partnership Agreement;
(2) the Employment Agreements; and
(3) the Asset Transfer Documents
referred to in Section 2.03(b);
(ii) a Certificate of USC, signed on behalf of
USC by the President or a Vice President and the
Secretary or any Assistant Secretary (the statements
made in which Certificate shall be true on and as of the
Closing Date), certifying fulfillment of the conditions
specified in subsections (b) and (c) below;
(iii) copies of resolutions of the board of
directors and the shareholders of USC, certified by the
Secretary of USC, authorizing the execution, delivery
and performance of this Agreement and the Transaction
Documents and all other documents and instruments to be
delivered pursuant hereto and thereto; and
(iv) opinion of counsel to USC, substantially
in the form attached as Exhibit D.
(b) Representations and Warranties. The
representations and warranties of USC contained in this
Agreement, as modified by any Schedules delivered by USC
pursuant to Section 5.02(k) hereof, shall be true and correct in
all material respects on the date hereof and as of the Closing
Date with the same effect as though such representations and
warranties had been made or given again at and as of the Closing
Date, except for any representation and warranty expressly
stated to have been made or given as of a specified date, which,
at the Closing Date, shall be true and correct in all material
respects as of the date expressly stated.
(c) Performance. USC shall have performed and
complied in all material respects with all of their respective
agreements, covenants and conditions required by this Agreement
and each Transaction Document to be performed or complied with
by them prior to or at the Closing Date.
(d) No Material Adverse Change. Since the date of
the Balance Sheet there shall not have occurred an event or
condition which has resulted or which reasonably may be expected
to result in a Material Adverse Effect.
(e) Net Worth. Assumed Liabilities shall not
exceed Transferred Assets as reflected on the Preliminary Balance
Sheet and as reflected on the Partnership's Pro Forma Net Worth
Statement (prior to taking into account the DRS/MS Capital
Contribution).
(f) Consents, etc. All notices to, and
declarations, filings and registrations with, and consents,
approvals and waivers from governmental and regulatory agencies
required to consummate the transactions contemplated hereby and
all consents, approvals and waivers from third parties required
to have been obtained in connection with the transactions
contemplated by this Agreement and the Transaction Documents
shall have been obtained prior to Closing; provided, however,
that USC may have the consent of Independence Bank ("USC
Obligee") contingent upon the pay off on the Closing Date by USC
of a certain loan from USC Obligee to USC upon presenting
evidence of such contingent consent in form and substance
satisfactory to DRS/MS prior to the Closing Date and upon
presenting evidence of such pay off in form and substance
satisfactory to DRS/MS at the time of Closing.
(g) No Proceeding or Litigation.
(i) No preliminary or permanent injunction or
other order shall have been issued by any court of competent
jurisdiction, whether federal, state or foreign, or by any
governmental or regulatory body, whether federal, state or
foreign, nor shall any statute, rule, regulation or executive
order promulgated or enacted by any governmental authority,
whether federal, state or foreign, be in existence or effect,
which prevents the consummation of the transactions contemplated
by this Agreement or any Transaction Document.
(ii) No suit, action, claim, proceeding or
investigation before any court, arbitrator or administrative,
governmental or regulatory body or authority, whether federal,
state or foreign, shall have been commenced and be pending
against either DRS/MS, USC or any of their respective
Affiliates, associates, officers or directors seeking to
prevent the consummation of the transactions contemplated by
this Agreement or any Transaction Document or asserting that
such transactions would be illegal.
(h) Licenses; Permits. All operating licenses and
permits necessary for the operation of the businesses of USC as
conducted on the Closing Date (including, without limitation,
Environmental Permits) to the extent transferable shall have been
transferred by USC to the Partnership as of the Closing Date, or
new permits issued in replace thereof, at the expense of the
Partnership.
(i) Other. DRS/MS shall have received such
further assurances and documents as it may reasonably request.
SECTION 6.02 Conditions Precedent to Obligations of
USC. The obligations of USC to perform its other obligations
hereunder and under the Transaction Documents are subject to
satisfaction or waiver of the conditions precedent that:
(a) Documents. USC shall have received on or
before the Closing Date the following, each dated the Closing
Date, in form and substance satisfactory to USC:
(i) counterparts of each of the following
Transaction Documents duly executed and, to the extent
appropriate, acknowledged by all appropriate parties, together
with all documents to be delivered thereunder on the Closing
Date, all in form and substance reasonably satisfactory to USC:
(1) the Partnership Agreement;
(ii) a Certificate of DRS/MS, signed on behalf
of DRS/MS by the President or a Vice President and the Secretary
or any Assistant Secretary of DRS/MS (the statements made in
which Certificate shall be true on and as of the Closing Date),
certifying as to the fulfillment of the conditions specified in
subsections (b) and (c) below;
(iii) copies of resolutions of the board of
directors of DRS/MS, certified by the Secretary of DRS/MS
authorizing the execution, delivery and performance of this
Agreement and the Transaction Documents to which each is a party
and all other documents and instruments to be delivered pursuant
hereto and thereto; and
(iv) opinion of counsel to DRS/MS,
substantially in the form attached as Exhibit E.
(b) Representations and Warranties. The
representations and warranties of DRS/MS contained in this
Agreement shall be true and correct in all material respects on
the date hereof and as of the Closing Date with the same effect
as through such representations and warranties had been made or
given again at and as of the Closing Date, except for any
representation or warranty expressly stated to have been made or
given as of a specified date, which, at the Closing Date, shall
be true and correct in all material respects as of the date
expressly stated.
(c) Performance. DRS/MS shall have performed and
complied in all material respects with all of its agreements,
covenants and conditions required by this Agreement and each
Transaction Document to be performed or complied with by it
prior to or at the Closing Date.
(d) Consents, etc. All notices to, and
declarations, filings and registrations with, and consents,
approvals and waivers from, governmental and regulatory agencies
required to consummate the transactions contemplated hereby and
all consents, approvals and waivers from third parties required
to have been obtained in connection with the transactions
contemplated by this Agreement and the Transaction Document shall
have been obtained prior to Closing.
(e) No Proceeding or Litigation.
(i) No preliminary or permanent injunction or
other order shall have been issued by any court of competent
jurisdiction, whether federal, state or foreign, or by any
governmental or regulatory body, whether federal, state or
foreign, nor shall any statute, rule, regulation or executive
order promulgated or enacted by any governmental authority,
whether federal, state or foreign, be in existence or effect,
which prevents the consummation of the transactions contemplated
by this Agreement or any Transaction Document.
(ii) No suit, action, claim, proceeding or
investigation before any court, arbitrator or administrative,
governmental or regulatory body or authority, whether federal,
state or foreign, shall have been commenced and be pending
against either DRS/MS or USC or any of their respective
Affiliates, associates, officers or directors seeking to prevent
the consummation of the transactions contemplated by this Agreement
or any Transaction Document or asserting that such transactions would
be illegal.
(f) DRS/MS Capital Contributions. The
Partnerships shall have received the DRS/MS Capital
Contributions in accordance with the terms of the Partnership
Agreement.
(g) Other. USC shall have received such further
assurances and documents as it may reasonably request.
ARTICLE VII.
[Intentionally Omitted]
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.01 Survival of Representations and
Warranties. The representations and warranties of USC and DRS/MS shall
survive the Closing for a period of three years from the Closing
Date, provided however, that representations and warranties in
Section 4.14 shall survive 90 days following expiration of the
period during which claims may be pursued in respect of such
matters pursuant to the applicable statute of limitations; and
provided further that there shall be no temporal limitation of
indemnification in respect of representations and warranties set
forth in Section 4.04 (as such representations and waranties of
Section 4.04 relate to Transferred Assets but not to Assumed
Liabilities).
SECTION 8.02 Indemnification by the Parties. Except as
otherwise limited by this Article, each of the Partnership and
its respective partners, officers, directors, employees, agents,
successors and assigns (each an "Indemnified Party") shall be
indemnified and held harmless by DRS/MS, on the one hand, and
each of USC and the Shareholders on the other hand, (each an
"Indemnifying Party") for any and all liabilities, losses,
damages, claims, costs and expenses, interest, awards,
judgments and penalties (including, without limitation,
reasonable legal costs and expenses and environmental
engineering consultants' fees) actually suffered or incurred by
the Indemnified Party (hereinafter a "Loss"), actually arising
out of or resulting from:
(a) the breach of any representation or warranty
by the Indemnifying Party contained herein or contained in any of
the Transaction Documents; or
(b) the breach of any covenant or agreement by the
Indemnifying Party contained herein or contained in any of the
Transaction Documents;
provided, however, that except for any Loss or Losses
attributable to a breach of any representation or warranty under
Section 4.04 (as such representations and waranties of Section
4.04 relate to Transferred Assets but not to Assumed Liabilities)
and/or Section 4.14 (the indemnification of which shall be
unlimited in amount), the aggregate amount of any Loss or Losses
recoverable hereunder by an Indemnified Party from USC and/or the
Shareholders shall be limited to the total of (i) the
$1,200,000.00 in total bonus payments paid or payable to the
Shareholders pursuant to the Employment Agreements ("Bonus
Payments"), plus (ii) the amount of any Royalties not yet paid
at the time the claim for indemnification is made ("Unpaid
Royalties"), plus (iii) any interest or interests in the
Partnership held by USC, the Shareholders and/or their
successors in interest, and provided further that the aggregate
amount of any Loss or Losses sought to be recovered hereunder by
an Indemnified Party from all Indemnifying Parties must exceed
$5,000.00 except for any Loss or Losses attributable to a breach
in any representation or warranty contained in Section 4.14 or
Section 4.04. In satisfying the indemnification obligations of
the Shareholders and/or USC hereunder, the Indemnified Party
agrees to offset any Loss or Losses: (i) first against Bonus
Payments; (ii) if there are no or insufficient Bonus Payments
remaining against which to offset such Loss or Losses, then such
Loss or Losses shall be offset against any Unpaid Royalties due
to be paid within six (6) months of a claim for indemnification;
(iii) if there are no or insufficient Bonus Payments or Unpaid
Royalties, then such Loss or Losses shall be satisfied by
surrender of an appropriate portion of the Shareholder's and/or
USC's interest in the Partnership (or by offset against any
amounts due pursuant to Section 7.6 of the Partnership
Agreement), and (iv) if the indemnification obligations remain
unsatisfied pursuant to clauses (i) - (iii) above, then USC
and/or the Shareholders shall satisfy any Loss or Losses by
payment of cash.
SECTION 8.03 General Indemnification Provisions. An
Indemnified Party shall promptly give the Indemnifying Party
notice of any matter which an Indemnified Party has determined
has given or could give rise to a right of indemnification under
this Agreement, stating the amount of the Loss, if known, and
method of computation thereof, all with reasonable particularity
and containing a reference to the provisions of this Agreement
in respect of which such right of indemnification is claimed or
arises. The obligations and liabilities of an Indemnifying
Party under this Article with respect to Losses arising from
claims of any third party that are subject to the indemnification
provided for in this Article ("Third Party Claims") shall be
governed by and contingent upon the following additional terms
and conditions: if an Indemnified Party shall receive notice of
any Third Party Claim, the Indemnified Party shall give the
Indemnifying Party prompt notice of such Third Party Claim and
shall permit the Indemnifying Party, at its option, to
participate in the defense of such Third Party Claim by counsel
of its own choice and at its expense. If, however, the
Indemnifying Party acknowledges in writing its obligation to indemnify
the Indemnified Party hereunder against any Losses that may result from
such Third Party Claims (subject to the limitations set forth herein), then
the Indemnifying Party shall be entitled, at its option, to
assume and control the defense of such Third Party Claim at its
expense and through counsel of its choice if it gives prompt
notice of intention to do so to the Indemnified Party. In the
event the Indemnifying Party exercises its right to undertake the
defense against any such Third Party Claim as provided above, the
Indemnified Party shall cooperate with the Indemnifying Party in
such defense and make available to the Indemnifying Party, at the
Indemnifying Party's expense, all witnesses, pertinent records,
materials and information in its possession or under its control
relating thereto as is reasonably required by the Indemnifying
Party. Similarly, in the event the Indemnified Party is,
directly or indirectly, conducting the defense against any such
Third Party Claim, the Indemnifying Party shall cooperate with
the Indemnified Party in such defense and make available to it
all such witnesses, records, materials and information in its
possession or under its control relating thereto as is reasonably
required by the Indemnified Party. No such Third Party Claim,
except the settlement thereof which involves the payment of money
only and for which the Indemnified Party is totally indemnified
by the Indemnifying Party, may be settled by the Indemnifying
Party without the written consent of the Indemnified Party (which
consent shall not be unreasonably withheld). Similarly, no Third
Party Claim which is being defended in good faith by the
Indemnifying Party shall be settled by the Indemnified Party
without the written consent of the Indemnifying Party (which
consent shall not be unreasonably withheld).
SECTION 8.04 Materiality. Notwithstanding anything in
this Agreement to the contrary, for purposes of application of
the indemnity provisions of this Article, the amount of any Loss
arising from the breach of any representation, warranty, covenant
or agreement shall be the entire amount of any Loss incurred by
the respective Indemnified Party as a result of such breach and
not just that portion of the Loss that exceeds the relevant level
of materiality.
ARTICLE IX.
TERMINATION
SECTION 9.01 Termination of Agreement. This Agreement
may be terminated at any time prior to the Closing:
(a) By mutual written consent of DRS/MS and USC; or
(b) By either DRS/MS or USC, if the Closing shall
not have occurred on or before February 29, 1996; or
(c) By either DRS/MS or USC if any court of
competent jurisdiction (whether federal, state or foreign) or any
governmental body or agency (whether federal, state or foreign)
shall have issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement or any Transaction
Document, and such order, decree, ruling or other action shall
have become final and nonappealable; or
(d) By DRS/MS if DRS/MS has not received the
Schedules and supporting documentation described in Section
5.02(k) on or before four weeks after the date hereof; or
(e) At any time before the Closing Date, by DRS/MS
if, at any time in the course of its legal, accounting,
financial, operational or environmental due diligence
investigation as to the Transferred Assets, the business of USC
and the liabilities thereof (whether disclosed, undisclosed,
direct, indirect, absolute, contingent, secured, unsecured,
accrued or otherwise, whether known or unknown) including,
without limitation, its continuing review of the Disclosure
Schedules delivered by USC and any other materials delivered to
DRS/MS, whether prior or subsequent to the date hereof, it shall
have become aware of any facts or circumstances that materially
and adversely effect the basis upon which DRS/MS determined to
enter into the transactions contemplated hereby.
SECTION 9.02 Procedure and Effect of Termination. In
the event of termination of this Agreement by either or both of
the parties pursuant to Section 9.01, written notice thereof
shall forthwith be given to the other party specifying the
provision hereof pursuant to which such termination is made and
this Agreement shall forthwith become void and there shall be no
liability on the part of the parties hereto (or their respective
officers, directors or affiliates), except nothing herein shall
relieve either party from liability for any willful breach hereof
and except that the provisions of the Confidentiality Agreement
entered into by USC and DRS on March 30, 1995 and the provisions
of Section 11.02 dealing with payment of expenses shall survive
such termination. The parties shall consult with each other
before any public announcement of the termination, or of
discussions regarding the termination, of this Agreement is
made.
ARTICLE X.
RESOLUTIONS OF DISPUTES
SECTION 10.01 Notice of Dispute. All disputes,
without exception, between the parties to the Agreement arising
hereunder, or under any other Agreement among any of such
parties not expressly disclaiming the use of this process, shall
be settled by means of alternative dispute resolution as provided in the
New Jersey Alternative Procedure for Dispute Resolution Act, N.J.S.A.
2A:23A-1, et seq., as in effect on the date of this Agreement,
(the "Act") upon written notice given by any party to the other
(the "Dispute Notice"), and to the umpire hereafter established.
Except to the extent required by law, the proceedings under the
Act shall be confidential and shall not be disclosed or discussed
with persons not parties to this Agreement without the consent of
all parties to the dispute. In the event a party to a dispute
may suffer irreparable harm or injury, such party shall have the
ability to seek provisional remedies, including but not limited
to injunctive relief and other equitable remedies, to the fullest
extent permitted by law pending completion of the process
provided under this Article X.
SECTION 10.02 Umpires. (a) Within thirty (30) days
after the Dispute Notice is given, the parties shall select three
(3) umpires from among the persons listed in Subparagraphs (1)
through (4) below in the order of priority listed below, i.e., if
a person meeting the requirements of Subparagraph (1) is not able
or willing to serve, a person meeting the requirements of
Subparagraph (2) shall be selected, and so forth. In addition to
meeting the requirements of Subparagraph (1), (2), (3) or (4)
below, the umpires must also satisfy the requirements described
in Subparagraphs (b) and (d) below. A potential umpire is:
(1) Any retired judge of a United States
District Court or a United States Circuit Court of Appeals;
(2) Any retired judge of any State Superior,
Appellate or Supreme Court;
(3) Any attorney licensed to practice law for
more than fifteen (15) years or certified public accountant who
has been certified for more than fifteen (15) years; and, in
either case, who has either directly or indirectly, no conflict
of interest; or
(4) Such other person upon whom the members
of the selecting group agree.
(b) In addition to the requirements described in
Section 10.02 (a) above, the umpires selected hereunder must:
(1) Be free of any potential for bias or
conflict of interest with respect to either of the parties
hereto, directly or indirectly or by virtue of any direct or
indirect financial interest, family relationship or close
friendship; and
(2) Be in a position to immediately hear the
dispute and thereafter render a resolution within the time
specified in Section 10.07 below.
(c) If the umpires are not selected within the
period of time specified in Section 10.02(a) above, DRS/MS, on
the one hand, and USC, on the other hand, each shall promptly
select an umpire which umpires shall select a third umpire who
shall be the sole umpire. If the parties fail to so select
umpires pursuant to the foregoing provisions within twenty (20)
days after the expiration of the period described in Section
10.02(a), the sole umpire shall be selected by the Chief Judge of
the United States District Court for the District of New Jersey
or, if the Chief Judge is unable or unwilling to act, by the
Chief Judge of the Southern District of New York or the President
of the Bar Association of the City of New York. Such selection
shall be in accordance with the requirements of Sections
10.02(a) and 10.02(b) above. The umpire to be selected pursuant
to this Section 10.02(c) must be designated within thirty (30)
days after the expiration of the period described in Section
10.02(a) above.
(d) Anything to the contrary herein
notwithstanding, the following persons are not eligible to be an
umpire under this Article: a party to this Agreement or any
affiliate thereof; an employee or co-employee or any party to the
dispute; or any person having material or undisclosed, financial
or personal interests dependent on the success or failure of any
of the parties.
(e) An umpire shall disqualify himself if he is
unable to handle the process promptly so as to render a
resolution within a reasonable time, in no event to exceed
forty-five (45) days after final testimony and/or briefs and in
all events not to extend beyond six months from the date the
umpire is chosen, or such longer period to which the parties to
the dispute and the umpire may agree.
SECTION 10.03 Time and Place of Alternative
Resolution. The alternative resolution shall be held at such place as the
umpire may determine within Essex County, New Jersey or such
other location to which the parties may agree, to commence not
later than ten (10) days after the umpire has been determined in
accordance with Section 10.02.
SECTION 10.04 Fees. All fees and expenses (including
transcripts, room rental and fees of the umpire) of alternative
dispute resolution, shall be paid as follows: 25% by the party
or parties served with the Dispute Notice and 25% by the
person(s) serving the Dispute Notice, with the remaining 50%
allocated 10% to the prevailing party (or parties) and 40% to
the non-prevailing party (or parties), as determined by the
umpire (if the umpire does not determine a prevailing party then
pro-rata to each of the material parties to the dispute as
determined by the umpire) provided that the umpire shall have the
right to order that such fees be paid in a different percentage
if any of the parties has acted in bad faith (in which case he
may shift the others' shares to the bad faith party(ies)). The
fees payable to the umpire shall be his usual hourly rates for
consulting or dispute resolution services, as the same may be in
effect from time to time. Each party shall pay its own legal fees,
costs and disbursements.
SECTION 10.05 Discovery. Each party shall be entitled
to discovery by way of oral deposition, inspection and copying of
all relevant documents within the care, custody or control of a
party or a witness, and when authorized by the umpire, by way of
interrogatories. All discovery shall be complete within
forty-five (45) days of the appointment of the umpire. All
documents to be relied upon by any party to the proceeding shall
be provided to the others no later than two weeks before the
hearing date for the proceedings. The time periods for discovery
may be extended by the umpire for good cause, provided that he is
able to meet the time requirement of Section 10.07.
SECTION 10.06 Provisional Remedies. When appropriate
under applicable New Jersey substantive and procedural law, the
umpire shall have full and complete authority to award
provisional relief, on an ex parte basis or otherwise.
SECTION 10.07 Time and Method for Resolution. The
umpire shall make the award and serve notice thereof upon all
parties within six (6) months of the date the umpire is
designated, or such longer period to which the parties to the
dispute and the umpire may agree. If the umpire fails to make
his decision in accordance with substantive law, or to properly
apply the facts to the law, the umpire's award will be deemed to
have been procured by "undue means" and "beyond his power." Any
party may apply to court in accordance with the Act to have the
umpire's decision confirmed, reviewed, modified, affirmed or
remanded to the umpire with directions.
SECTION 10.08 Act and Agreement Govern. Except as
otherwise provided herein, the Act shall govern the procedures
and methods for any Alternative Dispute Resolution undertaken
pursuant to this Agreement. Except as expressly provided above,
the umpire may not modify the provisions of this Article. Except
as expressly provided to the contrary above, and to the extent
otherwise not inconsistent with this Agreement and the Act,
proceedings under this Article, including efforts to mediate the
dispute, shall be governed by the "Rules for Non-Administered
Arbitration of Business Disputes" as adopted by the Center for
Public Resources, Inc., New York (originally developed 1989 and
amended 1993).
ARTICLE XI.
MISCELLANEOUS
SECTION 11.01 Taxes. Each party shall pay any and all
stamp and other taxes payable or determined to be payable by it
in connection with the execution and delivery of this Agreement
and the other documents to be delivered by it hereunder, and
agrees to save the other party harmless from and against any and
all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes.
SECTION 11.02 Expenses. Whether or not the
transactions contemplated in this Agreement are consummated,
DRS/MS, on the one hand, and USC, on the other hand, shall each
pay its own expenses incident to this Agreement and the
Transaction Documents and in preparing to consummate the
transactions provided for herein and therein.
SECTION 11.03 Consents. Whenever this Agreement
requires or permits consents by or on behalf of any party hereto,
such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as specified in
Section 11.07.
SECTION 11.04 Assignment. This Agreement and all of
the provisions hereof shall be binding upon and inure to the
benefit of, and be enforceable by, the parties hereto and their
respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations herein
shall be assigned by either party without the prior written
consent of the other party.
SECTION 11.05 Entire Agreement. This Agreement, the
other documents referred to herein or delivered pursuant hereto
which form a part hereof and other writings of even date
herewith, together with the Transaction Documents and other
writings referred to therein or delivered pursuant thereto,
contain the entire understanding of the parties with respect to
the subject matter hereof. This Agreement supersedes all prior
agreements with respect to the subject matter hereof, including
that Letter of Intent dated July 21, 1995.
SECTION 11.06 Amendment. This Agreement may not be
amended except by an instrument in writing signed by DRS/MS and
USC.
SECTION 11.07 Waiver. Except as otherwise provided in
this Agreement, any failure of any of the parties to comply with
any obligation, covenant, agreement or condition herein may be
waived by the party entitled to the benefit thereof only by a
written instrument signed by the party granting such waiver, but
the failure to insist upon strict compliance with such
obligation, representation, warranty, covenant, agreement or
condition shall not operate as a waiver of or estoppel with
respect to said compliance and such failure shall not operate as
a waiver of or estoppel with respect to any subsequent or other
failure.
SECTION 11.08 Headings. The Article and Section
headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of
this Agreement.
SECTION 11.09 Notices. All notices, claims,
certificates, requests, demands and other communications
hereunder will be in writing and will be deemed to have been duly
given when personally delivered, telexed, sent by facsimile
transmission (with telephone confirmation) or on the date of
receipt or refusal indicated on the return receipt if mailed
(registered or certified mail, postage prepaid, return receipt
requested) as follows:
(a) If to DRS/MS:
DRS/MS, Inc.
138 Bauer Drive
Oakland, New Jersey 07436
Attn.: Mr. John V. Giordano
with a copy to:
Hannoch Weisman
A Professional Corporation
4 Becker Farm Road
Roseland, NJ 07068-3788
Attn.: Nina Laserson Dunn, Esq.
(b) If to USC:
Universal Sonics Corporation
31 Industrial Avenue
Mahwah, New Jersey 07430
Attn.: Mr. Ron Hadani, Chief Executive
Officer
with a copy to:
Riker, Danzig, Scherer, Hyland & Perretti
Headquarters Plaza
One Speedwell Avenue
Morristown, New Jersey 07962
Attn.: Robert Fischer III, Esq.
(c) If to a Shareholder:
To the Shareholder at the address of such
Shareholder set forth at the beginning of this
Agreement.
or to such other address as the person to whom notice is to be
given may have previously furnished to the other in writing in
the manner set forth above.
SECTION 11.10 LAW GOVERNING. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW JERSEY, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE
GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
DRS/MS AND USC HEREBY CONSENT TO AND GRANT ANY APPROPRIATE COURT
OF THE STATE OF NEW JERSEY JURISDICTION OVER THE PERSON OF SUCH
PARTIES AND OVER THE SUBJECT MATTER OF ANY SUCH DISPUTE AND AGREE
THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY
SUCH ACTION OR PROCEEDING IN SUCH MANNER AS MAY BE PERMITTED BY
LAW SHALL BE VALID AND SUFFICIENT SERVICE THEREOF.
SECTION 11.11 Counterparts. This Agreement may be
executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which when
taken together shall constitute one and the same agreement.
SECTION 11.12 Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic substance
of the transactions contemplated hereby is not affected in any
manner adverse to any party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their respective officers thereunto
duly authorized as of the date first above written.
ATTEST: UNIVERSAL SONICS CORPORATION
By: By:
Title: Its:
ATTEST: DRS/MS, INC.
By: By:
Title: Its:
RON HADANI
HOWARD FIDEL
THOMAS S. SOULOS
Section 5.01(c) of this Agreement
is acknowledged and agreed to by
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
By:_______________________________
Name:
Title:
GUARANTY
For ONE DOLLAR and other good and valuable consideration,
Diagnostic/Retrieval Systems, Inc. (the "undersigned" or "DRS")
guarantees to each of Universal Sonics Corporation ("USC"), Ron
Hadani ("Hadani"), Howard Fidel ("Fidel") and Thomas Soulos
("Soulos") (each of USC, Hadani, Fidel and Soulos, an "obligee")
prompt payment when due of all sums required to be paid by
DRS/MS, INC. ("DRS/MS") under Section 2.02(i) of the above Joint
Venture Agreement, under Section 7.6 of the Partnership Agreement
between DRS/MS and USC, and under Section 3.1(b) of each of the
Employment Agreements with Hadani, Fidel and Soulos, all of which
agreements are dated as of the Closing Date (collectively, the
"Obligations"). In the event of a default by DRS/MS in payment
of any Obligation which may be due and payable, and following a
thirty (30) day period in which DRS/MS may cure such default,
such unpaid Obligation shall become due and payable by DRS
hereunder. The undersigned hereby agrees that this is a
continuing guaranty which shall bind the undersigned until such
time as all of the Obligations due and payable to the obligees
have been paid.
ATTEST: DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
__________________________ By:_______________________________
Name: Name:
Secretary Title:
JOINT VENTURE AGREEMENT
By and Among
DRS/MS, INC.,
UNIVERSAL SONICS CORPORATION,
RON HADANI,
HOWARD FIDEL,
and
THOMAS S. SOULOS
DATED: FEBRUARY 6, 1996
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS ............................... 2
SECTION 1.01 Certain Defined Terms ...... 2
ARTICLE II. FORMATION OF PARTNERSHIP AND
EXECUTION OF TRANSACTION DOCUMENTS ........ 7
SECTION 2.01 Formation of Partnerships
and Execution of Trans-
action Documents ........... 7
SECTION 2.02 Contributions .............. 7
SECTION 2.03 Closing .................... 7
SECTION 2.04 Method of Payment .......... 8
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF
DRS/MS ................................... 8
SECTION 3.01 Corporate Existence ........ 8
SECTION 3.02 Authority Relative to
this Agreement and
Transaction Documents ...... 9
SECTION 3.03 No Litigation .............. 10
SECTION 3.04 Full Disclosure;
Materiality ................ 10
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
OF USC AND THE SHAREHOLDERS ............... 10
SECTION 4.01 Corporate Existence ........ 10
SECTION 4.02 Authority Relative to this
Agreement and Transaction
Documents; Consents ........ 10
SECTION 4.03 No Litigation .............. 12
SECTION 4.04 Title to Transferred
Assets; Assumed
Liabilities ................ 12
SECTION 4.05 Compliance with Laws;
Permits and Licenses ....... 12
SECTION 4.06 Intellectual Property ...... 13
SECTION 4.07 Litigation ................. 14
SECTION 4.08 Contracts .................. 14
SECTION 4.09 Labor Union Contracts ...... 16
SECTION 4.10 Employees, Labor Matters,
etc. ....................... 16
SECTION 4.11 ERISA ...................... 16
SECTION 4.12 Brokers' or Finders'
Fees ....................... 18
SECTION 4.13 Financial Information; Un-
disclosed Liabilities ..... 18
SECTION 4.14 Taxes ...................... 19
SECTION 4.15 Absence of Changes ......... 20
SECTION 4.16 Accounts Receivable ........ 21
SECTION 4.17 Insurance .................. 22
SECTION 4.18 Sufficiency of Transferred
Assets ..................... 22
SECTION 4.19 Foreign Assets ............. 22
SECTION 4.20 Certain Payments ........... 23
SECTION 4.21 Affiliate Transactions ..... 23
SECTION 4.22 Suppliers .................. 23
SECTION 4.23 Environmental Conditions
and Governmental
Authorizations ............. 23
SECTION 4.24 Leases of Personal
Property ................... 24
SECTION 4.25 Full Disclosure;
Materiality ................ 25
SECTION 4.26 Books and Records .......... 25
SECTION 4.27 Accounts ................... 25
ARTICLE V. COVENANTS ................................. 25
SECTION 5.01 Covenants of DRS/MS ........ 25
SECTION 5.02 Covenants of USC ........... 26
SECTION 5.03 Insurance Matters .......... 31
SECTION 5.04 Closing Conditions ......... 31
SECTION 5.05 Net Worth Statements ....... 31
ARTICLE VI. CONDITIONS PRECEDENT TO THE CLOSING ....... 32
SECTION 6.01 Conditions Precedent to
Obligations of DRS/MS ...... 32
SECTION 6.02 Conditions Precedent to
Obligations of USC ......... 34
ARTICLE VII. [Intentionally Omitted] ................... 36
ARTICLE VIII. INDEMNIFICATION ........................... 36
SECTION 8.01 Survival of Representa-
tions and Warranties ...... 36
SECTION 8.02 Indemnification by the
Parties .................... 36
SECTION 8.03 General Indemnification
Provisions ................. 37
SECTION 8.04 Materiality ................ 38
ARTICLE IX. TERMINATION ............................ 38
SECTION 9.01 Termination of Agreement ... 38
SECTION 9.02 Procedure and Effect of
Termination ................ 39
ARTICLE X. RESOLUTIONS OF DISPUTES ................... 39
SECTION 10.01 Notice of Dispute .......... 39
SECTION 10.02 Umpires .................... 40
SECTION 10.03 Time and Place of
Alternative Resolution .... 41
SECTION 10.04 Fees ....................... 41
SECTION 10.05 Discovery .................. 42
SECTION 10.06 Provisional Remedies ....... 42
SECTION 10.07 Time and Method for
Resolution ................. 42
SECTION 10.08 Act and Agreement Govern ... 42
ARTICLE XI. MISCELLANEOUS ............................. 42
SECTION 11.01 Taxes ...................... 43
SECTION 11.02 Expenses ................... 43
SECTION 11.03 Consents ................... 43
SECTION 11.04 Assignment ................. 43
SECTION 11.05 Entire Agreement ........... 43
SECTION 11.06 Amendment .................. 43
SECTION 11.07 Waiver ..................... 43
SECTION 11.08 Headings ................... 43
SECTION 11.09 Notices .................... 44
SECTION 11.10 LAW GOVERNING .............. 45
SECTION 11.11 Counterparts ............... 45
SECTION 11.12 Severability ............... 45
PARTNERSHIP AGREEMENT
OF
DRS MEDICAL SYSTEMS
THIS AGREEMENT, dated as of the 6th day of February,
1996, is by and between DRS/MS, Inc., a Delaware corporation
("DRS/MS"), and UNIVERSAL SONICS CORPORATION, a New Jersey
corporation ("USC").
RECITALS
A. USC and DRS/MS desire to form a general partnership
(the "Partnership") for the purpose of developing, manufacturing
and marketing low cost, high performance ultrasound medical
imaging equipment and products that perform three-dimensional
ultrasound medical imaging (the "Business") and engaging in other
such related activities necessary or appropriate to effect the
Business.
B. In connection with the formation of the
Partnership, USC and DRS/MS wish to set forth their respective
rights and obligations as partners thereof.
NOW, THEREFORE, in consideration of the mutual covenants
set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, USC
and DRS/MS agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 Terms. When used in this Agreement, the following
terms will have the meaning set forth below:
(a) "Act" shall mean the New Jersey Uniform
Partnership Law, N.J.S.A. 42: 1-1 et seq., as amended from time
to time.
(b) "Affiliate" shall mean, when used with
reference to a specified Person, (i) any Person that directly or
indirectly through one or more intermediaries controls or is
controlled by or is under common control with the specified
Person or (ii) any Person that is an executive officer or
director of, partner in, or trustee of, or serves in a similar
capacity with respect to, the specified Person or of which the
specified Person is an officer, partner or trustee, or with
respect to which the specified Person serves in a similar
capacity; and, (iii) when used with reference to a natural
Person, any Person that is related to the specified Person by
blood or marriage in the first degree of consanguinity;
provided, however, that no natural Person shall be deemed to be
controlled by any other Person.
(c) "Agreement" shall mean this Partnership
Agreement entered into between USC and DRS/MS, as amended from
time to time.
(d) "Bank" shall have the meaning specified in
Section 6.2 to this Agreement.
(e) "Business" shall have the meaning specified in
the recitals to this Agreement.
(f) "Capital Account" shall have the meaning
specified in Section 4.3 to this Agreement.
(g) "Capital Contributions" shall have the meaning
specified in Sections 4.1 and 4.2 of this Agreement.
(h) "Code" shall mean the Internal Revenue Code of
1986, as amended.
(i) "Documents" shall have the meaning specified
in Section 6.1 to this Agreement.
(j) "Document Holding Period" shall have the
meaning specified in Section 8.6 to this Agreement.
(k) "Executive Committee" shall have the meaning
specified in Section 3.1 of this Agreement.
(l) "Fiscal Year" shall mean the twelve-month
period ending March 31 of each year.
(m) "Joint Venture Agreement" shall mean that
certain Joint Venture Agreement dated as of February 6, 1996 by
and among USC, Ron Hadani, Howard Fidel, and Thomas Soulos on the
one hand and DRS/MS on the other, as the same may be amended from
time to time in accordance with the terms thereof.
(n) "Partner" shall mean USC or DRS/MS.
(o) "Partnership" shall have the meaning specified
in the recitals to this Agreement.
(p) "Partnership Account" shall mean a detailed
statement of receipts, disbursements, costs, assets, liabilities
and all other relevant financial matters of the Partnership
prepared in accordance with generally accepted accounting
principles.
(q) "Person" shall mean any individual, firm,
partnership, corporation, trustee or other entity.
(r) "Partnership Percentage Interest" shall have
the meaning specified in Section 2.2 of this Agreement.
(s) "United States Partnership Tax Returns" shall
have the meaning specified in Section 6.3 to this Agreement.
ARTICLE 2.
FORMATION OF THE PARTNERSHIP
2.1 Formation. USC and DRS/MS hereby enter into and
form a general partnership pursuant to the Act for the specific
purposes and scope set forth herein. Except as set forth herein,
the rights and obligations of the parties hereto and the
Partnership shall be governed by the Act. To the maximum extent
permitted by law, if there is a conflict between the Act and the
provisions hereof, this Agreement shall control.
2.2 Partners. Each Partner shall contribute cash or
assets to the capital of the Partnership in accordance with
Article 4 hereof. Each of the Partner's interest in the
Partnership (the "Partnership Percentage Interest") shall be:
DRS/MS 90%
USC 10%
2.3 Name. The name of the business and the affairs of
the Partnership shall be conducted under the name DRS Medical
Systems or under such other name or names as the Executive
Committee may from time to time determine.
2.4 Principal Place of Business. The principal place
of business of the Partnership shall be located at 31 Industrial
Avenue, Mahwah, New Jersey 07962, or such particular place or
places as the Executive Committee may from time to time designate
or establish.
2.5 Purposes and Scope. Subject to the provisions of
this Agreement, the purpose of the Partnership is to form a
general partnership between USC and DRS/MS for the purposes of
conducting the Business of the Partnership and engaging in such
other related activities necessary or appropriate to effect the
Business.
2.6 Formation Documents. The Partnership shall execute
and file any assumed or fictitious name certificate or
certificates and any other documents required by law, including
without limitation an application for a federal employer
identification number, to be filed in connection with the
formation and operation of the Partnership.
2.7 No Individual Authority. No Partner, acting alone,
shall have any authority to act for, or to undertake or assume
any obligation, debt, duty or responsibility on behalf of, any
other Partner except as expressly otherwise provided in this
Agreement, nor shall any Partner, acting alone, have the power to
bind the Partnership except as expressly provided in this
Agreement.
2.8 Property Interests. A Partner's interest in the
Partnership shall be personal property for all purposes. All
real and other tangible and intangible property owned by the
Partnership shall be deemed to be owned by the Partnership as an
entity and no Partner individually shall have any ownership
interest in or possessory right to any of such property.
2.9 Limits of the Partnership. The relationship
between and among the parties to this Agreement shall be limited
to the specific purposes of the Partnership described herein.
Except as otherwise contemplated by the Joint Venture Agreement,
this Agreement has no relation to any operations conducted by
either of the parties as separate corporate entities or to the
joint operations of either with other parties or to any other
joint operations, if any, between the parties.
ARTICLE 3.
MANAGEMENT OF THE PARTNERSHIP
3.1 Executive Committee. (a) In order to facilitate
the disposition of all matters and questions in connection with
the administration and performance of the Business on behalf of
the Partnership, an Executive Committee shall be created. Except
as otherwise expressly provided herein, the management of the
Partnership shall be the obligation of and rest exclusively with
the Executive Committee, which shall have all the rights and
powers as are necessary, advisable, or convenient to the
management of the business and affairs of the Partnership.
DRS/MS shall appoint two representatives to serve on the
Executive Committee to act in its interests with full and
complete authority and to act on its behalf in all matters
connected with, arising out of or related to the Partnership,
and to act for and bind DRS/MS in any and all matters involving
the Business of the Partnership. USC shall appoint one
representative (the "USC Representative") to serve on the
Executive Committee to act in its interests with
full and complete authority and to act on its behalf in all
matters connected with, arising out of or related to the
Partnership, and to act for and bind USC in any and all matters
involving the Business of the Partnership. USC shall also
appoint one ex officio representative to serve on the Executive
Committee. Such ex officio representative shall have no
authority to act on behalf of USC in any matters connected
with, arising out of or related to the Partnership, and shall
have no authority to act for and bind USC in any matters
involving the Business of the Partnership, provided, however,
that such ex officio representative will act in place and in
stead of the USC Representative with all the authority of the USC
Representative, including without limitation the authority to
bind USC, when the USC Representative is absent from, or
otherwise not represented at, any meeting of the Executive
Committee. The appointed representatives for each Partner shall
be as follows:
DRS/MS
John Giordano
Paul Casner
USC
Ron Hadani, the USC Representative
Howard Fidel, ex officio representative
Either party may at any time and from time to time
change its representative(s) by notifying the other party, in
writing, of the appointment of a new representative or
representatives, but until such appointment and notice, the
actions of the respective representatives shall be conclusively
binding on that party to the Partnership.
(b) The representatives on the Executive Committee
shall meet from time to time as may be necessary or desirable to
act on matters pertaining to the Business and the management of
the Partnership. The representatives of either party shall have
the power to call such meetings (which may be by telephone) when
necessary in their opinion to conduct the affairs of the
Partnership, or when requested by the other party. The
representative who calls the meeting shall give the other
representatives three (3) days written notice of said meeting
unless the other representatives waive such notice requirement.
The presence of at least a majority of the members of the
Executive Committee shall constitute a quorum of the Executive
Committee authorized to transact the business thereof. Whenever
the USC Representative is present at any meeting, whether in
person, by telephone or by proxy, the ex officio representative
shall not be counted in determining the presence of a quorum,
shall not have the power to vote and is not considered a member of the
Executive Committee for any purpose. Each member of the Executive Committee
shall have one vote. Action by the Executive Committee shall be taken
upon the affirmative vote of not less than a majority of the
members of the Executive Committee then in office, except as
required under Section 4.2 of this Agreement. Any member of the
Executive Committee may participate in and be present at a
meeting either in person or by conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear one another. Any action
which is required or permitted hereunder to be taken at a meeting
of the Executive Committee may be taken without a meeting,
without prior written notice and without a vote, if a consent in
writing, specifying the action so taken, shall be signed by not
fewer than the minimum number of members of the Executive
Committee necessary to authorize or take such action at a
meeting at which all members of the Executive Committee were
present and voted.
(c) The Executive Committee shall have the right
to delegate all or any of its duties hereunder and, in
furtherance of any such delegation, to appoint, employ, or
contract with any Person it may in its sole discretion deem
necessary or desirable for the transaction of the Business of
the Partnership which Persons may, under the supervision of the
Executive Committee, administer the day-to-day operations of the
Partnership; may serve as the Partnership's advisors and
consultants in connection with decisions made by the Executive
Committee; may act as consultants, accountants, correspondents,
attorneys, brokers, escrow agents, or in any other capacity
deemed by the Executive Committee necessary or desirable; may
investigate, select, and, on behalf of the Partnership, conduct
relations with Persons acting in such capacities and may pay
appropriate reasonable fees to, and enter into appropriate
contracts with, or employ, or retain services performed or to be
performed by, any of them in connection with the business of the
Partnership; may perform or assist in the performance of such
administrative or managerial functions necessary in the
management of the Partnership as may be agreed upon by the
Executive Committee; and may perform such other acts or services
for the Partnership as the Executive Committee may approve.
3.2 Indemnification. The Partnership shall indemnify
and hold harmless each member of the Executive Committee against
all losses, costs and expenses (including court costs and
reasonable attorneys' fees) arising out of or incurred as a
result of any act or omission performed or omitted by any member
of the Executive Committee in connection with the performance of
its obligations under, or pursuant to the authority granted to it
by, this Agreement and by the provisions of the Joint Venture
Agreement, except for any such loss, cost or expense which
arises out of or results from the Executive Committee's or such
member's gross negligence, willfully fraudulent or dishonest
conduct, bad faith or breach of an express provision of this
Agreement (under circumstances in which such breach has not been
consented to in writing by the Partners). Said indemnification shall extend
only to the value of the Partnership's assets and neither Partner
shall be jointly or severally liable for the indemnification of
any loss, cost or expense that exceeds the value of the
Partnership's assets at that time. Neither Partner shall be
required to make Additional Capital Contributions pursuant to
Section 4.4 for the purposes of indemnification.
3.3 Officers. The following persons shall serve as the
initial senior management (the "Officers") of the Partnership:
John Giordano
Ron Hadani
Howard Fidel
Thomas Soulos
Gaetana Kopchinsky
The Officers shall be responsible for implementing the
decisions of the Executive Committee and for conducting the
ordinary and usual business and affairs of the Partnership. The
Officers shall be subject to the direction of the Executive
Committee.
ARTICLE 4.
CAPITAL CONTRIBUTIONS
4.1 Initial Capital Contribution of the Partners.
(a) Upon and subject to the terms and conditions
hereof, the Partners shall contribute to the Partnership at
formation the cash, assets and liabilities shown in respect of
each on Schedule 4.1. Each shall have such amount credited to
its Capital Account.
(b) As to the initial capital contribution of USC, in
the event, in accordance with Section 5.05 of the Joint Venture
Agreement, that the Final Pro Forma Net Worth Statement reflects
that Assumed Liabilities are greater than Transferred Assets (a
"deficit"), as all of such terms are defined under the Joint
Venture Agreement, then for each dollar of such deficit, the
Partnership shall have the option of either reducing on a
dollar-for-dollar basis the Assumed Liabilities, or reducing any
monetary payments, whether or not then due, to the Shareholders
(as defined in the Joint Venture Agreement) and/or to USC on a
present value basis, or may choose any combination of such two
options so as to eliminate such deficit.
4.2 Additional Capital Contributions. The Executive
Committee, after discussion of the advisability of so doing, may
from time to time require additional capital contributions from
the Partners in connection with the reasonable business needs of
the Partnership, provided, however, that no such capital
contributions shall be required or made by any Partner or its
Affiliates during the first four years of this Agreement without
the consent of all the parties hereto. In the event capital
contributions are so required and appropriately consented to, the
Executive Committee shall provide written notice (which notice
shall set forth the aggregate additional capital
contributions called for, the amount to be contributed by each
Partner (which shall be proportional to each Partner's
Partnership Percentage Interest), the bank account in which such
contribution is to be deposited and the date on which the capital
contribution is to be made) to each Partner no less than 30 days
prior to the date on which such additional capital contribution
is to be made. Thereupon, each Partner shall, on the date on
which such additional capital contributions are to be
made as set forth in such notice, make the additional capital
contribution to the Partnership required to be made by such
Partner. If either Partner shall fail to timely make such
additional capital contribution, then the other Partner shall
either make its capital contribution in the form of a loan or may
seek additional capital from a third party or an Affiliate.
4.3 Capital Accounts. Except as provided in the
Transaction Documents (as defined in the Joint Venture Agreement)
to the contrary, the Partnership shall maintain a Capital Account
(so defined) for each Partner pursuant to the provisions of
Treasury regulations promulgated pursuant to Section 704(b) of
the Code.
ARTICLE 5.
ALLOCATIONS, DISTRIBUTIONS AND INTERESTS
5.1 Allocation of Net Income or Net Loss. (a) For each
Fiscal Year of the Partnership, except as provided in Section
5.1(c) below, any net income or any net loss of the Partnership
shall be allocated among the Partners in accordance
with the Partnership Percentage Interests then in effect.
(b) All determinations of "net income" and "net
loss" shall be made on the basis described in the Treasury
Regulations promulgated pursuant to Section 704(b) of the Code.
(c) Notwithstanding Section 5.1(a) above, any
amortization or depreciation deduction attributable to the assets
purchased from USC, pursuant to Section 2.02 of the Joint Venture
Agreement, shall be allocated one hundred (100%) percent to
DRS/MS.
5.2 Distributions. The Executive Committee may, in its
sole discretion and from time to time, make distributions to the
Partners in proportion to their Partnership Percentage Interests.
A Partner may request a distribution to satisfy federal and/or
state tax liabilities by certifying to the Partnership the amount
of such Partner's actual tax liability.
5.3 DRS/MS Management Services. DRS/MS shall provide
certain management and administrative services to the Partnership
pursuant to a Management Agreement. Subject to the determination
of the Executive Committee, the Partnership will reimburse DRS/MS
for these management and administrative services provided to the
Partnership. The Partnership will compensate DRS/MS for such
services in the manner set forth in such Management Agreement.
ARTICLE 6.
BOOKS AND RECORDS; BANK ACCOUNTS; TAX RETURNS; LOANS
6.1 Books and Records. The Executive Committee shall
keep or cause to be kept at the office of the Partnership as
separate Partnership Accounts the books and records of the
Partnership, setting forth a true, accurate and complete account
of all business transactions with respect to the Partnership's
business, as are usually maintained by persons engaged in similar
businesses, including a fair presentation of all income,
expenditures, assets and liabilities thereof. Each Partner and
its authorized representatives shall have the right at all
reasonable times to have access to, inspect, audit and copy the
Partnership's books and records including, but not limited to,
original books, records, files, vouchers, cancelled checks,
employment records, bank statements, bank deposit slips, bank
reconciliations, cash receipts and disbursement records, and
other documents (the "Documents").
6.2 Bank Accounts. All funds of the Partnership shall
be deposited into such general account at a bank determined by
the Executive Committee (the "Bank") in the name of the
Partnership, to be maintained by the Executive Committee. The
Bank shall be authorized to make payments against checks
executed by persons authorized to make payments against checks
drawn on said account. All income arising from operations of the
Partnership shall be deposited in said general account, and all
payments and disbursements shall be made from said general
account; provided, that the Executive Committee may establish
other bank accounts with such banks as it determines shall be
necessary and proper for the efficient operation and management
of the Partnership's activities. Idle funds in the various bank
accounts of the Partnership shall be invested in interest bearing
short term certificates of deposit, bank repurchase agreements
(REPOs), government securities and similar instruments or such
other instruments as may be approved from time to time by the
Executive Committee; interest earned shall be for the benefit of
the Partnership.
6.3 Tax Returns. At the end of each fiscal year, or as
soon thereafter as practicable, the Executive Committee shall
prepare or cause to be prepared on behalf of the Partnership a
United States Partnership Information Tax Return and such other
tax returns as are required of partnerships under the applicable
federal, state and local laws, ordinances and/or regulations,
and, upon the Executive Committee's review and approval, such tax
returns shall be filed on a timely basis with the appropriate
governmental authorities.
6.4 Loans. Subject to the provisions of Sections 4.2
and 7.7, any Partner may lend money to the Partnership or
otherwise transact business with the Partnership under terms and
conditions approved by the Executive Committee.
ARTICLE 7.
TRANSFERS OF INTERESTS IN PARTNERSHIP
7.1 Prohibited Transfers. Except (i) as agreed to by
the parties hereto, (ii) as permitted by this Article 7 or the
Transaction Documents, (iii) pursuant to the provisions of the
Joint Venture Agreement, or (iv) when sold, transferred,
assigned, or conveyed to a DRS/MS Affiliate, no
Partner may sell, transfer, assign, convey, or subject to a
security interest or otherwise charge or encumber all or any part
of its Partnership Percentage Interest in the Partnership (either
voluntarily or by operation of law, including the sale or
transfer of a controlling interest in the Partner (or its direct
or ultimate parent) in question) unless approved by the Executive
Committee, and any act in violation of this Article 7 shall be
null and void ab initio (a "Prohibited Transfer").
(a) In the event of a Prohibited Transfer, as
defined above, such offending Partner shall be deemed to have
offered its Partnership Percentage Interest in the Partnership to
the other Partner for the Capital Account value of such
Partnership Percentage Interest. The non-offending Partner
shall have twenty (20) days after it learns of a Prohibited
Transfer to elect to purchase such Interest at such Capital
Account value.
(b) In the event the non-offending Partner shall
purchase the Partnership Percentage Interest of an offending
Partner on account of this Section 7.1, the closing of such
transaction of purchase and sale shall take place at 10:00 a.m.
at the Partnership's principal office ten (10) business days
after the option to purchase is exercised by the other Partner.
(c) At the closing, the purchasing Partner shall
pay 10% of the purchase price in cash and the balance in the form
of a promissory note attached as Exhibit A, such note to bear
interest at the prime rate then in effect at the Bank and to be
payable in equal monthly installments over five (5) years.
7.2 USC Affiliate Transfer. USC may sell, transfer,
assign, or convey all or any part of its Partnership Percentage
Interest in the Partnership to Ron Hadani, Howard Fidel and/or
Thomas Soulos (each a "USC Successor Individual") pro rata in
accordance with their interests in USC and/or to any entity (a
"USC Successor Entity"), provided such USC Successor Entity is
owned wholly by Ron Hadani, Howard Fidel and/or Thomas Soulos pro
rata in accordance with their interests in USC (each of the above
USC Successor Individual and USC Successor Entity, a "USC
Successor"), provided that any such USC Successor execute this
Agreement pursuant to Section 7.10 hereof. With the prior
written consent of DRS/MS, each of Ron Hadani, Howard Fidel
and/or Thomas Soulos may transfer all or part of their respective
interests in the Partnership to one another or to entities wholly
owned by them, although not necessarily pro rata in accordance
with their interests in USC.
7.3 Right of Sale and First Refusal.
(a) If any Partner or any liquidator, receiver,
trustee in bankruptcy or similar authority having control over a
Partner or its assets receives a bona fide offer from an
independent, unrelated, non-Affiliated third party person or
entity ("third party") for the purchase of all or any portion of
its Partnership Percentage Interest, which offer must comply with
the provisions of Section 7.3(b) below and which offer the
receiving Partner desires and intends to accept, or if any
Partner (or a representative thereof as aforesaid) desires to
enter into any contract to sell, transfer, assign, or convey all
or any portion of its Partnership Percentage Interest to a third
party, which contemplated contract must comply with the
provisions of Section 7.3(b):
(i) the Partner (or representative thereof)
desiring to accept such offer or enter into such contract
("Movant") shall give written notice to the other Partners other
than Movant or any Affiliate of Movant ("Respondent") of all the
terms, provisions, and conditions with respect to such offer,
including a copy of the proposed offer or contract and the items
required by Section 7.3(b)(iv), and Movant shall offer to sell to
Respondent Movant's Partnership Percentage Interest which is the
subject of such offer or contract (the "Offered Interest") on the
same terms, provisions, and conditions as are set forth in such
offer or contract.
(ii) Respondent shall have a period of
forty-five (45) days from the date of its receipt of the written
notice from Movant to accept such offer on the same terms,
provisions, and conditions stated in such written notice, which
acceptance must be in writing and be received by Movant prior to the
expiration of such forty-five (45) day period. Any purported
acceptance made orally shall be ineffective, and any purported acceptance
which varies the terms of such offer shall be deemed a rejection thereof for
all purposes. If Respondent accepts such offer in accordance with
the foregoing provisions, Respondent shall be bound to purchase
the Offered Interest in accordance with such offer or contract,
and Movant shall be bound to sell the Offered Interest on the
terms and conditions set forth in Movant's written notice except
that the purchase price paid by Respondent to Movant shall be net
of any loans or other indebtedness, including accrued interest,
created under the terms of this Agreement, owed by Movant to
Respondent. In the event there is more than one Respondent,
those desiring to purchase the Offered Interest of Movant, shall
be entitled to purchase a pro rata portion (based on the
respective Partnership Percentage Interests of the Respondents
desiring to purchase) of Movant's Offered Interest. The closing
of the purchase by Respondent shall be held at the time and place
specified in the written notice from Movant, or such later date
as is mutually agreed to by Respondent and Movant, but in no
event shall closing take place earlier than seventy-five (75)
days from the date of receipt by Respondent of the written notice
from Movant.
(iii) In the event Respondent delivers written
notice of rejection to Movant, or in the event Respondent fails
to accept the offer in the manner required by Section 7.3(a)(ii)
hereof, the offer made by Movant shall be deemed to have been
rejected by Respondent, and Movant shall be free to sell,
transfer, assign, or convey such interest in the Partnership to
the third party on the terms, provisions, and conditions set
forth in the written notice to Respondent or other terms and
conditions not less favorable to Movant; provided, however, that
such purchaser, transferee or assignee shall not become a Partner
unless and until it agrees to abide by Section 7.10 hereof.
(iv) In the event that such transaction is not
consummated as provided in Section 7.3(a)(iii) hereof on or
before sixty (60) days after the closing date specified in the
notice from Movant to Respondent, or, in the event any terms and
provisions of such transaction are changed following a
rejection by Respondent in a manner which renders such terms less
favorable to Movant, no sale, transfer, assignment, or conveyance
of such Offered Interest of the Partnership may be made unless
the provisions of this Section 7.3(a) are again complied with.
(v) In the event that such transaction is
consummated as provided in Section 7.3(a)(iii) hereof, the
purchaser shall become a new Partner in the Partnership, under
the terms and provisions of this Agreement, together with all of
the rights, duties, and obligations pertaining thereto and
allocable to the Offered Interest so purchased including the
rights and restrictions contained in this Article 7 with respect
to subsequent sales of any Partnership Percentage Interest.
(b) Movant shall not be entitled to exercise its
rights under Section 7.3(a) above with respect to any offer to
purchase or offer to sell its Partnership Percentage Interest
unless such an offer complies with the following requirements:
(i) the proposed purchase price (which shall
be net of any Partnership debts or liabilities which the proposed
purchaser will assume) is payable solely in lawful money of the
United States and, if not payable in its entirety in cash, under
no circumstances may payment of the deferred portion of the
proposed purchase price be secured by any charge, encumbrance or
hypothecation of a Partnership Percentage Interest or any
property of the Partnership;
(ii) the offer contains provisions whereby the
proposed third party purchaser is obligated to comply with the
provisions of Section 7.3(a)(iii) prior to or at closing;
(iii) it is an offer by or to a principal,
identified in the offer, and not an agent acting on behalf of an
undisclosed principal, and such principal shall not be a Person
with respect to which Movant has any direct or indirect ownership
or control;
(iv) the prospective third party purchaser
shall provide to Respondent (x) reasonable evidence of its
business character, reputation, and financial capacity to carry
out all obligations of a Partner under this Agreement and all
related agreements, which shall include the audited financial
statements of such prospective purchaser for the two (2) most
recent fiscal years of such prospective purchaser, and (y) a
statement signed by such prospective purchaser to the effect that
(1) such purchaser is a principal acting for its own account and
not as an agent acting on behalf of an undisclosed principal and
(2) such principal is not a Person with respect to which Movant
has any direct or indirect ownership or control or is otherwise
an Affiliate of Movant.
7.4 Specific Performance. It is expressly agreed that
the remedy at law for breach of any of the obligations set forth
in Section 7.3 is inadequate in view of (i) the complexities and
uncertainties in measuring the actual damages that would be
sustained by reason of the failure of a Partner to comply fully
with each of said obligations, and (ii) the uniqueness of the
Partnership business and the Partnership relationship.
Accordingly, each of the aforesaid obligations shall be, and is
hereby expressly made, enforceable by specific performance. If
the purchasing Partner is not in default under the obligations
set forth in Section 7.3 and the selling Partner refuses or fails
to consummate the sale to the purchasing Partner the selling
Partner shall have no further rights under this Agreement with
respect to the Offered Interest being so purchased with the exception of the
right to receive the purchase price due and payable under Section
7.3.
7.5 Termination of Obligations. As of the effective
date of any transfer not prohibited hereunder by a Partner of its
Partnership Percentage Interest, such Partner's rights and
obligations hereunder shall terminate as to the Partnership
Percentage Interest transferred, except as to items accrued as of
such date and except as to any indemnity obligations of such
Partner attributable to acts or events occurring prior to such
date. Thereupon, except as limited by the preceding sentence,
this Agreement shall terminate as to the transferring Partner
with respect to the Partnership Percentage Interest transferred.
In the event of a transfer of all or a portion of its Partnership
Percentage Interest by a Partner to the other Partner, the
Partner to whom such interest is transferred shall indemnify,
defend and hold harmless the transferring Partner from and
against any and all claims, demands, losses, liabilities,
expenses, actions, lawsuits and other proceedings, judgments,
awards, and costs and expenses (including reasonable attorneys'
fees) incurred in or arising, directly or indirectly, in whole or
in part, out of operation of the business of the Partnership and
allocable to the Partnership Percentage Interest transferred,
excluding only those liabilities, if any, accruing prior to the
date of such transfer.
7.6 USC Put.
(a) Notwithstanding anything herein to the contrary, at
any time following the fourth anniversary of the execution of
this Agreement but prior to the sixth anniversary of the
execution of this Agreement, USC or a USC Successor (whether a
USC Successor Individual or a USC Successor Entity) shall have
the right to demand that DRS/MS purchase the entire Partnership
Percentage Interest of USC or such USC Successor at a price
equal to the fair market value of such Partnership Percentage
Interest.
(b) Prior to such fourth anniversary, USC or a USC
Successor Entity shall have the right to demand that DRS/MS
purchase one third (1/3) of the USC initial Partnership
Percentage Interest at a price equal to the fair market value
thereof, and a USC Successor Individual shall have the right to
demand that DRS/MS purchase the Partnership Percentage Interest
he owns, but in no event in excess of a three and one third
percent (3 1/3%) interest in the Partnership, at a price equal
to the fair market value thereof, provided, however, that such
demand correspond with the involuntary termination (including
death or disability) as an employee of the Partnership of any of
Ron Hadani, Howard Fidel or Thomas Soulos, to whomever of them
such Partnership Percentage Interest relates, any such
termination to be for a reason other than the involuntary
termination for cause under such employee's Employment Agreement
dated of even date herewith.
(c) For purposes of this Section fair market value
shall be determined by an independent appraiser mutually agreed
upon by DRS/MS and the party exercising the put. In the event
the parties cannot agree mutually upon such an appraiser, then
each party shall select an independent appraiser and such
appraisers together shall select a third independent appraiser.
Such third independent appraiser or such mutually agreed upon
independent appraiser shall determine the fair market value of
such Partnership Percentage Interest. The decision of such
appraiser shall be binding on the parties, absent willful
misconduct or negligence by such appraiser.
(d) The written demand by USC (or a USC Successor)
shall also state a proposed date upon which the sale will be
consummated, which proposed date shall be no fewer than 90 days
following receipt of the written demand by the other Partner or
Partners. The other Partner or Partners may change such proposed
date of sale to another date within ten (10) business days of
such USC proposed date. To the extent that the purchase price of
the interest purchased hereunder exceeds $50,000.00, at the
closing the purchasing Partner or Partners shall pay the greater
of $50,000.00 or 10.00% of the purchase price in cash, and the
balance shall be payable, to the extent necessary, in equal
annual installments of the same amount as paid at closing for
each of the next four (4) years. At the fifth anniversary of
such closing, all remaining balances shall be due and payable.
The purchasing Partner or Partners shall have the right to prepay
any and all amounts due hereunder. The obligation of the
purchasing Partner or Partners shall be evidenced in the form of
an unsecured promissory note attached as Exhibit A, such note to
bear interest at the prime rate quoted in the Wall Street Journal
on the business day preceding the day of the closing.
Diagnostic/ Retrieval Systems shall guarantee payment of such
note pursuant to the Guaranty made a part of the Joint Venture
Agreement. In the event that there are any indemnification claim
payments due under Article VIII of the Joint Venture Agreement,
payments due under the Put shall be held in abeyance pending
resolution of the claims and payment of the Loss or Losses as
defined under the Joint Venture Agreement. If the purchase fails
to be consummated due to a failure to surrender such Partnership
Percentage Interest by USC (or a USC Successor), the other
Partner or Partners shall be entitled to buy USC's Partnership
Percentage Interest at a price of 20% less than the value of
USC's fair market value on the original date of demand.
Notwithstanding anything herein to the contrary, the right of USC
to demand purchase of its Partnership Percentage Interest is
personal to USC and is not transferable, saleable, conveyable,
encumberable, or assignable, except to a USC Successor.
7.7 Anti-Dilution. In the event that the Partnership
is in need of additional capital and wants to raise such capital
through the admittance of an additional Partner or Partners which
are unaffiliated with DRS/MS, notwithstanding anything herein to
the contrary, the parties hereby warrant, covenant and agree that
they will not cause the Partnership to sell, transfer, assign, or
otherwise convey any interest in the Partnership prior to the
fourth anniversary of the execution of this Agreement without
first offering such interest to the Partners. Each Partner shall
have the right, but shall not be obligated, to purchase such
portion of the interest as is sufficient to maintain said
Partner's Partnership Percentage Interest, or any lesser amount
that said Partner may choose to purchase, on the same terms
offered to any other party.
7.8 Co-Sale Right In the case of a transfer of any or
all of DRS/MS' Partnership Percentage Interest in the Partnership
by DRS/MS to any third party (as defined in Section 7.3) when
such transfer would result in DRS/MS retaining less than a 50%
interest in the Partnership following such transfer, at least 30
days prior to such transfer, DRS/MS will deliver a written notice
to the other Partner or Partners specifying the identity of the
prospective transferee(s) and disclosing in reasonable detail
the terms and conditions of the proposed transfer. Such other
Partner or Partners may elect to participate in the proposed
transfer by delivering written notice to DRS/MS within such 30
day period. If any Partner elects to participate in such
transfer, each participating Partner will be entitled to sell in
such proposed transfer, at the same price and on the same terms
as DRS/MS, a percentage of its Partnership Percentage Interest
equal to the product of (i) the fraction the numerator of which
is such Partner's Partnership Percentage Interest and the
denominator of which is the aggregate Partnership Percentage
Interests then held by all of the Partners, multiplied by (ii)
the amount of interest in the Partnership proposed to be
transferred.
7.9 Execution of this Agreement. Any purchaser,
transferee, or assignee of an interest hereunder not already a
Partner in the Partnership shall not become a Partner in the
Partnership unless such purchaser, transferee, or assignee
(A) executes and acknowledges this Agreement and such instruments
and amendments to this Agreement as the Executive Committee may
reasonably deem necessary in connection therewith, including the
acceptance and adoption by such Person of the provisions of this
Agreement; and (B) pays a transfer fee to the Partnership which
is sufficient to cover all reasonable expenses connected with
the cost of admitting such Person as a Partner as determined by
the Executive Committee.
7.10 Restraining Order. In the event that any Partner
shall at any time transfer or attempt to transfer its Partnership
Percentage Interest or any portion thereof in violation of the
provisions of this Agreement and any rights hereby granted, then
the other Partners shall, in addition to all rights and remedies
hereunder, at law and in equity, be entitled to seek a decree or
order restraining and enjoining such transfer, and the offending
Partner shall not plead in defense thereto that there would be an
adequate remedy at law; it being hereby expressly acknowledged
and agreed by the parties hereto that damages at law will be an
inadequate remedy for a breach or threatened breach or violation
of the provisions concerning transfer set forth in this
Agreement.
ARTICLE 8.
DISSOLUTION
8.1 Dissolution Events. The Partnership shall be
dissolved upon the first to occur of any of the following:
(a) the occurrence of any event which makes it
unlawful for the business of the Partnership to be carried on or
for the members to carry it on in Partnership;
(b) the Partnership is (A) voluntarily adjudicated
bankrupt or insolvent, (B) seeks consent to or does not contest
the appointment of a receiver or trustee for itself or for all or
any substantial part of its property, (C) files a petition for
bankruptcy or reorganization, (D) makes a general assignment for
the benefit of its creditors, or (E) admits in writing its
inability to pay its debts as they mature;
(c) the affirmative vote of the Executive
Committee as provided in Section 3.1(b) (a "Voluntary
Dissolution");
(d) a court decrees that the Partnership be
dissolved pursuant to any relevant provision of the Act.
8.2 Voluntary Dissolution. (a) In the event the
Executive Committee votes to dissolve the Partnership, the
Executive Committee shall give written notice to all of the
Partners of such decision at least six (6) months prior to the
intended date of dissolution and in such notice shall set forth a
price at which any Partner or Partners may purchase the assets
and liabilities of the Partnership. Any or all of the Partners
shall have the right to accept the offer to purchase the
Partnership on the terms and conditions set forth in the
Executive Committee's notice within thirty (30) days of the date
notice was given by notifying the Executive Committee of such
acceptance by written notice.
(b) In the event the Partnership is dissolved by
Voluntary Dissolution, the Partnership shall assign to USC (or
any USC Successor) any and all rights the Partnership shall have
in and to any and all Royalties as defined in the Joint Venture
Agreement.
8.3 Termination and Winding Up. In the event the
Partnership is dissolved, an accounting of the Partnership's
assets, liabilities and operations through the last day of the
month in which the dissolution occurs shall be made by the
Executive Committee and the affairs of the Partnership shall be
wound up and terminated. The Executive Committee shall serve as
the liquidating trustee of the Partnership. The liquidating
trustee shall be responsible for winding up and terminating the
affairs of the Partnership and shall determine all matters in
connection therewith (including, without limitation, the
arrangements to be made with creditors, the terms of the sale of
any asset of the Partnership, and the amount or necessity of cash
reserves to cover contingent liabilities) as it deems advisable
and proper. The liquidating trustee shall thereafter liquidate
the assets of the Partnership as promptly as is consistent with
obtaining the fair value thereof, and the proceeds therefrom, to
the extent sufficient therefor, shall be applied and distributed
in the following order:
(a) to the payment and discharge of all of the
Partnership's debts and liabilities to persons other than the
Partners and their Affiliates and the expenses of liquidation;
(b) to the payment and discharge of any loans plus
accrued interest and advances made by either Partner to the
Partnership;
(c) to the Partners in accordance with their
positive Capital Accounts;
(d) the balance, if any, shall be distributed to
the Partners in accordance with their respective Partnership
Percentage Interests.
8.4 Work in Progress. If the Partnership is dissolved
for any reason while there is work in progress, winding up of the
affairs and termination of the business of the Partnership may
include completion of the work in progress to the extent the
liquidating trustee may determine such work to be necessary to
bring the matters to a state of completion convenient to permit a
sale of the Partnership's interest in such work, giving due
regard to the interests of the Partners.
8.5 Non-Cash Assets. Every reasonable effort shall be
made to dispose of the assets of the Partnership upon a
dissolution so that the distribution may be made to the Partners
in cash. If at the time of the termination of the Partnership,
the Partnership owns any assets in the form of work in progress,
notes, deeds of trust or other non-cash assets, such assets, if
any, shall be distributed in kind to the Partners, in lieu of
cash, proportionate to their right to receive the assets of the
Partnership on an equitable basis reflecting the book value of
the assets so distributed. For purposes of determining Capital
Accounts, each such non-cash asset shall be treated as having
been sold at book value.
8.6 Disposition of Documents and Records. All
documents and records shall be delivered to DRS/MS upon
termination of the Partnership. Such Partner shall retain such
documents and records for such a period of time ("Document
Holding Period") as may be required by any regulation, decree,
code, ordinance, rule or law of any city, county, state, or
federal government or governmental agency having jurisdiction
(including the requirements of the Internal Revenue Service) and
shall make the documents available during normal business hours
to the other Partner for inspection and copying at the other
Partner's cost and expense. In the event any Partner
("Withdrawing Partner") for any reason ceases to be a Partner at
any time prior to termination of the Partnership, and the
Partnership is continued without the Withdrawing Partner, the
documents for the period prior to the date of the termination of
the Withdrawing Partner's interest shall be maintained by the
non-withdrawing Partner for the Document Holding Period;
provided, however, that if there is an audit or threat of audit,
such documents shall be retained until the audit is completed and
any tax liability finally determined. Said documents shall be
available for inspection, examination and copying by the
Withdrawing Partner in the same manner as provided above in this
Section 8.6 with respect to a termination of the Partnership.
ARTICLE 9.
MISCELLANEOUS
9.1 Resolution of Disputes:
(a) Notice of Dispute. All disputes, without
exception, between the parties to this Agreement arising
hereunder, or under any other agreement between the parties not
expressly disclaiming the use of this process, shall be settled
by means of alternative dispute resolution as provided in the New
Jersey Alternative Procedure for Dispute Resolution Act, N.J.S.A.
2A:23A-1, et seq., as in effect on the date of this Agreement,
(the "Act") upon written notice given by any party to the other
(the "Dispute Notice"), and to the umpire hereafter established.
Except to the extent required by law, the proceedings under the
Act shall be confidential and shall not be disclosed or discussed
with persons not parties to this Agreement without the consent of
all parties to the dispute. In the event a party to a dispute
may suffer irreparable harm or injury, such party shall have the
ability to seek provisional remedies, including but not limited
to injunctive relief and other equitable remedies, to the fullest
extent permitted by law pending completion of the process
provided under this Section 9.1.
(b) Umpires.
(i) Within thirty (30) days after the Dispute
Notice is given the parties shall select three (3) umpires from
among the persons listed in Subparagraphs (1) through (4) below
in the order of priority listed below, i.e., if a person meeting
the requirements of Subparagraph (1) is not able or willing to
serve, a person meeting the requirements of Subparagraph (2)
shall be selected, and so forth. In addition to meeting the
requirements of Subparagraph (1), (2), (3) or (4) below, the
umpires must also satisfy the requirements described in
Subparagraphs (b)(ii) and (b)(iv) below. A potential umpire is:
(1) Any retired judge of a United States
District Court or a United States Circuit Court of Appeals;
(2) Any retired judge of any State
Superior, Appellate or Supreme Court;
(3) Any attorney licensed to practice
law for more than fifteen (15) years or certified public
accountant who has been certified for more than fifteen (15) years and,
in either case, who has either directly or indirectly, no conflict of
interest; or
(4) Such other person upon whom the
members of the selecting group agree.
(ii) In addition to the requirements described
in Section 9.1(b)(i) above, the umpires selected hereunder must:
(1) Be free of any potential for bias or
conflict of interest with respect to either of the parties
hereto, directly or indirectly or by virtue of any direct or
indirect financial interest, family relationship or close
friendship; and
(2) Be in a position to immediately hear
the dispute and thereafter render a resolution within the time
specified in Section 9.1(g) below.
(iii) If the umpires are not selected within
the period of time specified in Section 9.1(b)(i) above, DRS/MS,
on the one hand, and USC on the other hand, each shall promptly
select an umpire which umpires shall select a third umpire who
shall be the sole umpire. If the parties fail to so select
umpires pursuant to the foregoing provisions within twenty (20)
days after the expiration of the period described in Section
9.1(b)(i), the sole umpire shall be selected by the Chief Judge
of the United States District Court for the District of New
Jersey or, if the Chief Judge is unable or unwilling to act, by
the Chief Judge of the Southern District of New York or the
President of the Bar Association of the City of New York. Such
selection shall be in accordance with the requirements of
Sections 9.1(b)(i) and 9.1(ii) above. The umpire to be selected
pursuant to this Section 9.1(b)(iii) must be designated within
thirty (30) days after the expiration of the period described in
Section 9.1(b)(i) above.
(iv) Anything to the contrary herein
notwithstanding, the following persons are not eligible to be an
umpire under this Article: a party to this Agreement or any
affiliate thereof; an employee or co-employee or any party to
the dispute; or any person having material or undisclosed,
financial or personal interests dependent on the success or
failure of any of the parties.
(v) An umpire shall disqualify himself if he
is unable to handle the process promptly so as to render a
resolution within a reasonable time, in no event to exceed
forty-five (45) days after final testimony and/or briefs and in
all events not to extend beyond six months from the date the
umpire is chosen, or such longer period to which the parties to
the dispute and the umpire may agree.
(c) Time and Place of Alternative Resolution. The
alternative resolution shall be held at such place as the umpire
may determine within Essex County, New Jersey or such other
location to which the parties may agree, to commence not later
than ten (10) days after the umpire has been determined in
accordance with Section 9.1(b).
(d) Fees. All fees and expenses (including
transcripts, room rental and fees of the umpire) of alternative
dispute resolution, shall be paid as follows: 25% by the party
or parties served with the Dispute Notice and 25% by the
person(s) serving the Dispute Notice, with the remaining 50%
allocated 10% to the prevailing party (or parties) and 40% to
the non-prevailing party (or parties), as determined by the
umpire (if the umpire does not determine a prevailing party then
pro-rata to each of the material parties to the dispute as
determined by the umpire) provided that the umpire shall have the
right to order that such fees be paid in a different percentage
if any of the parties has acted in bad faith (in which case he
may shift other's shares to the bad faith party(ies)). The fees
payable to the umpire shall be his usual hourly rates for
consulting or dispute resolution services, as the same may be in
effect from time to time. Each party shall pay its own legal
fees, costs and disbursements.
(e) Discovery. Each party shall be entitled to
discovery by way of oral deposition, inspection and copying of
all relevant documents within the care, custody or control of a
party or a witness, and when authorized by the umpire, by way of
interrogatories. All discovery shall be complete within
forty-five (45) days of the appointment of the umpire. All
documents to be relied upon by any party to the proceeding shall
be provided to the others no later than two weeks before the hearing
date for the proceedings. The time periods for discovery may be
extended by the umpire for good cause, provided that he is able
to meet the time requirement of Section 9.1 (g).
(f) Provisional Remedies. When appropriate under
applicable New Jersey substantive and procedural law, the umpire
shall have full and complete authority to award provisional
relief, on an ex parte basis or otherwise.
(g) Time and Method for Resolution. The umpire
shall make the award and serve notice thereof upon all parties
within six (6) months of the date the umpire is designated, or
such longer period to which the parties to the dispute and the
umpire may agree. If the umpire fails to make his decision in
accordance with substantive law, or to properly apply the facts
to the law, the umpire's award will be deemed to have been
procured by "undue means" and "beyond his power." Any party may
apply to court in accordance with the Act to have the umpire's
decision confirmed, reviewed, modified, affirmed or remanded to
the umpire with directions.
(h) Act and Agreement Govern. Except as otherwise
provided herein, the Act shall govern the procedures and methods
for any Alternative Dispute Resolution undertaken pursuant to
this Agreement. Except as expressly provided above, the umpire
may not modify the provisions of this Article. Except as
expressly provided to the contrary above, and to the extent
otherwise not inconsistent with this Agreement and the Act,
proceedings under this Article, including efforts to mediate the
dispute, shall be governed by the "Rules for Non-Administered
Arbitration of Business Disputes" as adopted by the Center for
Public Resources, Inc., New York (originally developed 1989 and
amended 1993).
9.2 Non-Competition.
(a) USC NON-COMPETITION. Neither USC nor its
Affiliates (other than Ron Hadani, Thomas Soulos and
Howard Fidel, whose non-competition agreements are contained in
the Joint Venture Agreement and in the employment agreement of
each) will own, manage, operate, join or control, or participate
in the ownership, management, operation or control of, or
assist in any manner with, or be connected with or have any
interest in, as a stockholder, agent, consultant, partner or
otherwise, or have any agent as a director, officer, or employee
of, any business which develops, manufactures and markets any
ultrasound medical imaging equipment. Neither USC nor its
Affiliates will own, manage, operate, join or control, or
participate in the ownership, management, operation or control
of, or assist in any manner with, or be connected with or have
any interest in, as a stockholder, agent, consultant, partner or
otherwise, or have any agent as a director, officer, or employee
of, any business which develops, manufactures, markets, sells and/or
introduces technology or technologically based products (whether or not
based on USC's core technology) to the medical imaging field in
general except that either USC or its Affiliates may make
passive investments in a competitive enterprise the shares of
which are publicly traded if such investment constitutes less
than one half of one percent of the equity of such enterprise.
(b) DRS/MS NON-COMPETITION. Neither
Diagnostic/Retrieval Systems ("DRS"), DRS/MS, nor their
Affiliates will own, manage, operate, join or control, or
participate in the ownership, management, operation or control
of, or assist in any manner with, or be connected with or have
any interest in, as a stockholder, agent, consultant, partner or
otherwise, or have any agent as a director, officer, or employee
of, any business which develops, manufactures and/or markets
and/or sells any ultrasound medical imaging equipment (or other
medical imaging products based on the core technology currently
being used by USC) except that either DRS or its Affiliates
or DRS/MS may make passive investments in a competitive
enterprise the shares of which are publicly traded if such
investment constitutes less than one half of one percent of the
equity of such enterprise.
9.3 Interpretation. In the event of any dispute
between the parties as to the meaning and legal effect of this
Agreement, this Agreement shall be interpreted in accordance with
the laws of the State of New Jersey.
9.4 Notices. All notices, claims, certificates,
requests, demands and other communications hereunder will be in
writing and will be deemed to have been duly given when
personally delivered, telexed, sent by facsimile transmission
(with telephonic confirmation) or on the date of receipt or
refusal indicated on the return receipt if mailed (registered or
certified mail, postage prepaid, return receipt requested) as
follows:
(a) If to DRS/MS:
DRS/MS, Inc.
138 Bauer Drive
Oakland, NJ 07436
Attn.: Mr. John Giordano
with a copy to:
Hannoch Weisman
A Professional Corporation
4 Becker Farm Road
Roseland, NJ 07068-3788
Attn.: Nina Laserson Dunn, Esq.
(b) If to USC:
Universal Sonics Corporation
31 Industrial Avenue
Mahwah, New Jersey 07430
Attn.: Mr. Ron Hadani
with a copy to:
Riker, Danzig, Scherer, Hyland & Perretti
Headquarters Plaza
One Speedwell Avenue
Morristown, New Jersey 07962
Attn.: Robert Fischer III, Esq.
or to such other address as the person to whom notice is to be
given may have previously furnished to the other in writing in
the manner set forth above.
9.5 Amendment. This Agreement may not be amended,
altered or modified except by written instrument, signed by all
parties.
9.6 Headings. All headings herein are inserted only
for convenience and ease of reference and are not to be
considered in the construction or interpretation of any provision
of this Agreement.
9.7 Severability. If any provision of this Agreement
or the application thereof to any person or circumstances shall
be invalid or unenforceable to any extent, the remainder of this
Agreement and the application of such provisions to other persons
or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
9.8 Complete Agreement. This Agreement and the other
agreements referred to herein constitute the complete and
exclusive statement of the agreement between the Partners with
respect to the subject matter hereof, and replaces and supersedes
all prior agreements by and among the Partners. This Agreement
supersedes any and all prior written or oral statements and no
representation, statement, or condition or warranty not contained
in this Agreement or the Transaction Documents shall be binding
on the Partners or have any force or effect whatsoever.
9.9 Additional Documents and Acts. In connection with
this Agreement, as well as all transactions contemplated by this
Agreement, each Partner agrees to execute and deliver such
additional documents and instruments and to perform such
additional acts as may be reasonably necessary or appropriate to
effectuate, carry out and perform all of the terms, provisions
and conditions of this Agreement, and all such transactions
including, without
limitation, the documents necessary to transfer the Transferred
Assets to the Partnership as described in the Joint Venture
Agreement.
9.10 Terms. Common nouns and pronouns shall be deemed
to refer to the masculine, feminine, neuter, singular, and
plural, as the identity of the person or persons, firm or
corporation may in the context require. Any reference to the
Code or other statutes or laws shall include all amendments,
modifications, or replacements of the specific sections and
provisions concerned.
9.11 References to this Agreement. Numbered or
lettered articles, sections and subsections herein contained
refer to articles, sections and subsections of this Agreement
unless otherwise expressly stated. The words "herein," "hereof,"
"hereunder," "hereby," "this Agreement" and other similar
references shall be construed to mean and include this
Partnership Agreement and all amendments thereof and supplements
thereto unless the context shall clearly indicate or require
otherwise.
9.12 Binding Effect. Subject to the provisions of this
Agreement relating to transferability, this Agreement shall be
binding upon and inure to the benefit of the parties signatory
hereto, and their respective distributees, successors and
permitted assigns.
9.13 Counterparts. This Agreement may be executed in a
number of counterparts, each of which shall be deemed an original
and all of which shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
DRS/MS, INC.
By:_______________________________
Name:__________________________
Title:_________________________
UNIVERSAL SONICS CORPORATION
By: ______________________________
Name:_________________________
Title:________________________
SCHEDULE 4.1
Initial Capital Contribution of DRS/MS:
$400,000 in cash and managerial expertise and manufacturing
capabilities.
SCHEDULE 4.1 - Continued
Initial Capital Contribution of USC:
All of the Transferred Assets (other than those assets delineated
on Schedule 2.02 of the Joint Venture Agreement and net of
Royalties, as such terms are defined in the Joint Venture
Agreement), subject to certain liabilities to be assumed by the
Partnership, as specifically set forth below:
PARTNERSHIP AGREEMENT
OF
DRS MEDICAL SYSTEMS
BY AND BETWEEN
DRS/MS, INC.
AND
UNIVERSAL SONICS CORPORATION
Dated as of February 6, 1996
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS
1.1 Terms ................................... 1
ARTICLE 2 FORMATION OF THE PARTNERSHIP
2.1 Formation ............................... 3
2.2 Partners ................................ 3
2.3 Name .................................... 3
2.4 Principal Place of Business ............. 3
2.5 Purposes and Scope ...................... 3
2.6 Formation Documents ..................... 4
2.7 No Individual Authority ................. 4
2.8 Property Interests ...................... 4
2.9 Limits of the Partnership ............... 4
ARTICLE 3 MANAGEMENT OF THE PARTNERSHIP
3.1 Executive Committee ..................... 4
3.2 Indemnification ......................... 6
3.3 Officers ................................ 7
ARTICLE 4 CAPITAL CONTRIBUTIONS
4.1 Initial Capital Contribution of the
Partners ................................ 7
4.2 Additional Capital Contributions ........ 7
4.3 Capital Accounts ........................ 8
ARTICLE 5 ALLOCATIONS, DISTRIBUTIONS AND INTERESTS
5.1 Allocation of Net Income or Net Loss .... 8
5.2 Distributions ........................... 8
5.3 Management Services ..................... 9
ARTICLE 6 BOOKS AND RECORDS; BANK ACCOUNTS;
TAX RETURNS; LOANS
6.1 Books and Records ....................... 9
6.2 Bank Accounts ........................... 9
6.3 Tax Returns ............................. 10
6.4 Loans ................................... 10
ARTICLE 7 TRANSFERS OF INTERESTS IN PARTNERSHIP
7.1 Prohibited Transfers .................... 10
7.2 USC Affiliate Transfer .................. 11
7.3 Right of Sale and First Refusal ......... 11
7.4 Specific Performance .................... 13
7.5 Termination of Obligations .............. 14
7.6 USC Put ................................. 14
7.7 Anti-Dilution ........................... 15
7.8 Co-Sale Right ........................... 16
7.9 Execution of this Agreement ............. 16
7.10 Restraining Order ....................... 16
ARTICLE 8 DISSOLUTION
8.1 Dissolution Events ...................... 17
8.2 Voluntary Termination ................... 17
8.3 Termination and Winding Up .............. 17
8.4 Work in Progress ........................ 18
8.5 Non-Cash Assets ......................... 18
8.6 Disposition of Documents and Records .... 19
ARTICLE 9 MISCELLANEOUS
9.1 Resolution of Disputes .................. 19
9.2 Non-Competition ......................... 22
9.3 Interpretation .......................... 23
9.4 Notices ................................. 23
9.5 Amendment ............................... 24
9.6 Headings ................................ 24
9.7 Severability ............................ 24
9.8 Complete Agreement ...................... 24
9.9 Additional Documents and Acts ........... 24
9.10 Terms ................................... 25
9.11 References to this Agreement ............ 25
9.12 Binding Effect .......................... 25
9.13 Counterparts ............................ 25
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement")
is made as of February ___, 1996, by and among Mag-Head
Engineering Company, Inc., a Minnesota corporation
("Seller"), and Ahead Technology Acquisition Corporation,
a Delaware corporation ("Purchaser"). Seller is
sometimes referred to in this Agreement as "Selling
Party" or "Selling Parties."
RECITALS
A. Seller is in the business of manufacturing,
selling and distributing magnetic recording heads (the
"Business").
B. Seller desires to sell certain specified
property and assets and to assign certain specified
agreements to Purchaser, and Purchaser desires to acquire
such property and assets, and assume such agreements, on
the terms and conditions specified in this Agreement.
NOW, THEREFORE, in consideration of the mutual
covenants, agreements, representations and warranties
contained in this Agreement, the parties hereto agree as
follows:
1. Purchase and Sale of Assets: Assumption of
Certain Liabilities.
1.1 Assets Purchased. Upon the terms and
subject to the conditions of this Agreement, Purchaser
shall purchase, and Seller shall sell, assign, transfer
and convey to Purchaser at the Closing (as defined in
Section 9 hereof), all of the following tangible and
intangible assets, properties, licenses, and rights
(collectively the "Assets"), free and clear of all liens,
claims, options, rights of third parties and
encumbrances, whether contingent or otherwise:
1.1.1 All equipment, machinery,
furniture, fixtures, leasehold improvements, tools, trade
fixtures, and other tangible property of Seller (whether
such property constitutes real, personal or mixed
property), listed on Schedule 1.1.1 hereof ("Fixed
Assets").
1.1.2 All inventory, work in progress,
and stock in trade of Seller as of the Closing Date.
1.1.3 All rights of Seller under all
accounts receivable, customer sales/purchase orders for
Seller's products, distributor agreements, supply and
maintenance contracts, personal property leases (and the
remaining term under the Lease (as defined in Section
1.3.2 below)), purchase orders and barter arrangements,
and the rights of Seller to all prepaid expenses and
benefits under the foregoing, as set forth in Schedule
1.1.3 attached hereto.
1.1.4 All service marks, patents,
trademarks, copyrights, designs, brand names, trade
names, know-how, processes, symbols, inventions,
programs, trade secrets, logos and telephone numbers
related to or connected with the Business, including,
without limitation, the product catalogues used or
distributed by Seller in connection with the Business and
the names "MEC" and "Mag-Head Engineering Company," and
all derivations thereof, all lists of suppliers,
customers and prospects, all Federal and state
applications for protection or registration of any of the
foregoing and all intangibles appurtenant thereto, and
all rights and properties listed on Schedule 1.1.4
("Proprietary Rights").
1.1.5 All files and correspondence
pertaining to customers, prospects and suppliers,
including, without limitation, customer service, sales,
manufacturing and warranty files and records, and all
other documents, materials and supplies related to the
Business ("Business Records").
1.2 Excluded Assets. It is expressly agreed
that Purchaser shall purchase only those Assets described
in this Agreement (including without limitation, the
Schedules attached hereto). In particular, and without
otherwise limiting or reducing the scope of the preceding
sentence, the parties specifically acknowledge that
Purchaser shall not purchase any of the following
("Excluded Assets"): (i) any tangible or intangible
assets listed in Schedule 1.2 hereof.
1.3 Assumption of Certain Liabilities.
Purchaser shall assume no liabilities or obligations of
Seller whatsoever, except for the following liabilities
("Assumed Liabilities") which Purchaser shall assume,
discharge, perform when due, and indemnify Seller
against:
1.3.1 Seller's obligations from and after
the Closing Date with respect to the personal property
leases and agreements identified on Schedule 1.3 hereto.
1.3.2 Seller's obligations from and after
the Closing Date with respect to the real property lease
covering the premises on which Seller conducted the
Business and identified on Schedule 1.3 hereto (the
"Lease"), pursuant to an Assignment of Lease, executed by
Seller and the landlord for such premises, and in
substantially the form set forth in Schedule 1.3.
1.3.3 Those certain accounts payable of
Seller identified on Schedule 1.3 attached hereto.
1.4 Liabilities Not Assumed. Notwithstanding
anything in this Agreement to the contrary, Purchaser
shall not assume, discharge or indemnify Seller against
any debt, obligation or liability of any kind not
expressly assumed pursuant to Section 1.3 hereof. In
particular, and without otherwise limiting or reducing
the scope of the preceding sentence, the parties
specifically acknowledge that Purchaser shall not assume,
discharge, or indemnify Seller against any of the
following:
1.4.1 Debts, liabilities, obligations or
commitments arising out of or related to or created by
this Agreement or the transactions contemplated hereby
(including, without limitation, any federal or state
income or franchise tax liabilities or sales or use tax
liabilities).
1.4.2 Debts, liabilities, obligations or
commitments arising out of, or related to the Assets
(unless expressly assumed pursuant to this Agreement) or
the Business of Seller, including, without limitation,
debts, liabilities, obligations or commitments arising
out of or related to Seller's payroll obligations
(including, without limitation, vacation pay, severance
pay, bonuses, etc.), utilities, leases of real property,
retirement or profit sharing plans, medical plans,
insurance policies, and worker's compensation
obligations.
2. Purchase Price; Adjustments.
2.1 Purchase Price. The purchase price (the
"Purchase Price") for the Assets shall consist of the sum
of (a) $225,000, and (b) the amount of (x) cash and
accounts receivable less (y) accounts payable and accrued
payroll expenses, as indicated on the October 31, 1995
balance sheet of Seller, which is one of the Financial
Statements (as defined in Section 3.3, below). Purchaser
shall be entitled to a credit against the Purchase Price
for an amount equal to the accrued but unused vacation
pay of Seller's employees, which accrued prior to
November 1, 1995, but was paid by Seller between November
1, 1995 and the Closing Date.
2.2 Payment. At Closing, Purchaser shall pay
to Seller the Purchase Price in cash, subject to credits
and adjustments under this Agreement.
2.3 Adjustment to Purchase Price. The
Purchase Price shall be adjusted as follows:
2.3.1 The Purchase Price shall be reduced
to reflect certain changes in the accounts receivable and
accounts payable of the Seller and payments made by
Seller not in the ordinary course of business of Seller
(including, without limitation, (i) costs arising in
connection with the consummation of the transactions
under this Agreement, and (ii) payroll and other employee
expenses arising from Seller's termination of employees)
between October 31, 1995 and the Closing Date, and such
other adjustments as mutually agreed by the parties in
good faith.
2.3.2 Purchaser shall be entitled to a
credit against the Purchase Price equal to the amount of
cash of Seller on hand at Closing (as defined in Section
9), as certified by Seller, in form and substance
acceptance to Purchaser, that is not surrendered to
Purchaser at Closing.
2.4 Allocation. The Purchase Price and the
Assumed Liabilities shall be allocated among the Assets
in the manner set forth in Schedule 2.4 hereof, as may be
required pursuant to Section 1060 of the Internal Revenue
Code of 1986, as amended. Purchaser and Seller shall
report this transaction for federal and state income tax
purposes in accordance with such allocation.
3. Representations and Warranties of Seller.
Seller represents and warrants to Purchaser as
follows:
3.1 Corporate Existence and Organization.
Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Minnesota. Seller has the requisite corporate power and
authority to own, lease and operate its properties and
assets, including without limitation the Assets, and to
carry on its Business as is now being conducted.
3.2 Authority. Seller has full corporate
power and authority to execute and to deliver this
Agreement and all other agreements executed and delivered
or to be executed and delivered by Seller in connection
with the transactions contemplated hereby, including,
without limitation, the documents specified in Section 9
hereof to be executed and delivered by Seller. The
execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of
Directors of Seller and approved by the vote of the
shareholders of Seller, and no other corporate
proceedings on the part of Seller and no approvals or
consents of any other persons are necessary to authorize
the execution and delivery of this Agreement and to
consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and
delivered by Seller and constitutes a valid and binding
agreement of Seller, enforceable against Seller in
accordance with its terms. Seller has the number of
shares of a single class of common stock ("Shares") set
forth on Schedule 3.2 hereto. Schedule 3.2 sets forth
the total number of Shares issued and outstanding and the
sole beneficial and record owners of all such Shares.
3.3 Financial Statements; Absence of Certain
Changes. Seller has heretofore delivered to Purchaser
the following financial statements for the period ending
October 31, 1995 (the "Financial Statements") set forth
on Schedule 3.3 attached hereto. The Financial
Statements present fairly the financial position of
Seller as of their respective dates. The Seller's
outside accountant has performed an overview of the
Financial Statements, and, shall represent in writing to
Purchaser, in a form satisfactory to Purchaser, that such
accountant is unaware of any material circumstance or
event resulting in the Financial Statements not fairly
presenting the financial condition of Seller, and that
the accountant is not aware of any material event that
would adversely affect the financial condition of Seller
as so presented. Since October 31, 1995, Seller has not:
(i) materially increased the compensation of any employee
or altered its policies with respect to employee
compensation; (ii) sold, leased or otherwise transferred
any Assets (except in the ordinary course of business),
or (iii) incurred any debts or liabilities (except in the
ordinary course of business).
3.4 Assumed Liabilities. Seller has delivered
to Purchaser a true, complete, and correct copy of each
written instrument or document governing the Assumed
Liabilities. All of the Assumed Liabilities of Seller
are set forth in Schedule 1.3, attached hereto, none of
which have been amended or modified except as disclosed
in Schedule 1.3. Seller is not in default under any of
the Assumed Liabilities and is not aware of any actions
or omissions which might result in such default upon
notice or the passage of time, or both.
3.5 No Default; Consents and Approvals.
Neither the execution and delivery of this Agreement, nor
the consummation of any of the transactions contemplated
herein will (i) violate any provision of the Articles of
Incorporation or Bylaws of Seller (true and complete
copies of which have heretofore been delivered to
Purchaser by Seller); (ii) violate, conflict with or
result in the breach or termination of, or otherwise give
any other contracting party the right to terminate, or
constitute a default (by way of substitution, novation or
otherwise) under the terms of, any agreement, lease,
indenture or instrument to which the Seller is a party,
including, without limitation, the Assumed Liabilities,
or by which it or any of the Assets may be bound; (iii)
result in the creation of any lien, charge or encumbrance
upon the Assets; (iv) violate any judgment, order,
injunction, decree or award against, or binding upon,
Seller, the Assets or Assumed Liabilities; or (v)
constitute a violation by Seller of any law or regulation
applicable to Seller, the Assets or the Assumed
Liabilities. All consents, releases or waivers from
third parties (including, without limitation,
governmental and regulatory authorities) which may be
necessary to prevent the transactions provided for herein
causing a breach, acceleration or default of the type
specified in this Section 3.5 have been obtained.
3.6 Intentionally Deleted.
3.7 Title to Assets. Seller has good and
marketable title to all Assets, whether real, personal or
mixed, all of which are free and clear of any
restrictions on or conditions to transfer or assignment
and free and clear of any mortgages, liens, security
interests, encumbrances, claims, charges or adverse
interests of any kind or character (collectively,
"Encumbrances") of any other person or entity. All work-
in-progress and Inventory has been fully paid for (except
for any Assumed Liabilities) and is not subject to any
conditional sales contract, consignment or other
Encumbrances whatsoever, nor does any third party have
any interest or claim therein.
3.8 Condition of Assets. Except for ordinary
wear and tear, to Seller's knowledge, all of the Fixed
Assets are in good operating condition and repair,
adequate for the uses to which they are being put in the
Business. All property and excise taxes for the Assets
have been fully paid for all tax years, except for any
installment not yet due and payable with respect to the
current tax year.
3.9 Compliance With Laws. The conduct of the
Business by Seller, the condition and Seller's occupancy
of the Premises, and the condition and use of the Assets
have not violated any material applicable federal, state
and local statutes, laws and regulations, including
(without limitation) any material applicable laws and
regulations relating to building, zoning, environmental,
health and safety, employee safety and the employment of
labor (including those laws and regulations relating to
wages, workers' compensation, hours, collective
bargaining, non-discrimination in employment and the
withholding and payment of taxes and contributions).
Seller has not received any notice of any such violation.
3.10 Real Property. Schedule 3.10 to this
Agreement contains the common description of the
Premises. Seller has no knowledge that the zoning for
the Premises prohibits the existing improvements or
continuation of the Business being conducted on such
Premises. Seller has not commenced, nor has Seller
received notice of the commencement of, any proceeding
that would affect the present zoning classification of
such Premises. There are no unrecorded easements
(including prescriptive easements), subleases, licenses
or other rights of occupancy existing with respect to the
Premises granted by Seller.
3.11 Hazardous Substances. Except as set
forth in Schedule 3.11 hereto, neither the Assets nor the
Premises contain, to the best knowledge of Seller after
diligent review and inquiry, any Hazardous Substances (as
defined below), whether located upon or beneath Premises,
and no debris has been buried beneath the surface of the
Premises. Seller has not discharged, and has no
knowledge that any other person has discharged, any
Hazardous Substances on Premises. Seller is in
compliance with the terms and conditions of all statutes,
use ordinances and regulations, federal, state and local,
pertaining to the Assets and the sanitization or cleanup
of the Premises with respect to Hazardous Substances.
Seller has provided access to and copies of any data
and/or documents dealing with potentially Hazardous
Substances used at the Premises and any disposal
practices followed. Buyer shall have the right to make
inquiries of governmental agencies regarding such
matters, without liability for the outcome of such
discussions.
"Hazardous Substances" means any material or
substance that is (a) a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. SECTION 9601(14),
Section 311 of the Federal Water Pollution Control Act,
33 U.S.C. SECTION 1321; (b) a "hazardous waste" pursuant to
Section 1004 or Section 1001 of the Resource Conservation
and Recovery Act, 42 U.S.C. SECTIONSECTION 6903, 6921; (c) a toxic
pollutant under Section 307(a)(1) of the Federal Water
Pollution Act, 33 U.S.C. SECTION 1317(a)(1); (d) a "hazardous
air pollutant" under Section 112 of the Clean Air Act, 42
U.S.C. SECTION 7412; (e) a "hazardous material" under the
Hazardous Materials Transportation Uniform Safety Act of
1990, 49 U.S.C. App. SECTION 1802(4); (f) toxic or hazardous
pursuant to regulations promulgated under the
aforementioned laws; or (g) a risk to the environment
that is a toxic or hazardous substance, material,
pollutant or waste under any other applicable federal,
state or local laws, ordinances or regulations.
3.12 Employee Agreements. Except as set forth
on Schedule 3.12, Seller is not a party to any collective
bargaining agreement or other similar labor agreements,
or any medical, life insurance, pension, retirement,
deferred compensation, profit sharing or other incentive
or fringe benefit plan, agreements or arrangements
providing for employee remuneration or benefits. Seller
represents and warrants that Paul Michael is an employee-
at-will of Seller.
3.13 Customers. Seller has not received
notification and has no reason to believe that any of the
current customers or suppliers of the Business,
including, without limitation, the customers and
suppliers designated in Schedule 3.13 attached hereto,
will cease doing business, or will reduce the amount of
business such suppliers and customers currently conduct
with respect to the Business.
3.14 Bulk Sales Information. Seller has
complied, any and all steps have been taken and all
waiting periods have expired for compliance, with any and
all applicable bulk sales laws; and as a consequence
thereof, neither Seller nor Purchaser are liable to any
creditor of Seller with respect thereto.
3.15 Proprietary Rights. The Proprietary
Rights, including, without limitation, the Proprietary
Rights listed or described in Schedule 1.1.4 hereto, are
the sole and exclusive property of Seller. No licenses,
sublicenses, or other rights have been granted or entered
into by Seller with respect to the Proprietary Rights.
All of the Proprietary Rights, including without
limitation, the Proprietary Rights listed in Schedule
1.1.4, are current, unexpired and in good standing and
free and clear of all security interests, liens,
encumbrances, and other restrictions. Seller has not at
any time knowingly taken, or permitted to be taken, any
action, or permitted any use, nor is Seller aware of any
such action or use that would impair the validity or
enforceability of any of the Proprietary Rights, or
Purchaser's exclusive ownership thereof.
3.16 Litigation. There is no suit or action
(equitable, legal, administrative or otherwise),
proceeding or investigation of any kind pending (or to
the knowledge of Seller threatened) against Seller, or
which relates to the Assets or Assumed Liabilities, nor
is there any factual basis of which Seller is aware for
any such suit, action, proceeding or investigation
(including, without limitation, any relating to
environmental, health, safety or Hazardous Substances
matters) against Seller or which could affect the Assets,
the Assumed Liabilities or the Premises, or which could
affect the ability of Seller to carry out the
transactions contemplated hereunder in accordance with
the terms hereof.
3.17 Books and Records. The books and records
of Seller accurately reflect all material transactions
and correctly account for all material receipts,
disbursements and expenditures in connection with the
Assets and the Assumed Liabilities.
3.18 Certain Pre-Closing Representations and
Warranties of Seller.
3.18.1 Information. Seller has furnished
or caused to be furnished to Purchaser all data and
information concerning the Premises, the Assets, the
Assumed Liabilities, existing insurance policies, and all
manufacturer's warranties pertaining to the Assets that
have been requested by Purchaser.
3.18.2 Maintenance of Insurance. From
November 1, 1995 to the Closing, Seller has continued to
carry its existing insurance for the Premises and the
Assets.
3.18.3 Third Party Consents. Seller has
obtained and delivered to Purchaser the written consent
of any persons, to the extent the consent of such persons
is required, in order to validly convey good, marketable
and unencumbered title to the Assets to Purchaser.
3.18.4 Conduct of Business. From
November 1, 1995 through the Closing, Seller has carried
on the Business in substantially the same manner as
carried out prior to November 1, 1995, and did not
institute any unusual or novel methods of inventory
purchase, management, accounting or operation, or incur
or pay any liability or expense, that varied materially
from the ordinary course of business of Seller as of
November 1, 1995.
3.18.5 Employees. Seller agrees that
Purchaser shall have no obligation whatsoever to employ
any person employed by Seller with respect to the
Business. Notwithstanding the foregoing, Seller has used
its best efforts to keep available to Purchaser Seller's
employees to the extent that Purchaser advised Seller
that it desired to employ one or more of the persons
currently employed by Seller with respect to the
Business. Any such persons employed by Purchaser, if
any, will be treated and deemed as "new hires" by
Purchaser for all purposes. Seller agrees that Purchaser
shall have the right, but not the obligation, to employ
any one or more of Seller's employees, and between
November 1, 1995 and the Closing, Seller has not made any
change in compensation payable or which became or will
become payable to any employee (including severance or
vacation pay, and compensation payable pursuant to bonus
or pension plans or other employee plans or other
benefits to such employees).
3.18.6 Capitalization of Seller. From
November 1, 1995 until the Closing, Seller did not make
or pay any distribution or dividend to any shareholder,
issue any additional shares of its capital stock, or
issue or create any warrants, obligations, subscriptions,
options, convertible securities or other commitments
under which any additional shares of its capital stock
could be issued, nor did it agree to do any such acts.
3.18.7 Dispositions of Assets. From
November 1, 1995 until the Closing, Seller did not (a)
sell, assign, transfer, distribute or encumber any of the
Assets, or agree to do so (except for the use of raw
materials, work-in-progress and inventory in the regular
course of business), or (b) sell, transfer, assign, lease
or otherwise grant any right to any third party to lease
the Premises in any respect, nor agree to do so.
3.19 Full Disclosure; Knowledge. None of the
representations and warranties made by Seller in this
Agreement, or in any certificate or document furnished or
to be furnished by Seller, or any officer thereof, or any
of them, or on their behalf, contains or will contain any
untrue statement of a material fact, or omit or state a
material fact necessary to make the statements made, in
light of the circumstances under which they were made,
not misleading. All of Seller's representations and
warranties contained in Section 3.8 through 3.18 are
being made hereunder solely to the best knowledge of
Seller, after due inquiry and review of its officers,
directors and employees.
4. Representations and Warranties of Purchaser.
Purchaser represents and warrants to Seller as
follows:
4.1 Corporate Existence and Organization.
Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State
of Delaware and has all requisite power and authority to
own, lease and otherwise operate its properties and
assets.
4.2 Authority. Purchaser has full corporate
power and authority to execute and to deliver this
Agreement and all other agreements executed and delivered
or to be executed and delivered by Purchaser in
connection with the transactions contemplated hereby,
including, without limitation, the documents specified in
Section 9 hereof to be executed and delivered by
Purchaser. The execution and delivery of this Agreement
and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board
of Directors of Purchaser, and no other corporate
proceedings on the part of Purchaser and no approvals or
consents of any other persons are necessary to authorize
the execution and delivery of this Agreement or to
consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and
delivered by Purchaser and constitutes a valid and
binding agreement of Purchaser, enforceable against
Purchaser in accordance with its terms.
5. Certain Seller Obligations.
5.1 Manufacturer's Warranties. Seller
covenants and warrants that it shall use its best efforts
to obtain a transfer to Purchaser of all manufacturer's
warranties relating to the Assets.
5.2 Sales Tax. Seller shall be responsible
for and bear the cost of all Minnesota sales, excise,
transfer and use taxes arising by virtue of the purchase
and sale of Assets hereunder.
5.3 Payment of Creditors. Seller shall pay
all amounts owing its creditors when due.
5.4 Further Assurances. Seller represents,
warrants and covenants that, from and after the Closing
Date, Seller shall furnish any additional information,
execute and deliver such documents and do all such things
as may be reasonably necessary or appropriate to carry
out the intent and accomplish the purposes of this
Agreement, or otherwise consummate the transactions
contemplated by this Agreement according to its terms,
and will do all things necessary or appropriate to effect
compliance with the requirement of any laws of the United
States or any state arising from the transactions
contemplated hereby.
6. Purchaser's Conditions to Closing.
The obligation of Purchaser to purchase the
Assets and consummate the related transactions provided
for under this Agreement are subject to the fulfillment
or waiver by Purchaser in writing, at or prior to
Closing, of each and all of the conditions precedent
listed below to be delivered by any Seller at Closing.
6.1 Execution and Delivery of Documents.
Seller shall have executed and delivered to Purchaser all
of the documents and agreements specified in Section 9
below, to be delivered by Seller at Closing.
6.2 Performance. Seller shall have performed,
satisfied and complied with all covenants, agreements and
conditions required by this Agreement to be performed or
complied with by Seller on or before the Closing Date.
6.3 Consents. All necessary agreements and
consents of any third parties to the consummation of the
transactions contemplated by this Agreement shall have
been obtained by Seller and delivered to Purchaser.
6.4 Proceedings. All corporate and other
proceedings in connection with the transactions
contemplated hereby and all documents and instruments
incident to such transactions shall be in form and
substance satisfactory to Purchaser and its counsel, and
Purchaser shall have received counterpart originals or
certified copies of such documents as it may reasonably
request.
6.5 Bulk Transfer. Seller shall have complied
with all applicable transferor requirements of all
applicable bulk sales laws.
6.6 No Material Adverse Change. During the
period from the date of balance sheet included in the
Financial Statements to the Closing Date, none of the
Assets shall have sustained any material loss or damage
(whether or not such damage or loss is insured) nor shall
there have been any material adverse change in the
financial condition or prospects of the Seller.
6.7 Accuracy of Representations and
Warranties. All warranties and representations by Seller
in this Agreement, or in any schedule, exhibit, document
or certificate furnished to Purchaser in connection with
the transactions contemplated by this Agreement, shall be
true in all material respects on and as of the Closing
Date.
7. Other Covenants; Post-Closing Obligations.
7.1 Additional Agreements with Seller.
7.1.1 Non-Competition Agreement. Seller,
and Paul Michael and Willy Schrepfer, shall enter into a
covenant not to compete substantially in the form set
forth at Schedule 7.1.1 hereto (the "Non-Competition
Agreement") and providing that during the period
specified in the Non-Competition Agreement neither Seller
nor such parties shall, directly or indirectly, within
any areas identified in the Non-Competition Agreement,
compete in the business of the manufacturing, marketing,
or sale of products or goods sold by, or substantially
similar in style to the products or goods sold by, Seller
as of the Closing Date, all as more fully set forth in
the Non-Competition Agreement.
7.2 Use of Name. On the Closing Date, Seller
shall take all actions necessary to cause its name to be
changed to a name which bears no resemblance to its
current name, including, without limitation, deletion of
the words "Mag-Head" from its name, and shall file with
the Office of the Minnesota Secretary of State a
certificate of amendment to Seller's Articles of
Incorporation reflecting such change of name. Neither
Seller nor Shareholder shall use the name "Mag-Head" or
"MEC," in connection with any business operated by Seller
or Shareholder after the Closing without the prior
written consent of Purchaser. Seller shall cooperate
with any application by Purchaser to use the name "Mag-
Head" or "MEC," or any similar name, in connection with
Purchaser's operation of the Business acquired by
Purchaser.
7.3 Receipt of Mail. From and after the
Closing Date, Purchaser shall have the sole and exclusive
right to receipt of all mail addressed to Seller.
Purchaser shall forward to Seller any such mail not
applicable to the Assets or the Business, within four (4)
business days of Purchaser's receipt thereof.
7.4 Certain Discounts. Schedule 7.4 hereto
contains a list of Seller's suppliers who have agreed to
provide price or other discounts or concessions to Seller
with respect to merchandise or services purchased from
such suppliers and a description of each such
arrangement, including the amounts involved and the terms
thereof. Seller and Purchaser agree that the benefit of
all such discounts and concessions shall inure to the
benefit of Purchaser and the parties hereto agree to take
such steps as are necessary to effect such agreement.
7.5 Further Assurances. Purchaser and Seller
each represents, warrants and covenants to the other that
if at any time after the execution of this Agreement, the
other party shall reasonably consider or be advised that
any further assignments or assurances in law are
necessary or desirable to carry out the intent and
accomplish the purposes of this Agreement according to
its terms, such party shall execute and make all such
proper assignments and assurances and do all things
necessary or appropriate to carry out the intent and
accomplish the purposes of this Agreement and to
consummate the transactions contemplated by this
Agreement according to its terms.
8. Seller's Conditions to Closing. The
obligations of Seller to sell the Assets and consummate
the related transactions provided for under this
Agreement are subject to the fulfillment or waiver by
Seller in writing, at or prior to Closing, of each and
all of the conditions precedent listed below.
8.1 Execution and Delivery of Documents;
Performance. Purchaser shall have executed and delivered
to Seller all of the documents and agreements specified
in Section 9 below to be executed and delivered by
Purchaser, and performed and complied with all covenants
and agreements of Purchaser required to be performed or
complied with prior to Closing.
8.2 Accuracy of Representations and
Warranties. All representations and warranties of
Purchaser contained in this Agreement shall be true on
and as of the Closing Date as though such representations
and warranties were made on and as of that date.
9. Closing.
9.1 Time of Closing. The closing of the
transactions contemplated herein (the "Closing") shall be
at 10:00 A.M., on February 7, 1996, or at such other time
as the parties hereto shall mutually agree to (the
"Closing Date"). This Agreement and all agreements and
documents to be executed and delivered in connection with
the Closing may be executed in counterparts, each of
which shall be an original of such respective agreement
and document, but all counterparts of which shall
together constitute one instrument thereof, respectively.
Delivery by a party of an executed counterpart by
facsimile may be relied on by the other party as an
original, and any party delivering a counterpart by
facsimile shall promptly deliver an executed original to
the other party. The failure by a party to do so shall
not invalidate any prior facsimile delivery of such
counterpart by such party. The parties mutually
acknowledge and agree for the purposes of this Agreement
that time is of the essence. If the Closing does not
occur on or before the Closing Date by reason of any
default of Seller under this Agreement, in addition to,
and not by way of limitation of any other right or remedy
of Purchaser, Purchaser shall be relieved of its
obligation to consummate the Closing.
9.2 Delivery of Cash and Documents. On the
Closing Date, the parties shall deliver to each other the
following respective documents:
9.2.1 Two original, fully executed copies
of a Warranty Bill of Sale in the form of Schedule 9.2.1
hereto, signed by Seller and Purchaser, together with
such other instruments and documents as Purchaser shall
reasonably require to vest Purchaser with marketable
title to the Assets, free and clear of all liens,
charges, and encumbrances.
9.2.2 Two original, fully executed copies
of an Assignment of Intangibles in the form of Schedule
9.2.2 hereto, signed by Seller and Purchaser.
9.2.3 Two original, fully executed copies
of an Assignment and Assumption of Contracts in the form
of Schedule 9.2.3 hereto, signed by Seller and Purchaser.
9.2.4 Intentionally deleted.
9.2.5 Two originals of an affidavit,
signed by Seller, to the effect that Seller is not a
foreign corporation, foreign partnership, foreign trust
or foreign estate within the meaning of the Internal
Revenue Code of 1986, as amended, and the regulations
promulgated thereunder, substantially in the form of
Schedule 9.2.5 hereto.
9.2.6 The Purchase Price, to be paid by
Purchaser in accordance with Section 2.2, subject to
applicable adjustments and credits hereunder.
9.2.7 Two original, executed certificates
in the form of Schedule 9.2.7(a) and 9.2.7(b), signed by
officers of the Seller and Purchaser, respectively.
9.2.8 Two original, fully executed copies
of the Non-Competition Agreement in the form of Schedule
7.1.1 hereto, signed by Seller and Purchaser.
9.2.9 An original opinion of legal
counsel for Seller, in the form set forth in Schedule
9.2.9 hereto, to be delivered by Seller.
9.2.10 Two original, executed copies of
an Assignment of the Lease (with executed Consent of
Landlord), in the form of Schedule 1.3.1 hereto, and
signed by Seller, the landlord under the Lease and
Purchaser.
9.3 Actions at Closing. All requirements with
respect to Closing shall be considered as having taken
place simultaneously, and no delivery shall be considered
as having been made until all deliveries and closing
transactions have been accomplished.
9.4 Allocation. Except as otherwise provided
in Sections 10 and 11, the parties' responsibility for
personal and real property taxes, utilities and other
similar charges relating to the Assets, shall be
allocated between the parties with Seller paying all such
expenses applicable to ownership of the Assets prior to
the Closing Date and Purchaser paying all such expenses
applicable to ownership of the Assets thereafter.
10. Indemnity.
10.1 Seller's Indemnity. Seller hereby,
agrees to indemnify, defend and hold harmless Purchaser
against and in respect of any and all claims, demands,
losses, costs, expenses, obligations, liabilities,
damages, recoveries and deficiencies, including, without
limitation, interest, penalties and reasonable attorneys'
fees and court costs (collectively "Claim(s)"), that
Purchaser shall incur or suffer, which arise, result
from, or relate to (i) any breach of, or failure by
Seller to perform, any of its representations,
warranties, covenants or agreements in this Agreement or
in any schedule, certificate, document, exhibit or other
instrument furnished or to be furnished by Seller under
this Agreement, and (ii) except as otherwise expressly
assumed by Purchaser as an Assumed Liability hereunder
(and in such case solely to the extent of such
assumption), any actual or alleged tort, breach of
contract, wrongdoing, cause of action or Claim arising in
connection with, incurred with respect to or relating to
(a) the conduct of the Business of Seller, or (b) the
Premises or the Assets (and any Hazardous Substances with
respect any of the foregoing) prior to the Closing Date.
10.2 Purchaser's Indemnity. Purchaser hereby
agrees to indemnify, defend and hold harmless Seller,
against and in respect of any and all Claims that Seller
shall incur or suffer, which arise, result from or relate
to (i) any breach of, or failure by Purchaser to perform,
any of its representations, warranties, covenants or
agreements in this Agreement or in any schedule,
certificate, document, exhibit or other instrument
furnished or to be furnished by Purchaser under this
Agreement, and (ii) any actual or alleged tort, breach of
contract, wrongdoing, cause of action or Claim (a)
incurred or relating to the conduct by Purchaser after
the Closing Date of its business (and any Hazardous
Substances with respect thereto) on the Premises, or (b)
incurred by Purchaser following the Closing Date with
respect to the Assets or the Assumed Liabilities.
11. Taxes. Any and all Minnesota sales, excise,
transfer and use taxes applicable to the conveyance and
transfer to Purchaser of the Assets shall be borne and
paid for solely by Seller. Seller represents and
warrants that all personal property taxes arising prior
to the Closing with regard to the Assets have been timely
and fully paid. Purchaser shall have no responsibility
or liability for any income, excise, property, business,
occupation, withholding or similar tax, or for taxes of
any other kind or type on the Business or Seller's
operations and activities at the Premises, related to any
period prior to the Closing Date, and Seller shall
indemnify Purchaser under Section 10.1 with respect to
any such liability.
12. Miscellaneous Provisions.
12.1 Expenses. Except as otherwise provided
in this Agreement, each party hereto shall pay its own
expenses (including, without limitation, legal and
accounting fees) incident to the origination, negotiation
and execution of this Agreement and the consummation of
the transactions contemplated hereby, regardless of
whether such transactions are consummated.
12.2 Schedules and Exhibits. Each of the
schedules and exhibits attached hereto are incorporated
herein by reference and made a part hereof for all
purposes.
12.3 Amendments or Waivers. Except as
otherwise specifically stated herein, any provision of
this Agreement may be amended by, and only by, a written
agreement executed by Purchaser, on the one hand, and
Seller, on the other. Either party may extend the time
for or waive the performance of any obligation of the
other party, waive any inaccuracies in the
representations or warranties of the other party, waive
fulfillment of any conditions or contingencies to such
party's obligations to consummate the transactions
provided for hereunder, or waive compliance by the other
party with any of the terms and conditions contained in
this Agreement; provided that, each and every such
extension or waiver shall be in writing.
12.4 Further Assurances. From and after the
Closing Date, the parties shall, on request, cooperate
with one another by furnishing any additional
information, executing and delivering any additional
documents and instruments, and taking any and all other
actions as may reasonably be required by the parties or
their respective counsel to consummate or otherwise
implement the transactions provided for in this
Agreement.
12.5 Successors and Assigns. This Agreement
shall apply to, and inure to the benefit of, and be
binding upon and enforceable against the parties hereto
and their respective successors and permitted assigns.
12.6 Governing Law; Venue. This Agreement,
and the ancillary agreements and documents executed and
delivered in connection herewith, and the rights and
obligations of the parties hereto and thereunder shall be
governed by and construed in accordance with the laws of
the State of Minnesota.
12.7 Notices. Any notice, demand, approval,
consent, request, waiver or other communication which may
be given or which is required to be given pursuant to
this Agreement shall be in writing and shall be deemed
given on the earlier of the day actually received or on
the close of business on the third business day following
the date deposited in the United States mail, postage
pre-paid, certified or registered, addressed to the party
at the address set forth after its respective name below,
or at such different address as such party shall have
theretofore advised the party of in writing, with copies
sent to the persons indicated:
To Seller: MHD Minnesota, Inc.
11278 65th Place North
Maple Grove, Minnesota 55369
Attn: Mr. Willy Schrepfer
To Purchaser: Ahead Technology Acquisition
Corporation
c/o 3105 Patrick Henry Drive
Santa Clara, California 95054
Attn: Steve Conlisk
or to such other address as such party shall have
specified by notice in writing to the other.
12.8 Invalid Provisions. If any provision
hereof shall be held to be illegal, invalid or
unenforceable under present or future laws effective
during the term hereof, such provision shall be fully
severable and this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof, with the
remaining provisions hereof remaining in full force and
effect and unaffected by the illegal, invalid or
unenforceable provision or by its severance herefrom. In
lieu of such illegal, invalid or unenforceable provision,
there shall be added automatically as a part hereof a
provision as similar in terms as the illegal, invalid or
unenforceable provision as may be possible and, at the
same time, be legal, valid and enforceable.
12.9 Entirety of Agreement. This Agreement
(including exhibits, schedules and agreements referenced
herein) and any other agreements and instruments
delivered at the Closing (or after the Closing pursuant
hereto) contain the entire Agreement between the parties.
No representations, inducements, promises or agreements,
whether oral or otherwise, which are not embodied herein
or therein shall be of any force or effect.
12.10 No Commission or Finder's Fee. Seller
and Purchaser each represent and warrant that no
brokerage, finder's or similar fee or commission has been
incurred by them or it in connection with the
transactions provided for in this Agreement. Seller, on
the one hand, and Purchaser, on the other, hereby
indemnify and hold harmless the other party under Section
10 hereof from any brokerage, finder's or similar fee or
commission incurred by such identifying party in
connection with the transactions contemplated by this
Agreement.
12.11 Joint and Several Liabilities.
Intentionally deleted.
12.12 Counterparts; Effectiveness. This
Agreement may be executed in counterparts, each of which
shall be deemed an original for all purposes and all of
which shall be deemed, collectively, one Agreement. This
Agreement shall become effective when executed and
delivered by all parties hereto.
12.13 Confidentiality. Seller and Seller's
officers, directors and other representatives shall hold
in strict confidence the terms and condition of this
Agreement, except to the extent required to be provided
to any tax or other governmental authority. Seller
waives any cause of action, right or claim arising out of
the access of Purchaser or its representatives to any
trade secrets or other confidential information of
Purchaser from the date of this Agreement until the
Closing Date, except for the intentional, competitive
misuse by Purchaser of such trade secrets or other
confidential business information if the Closing does not
take place.
12.14 Parties In Interest. Nothing in this
Agreement, whether express or implied, is intended to
confer any rights or remedies under or by reason of this
Agreement on any persons or entities other than the
parties hereto, and their respective successors and
assigns, nor is anything in this Agreement intended to
relieve or discharge the liability or obligation of any
third persons to any party to this Agreement or give any
third persons any right of subrogation or action over
against any party to this Agreement.
12.15 Attorneys' Fees. If any legal action or
other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of
the provisions of this Agreement, the successful or
prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in
that action or proceeding, in addition to any other
relief to which it or they may be entitled.
12.16 Nature and Survival of Representations
and Warranties. Representations and warranties made by
the parties to this Agreement shall be deemed to be
continuing and shall survive the Closing.
12.17 Purchaser's Right of Specific
Performance. The Assets to be transferred under this
Agreement cannot be readily purchased or sold, as the
case may be, in the open market and for that reason,
among others, it is agreed that Purchaser will be
irreparably damaged by a failure of consummation of the
transactions contemplated by this Agreement resulting
from a breach by Seller of its obligations hereunder.
Accordingly, in the event of any default by Seller under
this Agreement, the rights of Purchaser shall be
enforceable by decree of specific performance. Such
remedy, however, shall be cumulative and not exclusive,
and shall be in addition to any other remedies that
Purchaser may have.
12.18 Counsel. Each party hereto acknowledges
and agrees that such party has been represented by
counsel of his or its choice in connection with execution
and delivery of this Agreement and this Agreement has
been reviewed by such counsel to such party's
satisfaction.
IN WITNESS WHEREOF, this Agreement has been
signed by duly authorized representatives on behalf of
each of the parties hereto on the date first written
above.
MAG-HEAD ENGINEERING COMPANY,
INC.
By: /s/ Paul S. Michael
Paul S. Michael, President
By: /s/ Willy Schrepfer
Willy Schrepfer, Secretary
AHEAD TECHNOLOGY ACQUISITION
CORPORATION
By: /s/ Steve Conlisk
Title: V.P. Finance
Schedule 1.1.1
Description of Fixed Assets
See Attached.
MC Software, Inc.
MAG-HEAD ENGINEERING COMPANY, INC. 11/30/95
GREP11 Account Details Report Page 1
All Departments
All Periods
Account Dept Description
Date Per PR JB Reference Amount Balance
1500 00 LEASEHOLD IMPROVEMENTS
02/28/95 01 511 GL Balance Forward Year 489.78 489.78
1550 00 MACHINERY & EQUIPMENT
02/28/95 01 511 GL Balance Forward Year 269400.04 269400.04
RECORD MARSHALL
06/30/95 04 550 GL IND PURCS 397.70 269797.74
08/31/95 06 562 AP A/P Capital 3 1570.00 271367.74
1570 00 OFFICE EQUIPMENT
02/28/95 01 511 GL Balance Forward Year 5874.36 5874.36
05/31/95 03 529 AP A/P 4 Office Eq 1795.87 7670.23
08/31/95 06 562 AP A/P 4 Office Eq 716.26 8386.49
MEC ENGINEERING, INC.
FIXED ASSETS - BOOK
METHOD/ A/D A/D
DATE DESCRIPTION LIFE COST 2/28/95 EXPENSE 2/28/96
LEASEHOLD IMPROVEMENTS:
9/18/86 BUILDING SIGN SL 7YR 244.00 244.00 244.00
9/1/87 W.W. SL 7YR 245.78 245.78 ___ 245.78
GRAINGER
TOTAL 489.78 489.78 0.00 489.78
MACHINERY & EQUIPMENT:
1986 Various SL 7YR 43,951.22 43,951.22 43,951.22
1987 Various SL 7YR 81,208.97 81,208.97 81,208.97
1988 Various SL 7YR 45,168.67 41,942.40 3,226.27 45,168.67
1989 Various SL 7YR 28,886.10 22,696.22 4,126.59 26,822.81
2/90 Equipment SL 7YR 886.26 633.04 126.61 759.65
4/90 Finishing SL 7YR 10,000.00 7,023.81 1,428.57 8,452.38
Machines(2)
4/90 Tooling-X- SL 7YR 1,066.00 748.74 152.29 901.02
Talk
5/90 X-Talk SL 7YR 275.00 189.88 39.29 229.17
Fixture
5/90 Microscope SL 7YR 848.00 585.52 121.14 706.67
5/90 MEC Lapping SL 7YR 2,400.00 1,657.14 342.86 2,000.00
Blocks
6/90 OMICRON Tools SL 7YR 700.00 475.00 100.00 575.00
8/90 Impedence SL 7YR 755.53 494.69 107.93 602.63
Bridge
10/90 6-Finishing SL 7YR 5,207.00 3,285.37 743.86 4,029.23
Machines
10/90 Grinding SL 7YR 565.32 356.69 80.76 437.45
Wheel Hub
10/90 Hull SL 7YR 330.00 208.21 47.14 255.36
Amplifier
5/90 Chest SL 7YR 5,614.42 3,074.56 802.06 3,876.62
Council
Improvement
(5-90)
12/90 A/R SL 7YR 695.00 421.96 99.29 521.25
Software
1/91 High SL 7YR 1,010.00 601.18 144.29 745.47
Voltage
Power
Supply
3/91 12- SL 7YR 2,400.00 1,371.43 342.86 1,714.29
Position
Finishing
Holders
(2)
3/91 Blank Die- SL 7YR 447.20 255.54 63.89 319.43
Wrap
Shield
3/91 Cabinet SL 7YR 280.00 153.33 40.00 193.33
4/91 Casing SL 7YR 728.00 398.67 104.00 502.67
Shim Die
7/91 Scopes & SL 7YR 1,524.89 762.45 217.84 980.29
Stations
8/91 Laminator SL 7YR 1,700.00 870.24 242.86 1,113.10
Mold
8/91 Bobbin SL 7YR 650.00 332.74 92.86 425.60
Mold
9/91 Rebuilt SL 7YR 470.20 235.10 67.17 302.27
Core
Holder
Insert
9/91 Temporary SL 7YR 1,100.00 550.00 157.14 707.14
Case Die
10/91 Heat Treat SL 7YR 3,131.66 1,528.55 447.38 1,975.93
Furnace
10/91 Various SL 7YR 1,715.00 837.08 245.00 1,082.08
Electronic
Equipment
10/91 Lapping SL 7YR 250.00 122.02 35.71 157.74
Machine
(Modified)
11/91 Merlyn SL 7YR 650.03 309.54 92.86 402.40
Phone
System
11/91 Drafting SL 7YR 350.00 166.67 50.00 216.67
Table
11/91 Precision SL 7YR 262.38 124.94 37.48 162.43
Oven
1/92 Four SL 7YR 3,200.00 1,447.62 457.14 1,904.76
Cavity
Bobin Mode
1/92 Equipment SL 7YR 329.18 148.91 47.03 195.94
2/92 Equipment SL 7YR 1,395.00 614.46 199.29 813.74
3/92 Window Die SL 7YR 860.00 368.57 122.86 491.43
(SCI)
3/92 Permanent SL 7YR 4,800.00 2,057.14 685.71 2,742.86
Tooling
Case
(SCI)
3/92 Assembly SL 7YR 490.00 210.00 70.00 280.00
Fixtures
(SCI)
3/92 Finishing SL 7YR 580.00 248.57 82.86 331.43
Fixture
(SCI)
3/92 Positioning SL 7YR 596.45 255.62 85.21 340.83
Fixtures
for
Write &
Read
(SCI)
3/92 Winding SL 7YR 350.00 150.00 50.00 200.00
Chuck
Flash
Taping
Fixture
(SCI)
4/92 4 Cavity SL 7YR 250.00 104.17 35.71 139.88
Cable
Potting
Mold
4/92 Ganged SL 7YR 1,975.47 823.11 282.21 1,105.32
Arbor Saws
7/92 4 Position SL 7YR 600.00 228.57 85.71 314.29
Form
Grinding
Fixture (7
Track)
8/92 Slotting & SL 7YR 490.00 180.83 70.00 250.83
Drilling
Fixtures &
Gang Saws
9/92 Equipment SL 7YR 1,010.00 360.71 144.29 505.00
9/92 Refrigerat SL 7YR 393.81 140.65 56.26 196.91
or
9/92 Equipment SL 7YR 290.00 103.57 41.43 145.00
10/92 Equipment SL 7YR 405.00 139.82 57.86 197.68
11/92 Punch SL 7YR 927.03 309.01 132.43 441.44
Press
11/92 Large SL 7YR 1,000.00 333.33 142.86 476.19
Winder
11/92 Small SL 7YR 400.00 133.33 57.14 190.48
Winder
11/92 Mill SL 7YR 250.00 83.33 35.71 119.05
12/92 Software SL 7YR 1,711.00 549.96 244.43 794.39
1/93 Window Die SL 7YR 965.00 298.68 137.86 436.54
5/94 4 Station SL 7YR 905.25 107.77 129.32 237.09
Grind
Fixture
TOTAL 269,400.04 226,970.68 17,379.29 244,349.97
OFFICE EQUIPMENT:
1986 Various SL 7YR 376.30 376.30 376.30
1987 Various SL 7YR 744.65 744.65 744.65
1989 Various SL 7YR 2,381.16 1,870.91 340.17 2,211.08
8/90 G/L SL 7YR 695.00 438.51 99.29 537.80
Software
8/90 A/P SL 7YR 695.00 438.51 99.29 537.80
Software
8/90 Bookcase, SL 7YR 413.40 260.84 59.06 319.89
Computer
Stand,
Metal
Shelving,
Black
Cabinet
5/91 Office SL 7YR 196.10 107.39 28.01 135.40
Equipment
4/92 Computer SL 7YR 372.75 155.22 53.25 208.47
TOTAL 5,874.36 4,392.33 679.06 5,071.39
Schedule 1.1.3
Description of Orders and Agreements
1. Lease, dated September 12, 1990 (as amended by a
certain (i) Rider, dated September 12, 1990, (ii) Amendment to
Lease, dated November 19, 1990, and (iii) Agreement to Extend
Lease, dated January 14, 1994), between Lutheran Brotherhood, a
Minnesota corporation, and Mag-Head Engineering, Inc. (now known
as Mag-Head Engineering Company, Inc.), a Minnesota corporation,
by which the premises therein commonly described as 684-686
Mendelssohn Avenue North, Golden Valley, Minnesota are demised
for a term commencing on September 12, 1990 and ending on January
31, 1997, a copy of which has been provided by Seller to
Purchaser. Also, all lease deposits thereunder.
2. All Accounts Receivable Trade (including, without
limitation, those identified on attached pages hereto) of Seller.
3. All GPT - A/R (including, without limitation, those
identified on attached pages hereto) of Seller.
4. Copier lease with "Imaging Systems," provided to
Purchaser by Seller.
5. All customer sales/purchase orders (including,
without limitation, those identified on attached pages hereto) of
Seller.
MAG-HEAD ENGINEERING
CUSTOMER SHIPPING SCHEDULE
NOVEMBER 1995
MEC DUE DATE INV.
# CUSTOMER QTY. $ VALUE DATE SHIPPED QTY. $ VALUE #
1096 DOD 15 $1,480.50 10-25
1014 B.E. 25 875.00 10-30
1014 B.E. 50 1,750.00 10-30
1205 GEORGENS 43 2,401.55 11-06 11-20 153 $8,545.05 3756
1041 ITC 11-21 2 264.00 3759
1084 HALL 3 195.00 11-10
1003 LORAL 100 6,430.00 11-15
1014 FIDELIPA 35 1,292.20 11-15
C
1004 LORAL 100 6,430.00 11-15
1082 PR&E 11-21 5 675.00 3758
1076 B&D 10 3,600.00 11-17
1084 ITC 64 2,459.52 11-20
1206 GEORGENS 100 5,585.00 11-20
1043 FIDELIPA 20 691.00 11-20
C
1206 GEORGENS 100 5,585.00 11-27
1119 LOCKHEED 42 6,827.52 11-29 11-21 8 1,300.45 3757
9 CH 3M 2 3,624.44 11-30
$49,226.73 SHIPPED: $10,784.53
TO BE SHIPPED: $49,226.73
NOV TOTAL: $60,011.26
DECEMBER 1995
DUE
MEC # CUSTOMER QTY. $ VALUE DATE
1206 GEORGENS 100 $5,585.00 12-4
1014 B.E. 50 1,750.00 12-7
1206 GEORGENS 40 2,234.00 12-11
1014 FIDELIPAC 35 1,292.20 12-15
1003 LORAL 120 7,716.00 12-15
1004 LORAL 100 6,430.00 12-15
1076 B&D 10 3,600.00 12-15
1084 ITC 80 3,074.40 12-18
2 GAP BRANDT 10 1,700.00 12-19
1043 FIDELIPAC 20 691.00 12-20
1096 DOD 200 19,740.00 12-24
TOOL PRECISION 1 815.00 12-27
REFURB PRECISION 2 600.00 12-27
1003 DOD 40 4,720.00 12-29
9 CH 3M 2 3,624.44 12-30
??1069 SYGNETRON 3 250.00 12-30
7
$63,822.04
JANUARY 1996
DUE
MEC # CUSTOMER QTY. $ VALUE DATE
1004 LORAL 150 $10,117.50 1-3
SPACER 3M 200 3,116.00 1-4
S
1035 B.E. 25 695.00 1-8
1072 B.E. 15 483.75 1-8
1014 FIDELIPAC 35 1,292.20 1-15
1076 B&D 10 3,600.00 1-19
1043 FIDELIPAC 20 691.00 1-20
1084 ITC 80 3,074.40 1-22
1096 DOD 200 19,740.00 1-24
9 CH 3M 2 3,624.44 1-30
1157 PRIMUS 10K 48,800.00 1-30
$95,234.29
FEBRUARY 1996
DUE
MEC # CUSTOMER QTY. $ VALUE DATE
1014 B.E. 50 $1,750.00 2-7
1004 LORAL 150 10,117.50 2-9
1003 LORAL 100 6,745.00 2-9
1076 B&D 10 3,600.00 2-16
1157 PRIMUS 5000 24,400.00 2-13
1084 ITC 80 3,074.40 2-26
9 CH 3M 2 3,624.44 2-29
1157 PRIMUS 5000 24,400.00 2-27
$77,711.34
MARCH 1996
DUE
MEC # CUSTOMER QTY. $ VALUE DATE
1003 LORAL 100 $6,745.00 3-15
1076 B&D 10 3,600.00 3-15
9 CH 3M 2 3,624.44 3-30
$13,969.44
APRIL 1996
DUE
MEC # CUSTOMER QTY. $ VALUE DATE
1003 LORAL 100 $6,745.00 4-12
1004 LORAL 100 6,745.00 4-16
1076 B&D 10 3,600.00 4-19
$17,090.00
MAY 1996
DUE
MEC # CUSTOMER QTY. $ VALUE DATE
1003 LORAL 100 $6,745.00 5-10
1076 B&D 10 3,600.00 5-17
$10,345.00
TOTAL BACKLOG 95-
96
$236,767.6
7
TOTAL BACKLOG:
$278,172.1
1
UNSCHEDULED:
DUE
MEC # CUSTOMER QTY. $ VALUE DATE
CASES MOS 3825 $5,163.75
1072 B.E. 170 5,482.50
1035 B.E. 325 9,035.00
1014 B.E. 400 14,000.00
$33,681.25
Schedule 1.1.4
Proprietary Rights
All proprietary rights, service marks, patents,
trademarks, copyrights, designs, brand names, trade
names, processes, know-how, symbols, inventions,
programs, trade secrets, logos and telephone numbers
related to or connected with the Business, including,
without limitation, the product catalogues used or
distributed by Seller in connection with the Business and
the names "MEC" and "Mag-Head Engineering Company," and
all derivations thereof, all lists of suppliers,
customers and prospects, all Federal and state
applications for protection or registration of any of the
foregoing and all intangibles appurtenant thereto.
Schedule 1.2
Excluded Assets
Prepaid insurance premiums and other prepaid
expenses (excluding lease deposits).
Schedule 1.3
Assumed Liabilities
1. Lease, dated September 12, 1990 (as amended by
a certain (i) Rider, dated September 12, 1990, (ii)
Amendment to Lease, dated November 19, 1990, and (iii)
Agreement to Extend Lease, dated January 14, 1994),
between Lutheran Brotherhood, a Minnesota corporation,
and Mag-Head Engineering, Inc. (now known as Mag-Head
Engineering Company, Inc.), a Minnesota corporation, by
which the premises therein commonly described as 684-686
Mendelssohn Avenue North, Golden Valley, Minnesota are
demised for a term commencing on September 12, 1990 and
ending on January 31, 1997, a copy of which has been
provided by Seller to Purchaser. Also, all lease
deposits thereunder.
2. Copier lease with "Imaging Systems," provided
to Purchaser by Seller.
3. All accounts payable identified on the attached
pages hereto (unless otherwise paid for by Seller prior
to the Closing) and all other unpaid accounts payable
(which shall not, in any circumstance include (i) costs
arising in connection with the consummation of the
transactions under this Agreement and (ii) payroll and
other employee expenses arising from Seller's termination
of employees) incurred in the ordinary course of business
of Seller from February 6, 1996 to the Closing.
<TABLE>
<CAPTION>
MC Software, Inc. MAG-HEAD ENGINEERING COMPANY, INC. 10/31/95
PREP05 Accounts Payable - Aged Trial Balance Page 1
Aged on 10/31/95
ACCOUNT BALCURRENT DUE PAST DUE CREDIT 1-30 31-60 61-90 91-120 PRIOR
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ABR001 Abrasive Systems, Inc. 612-424-7400
175.90 0.00 175.90 0.00 87.95 87.95 0.00 0.00 0.00
AEI001 AEI Electronics Inc. 612-338-4754
21.48 0.00 21.48 0.00 0.00 21.48 0.00 0.00 0.00
AMP001 AMP Incorporated 708-351-5030
48.99 0.00 48.99 0.00 48.99 0.00 0.00 0.00 0.00
BAC001 Bacon Industries 617-926-2560
202.10 0.00 202.10 0.00 202.10 0.00 0.00 0.00 0.00
BOB-LESKO BOB LESKO 412-746-0899
225.60 0.00 225.60 0.00 0.00 225.60 0.00 0.00 0.00
BRO001 Browning Ferris Ind. 612-941-8394
104.42 0.00 104.42 0.00 104.42 0.00 0.00 0.00 0.00
BOS001 BT Office Products Intn'l 612-553-9500
30.98 0.00 30.98 0.00 30.98 0.00 0.00 0.00 0.00
CIMCO CIMCO 714-546-4460
360.05 0.00 360.05 0.00 0.00 360.05 0.00 0.00 0.00
COP001 Copy Duplicating Products 612-861-2412
115.02 0.00 115.02 0.00 115.02 0.00 0.00 0.00 0.00
DAC001 Dacon Manufacturing Co. 612-785-1400
15672.95 0.00 15672.95 0.00 14966.15 706.80 0.00 0.00 0.00
DEM001 Dempsey Industries, Inc.
90.92 0.00 90.92 0.00 90.92 0.00 0.00 0.00 0.00
EAS001 Eastech Chemical Inc. 215-537-1000
50.11 0.00 50.11 0.00 50.11 0.00 0.00 0.00 0.00
EEM001 Eemus Manufacturing Corp. 818-331-1776
2019.39 0.00 2019.39 0.00 2019.39 0.00 0.00 0.00 0.00
ELE003 Electrical Insulations 414-251-9650
268.22 0.00 268.22 0.00 157.82 110.40 0.00 0.00 0.00
EIT ENHANCED TELEMANAGEMENT 342-2255
266.61 266.61 0.00 0.00 0.00 0.00 0.00 0.00 0.00
EXP001 Express Messenger 612-623-5900
28.05 0.00 28.05 0.00 28.05 0.00 0.00 0.00 0.00
FID001 Fidelity Products Co. 612-536-6500
37.97 0.00 37.97 0.00 37.97 0.00 0.00 0.00 0.00
AMERICAN FUNDS SERVICE CO
1353.06 0.00 1353.06 0.00 1353.06 0.00 0.00 0.00 0.00
GOLFSMITH GOLFSMITH 800-456-5344
194.55 0.00 194.55 0.00 89.35 105.20 0.00 0.00 0.00
GRA001 W.W. Grainger, Inc. 612-559-0406
22.91 0.00 22.91 0.00 0.00 22.91 0.00 0.00 0.00
GRANT GRANT THORNTON 332-0001
425.00 425.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
GTE GTE DIRECTORIES 831-5553
16.20 16.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00
HARDCOAT HARDCOAT, INC. 612-935-5715
70.00 0.00 70.00 0.00 70.00 0.00 0.00 0.00 0.00
HONEYWELL HONEYWELL EMPLOYEE'S CLUB
31.99 0.00 31.99 0.00 31.99 0.00 0.00 0.00 0.00
IND002 Industrial Plastics, Mpls 612-721-6444
445.20 0.00 445.20 0.00 445.20 0.00 0.00 0.00 0.00
INVEST INVEST CAST INC 788-6965
2295.11 0.00 2295.11 0.00 2295.11 0.00 0.00 0.00 0.00
KUI001 Kuipers Hardware 612-545-9627
32.43 11.91 20.52 0.00 20.52 0.00 0.00 0.00 0.00
116.75 0.00 116.75 0.00 116.75 0.00 0.00 0.00 0.00
NEW001 New England Electric Wire 803-838-6628
486.10 0.00 486.10 0.00 486.10 0.00 0.00 0.00 0.00
NOR002 Northern Airgas, Inc. 612-421-8980
26.64 13.54 13.10 0.00 0.00 13.10 0.00 0.00 0.00
OMI001 Omicron Tool 612-856-4142
1685.30 130.00 1556.30 0.00 227.50 1327.80 0.00 0.00 0.00
PACKNET PACKNET LTD 612-884-7517
771.26 432.62 338.64 0.00 338.64 0.00 0.00 0.00 0.00
PATRYAN PAT RYAN GOLF PRODUCTS 922-6924
62.46 0.00 128.46 -66.00 62.46 0.00 0.00 0.00 66.00
PRECISION PRECISION REPAIR, INC 612-784-1704
269.25 0.00 269.25 0.00 269.25 0.00 0.00 0.00 0.00
TADSON TADSON INC 612-441-4410
336.00 0.00 336.00 0.00 336.00 0.00 0.00 0.00 0.00
TWI001 Twin City Oxygen Co. 612-628-4848
42.66 25.06 17.60 0.00 0.00 17.60 0.00 0.00 0.00
UNI002 United Parcel Service 800-378-0700
188.36 0.00 188.36 0.00 188.36 0.00 0.00 0.00 0.00
US-WEST US WEST DIRECT 800-422-1234
38.80 0.00 38.80 0.00 38.80 0.00 0.00 0.00 0.00
VISA BANKCARD CENTER800-344-5696
254.83 0.00 254.83 0.00 254.83 0.00 0.00 0.00 0.00
WAR001 Warner Industrial Supply 612-378-7300
242.98 0.00 242.98 0.00 34.62 208.36 0.00 0.00 0.00
WIFFLER MARK WIFFLER
10.97 10.97 0.00 0.00 0.00 0.00 0.00 0.00 0.00
WLG001 W.L. Gore & Associates 512-276-7800
2078.02 0.00 2078.02 0.00 0.00 2078.02 0.00 0.00 0.00
31205.59 1331.91 29839.68 -66.00 24596.41 5275.27 0.00 0.00 66.00
</TABLE>
<TABLE>
<CAPTION>
MC Software, Inc. MAG-HEAD ENGINEERING COMPANY, INC. 10/31/95
PREP07 Accounts Payable Invoice Register Page 1
OPEN INVOICES
DISC.
INVOICE # TYPE P/ORDER DATE DUE DATE AMOUNT BALANCE DIS DATE AMOUNT TOTAL PAY
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ABR001 Abrasive Systems, Inc.
0018867 INVOICE 5048 09/11/95 10/11/95 87.95 87.95 0.00 87.95
0020318 INVOICE 5048 10/09/95 11/08/95 87.95 87.95 0.00 87.95
________ ________ _______ _______
175.90 175.90 0.00 175.90
AEI001 AEI Electronics Inc.
094008-0 INVOICE 5078 09/26/95 10/26/95 21.48 21.48 0.00 21.48
________ ________ _______ _______
21.48 21.48 0.00 21.48
AMP001 AMP Incorporated
F1450373 INVOICE 10/01/95 10/31/95 48.99 48.99 0.00 48.99
________ ________ _______ ________
48.99 48.99 0.00 48.99
BAC001 Bacon Industries
0076730 INVOICE 5057 10/19/95 11/18/95 202.10 202.10 0.00 202.10
________ ________ _______ ________
202.10 202.10 0.00 202.10
BOB-LESKO BOB LESKO
COMM-PAY INVOICE 09/29/95 09/29/95 225.60 225.60 0.00 225.60
________ ________ _______ ________
225.60 225.60 0.00 225.60
BRO001 Browning Ferris Ind.
9001049873 INVOICE 10/01/95 10/31/95 104.42 104.42 0.00 104.42
________ ________ _______ ________
104.42 104.42 0.00 104.42
001 BT OFFICE PRODUCTS INTN'L
2948530 INVOICE 5101 10/24/95 11/23/95 30.98 30.98 0.00 30.98
________ ________ _______ ________
30.98 30.98 0.00 30.98
CIMCO CIMCO
0044896 INVOICE 5034 09/26/95 10/26/95 350.05 350.05 0.00 350.05
________ ________ _______ ________
350.05 350.05 0.00 350.05
COP001 Copy Duplicating Products
2207660 INVOICE 10/01/95 10/31/95 115.02 115.02 0.00 115.02
________ ________ _______ ________
115.02 115.02 0.00 115.02
DAC001 Dacon Manufacturing Co.
0031673 INVOICE 5053 09/21/95 10/21/95 706.80 706.80 0.00 706.80
0031720 INVOICE 5000 10/01/95 10/31/95 3075.60 3075.60 0.00 3075.60
0031721 INVOICE 4729 10/01/95 10/31/95 3510.00 3510.00 0.00 3510.00
0031746 INVOICE 5056 10/06/95 11/05/95 1728.23 1728.23 0.00 1728.23
0031816 INVOICE 4764 10/20/95 11/19/95 485.40 485.40 0.00 485.40
0031817 INVOICE 4764 10/20/95 11/19/95 510.30 510.30 0.00 510.30
0031855 INVOICE 4729 10/27/95 11/26/95 1029.60 1029.60 0.00 1029.60
0031856 INVOICE 4729 10/27/95 11/26/95 1006.20 1006.20 0.00 1006.20
0031857 INVOICE 5000 10/27/95 11/26/95 1782.45 1782.45 0.00 1782.45
0031858 INVOICE 5000 10/27/95 11/26/95 1838.37 1838.37 0.00 1838.37
________ ________ _______ ________
15672.95 15672.95 0.00 15672.95
IBM001 Dempsey Industries, Inc.
0085582 INVOICE 5082 10/01/95 10/31/95 90.92 90.92 0.00 90.92
________ ________ _______ ________
90.92 90.92 0.00 90.92
EAS001 Eastech Chemical Inc.
0086450 INVOICE 5071 10/24/95 11/23/95 50.11 50.11 0.00 50.11
________ ________ _______ ________
50.11 50.11 0.00 50.11
EEM001 Eemus Manufacturing Corp.
I-94582 INVOICE 5001 10/02/95 11/01/95 2019.39 2019.39 0.00 2019.39
________ ________ _______ ________
2019.39 2019.39 0.00 2019.39
ELE008 Electrical Insultations
6598905 INVOICE 5079 09/26/95 10/26/95 110.40 110.40 0.00 110.40
6638755 INVOICE 5097 10/26/95 11/25/95 157.82 157.82 0.00 157.82
________ ________ _______ ________
268.22 268.22 0.00 268.22
ETI ENHANCED TELEMANAGEMENT
DUE110995 INVOICE 10/31/95 11/09/95 266.61 266.61 0.00 266.61
________ ________ _______ ________
266.61 266.61 0.00 266.61
EXP001 Express Messenger
08-169229 INVOICE 10/15/95 11/14/95 28.05 28.05 0.00 28.05
________ ________ _______ ________
28.05 28.05 0.00 28.05
FID001 Fidelity Products Co.
0512918 INVOICE 5080 10/04/95 11/03/95 37.97 37.97 0.00 37.97
________ ________ _______ ________
37.97 37.97 0.00 37.97
K AMERICAN FUNDS SERVICE CO
0100695 INVOICE 10/06/95 10/06/95 676.53 676.53 0.00 676.53
102095-401 INVOICE 10/20/95 10/20/95 676.53 676.53 0.00 676.53
________ ________ _______ ________
1363.06 1363.06 0.00 1363.06
GOLFSMITH GOLFSMITH
4146018 INVOICE 09/20/95 10/20/95 105.20 105.20 0.00 105.20
4211113 INVOICE 10/24/95 11/23/95 89.35 89.35 0.00 89.35
________ ________ _______ ________
194.55 194.55 0.00 194.55
GRA001 W.W. Grainger, Inc.
4952971663 INVOICE 5081 09/25/95 10/25/95 22.91 22.91 0.00 22.91
________ ________ _______ ________
22.91 22.91 0.00 22.91
GRANT GRANT THORNTON
401K-SEMI INVOICE 10/31/95 11/30/95 425.00 425.00 0.00 425.00
________ ________ _______ ________
425.00 425.00 0.00 425.00
GTE GTE DIRECTORIES
GPT-AD INVOICE 10/31/95 11/15/95 16.20 16.20 0.00 16.20
________ ________ _______ ________
16.20 16.20 0.00 16.20
HARDCOAT HARDCOAT, INC.
10239683 INVOICE 5096 10/23/95 11/22/95 70.00 70.00 0.00 70.00
________ ________ _______ ________
70.00 70.00 0.00 70.00
HONEYWELL HONEYWELL EMPLOYEE'S CLUB
GPT795 INVOICE H 10/19/95 11/03/95 31.99 31.99 0.00 31.99
________ ________ _______ ________
31.99 31.99 0.00 31.99
IND002 Industrial Plastics, Mpls
0022871 INVOICE 5066 10/04/95 11/03/95 445.20 445.20 0.00 445.20
________ ________ _______ ________
445.20 445.20 0.00 445.20
INVEST INVEST CAST INC
0026761 INVOICE 5033 10/01/95 10/31/95 2295.11 2295.11 0.00 2295.11
________ ________ _______ ________
2295.11 2295.11 0.00 2295.11
KUI001 Kuipers Hardware
0010276 INVOICE 10/27/95 11/26/95 2.08 2.08 0.00 2.08
0100295 INVOICE 10/02/95 11/01/95 2.32 2.32 0.00 2.32
0100495 INVOICE 10/04/95 11/08/95 16.12 16.12 0.00 16.12
0103095 INVOICE 10/31/95 11/30/95 11.91 11.91 0.00 11.91
________ ________ _______
________ 32.43 32.43 0.00 32.43
DUE110895 INVOICE 10/19/95 11/03/95 116.75 116.75 0.00 116.75
________ ________ _______ ________
116.75 116.75 0.00 116.75
NEW001 New England Electric Wire
0009606 INVOICE 5059 10/01/95 10/31/95 486.10 486.10 0.00 486.10
________ ________ _______ ________
486.10 486.10 0.00 486.10
NOR002 Northern Airgas, Inc.
0835355 INVOICE 09/30/95 10/30/95 13.10 13.10 0.00 13.10
0837254 INVOICE 10/31/95 11/30/95 13.54 13.54 0.00 13.54
________ ________ _______ ________
26.64 26.64 0.00 26.64
OMI001 Omicron Tool
0009909 INVOICE 5040 09/01/95 10/01/95 150.00 150.00 0.00 150.00
0009922 INVOICE 5024 09/14/95 10/14/95 125.00 125.00 0.00 125.00
0009923 INVOICE 4731 09/14/95 10/14/95 150.00 150.00 0.00 150.00
0009924 INVOICE 4631 09/14/95 10/14/95 187.50 187.50 0.00 187.50
0009925 INVOICE 5054 09/14/95 10/14/95 95.00 95.00 0.00 95.00
0009926 INVOICE 5075 09/18/95 10/18/95 195.30 195.30 0.00 195.30
0009927 INVOICE 5011 09/18/95 10/18/95 425.00 425.00 0.00 425.00
0009940 INVOICE 5085 10/12/95 11/11/95 86.00 86.00 0.00 86.00
0009941 INVOICE 5075 10/17/95 11/16/95 141.50 141.50 0.00 141.50
9XXXX-1914 INVOICE 5103 10/31/95 11/30/95 130.00 130.00 0.00 130.00
________ ________ _______ ________
1685.30 1685.30 0.00 1685.30
PACKNET PACKNET LTD
0041177 INVOICE 10/03/95 10/23/95 137.12 137.12 0.00 137.12
0041408 INVOICE 10/25/95 11/14/95 201.52 201.52 0.00 201.52
0041417 INVOICE 5068 10/31/95 11/20/95 432.62 432.62 0.00 432.62
________ ________ _______ ________
771.26 771.26 0.00 771.26
PATRYAN PAT RYAN GOLF PRODUCTS
0000746 INVOICE 10/19/95 11/18/95 24.46 24.46 0.00 24.46
0000756 INVOICE 10/30/95 11/29/95 38.00 38.00 0.00 38.00
0001486 INVOICE 04/11/95 05/11/95 66.00 66.00 0.00 66.00
0001486 CREDIT 04/30/95 04/30/95 -66.00 -66.00 0.00 -66.00
________ ________ _______ ________
62.46 62.46 0.00 62.46
PRECISION PRECISION REPAIR, INC
0102232 INVOICE 4781 10/01/95 10/16/95 240.00 240.00 0.00 240.00
0102320 INVOICE 4781 10/05/95 10/20/95 29.25 29.25 0.00 29.25
________ ________ _______ ________
269.25 269.25 0.00 269.25
TADSON TADSON INC
0006572 INVOICE 5084 10/04/95 11/03/95 336.00 336.00 0.00 336.00
________ ________ _______ ________
336.00 336.00 0.00 336.00
TWI001 Twin City Oxygen Co.
0362958 INVOICE 09/29/95 10/29/95 17.60 17.60 0.00 17.60
0364520 INVOICE 10/31/95 11/30/95 25.06 25.06 0.00 25.06
________ ________ _______ ________
42.66 42.66 0.00 42.66
UNI002 United Parcel Service
0102195 INVOICE 10/21/95 10/31/95 129.43 129.43 0.00 129.43
0102895 INVOICE 10/28/95 11/07/95 58.93 58.93 0.00 58.93
________ ________ _______ ________
188.36 188.36 0.00 188.36
US-WEST US WEST DIRECT
1756178000 INVOICE 10/22/95 11/06/95 38.80 38.80 0.00 38.80
________ ________ _______ ________
38.80 38.80 0.00 38.80
VISA BANKCARD CENTER
QUALITY= INVOICE 5980 10/24/95 11/13/95 254.83 254.83 0.00 254.83
________ ________ _______ ________
254.83 254.83 0.00 254.83
WAR001 Warner Industrial Supply
1173980-01 INVOICE 5077 09/26/95 10/26/95 208.36 208.36 0.00 208.36
1173980-02 INVOICE 5077 10/24/95 11/23/95 34.62 34.62 0.00 34.62
________ ________ _______ ________
242.98 242.98 0.00 242.98
WIFFLER MARK WIFFLER
COMM INVOICE 10/31/95 11/05/95 10.97 10.97 0.00 10.97
________ ________ _______ ________
10.97 10.97 0.00 10.97
WLG001 W.L. Gore & Associates
36083-10 INVOICE 5023 09/25/95 09/25/95 2078.02 2078.02 0.00 2078.02
________ ________ _______ ________
2078.02 2078.02 0.00 2078.02
========= ========= ======= ========
31205.59 31205.59 0.00 31205.59
</TABLE>
<TABLE>
<CAPTION>
MC Software, Inc. MAG-HEAD ENGINEERING COMPANY, INC. 10/31/95
PREP05 Accounts Receivable - Aged Trial Balance Page 1
Aged on 10/31/95
ACCOUNT BALCURRENT DUE PAST DUE CREDIT 1-30 31-60 61-90 91-120 PRIOR
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3-M 3M ACCOUNTS PAYABLE
9422.55 4122.55 5300.00 0.00 300.00 5000.00 0.00 0.00 0.00
AIWA AIWA CO., LTD TECH CENTER ###-##-####
1091.00 0.00 1091.00 0.00 0.00 1091.00 0.00 0.00 0.00
B&D B. & D. INSTRUMENTS INC. 316-786-1223
7208.50 0.00 7208.50 0.00 0.00 7208.50 0.00 0.00 0.00
BRO001 Broadcast Electronics Inc 217-224-9600
3585.75 1184.72 2401.03 0.00 0.00 2401.03 0.00 0.00 0.00
FT MEAD ACCOUNTS PAYABLE 301-859-5710
56764.90 19641.30 37123.60 0.00 21830.00 15293.60 0.00 0.00 0.00
ESI001 ELECTRO SOUND INC.
899.09 899.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00
FID001 FIDELIPAC CORPORATION 609-235-3900
152.68 152.68 0.00 0.00 0.00 0.00 0.00 0.00 0.00
GEORGENS GEORGENS INDUSTRIES INC 619-481-8114
34712.55 13944.63 20767.72 0.00 13298.54 7469.18 0.00 0.00 0.00
HAL001 HALL ELECTRONICS 804-964-4255
717.18 197.93 519.25 0.00 0.00 519.25 0.00 0.00 0.00
ICT001 ICT, Ltd. Unit 74 01144932572215
3212.95 0.00 3212.95 0.00 0.00 3212.95 0.00 0.00 0.00
ITC001 International Tapetronics 309-828-1381
9191.32 0.00 9191.32 0.00 1818.38 4621.97 2750.97 0.00 0.00
LOR001 Loral Fairchild Corp. 813-376-6922
35345.50 22485.50 12860.00 0.00 0.00 12860.00 0.00 0.00 0.00
OTA001 Otari Corporation 415-341-6900
773.25 0.00 773.25 0.00 0.00 773.25 0.00 0.00 0.00
PAC001 Pacific Recorders & Eng. 619-436-3911
681.25 0.00 681.25 0.00 0.00 681.25 0.00 0.00 0.00
SCI001 SCI Systems, Inc. 205-882-4800
36106.25 0.00 36106.25 0.00 0.00 36106.25 0.00 0.00 0.00
SEAGATE SEAGATE
66.00 0.00 66.00 0.00 0.00 66.00 0.00 0.00 0.00
XEL001 XEL COMMUNICATIONS, INC. 303-369-7000
24.40 0.00 24.40 0.00 0.00 24.40 0.00 0.00 0.00
199965.12 62628.60 137326.52 0.00 37246.92 97328.63 2750.97 0.00 0.00
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 1995
HONEYWELL SALES INVOICE COMM COMM AMOUNT DATE A/R HOW
DIV # CUSTOMER SALE AMOUNT SALES $ TAX LABOR FREIGHT TOTAL TOTAL % PAID PAID DUE PAY??
____ __________ ___________ ________ _____ _____ _______ _______ _____ _____ _______ _______ ______ _______
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
609 ROD WALK 7-6-95 $200.22
769 TOM RAPPO 9-20-95 $202.50 10-20-95 AMP CHECK
AMP SERVICES
774 EDITH KLAUSER 9-95 130.50 10-31-95 CHECK 5743
781 EDITH KLAUSER $67.00 $0.00 $0.00 $0.00 $67.00 $4.69 $0.07 67.00 10-31-95 CHECK 5743
782 TONY PRICE 8.58 0.56 0.00 0.00 8.14 0.60 0.07 9.14 10-4-95 CASH
783 WIILY 25.71 1.67 0.00 0.00 27.38 1.50 0.07 27.38 10-4-95 CASH
784 DOUG SWANSON 0.00 0.00 0.00 0.00 5.00 0.35 0.07 6.00 10-17-95 CASH
785 COLETTE OSBERG 150.00 9.75 0.00 0.00 159.75 10.50 0.07 159.75 10-11-95 CHECK 7111
786 JERRY AUGESON 0.00 0.00 25.00 0.00 25.00 1.75 0.07 25.00 10-11-95 CHECK 8382
787 COLETTE OSBERG 12.00 0.78 4.50 0.00 17.28 1.16 0.07 17.28 10-11-95 CHECK 7111
788 BOB RETHSEN 10.00 0.65 4.00 0.00 14.65 0.98 0.07 14.65 10-13-95 CASH
789 WILLY 13.65 0.89 0.00 0.00 14.54 0.96 0.07 14.54 10-13-95 VISA
790 VOID VOID VOID VOID VOID VOID VOID VOID VOID VOID VOID VOID VOID VOID
791 RON ROOFES 23.50 1.53 0.00 0.00 25.08 1.65 0.07 25.08 10-24-95 CHECK 4138
792 GUY FIRAS 100.00 6.50 0.00 0.00 106.50 7.00 0.07 106.50 10-16-95 CHECK 1086
793 AL INGALLS 18.00 1.17 4.00 0.00 23.17 1.54 0.07 23.17 10-18-95 CHECK 5309
794 BOB RETHSEN 8.75 0.57 7.50 0.00 16.82 1.14 0.07 16.82 10-18-95 CASH
795 DOUG HECQUIST 158.00 $199.99 13.00 0.00 0.00 181.00 11.76 0.07 212.98 10-20-95 CHECK 3677
(31.99) HONEYWELL $
796 DOUG HECQUIST 165.00 10.73 0.00 0.00 175.73 11.56 0.07 175.73 10-20-95 CHECK 3677
797 DOUG HECQUIST 78.50 5.10 0.00 0.00 83.60 5.50 0.07 83.80 10-25-95 CHECK 3632
798 GENE BERGSTROM 424.50 0.00 0.00 0.00 424.50 29.72 0.07 424.50 10-25-95 VISA
799 ART HONEGGER 336.00 0.00 0.00 17.00 362.00 23.45 0.07 $352.00
800 JIM BUDLA 75.00 4.88 0.00 0.00 79.88 5.25 0.07 79.88 10-27-95 CHECK 5672
801 JIM JOROAN 338.00 0.00 0.00 0.00 338.00 23.66 0.07 338.00
802 BEN S LER 268.00 17.42 0.00 0.00 285.42 18.76 0.07 VISA IN 10-31-95 285.42 VISA 10-31
TRANSIT
$2,289.19 $199.99 $75.18 $50.00 $17.00 $2,431.37 $163.74 7% $1,788.96 $1,175.64
CLAYTON
</TABLE>
Schedule 1.3.1
Assignment of Lease
See attached.
ASSIGNMENT OF LEASE
Assignment of the Lease ("Lease"), dated September
12, 1990 (as amended by a certain (i) Rider, dated
September 12, 1990, (ii) Amendment to Lease, dated
November 19, 1990, and (iii) Agreement to Extend Lease,
dated January 14, 1994), between Lutheran Brotherhood, a
Minnesota corporation ("Landlord"), and Mag-Head
Engineering, Inc. (now known as Mag-Head Engineering
Company, Inc.), a Minnesota corporation ("Tenant"), by
which the premises herein commonly described as 684-686
Mendelssohn Avenue North, Golden Valley, Minnesota (the
"Premises") are demised for a term commencing on
September 12, 1990 and ending on January 31, 1997.
ASSIGNMENT BY TENANT
For value received, Tenant does hereby assign all of
Tenant's right, title and interest in and to the Lease
from and after February __, 1996 (the "Assignment Date")
unto Ahead Technology Acquisition Corporation, a Delaware
corporation ("Assignee"). The Premises are to be used
and occupied for office, warehouse and manufacturing
purposes in connection with the electrical component,
magnetic recording head and golf club business, and all
related or reasonably comparable purposes, and for no
other purpose. Tenant shall not be liable for
obligations arising under the Lease following the
Assignment Date. Notwithstanding the foregoing, it is
expressly agreed that this assignment shall not release
or relieve Tenant from any liability under the Lease for
any obligations or events incurred or arising, or
activities conducted on or condition of the Premises,
prior to the Assignment Date.
Dated: February __, 1996 TENANT:
MAG-HEAD ENGINEERING, INC.
(not known as MAG-HEAD
ENGINEERING COMPANY, INC.)
By: ______________________
Its: ______________________
ACCEPTANCE OF TENANT'S ASSIGNMENT
In consideration of the above Assignment and of the
written consent of Landlord thereto, Assignee (binding
also Assignee's heirs, successors and assigns) hereby
assumes and agrees to make all payments and to perform
and keep all promises, covenants and conditions and
agreements of the Lease by Tenant to be made, kept and
performed from and after the Assignment Date.
Notwithstanding the foregoing, it is expressly agreed
that Assignee shall not be liable under the Lease for any
obligations or events incurred or arising, or activities
conducted on or condition of the Premises, prior to the
Assignment Date.
Dated: February __, 1996 ASSIGNEE:
AHEAD TECHNOLOGY ACQUISITION
CORPORATION
By: ______________________
Its: ______________________
CONSENT TO TENANT'S ASSIGNMENT
Landlord hereby consents to the foregoing assignment
of the Lease by Tenant to Assignee in consideration of
the Tenant's promises, covenants and agreements herein
above expressed, and upon the express condition that
Tenant shall remain liable for any obligations or events
incurred or arising, or activities conducted on or
condition of the Premises, prior to the Assignment Date,
and in consideration likewise of the covenants, promises
and agreements of Assignee above set forth. Landlord
does not consent to any further assignment of the Lease
nor to any subletting of the Premises or any part
thereof.
Landlord has not at any time in the past engaged in
nor permitted, and has no knowledge that any third person
or entity engaged in or permitted any operations or
activities upon, or any use or occupancy of the Premises,
or any portion thereof, for the purpose of or in any way
involving the handling, manufacturing, treatment,
storage, use, transportation, spillage, leakage, dumping,
discharge or disposal (whether legal or illegal,
accidental or intentional) of any hazardous substances,
materials or wastes, or any wastes regulated under any
local, state or federal law.
Dated: February __, 1996 LANDLORD:
LUTHERAN BROTHERHOOD
By: ______________________
Its: ______________________
Schedule 2.4
Allocation
Asset Allocation
Cash $ 72,503.00
Deposits 1,685.00
Accounts Receivable 201,130.00
Inventory 175,643.00
Fixed Assets 36,030.00
$486,991.00
Less: Accounts Payable
as of 10/31/95 30,965.00
Purchase Price $456,026.00
Schedule 3.2
Capitalization
See Attached.
Sheet 1
MEC stockholders as provided [9/28/95]
Total shares 561,362
outstanding
Initial
Capitalization @
$1/ea. 561,362
Employees: # Shares Initial $ Value/ea. Loss
Paul Michael 120,000 120,000 84,994.80 35,005.20
(President)
Willy Schrepfer 38,000 38,000 26,915.02 11,084.98
(Operations)
Outsiders:
Dave Johnson 220,000 220,000 155,823.80 64,176.19
Haley 68,000 68,000 48,163.72 19,836.28
Christensen 66,000 66,000 46,747.14 19,252.86
Vladimir 50,000 50,000 35,414.50 14,585.50
Total shares 562,000
Present Networth 396,059 398,059 163,941
Present
price/share 0.70829
Schedule 3.3
Financial Statements
See Attached.
MAG-HEAD ENGINEERING COMPANY, INC. 10/31/95
Balance Sheet Page 1
Tuesday, October 31, 1995
CURRENT ASSETS
PETTY CASH 50
CASH-CHECKING 72453
CASH-SAVINGS 0
RENT DEPOSITS 1685
MED-GPT RENT/REVEIVABLE 0
ACCOUNTS RECEIVE TRADE 199955
GPT-A/R 1175
GPT-INVENTORY 20759
GPT-F/G 11211
INVENTORY - P/P 78133
INVENTORY - WIP 59251
INVENTORY - F/G 32673
SUSPENSE ACCOUNT 0
PREPAID EXPENSES 2356
TOTAL CURRENT ASSETS 479701
FIXED ASSETS
LEASEHOLD IMPROVEMENTS 490
MACHINERY & EQUIPMENT 271368
OFFICE EQUIPMENT 8386
ACCUMULATED DEPRECIATE 244214
TOTAL FIXED ASSETS: 36030
OTHER ASSETS
TOTAL ASSETS 515731
MAG-HEAD ENGINEERING COMPANY, INC. 10/31/95
Balance Sheet Page 2
Tuesday, October 31, 1995
CURRENT LIABILITIES
ACCOUNTS PAYABLE 30965
GPT-A/P 0
ACCRUED PAYROLL 12822
NOTE PAYABLE-1ST BANK 0
MISC PAYROLL DEDUCTION ( 1)
DIVIDENDS PAYABLE 0
FED/FICA TAX 0
STATE TAX 0
401K PAYABLE 386
GPT COMMISSIONS PAYABLE ( 1)
GPT-EMPLOYEE COMM 1
GPT-HONEYWELL COMM 0
MEC SALES TAX PAYABLE 0
GPT-SALES TAX PAYABLE 75
________
TOTAL CURRENT LIABIL 44247
LONG TERM LIABILITIES:
TOTAL LONG-TERM LIA 0
TOTAL LIABILITIES 44247
EQUITY
COMMON STOCK 5614
PAID IN CAPITAL 543386
RETAINED EARNINGS ( 150854)
EARNINGS CURRENT 73360
TOTAL EQUITY 471495
TOTAL LIAB & EQUITY 615743
MAG-HEAD ENGINEERING COMPANY, INC. 10/31/95
Income Statement Page 1
Tuesday, October 31, 1995
Period %SALES Year to Date %SALES
REVENUE
SALES MANUFACTURED HEAD 99718 97.71 566524 75.66
SALES RETURNS 0 0.00 44 0.01
SALES-NOT MFG MEC 0 0.00 90009 12.02
GPT-SALES 2339 2.29 92238 12.32
TOTAL REVENUE 102057 100.00 748815 100.00
COST OF GOODS SOLD
COST OF MATERIALS 28645 28.07 140970 18.83
GPT-COGS 1156 1.13 64722 8.64
DIRECT LABOR 15144 14.84 105619 14.10
GPT-DIRECT LABOR 0 0.00 7305 0.98
MFG ENG SALARY 5415 5.31 41561 5.55
OUTSIDE LABOR 200 0.20 8586 1.15
PRODUCTION SALARY 2877 2.82 22673 3.03
PAYROLL TAXES 1892 1.85 20104 2.68
OUTSIDE ENG SUPPORT 0 0.00 120 0.02
WORKERS COMP INS 845 0.83 3946 0.53
GENERAL INS 496 0.49 3968 0.53
HEALTH INS 1413 1.38 10690 1.43
BUILDING RENT 4583 4.49 36110 4.82
UTILITIES 485 0.48 4521 0.60
EQUIPMENT RENTAL 164 0.16 1742 0.23
SMALL TOOLS 0 0.00 296 0.04
PACKAGING SUPPLIES 771 0.76 3904 0.52
GPT-PACKAGING 0 0.00 0 0.00
GPT-PRODUCTION SUPPLIES 7 0.01 547 0.07
PRODUCTION SUPPLIES 257 0.25 6109 0.82
TOOLING MAINTENANCE 270 0.26 1803 0.24
BUILDING MAINTENANCE 242 0.24 1944 0.26
POSTAGE & FREIGHT 274 0.27 1068 0.14
GPT-FREIGHT 0 0.00 0 0.00
DEPRECIATION 1423 1.39 12361 1.65
OTHER PROD EXPENSES 0 0.00 0 0.00
COGS-NOT MFG MEC 0 0.00 69729 9.31
TOTAL COGS SOLD: 66559 65.22 570398 76.17
OPERATION EXPENSES
ADMINISTRATIVE SALARIES 0 0.00 0 0.00
OFFICE SUPPLIES 12 0.01 525 0.07
GPT-OFFICE SUPPLIES 19 0.02 1550 0.21
PAYROLL TAXES 919 0.90 8296 1.11
TRAVEL 812 0.80 1903 0.25
TELEPHONE 373 0.37 3820 0.51
BAD DEBT EXPENSE 2487 2.44 2487 0.33
ENTERTAINMENT 0 0.00 161 0.02
CONSULTING 0 0.00 0 0.00
CONTRIBUTIONS 0 0.00 0 0.00
DUES & SUBSCRIPTIONS 24 0.02 519 0.07
GPT-SUBSCRIPTIONS 0 0.00 15 0.00
DESIGN ENG SALARIES 2178 2.13 27545 3.68
ACCOUNTING 93 0.09 2252 0.30
OFFICE SALARIES 1667 1.63 13395 1.79
SALES SALARIES 3470 3.40 26385 3.52
GPT SALES SALARIES 3215 3.15 10877 1.45
LEGAL 0 0.00 691 0.09
MISC ADMINISTRATIVE EXP 0 0.00 85 0.01
GPT-VISA SERVIC CHARGE 27 0.03 788 0.11
TOTAL OPER EXPENSES: 15494 15.18 102258 13.66
OTHER INCOME & EXPENSE
401K EXPENSE 663 0.65 2799 0.37
INTEREST INCOME 0 0.00 0 0.00
INTEREST EXPENSE 0 0.00 0 0.00
INCOME TAXES 0 0.00 0 0.00
LEGAL SETTLEMENT 0 0.00 0 0.00
TOTAL OTHER IN & EXP: ( 663) (0.65)( 2799) ( 0.37)
NET INCOME (LOSS) 19342 18.95 73360 9.80
Schedule 3.10
Real Property
1. Lease, dated September 12, 1990 (as amended by a certain (i)
Rider, dated September 12, 1990, (ii) Amendment to Lease, dated
November 19, 1990, and (iii) Agreement to Extend Lease, dated
January 14, 1994), between Lutheran Brotherhood, a Minnesota
corporation, and Mag-Head Engineering, Inc. (now known as Mag-
Head Engineering Company, Inc.), a Minnesota corporation, by
which the premises therein commonly described as 684-686
Mendelssohn Avenue North, Golden Valley, Minnesota are demised
for a term commencing on September 12, 1990 and ending on January
31, 1997, a copy of which has been provided by Seller to
Purchaser. Also, all lease deposits thereunder.
Schedule 3.11
Hazardous Substances
Seller shall be solely responsible for the prompt and lawful
removal from the Premises, disposal and required registration of
the freon parts cleaner and freon degreaser identified on the
attached page. Seller shall additionally be responsible for the
payment of all expenses, fines, penalties and taxes related
thereto.
* Presence of a partially filled drum of spent freon parts
cleaner at the loading dock area. Although Mag-Head stopped
the use of freon for parts cleaning several years ago, the
waste solvent has been stored at the site since that time.
* A flammable material storage locker in the golf club
fabrication area contained two five gallon cans of freon
degreaser, one of which was labeled as "new" and the other as
"used."
This spent freon must be properly managed as a hazardous waste
and is further subject to the requirements of management as an
ozone depleting chemical (ODC). Proper disposal will include:
* Mag-Head must register through Hennepin County as a small
quantity hazardous waste generator.
* After registration and obtaining an ID#, Mag-Head must
arrange for proper pick-up, transport, and disposal of the
spent freon.
* There may be some liability for back taxes on the freon as an
ODC (26 CFR 52).
Schedule 3.12
Employee Agreements
See Attached.
August 1, 1995
Subject: Simplified Pay System For Clayton
From: Paul Michael
Pay Clayton $32,000.00/26 pay periods = $1,230.77/per pay period.
We will review sales quarterly to determine where we stand
regarding commission sales. The next review will be at the end
of October.
Our salary package with Clayton is $2,000.00 per month plus $7%
of all golf sales. We also agreed to $32,000.00 per year as a
minimum salary.
We need to sell $115,000.00 per year in order to break even with
the $1,230.77 per pay period for Clayton.
I believe that we can exceed $115,000.00 and therefore the need
for tracking sales will be to determine the extra pay that
Clayton will receive.
This will eliminate the need for a complicated accounting method
to determine Clayton's pay.
Schedule 3.13
Key Suppliers/Customers
Local
Primus
U.S. Department of Justice
Schedule 7.1.1
Form of Non-Competition Agreement
Non-Competition Agreement
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made and
entered into as of February __, 1996, by and among Ahead
Technology Acquisition Corporation, a Delaware corporation
("Purchaser"), Mag-Head Engineering Company, Inc., a Minnesota
corporation ("Seller"), and Paul Michael and Willy Schrepfer
(each, a "Shareholder" and, together, "Shareholders")
(Shareholders and Seller are sometimes referred to herein as
"Selling Parties"), with reference to the following:
A. Seller is engaged in the business of the
manufacture, production and sale of magnetic recording heads.
B. Concurrent with the execution and delivery of this
Agreement, Selling Parties have conveyed and assigned to
Purchaser certain of the assets and properties of Seller and
Purchaser has assumed certain liabilities of Seller pursuant to a
certain Asset Purchase Agreement, dated as of February __, 1996,
among Purchaser, and Selling Parties (the "Asset Purchase
Agreement"). Capitalized terms used but not defined herein shall
have the respective meanings attributed to such terms in the
Assets Purchase Agreement.
C. Shareholders are the holders of the respective
shares of capital stock of Seller listed below, and hold the
following respective offices of Seller:
Shares of
Shareholder Common Stock Office
Paul Michael 120,000 President
Willy Schrepfer 38,000 Vice President
& Secretary
Each Shareholder also is actively engaged in all aspects
of Seller's operations. Each Shareholder knows or has
access to confidential information which is
competitively valuable and/or trade secrets associated
with the operations of Seller.
NOW, THEREFORE, in consideration of the
respective covenants of the parties set forth in this
Agreement and as an inducement for Purchaser to enter
into, and consummate the transactions under, the
Purchase Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Non-Competition. Selling Parties, jointly
and severally, agree that, for a period of eighteen (18)
months after the Closing Date, within the territory set
forth in Schedule 1 hereto, none of the Selling Parties,
either jointly or severally, nor any of their respective
associates or affiliates, shall directly or indirectly
own, operate, become interested in, or carry on or
become involved in any manner whatsoever in any business
which is similar or competitive with any aspect of the
business of Seller as conducted on or prior to the
Closing, including, without limitation, the manufacture,
production or sale of products similar in nature or type
to that offered for sale by Seller on or prior to the
Closing. Without limiting any of the foregoing, the
parties agree that this covenant is intended to prohibit
such Selling Parties, either jointly or severally, from
engaging in such proscribed activities, either, as the
case may be, as an individual, owner, partner, employee,
consultant, stockholder (except as a holder of stock in
a corporation whose stock is publicly traded and which
is subject to the reporting requirements of the
Securities Exchange Act of 1934, and then only to the
extent of owning not more than one percent (1%) of the
issued and outstanding stock of such corporation), agent
or salesman for any person, firm or corporation, or
otherwise.
2. Interference; Confidentiality. Selling
Parties, jointly and severally, agree that:
2.1 For a period of eighteen (18) months
after the Closing Date, neither the Selling Parties nor
any of their associates or affiliates shall hire,
directly or indirectly, any employee employed by Seller
as of the Closing Date who is subsequently employed by
Purchaser during the term hereof, or attempt to induce
any such employee to leave such employ and to work,
directly or indirectly, for or with the Selling Parties
or any such associates or affiliates thereof.
2.2 For a period of eighteen (18) months
after the Closing Date, neither the Selling Parties nor
any of their associates or affiliates shall solicit,
induce or attempt to induce any customer of Seller at
the Closing Date to cease doing business in whole or in
part with Purchaser.
2.3 All documents, inventions, customer,
supplier and prospect lists, business, marketing and
sales information and plans, catalogues, trademarks,
processes, drawings, programs, designs, names,
copyrights, customer requirements, price and cost
information, records, techniques, know-how, business
secrets and other information which has come into the
possession of any of the Selling Parties from time to
time in the course of and for the business of Seller
prior to the Closing Date shall be deemed to be the
confidential and proprietary information of Purchaser.
Each of the Selling Parties shall keep confidential, and
shall not divulge to any other party or use following
the date of this Agreement, any confidential information
or business secrets of Seller existing prior to the
Closing Date, including, but not limited to, any matters
deemed confidential and proprietary as provided in this
section.
3. Separate Covenants. The parties intend
that the covenants and subparagraphs contained in
Paragraphs 1 and 2 hereof shall be construed as a series
of separate covenants, one for each jurisdiction
specified. Except for geographic coverage, each such
separate covenant shall be deemed identical in terms to
the covenant contained in the immediately preceding
subparagraph. If, in any judicial proceeding, a court
shall refuse to enforce any of the separate covenants
deemed included in the immediately preceding
subparagraph, then such unenforceable covenants shall be
deemed eliminated from these provisions for the purpose
of those proceedings solely to the extent necessary to
permit the remaining separate covenants to be enforced.
4. Remedies. In the event that any party
breaches any of its covenants under this Agreement, it
is agreed that the non-defaulting party or parties shall
be entitled to obtain from a court of competent
jurisdiction injunctive relief (including but not
limited to specific performance) directing that such
defaulting party cease and desist from such prohibited
conduct and enforcing the agreements of the defaulting
party hereunder. Such right to injunctive relief shall
be in addition to all other legal and equitable rights
and remedies available to such non-defaulting party.
5. Miscellaneous
5.1 Notices. Any notice to Purchaser
required or permitted under this Agreement shall be
given in accordance with the provisions of the Asset
Purchase Agreement.
5.2 Severability. If any provision of
this Agreement is held invalid or unenforceable, the
remainder of this Agreement shall nevertheless remain in
full force and effect. If any provision is held invalid
or unenforceable with respect to particular
circumstances, it shall nevertheless remain in full
force and effect in all other circumstances.
5.3 Entire Agreement. This Agreement
contains the entire agreement between the parties with
respect to the subject matter hereof, and supersedes all
prior oral and written agreements, understandings,
commitments and practices among the parties with respect
thereto. No amendments, modifications or supplements to
this Agreement may be made except by a writing signed by
the party to be bound.
5.4 Governing Law. This Agreement and
the rights and obligations of the parties hereto shall
be governed by and construed in accordance with the laws
of the State of Minnesota.
5.5 Further Assurances. Each of the
parties hereto shall execute and deliver any and all
additional instruments, documents and other assurances,
and shall do any and all acts and things reasonably
necessary in connection with the performance of their
respective obligations hereunder, to carry out the
intent of the parties hereto.
5.6 Waiver. No delay or omission on the
part of any party hereto in exercising any right under
this Agreement shall operate as a waiver of such right
or any other right, and no waiver of any right conferred
by this Agreement shall be binding unless signed by or
on behalf of each such party. A waiver on one occasion
shall not be construed as a bar to or a waiver of any
party's right to enforce any rights hereunder on any
future occasion.
5.7 Successors and Assigns. This
Agreement shall apply to, and inure to the benefit of,
and be binding upon and enforceable against the parties
hereto and their respective successors and permitted
assigns.
5.8 Attorneys' Fees. If any legal action
or other proceeding is brought for the enforcement of
this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with
any of the provisions of this Agreement, the successful
or prevailing party or parties shall be entitled to
recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to
any other relief to which it or they may be entitled.
AGREED TO AND ACCEPTED by the parties hereto
as of the day and year first above written.
MAG-HEAD ENGINEERING COMPANY, INC.
By:_____________________________
Paul Michael, President
By:_____________________________
Willy Schrepfer, Secretary
__________________________________
PAUL MICHAEL ("Shareholder")
__________________________________
WILLY SCHREPFER ("Shareholder")
AHEAD TECHNOLOGY ACQUISITION
CORPORATION
By:_____________________________
____________________________,
Title:______________________
Schedule 1
Geographic Territory
All cities, counties and jurisdictions within the United
States and worldwide within which or to Seller has
conducted its business or made sales on or prior to the
date hereof, including, without limitation, the City of
Golden Valley, in the Sate of Minnesota.
Schedule 7.4
Discounts/Concessions
None.
Schedule 9.2.1
Warranty Bill of Sale
This Warranty Bill of Sale is given with
respect to and in accordance with the Asset Purchase
Agreement, dated as of February __, 1996 (the "Purchase
Agreement"), between Mag-Head Engineering Company, Inc.,
a Minnesota corporation ("Seller"), and Ahead Technology
Acquisition Corporation, a Delaware corporation
("Purchaser"), among others. Capitalized terms not
otherwise defined in this Warranty Bill of Sale shall
have the meanings given to them in the Purchase
Agreement.
1. For good and valuable consideration, the
receipt and adequacy of which is acknowledged, Seller
hereby sells, transfers and assigns to Purchaser (and to
Purchaser's successors and assigns forever) all of
Seller's rights, title and interest in and to the
Assets, including, without limitation, all Fixed Assets
listed in Schedule 1.1.1 of the Purchase Agreement and
all inventory, work-in-progress and stock-in-trade of
Seller.
2. Seller represents and warrants to
Purchaser that (i) Seller has good and marketable title
to all of the Assets, and (ii) the assets are not
subject to any mortgage, pledge, lien, conditional sale
agreement, security agreement, encumbrance or charge of
any kind or nature.
IN WITNESS WHEREOF, Seller and Purchaser have
executed this Warranty Bill of Sale, effective as of
February __, 1996.
MAG-HEAD ENGINEERING COMPANY, INC.
By:_____________________________
Paul Michael, President
By:_____________________________
Willy Schrepfer, Secretary
[Acknowledgement]
AHEAD TECHNOLOGY ACQUISITION
CORPORATION
By:______________________________
_________________________,
Title:________________________
[Acknowledgement]
Schedule 9.2.2
Assignment of Intangibles
This Assignment is given with respect to and
in accordance with the Asset Purchase Agreement, dated
as of February __, 1996 (the "Purchase Agreement"),
between Mag-Head Engineering Company, Inc., a Minnesota
corporation ("Seller"), and Ahead Technology Acquisition
Corporation, a Delaware corporation ("Purchaser"), among
others. Capitalized terms not otherwise defined in this
Assignment shall have the respective meanings given to
them in the Purchaser Agreement.
Seller, for good and valuable consideration,
the receipt and adequacy of which is acknowledged,
hereby sells, assigns and transfers to Purchaser all of
its right, title and interest in and to the goodwill and
other intangibles of Seller listed in Schedules 1.1.3,
1.1.4 and 1.1.5 of the Purchase Agreement and sold
pursuant thereto, including, without limitation, the
Proprietary Rights.
IN WITNESS WHEREOF, Seller and Purchaser have
executed this Assignment of Intangibles as of February
__, 1996.
MAG-HEAD ENGINEERING COMPANY, INC.
By:_____________________________
Paul Michael, President
By:_____________________________
Willy Schrepfer, Secretary
[Acknowledgement]
AHEAD TECHNOLOGY ACQUISITION
CORPORATION
By:______________________________
_____________________________,
Title:________________________
[Acknowledgement]
SCHEDULE 9.2.3
ASSIGNMENT AND ASSUMPTION OF CONTRACTS
This Assignment and Assumption of Contracts is
given with respect to and in accordance with the Asset
Purchase Agreement, dated as of February __, 1996 (the
"Purchase Agreement"), between Mag-Head Engineering
Company, Inc., a Minnesota corporation ("Assignor"), and
Ahead Technology Acquisition Corporation, a Delaware
corporation ("Assignee"), among others. Capitalized
terms not otherwise defined in this Assignment and
Assumption of Contracts shall have the respective
meanings given to them in the Purchase Agreement.
1. Assignor, for good and valuable consideration,
the receipt and adequacy of which is
acknowledged, hereby assigns and transfers to
Assignee all of Assignor's right, title and
interest in and to all of the contracts and
commitments listed on Exhibit "A" attached
hereto (the "Assigned Contracts").
2. Assignee hereby assumes and agrees to perform
all of the obligations of Assignor under the
Assigned Contracts from and after the Closing
Date.
3. Assignee is not assuming any liability or
obligation of Assignor relating to or arising
from Assignor's performance of or failure to
perform any obligation under any Assigned
Contracts prior to the Closing Date.
4. This Assignment and Assumption of Contracts
will not affect Assignee's right to assert any
defense under any Assigned Contract, at law,
in equity or otherwise against the validity or
enforceability of any liability or obligation
under any Assigned Contract.
IN WITNESS WHEREOF, Assignor and Assignee have
executed this Assignment and Assumption of Contracts as
of February __, 1996.
MAG-HEAD ENGINEERING COMPANY, INC.
By:_______________________________
Paul Michael, President
By:_______________________________
Willy Schrepfer, Secretary
AHEAD TECHNOLOGY ACQUISITION CORPORATION
By:___________________________________
_________________________,
Title:____________________________
Exhibit "A"
1. Lease, dated September 12, 1990 (as amended by a
certain (i) Rider, dated September 12, 1990, (ii)
Amendment to Lease, dated November 19, 1990, and (iii)
Agreement to Extend Lease, dated January 14, 1994),
between Lutheran Brotherhood, a Minnesota corporation,
and Mag-Head Engineering, Inc. (now known as Mag-Head
Engineering Company, Inc.), a Minnesota corporation, by
which the premises therein commonly described as 684-686
Mendelssohn Avenue North, Golden Valley, Minnesota are
demised for a term commending on September 12, 1990 and
ending on January 31, 1997.
2. All Accounts Receivable Trade (including,
without limitation, those identified in Schedule 1.1.3 to
the Purchase Agreement) of Seller.
3. All GPT - A/R (including, without limitation,
those identified in Schedule 1.1.3 to the Purchase
Agreement) of Seller.
4. Copier lease with "Imaging Systems," provided to
Purchaser by Seller.
5. All customer sales/purchase orders (including,
without limitation, those identified in Schedule 1.1.3 to
the Purchase Agreement) of Seller.
SCHEDULE 9.2.5
AFFIDAVIT OF SELLER
See Attached.
TRANSFEROR'S CERTIFICATION OF NON-FOREIGN STATUS
To inform Ahead Technology Acquisition Corporation,
a Delaware corporation ("Transferee"), that withholding
of tax under Section 1445 of the Internal Revenue Code of
1986, as amended ("Code"), will not be required upon the
consummation of transactions under that certain Asset
Purchase Agreement, dated as of February __, 1996, by and
between Transferee and Mag-Head Engineering Company,
Inc., a Minnesota corporation ("Transferor"), Transferor
hereby certifies to the following on behalf of the
Transferor:
1. The Transferor is not a foreign corporation,
foreign partnership, foreign trust, or foreign estate (as
those terms are defined in the Code and the Income Tax
Regulations promulgated thereunder);
2. The Transferor's U.S. employer identification
number is ________________; and
3. The Transferor's office residence address is 686
Mendelssohn Avenue, Golden Valley, Minnesota 55427.
The Transferor understands that this Certification
may be disclosed to the Internal Revenue Service by the
Transferee and that any false statement contained herein
could be punished by fine, imprisonment, or both.
The Transferor understands that the Transferee is
relying on this Certification in determining whether
withholding is required upon said transfer.
Under penalty of perjury I declare that I have
examined this Certification and to the best of my
knowledge and belief it is true, correct and complete,
and I further declare that I have authority to sign this
document on behalf of the Transferor.
Dated: February __, 1996 MAG-HEAD ENGINEERING
COMPANY, INC.
By:____________________________
Paul Michael, President
By:____________________________
Willy Schrepfer, Secretary
SCHEDULE 9.2.7.(a)
SELLER'S OFFICER'S CERTIFICATE
SELLER CERTIFICATE
Reference is made to that certain Asset Purchase
Agreement (the "Asset Purchase Agreement"), dated as of
February __, 1996, by and between Mag-Head Engineering
Company, Inc., a Minnesota corporation ("Seller"), and
Ahead Technology Acquisition Corporation, a Delaware
corporation ("Purchaser"), among others. Capitalized
terms used but not defined herein have the respective
meanings assigned to such terms in the Asset Purchase
Agreement. Seller hereby certifies that:
1. The undersigned, Willy Schrepfer, executing this
Certificate on behalf of Seller, is the duly elected and
acting officer of Seller holding the office of Secretary
of Seller.
2. Attached hereto as Exhibit A is a copy of the
Articles of Incorporation of Seller.
3. Attached hereto as Exhibit B is a true and
correct copy of the Bylaws of Seller in effect as of the
date hereof.
4. Attached hereto is a true and correct copy of
(i) resolutions of the Board of Directors of Seller
adopted by unanimous written consent of the Board on
February __, 1996, which resolutions have not been
revoked, modified, amended or rescinded and are still in
full force and effect, and pursuant to which the Asset
Purchase Agreement and Seller's sale of the Assets to
Purchaser have been duly approved and adopted by such
Board of Directors; and (ii) resolutions of the
shareholders of Seller adopted by unanimous written
consent of such shareholders on February __, 1996, which
resolutions have not been revoked, modified, amended or
rescinded and are still in full force and effect, and
pursuant to which the Asset Purchase Agreement and
Seller's sale of the Assets to Purchaser have been duly
approved and adopted by such shareholders.
5. There is currently no proceeding for the
dissolution or liquidation of Seller or threatening its
existence.
6. The representations and warranties of each of
Seller and Shareholder set forth in the Asset Purchase
Agreement and the Assignment, and each other agreement,
document, instrument, exhibit and schedule thereto and
delivered in connection therewith, are true and accurate
as of the date hereof, which date shall be deemed to be
the Closing Date for the purposes of the Asset Purchase
Agreement, and all of each of Seller's and Shareholder's
obligations set forth in Paragraphs 5, 6 and 7 of the
Asset Purchase Agreement have been completed, satisfied
and complied with.
7. The Asset Purchase Agreement and each other
agreement, document, instrument, exhibit and schedule
thereto and delivered in connection therewith, to which
any of the undersigned is a party, is in full force and
effect with respect to such party, and enforceable
against each party, in accordance with its terms.
8. Seller's conditions to Closing set forth in
Section 8 of the Asset Purchaser Agreement are either
satisfied or deemed waived.
Executed at _____________, ________, on this _____
day of February, 1996.
MAG-HEAD ENGINEERING COMPANY, INC.
By:________________________________
Willy Schrepfer, Secretary
EXHIBIT A
ARTICLES OF INCORPORATION
EXHIBIT B
BYLAWS
SCHEDULE 9.2.7(B)
PURCHASER'S OFFICER'S CERTIFICATE
PURCHASER CERTIFICATE
Reference is made to that certain Asset Purchase
Agreement (the "Asset Purchase Agreement"), dated as of
February __, 1996, by and between Mag-Head Engineering
Company, Inc., a Minnesota corporation ("Seller"), and
Ahead Technology Acquisition Corporation, a Delaware
corporation ("Purchaser"), among others. Capitalized
terms used but not defined herein have the respective
meanings assigned to such terms in the Asset Purchase
Agreement. Purchaser hereby certifies that:
1. The undersigned, Steve Conlisk, executing this
Certificate on behalf of Purchaser, is the duly elected
and acting officer of Treasurer of Purchaser.
2. Attached hereto as Exhibit A is a copy of the
Articles of Incorporation of Purchaser.
3. Attached hereto as Exhibit B is a true and
correct copy of the Bylaws of Purchaser in effect as of
the date hereof.
4. Attached hereto is a true and correct copy of
(i) the resolutions duly adopted by the Board of
Directors of Purchaser by unanimous written consent on
January __, 1996, which resolutions have not been
revoked, modified, amended or rescinded and are still in
full force and effect, and pursuant to which the Asset
Purchase Agreement and Purchaser's purchase of the Assets
from Seller have been duly approved and adopted by such
Board of Directors.
5. There is no proceeding for the dissolution or
liquidation of Purchaser or threatening its existence.
6. The representations and warranties of Purchaser
set forth in the Asset Purchase Agreement and the
Assignment, and each other agreement, document,
instrument, exhibit and schedule thereto and delivered in
connection therewith, are true and accurate as of the
date hereof, which date shall be deemed to be the Closing
Date for the purposes of the Asset Purchase Agreement,
and all of each of Purchaser's obligations set forth in
Paragraph 8 of the Asset Purchase Agreement have been
completed, satisfied and complied with.
7. The Asset Purchase Agreement and each other
agreement, document, instrument, exhibit and schedule
thereto and delivered in connection therewith, to which
the Purchaser is a party, is in full force and effect,
with respect to such party, and enforceable against each
such party, in accordance with its terms.
8. Purchaser's conditions to Closing set forth in
Section 6 of the Asset Purchaser Agreement are satisfied
or deemed waived.
Executed at Santa Clara, California, on this _____
day of February, 1996.
AHEAD TECHNOLOGY ACQUISITION CORPORATION
By:____________________________________
___________________________________,
Title:_____________________________
EXHIBIT A
ARTICLES OF INCORPORATION
EXHIBIT B
BYLAWS
SCHEDULE 9.2.9
FORM OF SELLER'S COUNSEL OPINION
See attached.
EXHIBIT 23.1
Accountants' Consent and Report on Schedule
The Board of Directors
Diagnostic/Retrieval Systems, Inc.:
The audits referred to in our report dated May 18, 1995,
included the related financial statement schedule for
each of the years in the three-year period ended March
31, 1995, included in the Registration Statement. This
financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on
our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic
consolidated financial statements taken as a whole,
presents fairly, in all material respects, the
information set forth therein.
We consent to the use of our reports included herein and
to the references to our firm under the headings
"Selected Consolidated Financial Data" and "Experts" in
the prospectus.
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 22, 1996
