<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1993 Commission File Number 1-5237
------------------------
E-SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 75-1183105
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION
INCORPORATION OR NUMBER)
ORGANIZATION)
6250 LBJ Freeway, P.O. Box 660248, Dallas,
Texas 75266-0248
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES
INCLUDING ZIP CODE)
</TABLE>
Registrant's telephone number, including area code:
(214) 661-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME AND EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
- ------------------------------------ -----------------------------
<S> <C>
Common Stock, $1.00 Par Value New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 4, 1994.
COMMON STOCK $1.00 PAR VALUE, $1,202,048,806
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 4, 1994.
COMMON STOCK, $1.00 PAR VALUE -- OUTSTANDING SHARES, 33,948,943
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement dated March 25, 1994 are
incorporated by reference into Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
The Company was incorporated in Delaware in 1964. The Company designs,
develops and produces advanced electronic systems and products, primarily for
sale in defense related markets, and provides various related technical
services. The Company's largest business segments are the design, development
and production of reconnaissance and surveillance systems and command, control
and communications systems which represented approximately 80% of the Company's
sales in 1993. The Company also designs, develops and manufactures intelligence
collection and processing systems, which through reconnaissance and surveillance
activities collect radio frequency signals and images, process that data,
correlate it with other information ("fusion"), and communicate the information
to users including various decision makers, such as battlefield tactical
commanders and the National Command Authority. In addition, the Company produces
navigation and control systems, and performs aircraft maintenance and
modification and other services.
Approximately 89% of the Company's sales in 1993 were made under contracts
with the U.S. Government or to prime contractors with the U.S. Government and
approximately 9% were to international customers (principally governments). A
substantial portion of the Company's business is conducted under contracts which
carry governmental security classifications, many of which prohibit the
disclosure of any of the information concerning the nature of the work being
done.
The sales and operating profits of the Company's business segments for the
three years ending December 31, 1993, are set forth in tables at page 39 of this
Annual Report on Form 10-K.
The backlog believed to be firm at December 31, 1993 was $2,133 million
compared to $2,320 million at December 31, 1992. Approximately 87% of the
backlog is represented by contracts with the U.S. Government and prime
contractors, excluding foreign military sales contracted directly with the U.S.
Government. The backlog figures consist of the sales value of U.S. Government
contracts and subcontracts which have been contractually documented and for
which funds have been authorized by the procuring agency and contracting
authority, and the aggregate sales price of firm orders for undelivered
nongovernment business. Approximately 70% of the backlog at December 31, 1993 is
expected to result in sales during 1994, and the remainder is expected to result
in sales in subsequent years. No single contract accounts for more than 10% of
the Company's backlog.
RECONNAISSANCE AND SURVEILLANCE
The Company believes that it is a leader in design, development and
integration of sophisticated reconnaissance and surveillance systems. These
systems include signal intelligence systems (i.e., communications and electronic
intelligence systems), intrusion detection systems, electronic support measures
and automated, remotely controlled reconnaissance systems. A wholly owned
subsidiary of the Company, Engineering Research Associates, Inc., headquartered
in Vienna, Virginia ("ERA"), designs and develops high frequency surveillance
systems. Another wholly owned subsidiary, HRB Systems, Inc., ("HRB")
headquartered in State College, Pennsylvania, designs and develops signal
collection, processing and analysis systems, which complement the Company's
activities in the intelligence and reconnaissance systems market.
Strategic reconnaissance and surveillance systems produced by the Company
utilize technically advanced sensors, receivers, electro-optical devices,
processing equipment, computers and display and communications devices which
detect, locate and analyze hostile electromagnetic signals and other data. These
systems provide information as to the location and sources of such signals and
the functions, operating characteristics and intentions of such sources. The
systems consist of various electronic components and other materials
manufactured by the Company and others, which are integrated to perform
functions specified by customers. Many systems are integrated using complex
interconnection and processing equipment such as mini-computers and
micro-processors together with related software.
2
<PAGE>
These versatile systems are adaptable to meet evolving needs such as
arms-control verification, drug interdiction and improved submarine detection.
As an example, one program calls for the design, development and production of a
transportable ground station integrating multi-sensor processing and
dissemination of strategic and tactical imagery. It will provide, for the first
time, near real-time imagery intelligence to tactical commanders. Each system
will be specifically tailored to the particular branch of the service to which
it is assigned and to the commander's unique needs.
The Company has developed reconnaissance and surveillance systems which
operate in all environments. The Company's activities in the field of airborne
reconnaissance and surveillance systems also involve the modification of
aircraft, the installation of the systems, flight testing and technical support
and maintenance service for the systems.
An advanced version of the EGRETT aircraft, developed as a reconnaissance
and surveillance platform for the German Air Force, can carry a variety of
payloads including signal intelligence, imagery and environment sensors and
communications devices. In January 1993, the Company was notified by the German
government that it does not plan to proceed with the GAFECS program, which was
the principal user of the EGRETT aircraft. The loss of this program adversely
impacted the Company's short-term international business goals, however, the
Company believes that there are other government and commercial applications for
the aircraft, such as special operations and anti-terrorist support, drug
interdiction, search and rescue, communications relay, environmental sensing and
monitoring, geophysical surveys and scientific experiments.
The Company generally engages in the design, development and production of
reconnaissance and surveillance systems under a number of separate contracts,
each of which involves relatively few units of production.
COMMAND, CONTROL AND COMMUNICATIONS
The Company develops and produces a broad range of systems and products for
instantaneous communication via line-of-sight, satellites or integrated
networks. These systems receive information that is gathered by advanced
electronic means and conventional measures such as radar, photo reconnaissance
and radio. The information is then transmitted to data processing systems and is
displayed in a command center in a form which can readily be used to command and
control forces and to monitor rapidly changing strategic and tactical events.
These systems include communications (both analog and digital), large scale data
processing, software, data link terminals, antennas and display equipment.
The Commanders Tactical Terminal is a joint service, interoperable system
using airborne relays to disseminate and receive intelligence information to
widely dispersed field units on a near real-time basis. The Company is
developing a high-priority survivable communications integration system for the
U.S. Space Command. It uses microwave, satellite, land lines, fiber optics,
sensors and processors to provide secure and accurate communications between
U.S. early warning stations and The North American Air Defense Command ("NORAD")
in Colorado Springs.
The Company produces a transportable, interoperable and self-contained
signal intelligence system called Celtic, which provides a readily
reconfigurable system to support signal acquisition or a combination of signal
acquisition and direction finding. Celtic is one of the fundamental building
blocks E-Systems is using to expand in the international marketplace.
The Company produces a Multi-mission UHF Satcom Transceiver ("MUST"), a full
duplex radio, which combines state-of-the-art modem and transceiver functions
into a single unit. As the smallest airborne demand assured multiple access and
interoperable radio available today, the MUST transceiver supplies upgrades
while simplifying existing communication systems. E-Systems has also developed
key components of the Government Emergency Telecommunications Service ("GETS").
This service allows priority status for officials and emergency support
personnel to establish communication over public telephone networks in times of
crisis.
3
<PAGE>
E-Systems also designed and furnishes the Data Distribution System, a key
element of the United States Navy's Cooperative Engagement Capability, which
provides a highly reliable secure data communication link to distribute real
time sensor information for ship defense. Threat tracking information is shared
interactively between all ships and aircraft in the same battle group.
An outgrowth of the Company's command, control and communications business
segment has been the development of complex, computer-based digital data storage
systems for easy information retrieval and rapid transmission to the users. The
Company's EMASS-R- Data Storage and Retrieval System is being marketed to energy
exploration companies, which have extremely large geological databases to
maintain and access, and to other non-defense Government customers with huge
databases.
The Company also produces mobile command and control facilities which can be
airlifted anywhere in a worldwide command mission area. These shelters are
self-contained command centers for the control of airlift operations from
tactical airfields which have no other communications facilities in place. They
provide secure line-of-sight or satellite data and voice communications. These
systems were used during the Iraq-Kuwait war in the Middle East.
NAVIGATION AND CONTROLS
The Company develops and manufactures automatic control products for
aircraft, missile steering and tracking systems, and aircraft navigation aids.
Substantially all Boeing commercial jet aircraft, including the 757 and 767
aircraft, flown by domestic and international airlines are equipped with flight
controls designed and manufactured by the Company. Flight controls are sold to
manufacturers as original equipment and to airlines as replacements. The Company
also produces an automatic pilot module for the Boeing 737 and 757. The
Company's flight control systems provide the pilot with computer measured
responses to stress on aircraft control surfaces or perform other precision
control functions.
The Company manufactures portable tactical air navigation systems for
military use to assist pilots in landing at remote or unimproved locations.
AIRCRAFT MAINTENANCE AND MODIFICATION AND OTHER SERVICES
The Company provides maintenance, repair and modification services for
commercial, executive and military aircraft of all types. Other similar work by
the Company involves U.S. Air Force aircraft which are regularly returned to the
Company for maintenance and systems updating. In addition, the Company maintains
field teams for servicing and operational support throughout the world. The
Company also has designed and installed a number of executive or head-of-state
custom interiors in various types of aircraft. The Company and a wholly owned
subsidiary, Serv-Air, Inc., performs special services such as facilities
operations, logistics and support, electronics repair, computer based training
and simulation systems and base management and support services at various
military installations in both the continental United States and worldwide.
The Company provides worldwide technical and logistics support for the
United States Air Force fleet of KC-10 aircraft used for in-flight refueling and
cargo transport. Logistics support includes an on-line computerized inventory
management system, which supports material procurement, inventory control and
specialized repair and overhaul activity for more than 10,000 line items.
Serv-Air also provides base support to four major U.S. Army Commands,
maintaining infrastructure, utilities and services equivalent to those required
in a large city. Primary functions include facility engineering, utility systems
operation and repair, equipment and vehicle maintenance, audio visual services,
supply and inventory control, housing management, transportation and various
administrative efforts. At a Government facility in Lexington, Kentucky,
Serv-Air converts crash damaged Apache helicopters into training devices. The
Company also provides contract field teams on call to modify, maintain or repair
aircraft, watercraft, vehicles and heavy support equipment for the U.S. military
forces anywhere in the world.
4
<PAGE>
Operating from 17 fixed sites and additional remote sites, E-Systems
maintains a fleet of 150 aircraft for the U.S. Customs Service. These aircraft
are equipped with sophisticated airborne avionics sensor systems, including
downward and forward looking infrared sensors. The Company also performs work
for the Federal Aviation Administration on its flight inspection fleet of
aircraft used to verify the accuracy and integrity of the country's en route
flight guidance system and approach and takeoff airport guidance and control.
The Company has a contract to modify four Lear Jet Model 60 aircraft and a
Challenger 601-3R aircraft for the Federal Aviation Administration in connection
with this program.
NON-TRADITIONAL BUSINESS
As the defense budget declines, the Company is devoting many of its
resources and competencies into systems suited for non-defense Government and
commercial customers using leading edge technologies developed for the
Department of Defense. Although none of the current programs contribute a
significant amount of sales or profits to the Company, the management believes
that some of these projects will lead to business areas of which may offer
growth potential and make contributions to earnings within the not too distant
future. Examples of the initiatives throughout the Company include the
harnessing of surveillance technology developed for the Department of Defense
into products which can provide nondisruptive means to detect traffic incidents
and to estimate traffic volume and flow rates. This system, developed in part
with a Government grant, is designed to reduce congestion on the public highways
and is expected to be part of a national intelligent vehicle highway plan.
Another product aimed at the transportation industry is Accutrans, which uses
existing technology to develop a real time system for fleet management, location
and status of mass transit vehicles. Another system, Vista Flight Net, enhances
weather and flight information for the Federal Aviation Administration's Flight
Service Stations, making current and accurate information more readily available
to the general aviation pilot.
Several of the Company's divisions are working on initiatives in the medical
and health care industry. The Company's PACS systems (Picture Archiving and
Communications System) is the core element of a comprehensive image management
and communications system within a major medical center.
The Company is performing contracts involving large data handling
capabilities to apply this knowledge to the Federal Student Loan program.
Designed to detect and locate those who default on student loans, the system
provides support for the United States Health, Education and Welfare Department.
The emergence of the so-called "Information Highway", and its opportunities
for massive data exchange, is leading to demands for increased levels of
integrity and privacy in data systems. E-Systems has a family of products called
TeleSecurity-TM- which build on defense security communications systems and have
been developed as inexpensive and superior wide area network security systems
which control remote access to protected resources. The Company's INFOSEC
systems offers a completely secure information storage and retrieval system to
protect both Government and civilian sensitive data. INFOSEC automates
information processing through consolidation of data systems using media
encryptors and encrypted compact discs.
GOVERNMENT CONTRACTS
Companies engaged primarily in supplying defense related equipment to the
Government are subject to certain business risks unique to that industry. Among
these are dependence on Government appropriations, changing policies and
regulations, complexity of design and rapidly changing technologies and possible
cost overruns. Since the Government usually awards or funds contracts for only
one year at a time, the Company's business depends primarily upon such
relatively short-term contracts, the periodic exercise by the Government of
contract options and annual funding of continuing contracts.
Approximately 47% of the Company's current Government contracts are firm,
fixed price contracts accounting for approximately $1.0 billion. Under this type
of contract, the price paid to the Company is not subject to adjustment by
reason of the costs incurred by the Company in the
5
<PAGE>
performance of the contract, except for costs incurred due to contract changes
ordered by the Government. Multi-year fixed price contracts normally allow for
price revision based on U.S. Government price indices.
The Company incurs significant work-in-process costs in the performance of
United States Government contracts. However, the Company is usually entitled to
invoice the U.S. Government for monthly progress payments on fixed price
contracts and twice-monthly on some cost reimbursable contracts. The Government
recently reduced the progress payment rate on fixed price contracts from 85% to
75%, increasing the Company's working capital requirements. The Company does not
normally acquire inventory in advance of contract award, and the Company does
not maintain significant stocks of finished products for sale. Government
progress payments affect the amount of working capital necessary for the Company
to finance work-in-process costs in the performance of these contracts. The
Government does not recognize interest or other costs associated with the use of
capital and, therefore, progress payment reductions may have adverse effects on
the Company's profitability.
The Company also performs work for the Government under cost reimbursable
and incentive type contracts. Cost reimbursable contracts provide for
reimbursement of costs incurred, to the extent such costs are allowable under
Government regulations, plus a fee. Under incentive type contracts, the amount
of profit or fee realized varies with the attainment of incentive goals such as
costs incurred, delivery schedule, quality and other criteria. Fixed price
contracts normally carry a higher profit rate than cost reimbursable and
incentive type contracts to compensate for higher business risk. In addition,
government law and regulation provides that certain types of costs may not be
included in either the directly-billed cost or the indirect overheads for which
the government is responsible. Many of these so-called "unallowable" costs
include ordinary costs of doing business in a commercial context. These costs
must be borne out of the pretax profit of the corporation and, thus, tend to
reduce margins on government work.
The so called "unallowable costs", which are not recoverable as a cost of
business on Government contracts, although they are ordinary and necessary costs
of doing business in the commercial context, are spelled out in Government
acquisition regulations which do not permit contractors to bill the Government
directly or indirectly for specified kinds of costs on Government cost
reimbursement contracts, and do not allow these costs to be included in the
bidding and pricing structure of negotiated fixed price contracts. The
allowability or unallowability of such costs and other similar costs are covered
in detail in the Federal Acquisition Regulations. Examples of such unallowable
costs, including costs which are generally regarded as ordinary and necessary
business expenses are: Public relations and advertising costs; contributions to
local civil defense funds and projects; donations; business entertainment;
independent research and development costs and bid and proposal costs over a
negotiated ceiling; insurance costs to protect from the cost of correcting
defects in material and workmanship; interest on borrowings and other financial
costs, including costs associated with raising capital; lobbying; organizational
costs including pursuit of mergers and acquisitions; patent and intellectual
property costs not specifically required by contract; reconversion costs;
employee relocation costs (with exceptions); travel and per diem costs in excess
of those reimbursed to government employees and certain legal fees.
Any Government contract may be terminated for the convenience of the
Government at any time the Government believes that such termination would be in
its best interests. Under contracts terminated for the convenience of the
Government, the Company is entitled to receive payments for its allowable costs
and, in general, a proportionate share of its fee or profit for the work
actually performed.
Recognition of profits is based upon estimates of final performance, which
may change as contracts progress. Work may be performed prior to formal
authorization or adjustment of contract price for increased work scope, change
orders and other funding adjustments. Because of the complexity of Government
contracts and applicable regulations, contract disputes with the Government
occur in the ordinary course of the Company's business. The resolution of such
disputes may affect the
6
<PAGE>
profitability of the Company in performing these contracts. The Company believes
that adequate provision has been made in its financial statements for these and
other normal uncertainties incident to its Government business.
Changes to procurement regulations in recent years, as well as the
Government's drive against "fraud, waste and abuse" in defense procurement
systems have increased the complexity and cost of doing business with the
Government. Some of these changes have redefined the ability to recover various
standard business costs which the Government will not allow, in whole or in
part, as the cost of doing business on Government contracts. Other legal and
regulatory practices have increased the number of auditors, inspectors general
and investigators to the point that the Company, like every other major
Government contractor, is the constant subject of audits, investigations and
inquiries concerning various aspects of its business practices. One pending
investigation resulted in subpoenas by the Government for a large number of
documents, and Government interviews of a large number of current and former
employees. The Company believes that this investigation, which has been ongoing
for over three years, is currently dormant. The Company is unaware that the
investigation produced credible evidence of material wrongdoing by it or its
employees and, therefore, believes that charges or claims will not be brought
against it or its employees arising from this investigation.
The Company regards charges of violation of government procurement
regulations as extremely serious and recognizes that such charges could have a
material adverse effect on the Company. If the Company is determined to be in
noncompliance with any of the applicable laws and regulations, the possibility
exists of penalties and debarment or suspension from receiving additional
Government contracts.
INTERNATIONAL SALES
The distribution of the Company's international sales is shown on the table
set forth on Page 38 of the Company's 1993 Consolidated Financial Statements
included herein. These sales are primarily export sales.
Reconnaissance and surveillance systems, high altitude platforms and
ground-based transportable aircraft navigation systems are the principal source
of international sales revenues of the Company. Since most of the Company's
export sales involve technologically advanced products, services and expertise,
U.S. export control regulations limit the type of products and services that may
be offered and the countries and governments to which sales may be made.
Consequently, the Company's international sales may be adversely affected by
changes in U.S. Government export policy. In addition, the Company's
international sales are subject to risks inherent in foreign commerce, including
currency fluctuations and devaluations, changes in foreign governments and their
policies, differences in foreign laws and difficulties in negotiating and
litigating with foreign sovereigns. The Company believes that it has mitigated
certain of these risks by obtaining letters of credit and advance payments and
by denominating contracts in U.S. dollars where possible.
COMPETITION
With the recent end of the "Cold War" and prospects of substantial
reductions in defense budgets for the procurement of military systems and
equipment, the Company expects that its niche business in the reconnaissance,
surveillance and intelligence market will probably be funded at a level which is
less drastically cut than other elements of the defense budget. Therefore, the
Company expects that its business will become even more attractive to
competitors.
The Company faces intense competition with respect to all of its products
and services. Competition is heightened by "competitive advocates" required of
each Department of Defense procurement office, whose jobs are to see that new
and renewal contracts are subjected to increased competition. Many of the
Company's significant competitors are, or are controlled by, companies which are
larger and have substantially greater financial resources than the Company. The
Company also competes with small companies operating within a particular
business segment. Sales are made principally
7
<PAGE>
through competitive proposals in response to requests for bids from U.S.
Government agencies and prime contractors. The principal competitive factors are
price, technology, service and ability to perform.
The Company's business consists largely of projects which involve the
production of a relatively small number of units. Due to the diversity and
specialized nature of the products produced and the governmental security
restrictions applicable to many of the Company's activities, the Company cannot
determine its market position in significant areas of its business. However, the
Company believes that it is one of the leading manufacturers of reconnaissance
and surveillance systems.
RESEARCH AND DEVELOPMENT
Research and development and the Company's technological expertise have been
important factors in the Company's growth. A substantial portion of the
Company's business consists of research and development oriented products
conducted under cost reimbursable contracts, many of which also result in the
production of prototype hardware and systems. It is not possible to estimate
separately the value of the research and development portion of these contracts
as compared to the preproduction and prototype portion.
In 1993, the Company spent approximately $53.2 million on product research,
design and development related to U.S. Government contracts (in addition to the
activities described in the above paragraph). This compares to approximately
$53.9 million in 1992 and $51.4 million in 1991 and includes research,
development and engineering and costs incurred to submit bids and proposals for
the Company's highly technical products and services to its customers. Most of
the expenditures during these periods were recovered by the Company pursuant to
independent research and development agreements negotiated with the U.S.
Government. These agreements generally provide that the research and development
costs up to specified ceiling limits and for specified efforts may be included
in the overhead expense charged to certain Government contracts and recovered as
part of the contract price.
RAW MATERIALS
The Company's products require a wide variety of components and materials.
The Company has multiple external sources for most of the components and
materials it uses in production and produces certain components and materials
internally. Although the Company has experienced shortages and long lead times
for certain components and materials, such shortages and long lead times have
not had a material effect on the Company's business, and the Company believes
that the sources and availability of its raw materials are adequate.
ENVIRONMENTAL PROTECTION
Federal environmental regulation of the electronics manufacturing industry
is effected primarily through the Environmental Protection Agency ("EPA").
Regulations promulgated and proposed by the EPA, as well as state and local
authorities, contain detailed provisions governing the types and amounts of
waste generated from the electronic manufacturing process and the manner of
disposal of such waste. Federal "Superfund" legislation mandates the clean-up of
toxic waste sites, which may include sites used by the Company and others in the
electronics manufacturing industry. See "Item 3. Legal Proceedings,
ENVIRONMENTAL MATTERS".
EMPLOYEES
At December 31, 1993, the Company employed approximately 16,700 persons,
approximately 42% of whom are engineers, scientists and highly skilled
technicians. Approximately 1,900 of the Company's employees are covered by
collective bargaining agreements with various unions. The Company considers its
employee relations to be good.
8
<PAGE>
PATENTS, TRADEMARKS AND LICENSES
The Company is a high technology company and, as such, is a holder of
numerous patents. In addition, the Company is a party to various license
agreements and has registered trademarks for a number of its products. None of
the business segments of the Company are materially dependent upon patents,
licenses, or trademarks.
ITEM 2. PROPERTIES.
The Company occupies buildings which contain approximately 7,053,000 square
feet of floor space. Approximately 1,860,000 square feet are owned by the
Company and the remaining 5,195,000 square feet are leased. Approximately 37,000
square feet of space are leased (or subleased) to non-affiliated persons. The
principal plants and offices are located as follows:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FEET
LOCATION FLOOR SPACE DESCRIPTION
- ---------------------------------- --------------- ------------------------------------------------------------
<S> <C> <C>
Greenville, Texas 2,894,000 Offices, engineering, research and development, production:
airborne electronic systems installation, aircraft
overhaul and maintenance.
Garland, Texas 1,405,000(a) Offices, engineering, research and development, production:
radiation laboratory, electronic components, high powered
transmitters, radar antennas and other products.
St. Petersburg, Fla. 598,000(b) Offices, engineering, research and development, electronic
assembly, production: communication systems and equipment
and electronic data handling systems.
Loudoun County, Falls Church and 846,000(c) Offices, engineering, research and development, production:
Fairfax County, Va. reconnaissance and surveillance and electronics.
Salt Lake City, Utah 180,000 Offices, engineering research and development, production:
electro-mechanical, navigation and automatic controls.
State College, Penn. 351,000 Offices, engineering, research and development, production:
reconnaissance and surveillance.
Dallas, Texas 80,000(d) Corporate offices.
Other Properties 699,000(e) Offices, production and depot maintenance of electronic
equipment and systems.
<FN>
- ------------------------
(a) Approximately 977,000 square feet are owned by the Company.
(b) Approximately 559,000 square feet are owned by the Company.
(c) Approximately 205,000 square feet are owned by the Company.
(d) Owned by the Company.
(e) This includes approximately 460,000 square feet at various locations owned
by the United States Government and operated by the Company.
</TABLE>
The plant located at Greenville, Texas, is held under a lease, which expires
as of October 1, 2017. A portion of the Garland, Texas, facilities of the
Company is held under a lease which expires June 1, 2001, with options to renew
for seven successive five-year periods. The Falls Church, Virginia, facility is
held under a lease which expires in December 2005, with an option to renew for
an additional five-year period. The plant located at Salt Lake City, Utah, is
held under a lease which expires in October 1994, with options to renew the
lease for three successive five-year periods.
9
<PAGE>
The facilities located at State College, Pennsylvania are held under various
leases expiring from June 1992 to December 2005 with options to renew, ranging
from ten years to multiple five-year periods.
All real property and buildings are suitable for the Company's business and
are generally fully utilized. The plants, machinery and equipment owned and
leased by the Company are well maintained and suitable for its operations.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
ORANGE COUNTY, FLORIDA. An administrative proceeding was instituted in 1984
by the EPA and the Florida Department of Environmental Regulation against
approximately 150 entities, including the Company, for disposal of hazardous
waste at the City Chemical Company, Inc. hazardous waste recycling plant in
Orange County, Florida. The extent of the Company's contribution of hazardous
waste to that plant is estimated at 6.55% of the total waste deposited at the
site.
In conjunction with other Potentially Responsible Parties ("PRP's"), the
Company had conducted a Remedial Investigation/Feasibility Study to define the
parameters of needed remedial action. Based upon that study, a Record of
Decision was issued by the EPA on March 29, 1990. That decision estimates the
capital cost of the selected remedial measure at $1,516,725. Estimated
operations and maintenance expenditures over a ten year period at the site are
approximately $3,000,000. The EPA entered into a settlement agreement with the
Company and approximately 130 other PRP's to finance the remedial program. A
Consent Decree to effect that program was entered at the U.S. District Court for
the Middle District of Florida on December 9, 1991. The design of the remedial
program was completed in 1992. A contract for implementation of that design was
awarded on January 20, 1993 with construction completion expected in mid-1994.
Since the date of the initial Consent Decree, a substantial number of PRP's have
exercised their right to buy-out of their liability at this site by paying a
substantial premium above their volumetric contribution. As a result of those
payments, no payment by the Company has been required to implement the
construction of the remedial program; however, at the 80% construction
completion point, the EPA will demand, pursuant to the Consent Decree, that the
PRP's replenish the trust account by funding it to 120% of the initial program
cost estimate. This will require the Company to make a payment of approximately
$165,000 in 1994. The trust account will be used for annual operations and
maintenance expenditures. Overruns will be funded at approximately 11% by the
Company. The Company estimates total liability to the EPA at this site at
approximately $400,000.
The Company will also be responsible for a portion of the state's
environmental response costs based upon its volumetric share of waste sent to
the site. Liability for repayment of the state expenditures is estimated at
approximately $100,000.
SIMPSONVILLE, SOUTH CAROLINA. An Administrative Proceeding was instituted
in 1987 by the EPA against the Company, along with other entities, for
environmental response costs at the Golden Strip Septic Tank National Priority
List (NPL) Site in Simpsonville, South Carolina. The EPA alleges that the
Company and its predecessor corporation, LTV, disposed of hazardous waste at
this site at various times prior to 1975. Documents relating to these
allegations have been destroyed due to the significant lapse of time between the
cessation of operations of the Golden Strip Site in 1975 and the notification to
the Company from the EPA in 1987. The Company and other potentially Responsible
Parties formed a group to conduct a Remedial Investigation/Feasibility Study.
That study developed and analyzed several alternative remedial programs. A
Record of Decision was executed by the EPA on September 12, 1991 selecting a
remedial program estimated to cost approximately $4,000,000 with recurring
annual operations and maintenance costs of approximately $75,000. A Consent
Decree negotiated between the EPA and the PRP's was lodged in October, 1992.
That Decree approves and authorizes implementation of the remedial program
selected by the EPA. The environmental consulting firm of RMT, Inc. has
completed a detailed design for the selected remedy. The design is currently
10
<PAGE>
awaiting EPA approval prior to implementation. The four major PRP's have
executed an agreement allocating liability for the remedial costs. Under the
terms of the agreement, the Company is responsible for 19.25% of remedial
program costs. Two additional companies will participate to the extent of their
very limited resources. The 1994 aggregate expenditures for the site are
estimated at $1,500,000 with the Company's share being approximately $290,000.
The Company's total liability for construction of the remedial program is
estimated at approximately $886,000.
SALT LAKE CITY, UTAH. The Company entered into a Stipulated Consent
Agreement with the State of Utah, Division of Solid and Hazardous Waste on May
16, 1991 based upon preliminary data which indicated that soil and groundwater
contamination existed immediately adjacent to a former underground storage tank
located at the Montek Division. The Company has identified the lateral extent of
the contamination and has proposed a remedial program consisting of limited soil
removal and a groundwater pump and treat system. The remedial program is
awaiting approval from the State of Utah. Remedial costs for this program are
not expected to exceed $950,000 over a three year period.
Neither the anticipated costs to be incurred by the Company to clean-up the
sites where the Company has been named a "Potentially Responsible Party", the
aggregate of those costs, nor the aggregate of all costs to be incurred to
clean-up soil and groundwater contamination are expected to have a material
adverse effect on the Company's financial condition.
The Company is engaged in an industry which uses relatively insignificant
quantities and varieties of hazardous chemicals. However, the current state of
the law provides for liability without fault for companies dealing with
hazardous waste materials. The federal courts have held that a single company
may be held liable for the entire clean-up costs at a given site. Therefore, the
Company may be sued for the total cost of cleaning up any of the sites where the
Company's waste has been deposited. Should the Government institute such an
action, the Company will vigorously oppose any attempt to impose liability
beyond its volumetric share of waste sent to the site.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
11
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, offices held and other information with respect to each of
the executive officers of the Company as of February 25, 1994 are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICE(S) OFFICER SINCE DATE(1)
- ---------------------------- --- ------------------------------------------------ -----------------------
<S> <C> <C> <C>
E. Gene Keiffer 64 Chairman of the Board September 2, 1975
A. Lowell Lawson 56 Chief Executive Officer and President November 30, 1978
Terry W. Heil 56 Senior Vice President October 12, 1988
Peter A. Marino 52 Senior Vice President October 14, 1991
Brian D. Cullen 53 Senior Vice President April 21, 1987
J. Robert Collins 52 Vice President -- Strategic Planning and September 22, 1993
Development
James W. Crowley 64 Vice President, Secretary and General Counsel November 23, 1970
Art Hobbs 46 Vice President -- Corporate Relations and April 1, 1991
Administration
Talbot S. Huff 53 Vice President April 21, 1987
James W. Pope 50 Vice President -- Finance and Chief Financial January 27, 1982
Officer
James J. Reilly 53 Vice President -- Financial Operations August 30, 1989
(principal accounting officer)
H.L. Thurmon 52 Vice President -- New Business Development November 1, 1971
Marshall D. Williamson 52 Vice President July 28, 1993
<FN>
- ------------------------
(1) Each of the executive officers has been elected to his position until the
next annual meeting of the stockholders of the Company, April 27, 1994, or
until his successor be duly elected and qualified.
</TABLE>
12
<PAGE>
Each of the executive officers has been employed as indicated in the table
above for more than five years except as may be indicated below:
E. GENE KEIFFER -- Mr. Keiffer is Chairman of the Board having been elected
to that position on April 25, 1989. He had served as Chief Executive Officer
from April 25, 1989 to January 26, 1994. Previously he served as Senior Vice
President and Group Executive Officer since November 1, 1983.
A. LOWELL LAWSON -- Mr. Lawson was elected Chief Executive Officer on
January 26, 1994. He has held the position of President since April 25, 1989.
Previously he served as Executive Vice President from April 21, 1987 to April
25, 1989 and Senior Vice President and Group Executive since November 1, 1983.
TERRY W. HEIL -- Dr. Heil was elected Senior Vice President effective
October 12, 1988. Prior to joining the Company at that time, Dr. Heil had been
executive vice president of the Defense Electronics Group of the Singer
Corporation since 1986 and had held other senior executive positions with Singer
for more than five years previous.
PETER A. MARINO -- From July 1991 until October 1991, Mr. Marino was
executive vice president and chief operating officer of Fairchild Corporation.
From September 1989 to July 1991, Mr. Marino was president and chief operating
officer of Fairchild Industries, Inc. a high-technology company engaged in
spacecraft and space subsystems, military avionics, defense communications,
telecommunications, aerospace fasteners and capital equipment for the plastics
molding industry. Between October 1988 and September 1989, he was senior vice
president of Fairchild Industries, Inc. From October 1986 to September 1988, Mr.
Marino was, first, executive vice president and then, president and chief
operating officer of Lockheed Electronics Company, Inc. and a vice president of
the parent, Lockheed Corporation. Prior to that time, Mr. Marino had been with
the United States Central Intelligence Agency from 1970 to 1986, serving in
various technical and managerial positions.
BRIAN D. CULLEN -- Mr. Cullen served as Vice President of the Company from
April 27, 1987 to January 26, 1994.
J. ROBERT COLLINS -- Dr. Collins was vice president of business development
of the Garland Division, Garland, Texas, from March 16, 1992 to September 22,
1993 when he was elected to his current position. Prior to that, he was division
vice president of the Garland Division from May 20, 1985 to March 16, 1992.
ART HOBBS -- Prior to his current position, Mr. Hobbs was the vice president
of human resources of the Greenville Division, Greenville, Texas, the largest
operating division of the Company. He had served in such capacity since 1982,
having previously been director of employee relations for three years.
JAMES J. REILLY -- Mr. Reilly was director of Financial Controls from April
14, 1989 to August 10, 1989. Before joining the Company, he was Group Controller
for the Pullman Company, which is engaged in the production of aerospace and
electronic and material components, since 1987. From 1978 to 1987 he was Vice
President-Finance for Loral Electronics Systems Division.
MARSHALL D. WILLIAMSON -- From February 1, 1993 until being elected to his
current position, Mr. Williamson was vice president and assistant general
manager of the Garland Division, Garland, Texas. He served as vice president of
the Garland Division from May 20, 1985 until February 1, 1993 previously having
held various managerial positions since joining the Company in 1975.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York and London Stock
Exchanges and principally traded in those markets. The table below shows the
high and low closing prices of the Company's common stock on the New York Stock
Exchange, as reported in the WALL STREET JOURNAL, and the cash dividends
declared per share for each quarter during the past two years.
<TABLE>
<CAPTION>
QUARTER 1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Stock Prices:
1993 High............................................. 44 1/4 43 48 7/8 46 1/4
Low.............................................. 36 1/4 39 5/8 41 3/4 41 5/8
1992 High............................................. 38 37 1/8 37 5/8 41 1/4
Low.............................................. 31 1/2 31 5/8 32 35 3/4
Dividends Declared:
1993.................................................. $ .275 $ .275 $ .275 $ .275
1992.................................................. $ .25 $ .25 $ .25 $ .25
</TABLE>
HOLDERS OF RECORD:
At March 4, 1994, there were 10,386 holders of record of the Company's
common stock.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF OPERATIONS AND FINANCIAL CONDITION
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS: 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net sales.................................. $ 2,097,114 $ 2,094,913 $ 1,991,284 $ 1,810,172 $ 1,626,434
Operating costs and expenses............... 1,916,458 1,924,177 1,824,238 1,663,939 1,501,780
------------- ------------- ------------- ------------- -------------
Profit from continuing operations.......... 180,656 170,736 167,046 146,233 124,654
Other income (expense) -- net.............. 5,830 (600) 264 879 4,121
Interest expense........................... (6,211) (7,664) (8,559) (10,515) (10,226)
------------- ------------- ------------- ------------- -------------
Income from continuing operations before
federal income taxes and the cumulative
effect of a change in accounting
principle................................. 180,275 162,472 158,751 136,597 118,549
Federal income taxes....................... 58,409 53,453 49,213 42,345 35,565
------------- ------------- ------------- ------------- -------------
Income from continuing operations before
the cumulative effect of a change in
accounting principle...................... 121,866 109,019 109,538 94,252 82,984
Loss from discontinued operations.......... -- -- -- (8,632) --
------------- ------------- ------------- ------------- -------------
Income before cumulative effect of a change
in accounting principle................... 121,866 109,019 109,538 85,620 82,984
Cumulative effect of a change in accounting
principle................................. -- (178,510) -- -- --
------------- ------------- ------------- ------------- -------------
Net income (loss).......................... $ 121,866 $ (69,491) $ 109,538 $ 85,620 $ 82,984
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Earnings (loss) per share:
Continuing operations.................... $ 3.58 $ 3.31 $ 3.35 $ 3.02 $ 2.65
Discontinued operations.................. -- -- -- (.28) --
Cumulative effect of a change in
accounting principle.................... -- (5.42) -- -- --
------------- ------------- ------------- ------------- -------------
Total.................................. $ 3.58 $ (2.11) $ 3.35 $ 2.74 $ 2.65
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Cash dividends declared per common share... $ 1.10 $ 1.00 $ .75 $ .75 $ .50
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR-END FINANCIAL POSITION:
<S> <C> <C> <C> <C> <C>
Bookings................................... $ 1,910,532 $ 1,905,319 $ 2,013,431 $ 1,791,724 $ 1,887,410
Backlog.................................... $ 2,133,041 $ 2,319,623 $ 2,509,217 $ 2,487,070 $ 2,505,518
Current ratio.............................. 4.44 3.01 3.51 3.12 3.27
Total assets............................... $ 1,279,173 $ 1,253,573 $ 1,075,441 $ 967,178 $ 866,215
Long-term debt............................. $ 7,873 $ 34,119 $ 84,897 $ 118,706 $ 91,133
Total debt................................. $ 33,129 $ 103,920 $ 90,462 $ 127,671 $ 110,022
Stockholders' equity at year-end........... $ 769,996 $ 660,000 $ 750,063 $ 625,960 $ 561,126
Total debt to equity ratio................. .04 .16 .12 .20 .20
Return on average stockholders' equity..... 17.0% (9.9%) 15.9% 14.5% 15.8%
Employees at year-end...................... 16,703 18,590 18,622 18,435 17,920
Stockholders of record at year-end......... 10,097 10,810 11,228 12,035 12,054
Year-end closing stock price............... 43 3/8 41 1/8 37 7/8 34 3/8 30 7/8
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SOURCES OF LIQUIDITY AND CAPITAL RESOURCES -- Net working capital increased
$83 million from the prior year-end to $581 million. Net cash provided by
operating activities was $96 million for 1993 compared to $123 million for 1992.
This change was primarily due to collections of accounts receivable. Cash and
cash equivalents at the beginning of the year and funds provided by operations
were used to finance capital expenditures of $52 million, pay dividends of $36
million and pay-off $52 million in long-term debt and installment lease
obligations.
The ratio of total debt to equity was .04 at December 31, 1993 which is down
from the total debt to equity ratio of .16 at December 31, 1992. This decrease
is due to the $50 million pay-off of the five year, fixed rate Senior Notes in
August 1993.
The ratio of current assets to current liabilities was 4.4 at December 31,
1993 compared to 3.0 at December 31, 1992. Excluding the effect of adoption of
Statement of Financial Accounting Standards (SFAS) No. 106 in 1992, return on
equity increased from 15 percent in 1992 to 17 percent in 1993.
The Government recently reduced the progress payment rate on fixed-price
contracts from 85 percent to 75 percent. This change will increase requirements
for working capital. Current financing agreements provide lines of credit up to
$350 million of which $24 million was borrowed at December 31, 1993. Management
believes these lines of credit and internally generated funds will be more than
adequate to meet increased working capital requirements, capital expansion
projects, dividend payments to shareholders and satisfy payment of the Company's
maturing debt obligations.
In the first quarter of 1993, the Company made the decision to fund a
portion of the recurring costs associated with retiree health care benefits. To
do so, the Company established a 401(h) account, which is a part of the
E-Systems Salaried Retirement Plan, and a 501(c)(9) trust known as a voluntary
employees' beneficiary association (VEBA). Funding the retiree health care costs
will make them allowable under government contracts and deductible under
Internal Revenue Service regulations, thereby, minimizing future profit impact.
BUSINESS ENVIRONMENT -- The ongoing and dramatic geopolitical changes
occurring in the United States and throughout the world continue to result in
changes in the requirements and priorities established by Congress and the
administration. Defense spending continues to decline with FY 1994 authorization
at $262 billion and an administration target of $200 billion by the end of the
decade. The total intelligence budget is expected to remain approximately flat
over the next several years. Our customer environment is also changing with a
continuing re-evaluation of roles and missions, pressure to reduce spending and
a push to combine common functions within the various departments and agencies.
There continues to be a large number of political and military pressure
points throughout the world. The two currently dominating are the Bosnian
conflict in Eastern Europe and the uncertainty that exists in the former Soviet
Union. The number and diversity of conflicts or potential conflicts, coupled
with decreasing forces, makes the intelligence function more important than
ever. The company believes there will be a continuing need for precision weapon
systems, expert command and control capabilities, and the collection and
distribution of precise and timely intelligence information. As a leader in the
design, development, deployment and operation of sophisticated information-
oriented collection, analysis, monitoring and dissemination systems, the company
is well-positioned to respond to these needs.
We are also applying our technical and business strengths to markets which
are outside our traditional business. This is evidenced by contract awards from
the Department of Education for the development and operation of the national
data base for student loans and grants and the FAA for the flight inspection
aircraft program. The total value of this FAA contract including options
exercisable through FY 1996 is approximately $400 million. These programs
combined with increasing market
16
<PAGE>
acceptance of our EMASS-R- information storage and retrieval products and our
continuing push into medical image processing and information are expected to
provide a larger non-traditional business base for the company within the next
several years.
In January 1993, the company was notified by the German government that it
does not plan on proceeding with the GAFECS reconnaissance and surveillance
program at this time. Though the loss of this program will have an impact on the
company's short-term international business goals, we believe there are
opportunities in the international arena which will sustain the growth of our
international business.
With the above mentioned geopolitical changes, the international market for
our products and systems is taking on a new look. Governments who previously
depended on the United States and/or NATO to provide Command, Control and
Communications, surveillance and analysis functions are now faced with providing
these capabilities. As a result we are presently seeing opportunities in several
countries and have booked projects in some. We believe that this trend, along
with our increasing EMASS-R- penetration, will continue to yield a growing
international component of our business base.
The company is a developer and producer of high technology electronic
systems and services, consisting principally of systems design, integration,
hardware modification and development for the United States government or other
prime government contractors. The company's business base consists of both
cost-type and fixed price contracts with 60 percent being cost-type. The
profitability of cost-type contracts is contingent upon several factors:
customer's evaluation of performance on contracts, costs actually incurred,
delivery schedule, quality and incentive or award fee arrangements. Given this
determination of profitability, contract costs and related margins are not
readily explainable in typical manufacturing terms. Also, due to the nature of
the products or services provided by the company, many contracts are highly
sensitive and classified under relevant U.S. Government regulations.
1993 COMPARED TO 1992
NET SALES. Net sales for 1993 totaled $2,097 million compared to $2,095
million in 1992. Net sales in the Reconnaissance and Surveillance product
segment decreased 9 percent to $1,260 million. The decline is attributable to
the absence of the German reconnaissance and surveillance program which was
canceled in January of 1993.
COSTS AND EXPENSES. Operating profits increased 6 percent in 1993. This
increase was primarily due to increased sales in the Aircraft Maintenance &
Modification and Other Services product segment and improved margins in the
Command, Control & Communications product segment. Operating profits for the
Reconnaissance and Surveillance product segment were $111 million, down $3
million when compared to the same period in 1992. Operating profits in the
Command, Control and Communications product segment increased $4 million, or 20
percent, to $27 million in 1993. Operating profits in the Aircraft Maintenance &
Modification and Other Services product segment were $23 million, up 28 percent,
or $5 million in 1993.
Other income totaled $10.8 million for 1993 compared to $3.8 million for the
same period in 1992. This increase was primarily due to interest associated with
a one-time gain from a favorable tax settlement coupled with an increase in
capital gains earned on the Company's Supplemental Executive Retirement Plan
investments.
INCOME. Excluding the cumulative effect of adopting SFAS 106 in 1992, net
income increased 12 percent in 1993 to $121 million compared to $109 million in
1992. This increase was due to improved margins discussed above.
17
<PAGE>
1992 COMPARED TO 1991
NET SALES. Net sales from operations increased 5 percent, or $104 million,
in 1992. This increase was primarily due to increased deliveries in the
Reconnaissance and Surveillance and Aircraft Maintenance & Modification and
Other Services product segments. Net sales in the Reconnaissance and
Surveillance segment totaled $1,379 million for the year ended December 31,
1992, up 7 percent, or $89 million, from $1,290 million in the comparable period
in 1991. Net sales in the Aircraft Maintenance & Modification and Other Services
product segment increased $28 million or 10 percent in 1992.
COSTS AND EXPENSES. Excluding the effect of adopting SFAS 106, operating
profits increased 12 percent in 1992. This increase was primarily the result of
increased sales in the Reconnaissance and Surveillance segment and improved
margins due to production efficiencies in the Command, Control & Communications
product segment. Operating profits for the Reconnaissance and Surveillance
product segment were $114 million, up $6 million when compared to the same
period in 1991. Operating profits in the Command, Control and Communication
product segment increased $3 million, or 14 percent, to $22 million in 1992.
Higher than anticipated costs resulted in a decrease in operating profits in the
Aircraft Maintenance & Modification and Other Services product segment.
Operating profits in this product segment decreased from $23 million in 1991 to
$18 million for the year ended December 31, 1992.
LOSS. Excluding the effect of adopting SFAS 106, net income increased 10
percent for the year ended December 31, 1992. Adoption of the new accounting
standard required recognition of a non-recurring charge of $179 million which
resulted in a loss of $69 million for the year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The index to Consolidated Financial Statements and Financial Statement
Schedule is found on page 21. The Company's Financial Statements, Notes to
Consolidated Financial Statements and Financial Statement Schedule follow the
index.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth in the Company's proxy
statement dated March 25, 1994 at pages 4 through 7 in the section entitled
"Election of Directors," and is incorporated herein by reference. Reference is
made to the section entitled "Executive Officers of the Registrant" under Part
I.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in the Company's proxy
statement, dated March 25, 1994, at pages 8 through 17, under the sections
entitled "Executive Compensation, Salaried Retirement Plan, Supplemental
Executive Retirement Plan and Employment Agreements," and is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under "Principal
Stockholders" on pages 2 and 3 of the Company's proxy statement dated March 25,
1994, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Inapplicable.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
1. Financial Statements
2. Financial Statement Schedule
The financial statements and the financial statement schedule filed as a
part of this report are listed in the "Index to Consolidated Financial
Statements and Financial Statement Schedule" on page 21. The index, statements
and schedule are incorporated herein by reference.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
3. Exhibits required by Item 601 of Regulation S-K.
A list of the exhibits required by Item 601 of Regulation S-K and filed as
part of this report is set forth in the Index to Exhibits on pages 41 and 42,
which immediately precedes such exhibits.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed for the three months ended December 31,
1993.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
E-SYSTEMS, INC.
/s/ A. LOWELL LAWSON
--------------------------------------
A. Lowell Lawson
DIRECTOR, CHIEF EXECUTIVE OFFICER
AND PRESIDENT
March 28, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------- ------------------
<S> <C> <C>
/s/ E. GENE KEIFFER Chairman of the Board
------------------------------------------- of Directors and Director
E. Gene Keiffer
/s/ JAMES A. BITONTI Director
-------------------------------------------
James A. Bitonti
/s/ E. F. BUEHRING Director
-------------------------------------------
E. F. Buehring
/s/ CHARLES A. GABRIEL Director
-------------------------------------------
Charles A. Gabriel
/s/ C. ROLAND HADEN Director
-------------------------------------------
C. Roland Haden
/s/ MARTIN R. HOFFMANN Director
-------------------------------------------
Martin R. Hoffmann
March 28, 1994
/s/ S. LEE KLING Director
-------------------------------------------
S. Lee Kling
/s/ FRANCINE I. NEFF Director
-------------------------------------------
Francine I. Neff
/s/ DAVID R. TACKE Director
-------------------------------------------
David R. Tacke
/s/ JAMES W. POPE Vice President -- Finance
------------------------------------------- and Chief Financial Officer
James W. Pope
/s/ JAMES J. REILLY Vice President -- Financial
------------------------------------------- Operations (Principal Accounting
James J. Reilly Officer)
</TABLE>
20
<PAGE>
E-SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Ernst & Young,
Independent Auditors....................................................................... 22
Statement of Consolidated Operations --
Years ended December 31, 1993, 1992 and 1991............................................... 23
Consolidated Balance Sheets at
December 31, 1993 and 1992................................................................. 24
Statements of Consoidated Cash Flows -- Years ended
December 31, 1993, 1992 and 1991........................................................... 25
Statements of Consolidated Stockholders' Equity --
Years ended December 31, 1993, 1992, and 1991.............................................. 26
Notes to Consolidated Financial Statements.................................................. 27
FINANCIAL STATEMENT SCHEDULE:
IX -- Short-Term Borrowings................................................................. 40
</TABLE>
21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and
Board of Directors of
E-Systems, Inc.
We have audited the consolidated balance sheets of E-Systems, Inc. and
subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1993. Our audits also included the
financial statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of E-Systems, Inc.
and subsidiaries at December 31, 1993 and 1992, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note J to the consolidated financial statements, in 1992 the
company changed its method of accounting for retiree health care and life
insurance benefits in accordance with FASB Statement No. 106.
ERNST & YOUNG
Dallas, Texas
January 27, 1994
22
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Revenues:
Net sales.......................................................... $ 2,097,114 $ 2,094,913 $ 1,991,284
Other income -- net................................................ 10,775 3,753 6,478
------------- ------------- -------------
2,107,889 2,098,666 1,997,762
- ------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Contract and manufacturing costs................................... 1,759,533 1,776,037 1,695,286
Selling, general and administrative expenses....................... 161,870 152,493 135,166
Interest expense................................................... 6,211 7,664 8,559
------------- ------------- -------------
1,927,614 1,936,194 1,839,011
------------- ------------- -------------
Income Before Federal Income Taxes and the Cumulative Effect of a
Change in Accounting Principle.................................. 180,275 162,472 158,751
- ------------------------------------------------------------------------------------------------------------------
Federal Income Taxes (Note E):
Current............................................................ 62,893 51,266 52,336
Deferred........................................................... (4,484) 2,187 (3,123)
------------- ------------- -------------
58,409 53,453 49,213
------------- ------------- -------------
Income before the Cumulative Effect of a Change in Accounting
Principle....................................................... 121,866 109,019 109,538
- ------------------------------------------------------------------------------------------------------------------
Cumulative Effect of a Change in Accounting Principle (Note J):
Retiree health care and life insurance benefits -- net of tax
benefit of $91,960................................................ -- (178,510) --
------------- ------------- -------------
Net Income (Loss)................................................ $ 121,866 $ (69,491) $ 109,538
------------- ------------- -------------
------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------
Net Income (Loss) Per Share (Note A):
Income before the cumulative effect of a change in accounting
principle......................................................... $ 3.58 $ 3.31 $ 3.35
Cumulative effect of a change in accounting principle.............. -- (5.42) --
------------- ------------- -------------
Earnings (Loss) Per Share........................................ $ 3.58 $ (2.11) $ 3.35
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See "Notes to Consolidated Financial Statements."
23
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents........................................................... $ 32,638 $ 62,240
Accounts receivable (Note B)........................................................ 426,404 431,852
Unreimbursed costs and fees under cost-plus-fee contracts (Note B).................. 207,519 186,071
Fixed-price contracts:
Fixed-priced contracts in progress (Note C)....................................... 54,644 71,646
Less progress and advance payments................................................ 21,580 33,834
------------ ------------
33,064 37,812
Raw materials and purchased parts................................................... 11,714 12,114
Prepaid expenses and other assets................................................... 38,623 15,584
------------ ------------
Total Current Assets.............................................................. 749,962 745,673
- ------------------------------------------------------------------------------------------------------------------
Other Assets:
Prepaid pension costs (Note I)...................................................... 36,489 29,858
Deferred charges and other (Note I)................................................. 56,653 50,031
Deferred federal income taxes (Note E).............................................. 65,544 55,844
Costs in excess of net assets acquired (Note A)..................................... 62,401 64,728
------------ ------------
221,087 200,461
- ------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment (Notes A and H):
Land................................................................................ 7,279 7,279
Buildings........................................................................... 94,731 89,461
Machinery and equipment............................................................. 306,915 307,420
Leasehold improvements -- Net....................................................... 75,572 75,989
Construction in progress............................................................ 13,957 11,893
------------ ------------
498,454 492,042
Less allowances for depreciation.................................................... 190,330 184,603
------------ ------------
308,124 307,439
------------ ------------
$ 1,279,173 $ 1,253,573
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Accounts payable.................................................................... $ 70,313 $ 95,536
Accrued liabilities (Note F)........................................................ 73,495 82,376
Short-term obligations and current portion of long-term debt (Note D)............... 25,256 69,801
------------ ------------
Total Current Liabilities..................................................... 169,064 247,713
- ------------------------------------------------------------------------------------------------------------------
Long-Term Debt:
Long-term debt (Note D)............................................................. 738 25,994
Installment lease obligations (Note H).............................................. 7,135 8,125
------------ ------------
7,873 34,119
- ------------------------------------------------------------------------------------------------------------------
Deferred Items:
Retiree health care and life insurance benefits (Note J)............................ 290,795 287,327
Other deferred items................................................................ 41,445 24,414
------------ ------------
332,240 311,741
- ------------------------------------------------------------------------------------------------------------------
Stockholders' Equity (Notes D and G):
Common stock, par value $1.00....................................................... 33,885 32,892
Additional capital.................................................................. 172,300 140,638
Retained earnings................................................................... 563,811 486,470
------------ ------------
769,996 660,000
- ------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes H and K)
------------ ------------
$ 1,279,173 $ 1,253,573
------------ ------------
------------ ------------
</TABLE>
See "Notes to Consolidated Financial Statements."
24
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net Income (Loss)....................................................... $ 121,866 $ (69,491) $ 109,538
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Cumulative effect of a change in accounting principle................. -- 178,510 --
Depreciation and amortization......................................... 54,858 53,583 51,078
(Benefit) provision for deferred income taxes......................... (4,484) 2,187 (3,123)
Gain on sale of investment securities................................. (2,205) (453) (626)
Changes in operating assets and liabilities, net of effects from
purchase of Advanced Video Products, Inc. in 1992:
Decrease (increase) in accounts receivable............................ 84,794 20,813 (127,851)
Increase in unreimbursed costs and fees under cost-plus-fee
contracts............................................................ (21,448) (30,505) (15,565)
Decrease in fixed-price contracts in progress......................... 17,002 5,340 52,474
(Decrease) increase in progress and advance payments.................. (91,600) (47,050) 17,810
(Increase) decrease in prepaid pension costs.......................... (6,631) 8,995 2,053
(Decrease) increase in accounts payable............................... (25,223) 16,937 2,402
(Decrease) increase in accrued liabilities............................ (9,596) (16,318) 5,891
(Decrease) increase in other assets and liabilities................... (21,520) 502 806
----------- ----------- ------------
Net Cash Provided By Operating Activities........................... 95,813 123,050 94,887
- ------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment.............................. (52,063) (90,837) (52,120)
Proceeds from disposals of property, plant and equipment................ 942 992 712
Purchase of Advanced Video Products, Inc., net of cash acquired......... -- (9,959) --
----------- ----------- ------------
Net Cash Used In Investing Activities............................... (51,121) (99,804) (51,408)
- ------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net (payments) borrowings under short-term line-of-credit agreements.... (19,533) 19,533 (4,039)
Principal payments on long-term debt and installment lease
obligations............................................................ (51,693) (8,855) (33,843)
Proceeds from exercise of stock options................................. 32,655 15,692 39,678
Dividends paid.......................................................... (35,723) (30,445) (23,916)
----------- ----------- ------------
Net Cash Used in Financing Activities............................... (74,294) (4,075) (22,120)
----------- ----------- ------------
Net (Decrease) Increase in Cash and Cash Equivalents.................... (29,602) 19,171 21,359
Cash and cash equivalents at beginning of year.......................... 62,240 43,069 21,710
----------- ----------- ------------
Cash and Cash Equivalents at End of Year................................ $ 32,638 $ 62,240 $ 43,069
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See "Notes to Consolidated Financial Statements."
25
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ADDITIONAL RETAINED
SHARES AMOUNT CAPITAL EARNINGS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Balance January 1, 1991...................................... 31,204,931 $ 31,205 $ 86,955 $ 507,800
Net income................................................... 109,538
Exercise of stock options, net of stock tendered (including
tax benefit of $4,129)...................................... 1,212,219 1,212 38,466
Adjustment for minimum pension liability (net of tax benefit
of $502).................................................... (968)
Cash dividends on commom stock ($.75 per share).............. (24,145)
------------- --------- ----------- -----------
Balance December 31, 1991.................................... 32,417,150 32,417 125,421 592,225
Net loss..................................................... (69,491)
Exercise of stock options, net of stock tendered (including
tax benefit of $1,501)...................................... 474,965 475 15,217
Adjustment for minimum pension liability (net of tax benefit
of $1,910).................................................. (3,708)
Cash dividends on common stock ($1.00 per share)............. (32,556)
------------- --------- ----------- -----------
Balance December 31, 1992.................................... 32,892,115 32,892 140,638 486,470
Net income................................................... 121,866
Exercise of stock options, net of stock tendered (including
tax benefit of $5,850)...................................... 992,682 993 31,662
Adjustment for minimum pension liability (net of tax benefit
of $4,133).................................................. (7,676)
Cash dividends on common stock ($1.10 per share)............. (36,849)
------------- --------- ----------- -----------
Balance December 31, 1993................................ 33,884,797 $ 33,885 $ 172,300 $ 563,811
------------- --------- ----------- -----------
------------- --------- ----------- -----------
</TABLE>
See "Notes to Consolidated Financial Statements."
26
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The accounts of all subsidiaries have been
included in the consolidated financial statements. All significant intercompany
accounts and transactions have been eliminated.
REVENUE AND PROFIT DETERMINATION -- Sales and costs of sales (including
general and administrative expenses) on fixed-price contracts are generally
recorded when units are delivered, based on the profit rates anticipated on the
contracts at completion. Sales and costs of sales on long-term, small quantity,
high unit value fixed-price contracts, and sales (costs and fees) on cost
reimbursable contracts are recorded under the percentage-of-completion method of
accounting as costs (including general and administrative expenses) are
incurred. Profits expected to be realized on contracts are based on estimates of
total sales value and costs at completion. These estimates are reviewed and
revised periodically throughout the lives of the contracts and adjustments to
profits resulting from such revisions are made cumulative to the date of change.
Amounts in excess of agreed upon contract price for customer-caused delays,
errors in specification and design, unapproved change orders or other causes of
unanticipated additional costs are recognized in contract value if it is
probable that the claim will result in additional revenue and the amount can be
reasonably estimated (SEE NOTE C). Losses on contracts are recorded in full as
they are identified.
FIXED-PRICE CONTRACTS AND RAW MATERIALS -- Costs incurred in advance of
contractual coverage receive an allocated portion of general and administrative
expenses and are valued at the lower of cost incurred or market. Raw materials
and purchased parts are valued at average cost not in excess of market.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at
cost. Capitalized leases are recorded at the present value of the net fixed
minimum lease commitments (SEE NOTE H). Provisions for depreciation are computed
on both accelerated and straight-line methods using rates calculated to amortize
the cost of the assets over their estimated useful lives and include
amortization of capitalized leases. Leasehold improvements are amortized over
the life of the lease and renewal options which are expected to be exercised.
The company's policy is to remove the amounts related to fully-depreciated
assets from the financial records.
EARNINGS PER SHARE -- Earnings per share are computed based on the sum of
the average outstanding common shares and common equivalent shares (1993 --
34,041,000; 1992 -- 32,941,000; 1991 -- 32,723,000). Common equivalent shares
assume the exercise of all dilutive stock options. Primary and fully diluted
earnings per share are essentially the same.
STATEMENT OF CASH FLOWS -- The company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
COSTS IN EXCESS OF NET ASSETS ACQUIRED -- The costs in excess of net assets
acquired (goodwill) are being amortized using the straight-line method over a
period of 20 to 40 years. Accumulated amortization was $6,557,000 and $4,580,000
at December 31, 1993 and 1992, respectively.
FINANCIAL INSTRUMENTS AND RISK CONCENTRATION -- Financial instruments which
potentially subject the company to concentrations of credit risk consist of cash
equivalents, billed accounts receivable and unreimbursed costs and fees under
cost-plus-fee contracts. The company's cash equivalents consist principally of
U.S. Government securities and Eurodollar accounts with high credit quality
financial institutions. Generally, the investments mature within 90 days and
therefore are subject to minimal risk. Billed accounts receivable and
unreimbursed costs and fees under cost-plus-fee contracts result primarily from
contracts with the U.S. Government or prime contractors with the U.S.
27
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Government and some international customers (principally governments). Contracts
involving the U.S. Government do not require collateral or other security. The
company conducts ongoing credit evaluations of domestic non-U.S. Government
customers and generally does not require collateral or other security from these
customers. The company generally requires international customers to furnish
letters of credit or make advance payments in amounts sufficient to limit the
company's credit risk to a minimal level. Historically, the company has not
incurred any significant credit-related losses.
RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to
conform to the current year presentation.
NOTE B -- RECEIVABLES
Accounts Receivable and Unreimbursed Costs and Fees Under Cost-Plus-Fee
Contracts by major classification are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Accounts Receivable Billed:
U.S. Government............................................................. $ 54,305 $ 70,976
Commercial and International................................................ 20,169 9,479
Other....................................................................... 9,790 10,432
Accrued recoverable costs and profits
(primarily U.S. Government).................................................. 342,140 340,965
----------- -----------
Total..................................................................... $ 426,404 $ 431,852
----------- -----------
----------- -----------
Unreimbursed Costs and Fees Under Cost-Plus-Fee Contracts to the U.S.
Government:
Billed...................................................................... $ 91,872 $ 71,601
Accrued costs and fees (including fee retentions of $7,756 and $7,896,
respectively).............................................................. 115,647 114,470
----------- -----------
Total..................................................................... $ 207,519 $ 186,071
----------- -----------
----------- -----------
</TABLE>
Accrued recoverable costs and profits and accrued costs and fees under
customer contracts represent revenue earned under the percentage-of-completion
method but not yet billable under the terms of the contracts. These amounts are
billable based on the terms of the contract which include shipments of the
product, achievement of milestones or completion of the contract. Substantially
all of the accrued recoverable costs and profits and accrued costs and fees at
December 31, 1993 are to be billed during 1994.
Offset against accrued recoverable costs and profits are unliquidated
progress payments of $470,604,000 for 1993 and $549,950,000 for 1992.
28
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
NOTE C -- FIXED-PRICE CONTRACTS
Cost elements included in Fixed-Price Contracts in Progress are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Production costs consisting of material, labor, and overhead:
Currently in process........................................................... $ 31,002 $ 47,452
Produced in advance of contractual coverage.................................... 497 1,715
Claim recovery recorded........................................................ 10,984 9,903
General and administrative costs............................................... 12,161 12,576
--------- ---------
$ 54,644 $ 71,646
--------- ---------
--------- ---------
</TABLE>
Substantially all of the costs incurred in advance of negotiated contracts
at December 31, 1993 are expected to receive firm contractual coverage in 1994.
NOTE D -- DEBT
The company's long-term debt at December 31 is summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
$50 million Senior Notes, interest at 8.95 percent, due August 1993.............. $ -- $ 50,000
$24 million ESOP line of credit, at 78 percent of the bank's prime rate or 91
percent of the bank's certificate of deposit rate at the Company's option due
December 1994................................................................... 24,000 24,000
Other............................................................................ 1,994 2,262
--------- ---------
Total.......................................................................... 25,994 76,262
Less current maturities.......................................................... 25,256 50,268
--------- ---------
$ 738 $ 25,994
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1993, the maturities of long-term debt were as follows:
<TABLE>
<S> <C>
1994.............................................................. $ 25,256
1995.............................................................. --
1996.............................................................. 381
1997.............................................................. 357
</TABLE>
The company has two lines of credit dated October 21, 1992, with total
credit available of $250 million. One credit agreement in the amount of $150
million terminates October 19, 1995, and the other agreement in the amount of
$100 million terminates October 14, 1994 and contains a provision for a one-year
extension. These agreements, with a group of eight banks, provide for a floating
interest rate based upon competitive bids from the member banks and repayment
terms negotiated at the time of each borrowing. The credit agreement in the
amount of $150 million provides for a facility fee of .15 percent of the
committed amount, and the credit agreement in the amount of $100 million
provides for a facility of .125 percent of the committed amount. The company had
no borrowings under either line in 1993.
The company has total lines of credit available under short-term borrowing
agreements of $100 million of which none and $19,533,000 were borrowed at
December 31, 1993 and 1992, respectively. The lines of credit provide for
interest at each bank's offered rate at the date of the advance.
29
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
NOTE D -- DEBT (CONTINUED)
Borrowings under the ESOP line of credit were used to purchase the company's
common stock for contribution to the company's Employee Stock Ownership Plan.
The company's various debt agreements require, among other things, that the
Company maintain a specified current ratio, debt to equity ratio, and tangible
net worth. Under the most restrictive of these covenants, the company has
unrestricted retained earnings of $169,996,000 at December 31, 1993.
The company made interest payments in 1993, 1992, and 1991, respectively, of
$7,027,000, $6,817,000, and $7,880,000.
NOTE E -- INCOME TAXES
During 1992, the company adopted FASB Statement No. 109 "Accounting for
Income Taxes." The adoption had no material impact on the company's financial
statements. A reconciliation of the provision for taxes on income to the U.S.
statutory rate follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Federal income tax...................... $ 63,096 35% $ 55,240 34% $ 53,975 34%
ESOP dividends.......................... (1,695) (1) (1,512) (1) (1,168) (1)
Tax return settlements.................. (1,532) (1) -- -- (2,839) (2)
Effect of tax rate change on net
deferred tax
assets................................. (1,857) (1) -- -- -- --
Other................................... 397 -- (275) -- (755) --
-------- ----- -------- ----- -------- -----
$ 58,409 32% $ 53,453 33% $ 49,213 31%
-------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- -----
</TABLE>
Deferred income taxes result primarily from the use of accelerated methods
of depreciation for tax purposes, pension income not currently taxable and safe
harbor leasing transactions offset by accrued employee and retiree benefits
which are not deductible until paid.
30
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
NOTE E -- INCOME TAXES (CONTINUED)
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities at December 31, 1993 and 1992 are as
follows:
<TABLE>
<CAPTION>
ASSETS 1993 1992
<S> <C> <C>
- --------------------------------------------------------------
Retiree health care benefits............ $103,077 $ 97,691
Supplemental executive retirement
plan................................... 7,569 6,753
Pension plan minimum liabilities........ 7,571 3,340
Other................................... 5,954 7,411
-------- --------
Gross Deferred Tax Assets............... $124,171 $115,195
-------- --------
<CAPTION>
LIABILITIES
<S> <C> <C>
- --------------------------------------------------------------
Depreciation............................ $ 21,489 $ 20,313
Pension................................. 13,778 13,384
Safe harbor lease....................... 7,963 8,184
Other................................... 13,592 14,582
-------- --------
Gross Deferred Tax Liabilities.......... $ 56,822 $ 56,463
-------- --------
Net Asset............................... $ 67,349 $ 58,732
-------- --------
-------- --------
</TABLE>
A valuation allowance has not been recorded for the deferred federal income
tax benefits as the company believes it will generate sufficient taxable income
in the future to realize all of the recorded benefits.
Included in operating costs and expenses are state income taxes of
$6,688,000, $6,575,000, and $2,700,000 in 1993, 1992 and 1991, respectively.
The company made federal income tax payments in 1993, 1992, and 1991,
respectively, of $55,450,000, $62,027,000, and $43,250,000.
NOTE F -- ACCRUED LIABILITIES
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992
<S> <C> <C>
- ------------------------------------------------------------
Accrued liabilities include the
following:
Compensation.......................... $25,162 $24,833
Advances from customers............... 1,088 10,966
Insurance............................. 8,559 12,097
Taxes, other than income.............. 8,511 9,134
Dividends............................. 9,269 8,153
Other accrued items................... 20,906 17,193
------- -------
$73,495 $82,376
------- -------
------- -------
</TABLE>
NOTE G -- STOCKHOLDERS EQUITY
At December 31, 1993, there were 50,000,000 authorized shares of common
stock and 185,000 shares of authorized but undesignated preferred stock, par
value $20.
31
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
NOTE G -- STOCKHOLDERS EQUITY (CONTINUED)
Stock option plans, which include both "nonqualified" and incentive stock
options, provide for options to be granted to key employees at prices equal to,
greater than or less than market value at the date of grant and for terms not to
exceed ten years. The options outstanding under the plan expire at various dates
through 2003.
Information on stock options is summarized as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------
<CAPTION>
NUMBER OF AGGREGATE NUMBER OF
SHARES PRICES PER SHARE OPTION PRICES SHARES PRICES PER SHARE
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Options outstanding at beginning of
year................................... 3,133,152 $ 24.75 to $40.25 $ 99,670,400 3,629,432 $ 18.00 to $40.25
Options granted......................... 869,050 39.94 to 46.13 37,698,400 51,000 32.00 to 37.32
Options exercised....................... (1,336,949) 24.75 to 40.25 (41,568,000) (498,546) 18.00 to 34.63
Options expired or cancelled............ (15,363) 24.75 to 34.00 (552,500) (48,734) 24.75 to 34.00
------------ ------------- ---------
Options oustanding at end of year....... 2,649,890* $ 24.75 to $46.13 $ 95,248,300 3,133,152 $ 24.75 to $40.25
------------ ------------- ---------
------------ ------------- ---------
Shares reserved for future options...... 123,888*
------------
------------
Shares exercisable at December 31,
1993................................... 1,334,169
------------
------------
<CAPTION>
1991
<S> <C> <C> <C> <C>
AGGREGATE NUMBER OF AGGREGATE
OPTION PRICES SHARES PRICES PER SHARE OPTION PRICES
<S> <C> <C> <C> <C>
- ----------------------------------------
Options outstanding at beginning of
year................................... $ 114,403,800 3,908,855 $ 10.38 to $40.25 $ 118,979,500
Options granted......................... 1,854,500 1,097,050 24.94 to 39.88 36,865,000
Options exercised....................... (15,038,700) (1,271,537) 11.32 to 35.75 (38,204,600)
Options expired or cancelled............ (1,549,200) (104,936) 10.38 to 38.88 (3,236,100)
------------- ----------- -------------
Options oustanding at end of year....... $ 99,670,400 3,629,432 $ 18.00 to $40.25 $ 114,403,800
------------- ----------- -------------
------------- ----------- -------------
Shares reserved for future options......
Shares exercisable at December 31,
1993...................................
<FN>
* Total common shares reserved for exercise of stock options at December 31,
1993 were 2,773,778.
</TABLE>
NOTE H -- LEASE COMMITMENTS
Certain plant facilities are leased under agreements expiring at various
dates through 2017. Substantially all of the leases for plant facilities may be
renewed for up to seven years after the initial term of the lease. The
capitalized value of leases amounted to $17,461,000 and $25,568,000 at December
31, 1993 and 1992, respectively, and net book value amounted to approximately
$9,765,000 and $11,352,000 at December 31, 1993 and 1992, respectively.
32
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
NOTE H -- LEASE COMMITMENTS (CONTINUED)
Future minimum payments as of December 31, 1993 under the capital leases and
noncancelable operating leases with initial or remaining terms of one year or
more follow:
<TABLE>
<CAPTION>
CAPITAL OPERATING
(IN THOUSANDS) LEASES LEASES
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
1994.......................................................................... $ 1,597 $ 18,184
1995.......................................................................... 1,342 14,919
1996.......................................................................... 1,200 13,141
1997.......................................................................... 1,233 10,894
1998.......................................................................... 1,165 9,327
Thereafter.................................................................... 4,788 48,169
--------- -----------
Total minimum lease payments.................................................. 11,325 $ 114,634
-----------
-----------
Amounts representing interest................................................. (3,197)
---------
Present value of net minimum lease payments................................... $ 8,128
---------
---------
</TABLE>
Lease expense on plant facilities, machinery and equipment amounted to
$18,890,000, $22,616,000 and $24,015,000 in 1993, 1992, and 1991, respectively.
NOTE I -- EMPLOYEE BENEFITS
The company has several noncontributory defined benefit pension plans
covering substantially all employees. Plans covering salaried and non-union
employees provide pension benefits that are based on the highest consecutive 60
months of an employee's compensation. Plans covering employees governed by
collective bargaining agreements generally provide pension benefits of stated
amounts for each year of service and provide for supplemental benefits for
employees who retire with 20 years of service before age 62. The company's
funding policy for all plans is to make annual contributions generally equal to
the amounts accrued for pension expense, up to the maximum amount that can be
deducted for federal income tax purposes.
A summary of the components of net periodic expense for the company's
defined benefit plans and SERP follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992 1991
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Service cost -- benefits earned during this period............................ $ 31,985 $ 29,655 $ 25,690
Interest cost on projected benefit obligation................................. 48,762 44,015 38,763
Actual return on plan assets.................................................. (19,027) (8,135) (38,130)
Net amortization and deferral................................................. (29,634) (42,644) (19,396)
---------- ---------- ----------
Net periodic pension expense.................................................. $ 32,086 $ 22,891 $ 6,927
---------- ---------- ----------
---------- ---------- ----------
Assumptions used in the accounting for the plans were as follows:
- ------------------------------------------------------------------------------------------------------------------
Weighted-average discount rate................................................ 7.45% 8.25% 8.5%
Rates of increase in compensation levels -- defined benefit plans............. 5.75% 5.75% 6.0%
Rates of increase in compensation levels -- SERP.............................. 7.0% 7.0% 7.0%
Expected long-term rate of return on assets................................... 10.0% 10.0% 10.0%
</TABLE>
33
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
NOTE I -- EMPLOYEE BENEFITS (CONTINUED)
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets for the company's defined benefit pension plans,
excluding the SERP:
<TABLE>
<CAPTION>
1993 1992
------------------------------ ------------------------------
ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED
BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED ACCUMULATED
(IN THOUSANDS) ASSETS BENEFITS ASSETS BENEFITS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested benefit obligation............... $ (68,428 ) $ (446,254 ) $ (58,614 ) $ (341,175 )
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Accumulated benefit obligation.......... $ (76,626 ) $ (497,263 ) $ (64,319 ) $ (391,107 )
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Projected benefit obligation............ $ (81,133 ) $ (644,950 ) $ (64,319 ) $ (515,318 )
Plan assets at fair value................. 60,122 501,410 60,740 466,537
--------------- ------------- --------------- -------------
Plan assets less than projected benefit
obligation............................... (21,011 ) (143,540 ) (3,579 ) (48,781 )
Unrecognized net loss..................... 25,186 258,796 16,580 163,292
Prior service cost (credit) not yet
recognized in net periodic pension
cost..................................... 13,506 (1,556 ) 7,187 3,433
Unrecognized net asset at January 1, 1986,
net of amortization...................... (9,202 ) (77,211 ) (10,517 ) (88,086 )
Adjustment required to recognize minimum
liability................................ (24,982 ) -- (13,250 ) --
--------------- ------------- --------------- -------------
(Accrued) Prepaid Pension Cost............ $ (16,503 ) $ 36,489 $ (3,579 ) $ 29,858
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
</TABLE>
Approximately 52 percent of the defined benefit plans' assets at December
31, 1993 are invested in mutual funds, commercial paper, common stocks and other
assets, and 48 percent of the plans' assets are invested in real estate. The
market value of the common stock of the company held by the plans was
$63,960,000 at December 31, 1993.
The company also sponsors a Supplemental Executive Retirement Program
(SERP), which is a nonqualified plan that provides certain officers with defined
pension benefits in excess of limits imposed by federal tax laws. The following
table sets forth the funded status and amounts recognized in the Consolidated
Balance Sheets for the company's SERP:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992
<S> <C> <C>
- ----------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $(17,767) $(15,693)
-------- --------
-------- --------
Accumulated benefit obligation.............................. $(22,515) $(18,809)
-------- --------
-------- --------
Projected benefit obligation................................ $(25,449) $(20,492)
Unrecognized net loss......................................... 8,578 5,440
Prior service cost not yet recognized in net periodic pension
cost......................................................... 318 65
Unrecognized net obligation at January 1, 1986, net of
amortization................................................. 2,512 2,871
Adjustment required to recognize minimum liability............ (8,474) (6,693)
-------- --------
Net pension liability of the SERP............................. $(22,515) $(18,809)
-------- --------
-------- --------
</TABLE>
34
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
NOTE I -- EMPLOYEE BENEFITS (CONTINUED)
The company has established a trust to fund the payment of pension benefits
under the SERP. Trust assets totaled $42,134,000 and $38,497,000 at December 31,
1993 and 1992, respectively, and are included in Deferred Charges and Other in
the Consolidated Balance Sheets. The assets of the Trust are invested at the
discretion of the outside trustee, and at December 31, 1993, consisted primarily
of listed common stock, convertible securities and fixed-income investments.
Marketable equity securities held by the Trust are carried at the lower of
aggregate cost or market. Income and expenses of the Trust are included in the
company's consolidated income and expenses. At December 31, 1993, the outside
trustee estimates the market value of the trust assets to be $46,119,000. The
Trust became irrevocable in 1988 subject only to the claims of creditors in the
event of insolvency of the company.
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," effective for fiscal years beginning after December
15, 1993. The company plans to adopt the Statement in 1994, and it is not
expected to have a material impact on the company's financial position or
results of operations.
The company has an Employee Stock Ownership Plan (ESOP) which includes
substantially all employees. The ESOP provides for voluntary annual
contributions by the company in amounts determined by the Board of Directors.
The contributions may be in cash, common stock, securities or other property.
The annual contributions are to be at least sufficient to discharge any current
obligations of the Employee Stock Ownership Trust. The Employee Stock Ownership
Trust borrows funds at various times to purchase common stock of the company for
subsequent distribution to the employees over a defined period in accordance
with the Employee Stock Ownership Plan. The repayment of the loans is guaranteed
by the company; however, at December 31, 1993 and 1992, there were no such
obligations outstanding. Contributions to the Trust for 1993, 1992, and 1991
were $11,709,000, $13,045,000 and $12,072,000, respectively.
Three of the company's subsidiaries sponsor separate 401K savings plans. The
plans provide for voluntary annual contributions by the company at the
discretion of management. The company contributed $4,202,000, $2,480,000, and
$2,217,000 to the plans in 1993, 1992 and 1991, respectively.
During 1987, the Board of Directors approved a retirement policy for its
outside directors which provides for post retirement remuneration and death
benefits. The expense of the plan is being amortized over the anticipated
remaining terms of the directors.
NOTE J -- RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS
The company also provides certain health care and life insurance benefits
for its retired employees. Employees retiring from the company between the ages
of 55 and 65 with at least 10 years of service or who age vest under the
E-Systems, Inc. Salaried Retirement Plan are eligible for these benefits.
Election to participate must be made as of the date of retirement, and the
retiree may elect to cover qualifying dependents. If the retiree elects no
medical coverage, it may not be added at a later date.
Prior to 1992, the costs for providing retiree health care and life
insurance benefits were recognized as an expense as claims were paid. In 1992,
the company began to recognize the projected future cost of providing
postretirement benefits, such as health care and life insurance, as an expense
during the employee's vesting service. Upon implementation of this change, the
company immediately recognized the January 1, 1992 accumulated postretirement
benefit obligation (APBO) of $270.5 million.
35
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
NOTE J -- RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED)
A summary of the components of net periodic retiree health care and life
insurance benefits cost follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992 1991
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Service cost......................................................... $ 6,546 $ 6,962
Interest cost........................................................ 21,068 21,931
Actual return on plan assets......................................... (1,930) --
Net amortization and deferral........................................ 1,275 --
------- -------
Net periodic postretirement benefits cost............................ $26,959 $28,893 $9,500
------- ------- ------
------- ------- ------
</TABLE>
The cost shown in 1992 for retiree health care and life insurance benefits
is $16,856,000 higher than it would have been had the change in accounting not
been made in 1992. Annual costs for 1991 are not restated.
The company has begun contributing to a Voluntary Employees' Beneficiary
Association trust and a 401(h) trust that will be used to partially fund health
care benefits for retirees. The company is funding benefits to the extent
contributions are tax-deductible, which under current legislation is limited. In
general, retiree health care benefits are paid as covered expenses are incurred.
Plan assets consist of listed mutual funds, and the expected long-term rate of
return on plan assets is 9 percent. The following table sets forth the funded
status and amounts recognized in the Consolidated Balance Sheets for the
company's retiree health care and life insurance plans:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992
<S> <C> <C>
- -----------------------------------------------------------------------------------
Discount Rate.................................................. 7.45% 8.25%
Accumulated postretirement benefit obligation (APBO):
Retirees....................................................... $164,354 $176,869
Fully eligible active employees................................ 15,137 19,165
Active employees not yet eligible.............................. 86,655 77,204
Less fair value of plan assets................................. (13,614) --
-------- --------
Excess of APBO over assets..................................... 252,532 273,238
Unrecognized prior service cost................................ 13,383 --
Unrecognized net gain.......................................... 24,880 14,089
-------- --------
Accrued retiree health care and life insurance benefits
liability included in Consolidated Balance Sheet.............. $290,795 $287,327
-------- --------
-------- --------
</TABLE>
The health care cost trend rates, used to calculate both net periodic cost
and the APBO, are as follows:
<TABLE>
<CAPTION>
COST
TREND
YEAR ENDING DECEMBER 31 RATES
<S> <C>
- -------------------------------------------------------------------------
1994.............................................................. 10.0%
1995-1999......................................................... 8.0%
2000 and beyond................................................... 6.0%
</TABLE>
36
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
NOTE J -- RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED)
Increasing the assumed health care cost trend rates by one percentage point
in each year would increase the APBO as of December 31, 1993 by $22,428,000 and
net periodic benefit cost for the year ended December 31, 1993 by $2,516,000.
In November 1992, the Financial Accounting Standards Board issued Statement
No. 112, "Employers Accounting for Postemployment Benefits." This statement is
effective for fiscal years beginning after December 15, 1993. The company plans
to adopt the Statement in 1994, and it is not expected to have a material impact
on the company's financial position or results of operations.
NOTE K -- COMMITMENTS AND CONTINGENCIES
Changes to procurement regulations in recent years, as well as the
Government's drive against "fraud, waste and abuse" in defense procurement
systems have increased the complexity and cost of doing business with the
Government. Some of these changes have redefined the ability to recover various
standard business costs which the Government will not allow, in whole or in
part, as the cost of doing business on Government contracts. Other legal and
regulatory practices have increased the number of auditors, inspectors general
and investigators to the point that the company, like every other major
Government contractor, is the constant subject of audits, investigations and
inquiries concerning various aspects of its business practices. One pending
investigation resulted in subpoenas by the Government for a large number of
documents and government interviews of a large number of current and former
employees. The company believes that this investigation, which has been ongoing
for over three years, is currently dormant. The company is unaware that the
investigation produced credible evidence of material wrongdoing by it or its
employees and, therefore, believes that charges or claims will not be brought
against it or its employees arising from this investigation.
The company regards charges of violation of government procurement
regulations as extremely serious and recognizes that such charges could have a
material adverse effect on the company. If the company is determined to be in
noncompliance with any of the applicable laws and regulations, the possibility
exists of penalties and debarment or suspension from receiving additional
Government contracts.
The company is involved in other disagreements which are in the ordinary
course of the company's business activities that are not expected to have a
material adverse effect on the company's financial position. In addition, the
company is involved in certain environmental matters with governmental agencies,
and pending or threatened lawsuits and claims of current and former employees
alleging various age, race, sex and disability discrimination or retaliatory
discharge.
Management believes that the impact of the above matters, if any, on the
company's financial condition will not be material.
NOTE L -- OPERATIONS BY PRODUCT CATEGORY
The company has four significant product segments. The Reconnaissance and
Surveillance category includes strategic systems for intelligence,
reconnaissance and surveillance applications and tactical systems relating to
electronic countermeasures and jamming and deception devices. The Command,
Control and Communications category includes communications equipment and
command and control systems which process data for ready analysis and decision
making. In the Navigation and Controls category, automatic control products for
aircraft, missile steering and tracking systems, and aircraft navigation aids
are developed and manufactured. The company provides maintenance, repair and
modification services for aircraft of all types and other maintenance services
37
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
NOTE L -- OPERATIONS BY PRODUCT CATEGORY (CONTINUED)
through its Aircraft Maintenance and Modification and Other Services category.
Product category information is reported herein by product type since each
category involves several divisions. There are no sales between product
categories.
Identifiable assets by product category include both assets specifically
identified with those operations and an allocable share of jointly used assets.
Corporate assets consist primarily of cash, deferred federal income taxes,
miscellaneous receivables, investments and fixed assets.
Sales to the United States Government from all categories amounted to
$1,865,069,000, $1,867,043,000, and $1,774,288,000, in 1993, 1992 and 1991,
respectively.
International sales which are primarily export sales to foreign governments
and from all categories are summarized by geographic area as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992 1991
<S> <C> <C> <C>
- -------------------------------------------------------------------------
Middle East............................. $ 63,610 $ 68,309 $ 53,605
Europe.................................. 76,722 77,129 100,407
Australia and Pacific................... 19,436 22,921 1,268
Other regions........................... 18,990 12,371 19,963
-------- -------- --------
$178,758 $180,730 $175,243
-------- -------- --------
-------- -------- --------
</TABLE>
38
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
NOTE L -- OPERATIONS BY PRODUCT CATEGORY (CONTINUED)
Financial information by product category (in thousands) is summarized as
follows:
<TABLE>
<CAPTION>
UNAUDITED DEPRECIATION
------------------------ INCOME AND CAPITAL
1993 BOOKINGS BACKLOG NET SALES BEFORE TAX ASSETS AMORTIZATION EXPENDITURES
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Reconnaissance and
Surveillance.................... $ 996,875 $ 1,176,951 $ 1,259,651 $ 110,611 $ 648,277 $ 33,710 $ 33,085
Command, Control and
Communications.................. 332,127 382,758 330,695 26,511 155,319 7,496 6,631
Navigation and Controls.......... 42,076 162,814 122,675 20,387 47,786 4,928 3,946
Aircraft Maintenance &
Modification and Other
Services........................ 539,454 410,518 384,093 23,147 177,907 5,748 7,983
----------- ----------- ----------- ----------- ----------- ------------ ------------
Total for Operating Segments... 1,910,532 2,133,041 2,097,114 180,656 1,029,289 51,882 51,645
Corporate........................ 5,830 249,884 2,976 441
Interest expense................. (6,211)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Consolidated Total............. $ 1,910,532 $ 2,133,041 $ 2,097,114 $ 180,275 $ 1,279,173 $ 54,858 $ 52,086
----------- ----------- ----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ----------- ----------- ------------ ------------
<CAPTION>
1992
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Reconnaissance and
Surveillance.................... $ 1,144,397 $ 1,439,727 $ 1,379,019 $ 114,339 $ 664,773 $ 34,889 $ 70,571
Command, Control and
Communications.................. 295,975 381,326 303,397 22,108 144,102 7,985 10,616
Navigation and Controls.......... 163,307 243,413 94,586 16,263 50,737 4,253 3,353
Aircraft Maintenance &
Modification and Other
Services........................ 301,640 255,157 317,911 18,026 154,069 3,905 5,539
----------- ----------- ----------- ----------- ----------- ------------ ------------
Total for Operating Segments... 1,905,319 2,319,623 2,094,913 170,736 1,013,681 51,032 90,079
Corporate........................ (600) 239,892 2,551 911
Interest expense................. (7,664)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Consolidated Total............. $ 1,905,319 $ 2,319,623 $ 2,094,913 $ 162,472 $ 1,253,573 $ 53,583 $ 90,990
----------- ----------- ----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ----------- ----------- ------------ ------------
<CAPTION>
1991
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Reconnaissance and
Surveillance.................... $ 1,237,724 $ 1,674,349 $ 1,290,399 $ 108,639 $ 631,404 $ 33,981 $ 38,730
Command, Control and
Communications.................. 356,377 388,748 315,457 19,338 161,256 8,540 4,608
Navigation and Controls.......... 101,269 174,692 95,854 15,788 37,573 2,716 3,990
Aircraft Maintenance &
Modification and Other
Services........................ 318,061 271,428 289,574 23,281 103,380 3,979 4,868
----------- ----------- ----------- ----------- ----------- ------------ ------------
Total for Operating Segments... 2,013,431 2,509,217 1,991,284 167,046 933,613 49,216 52,196
Corporate........................ 264 141,828 1,862 513
Interest expense................. (8,559)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Consolidated Total............. $ 2,013,431 $ 2,509,217 $ 1,991,284 $ 158,751 $ 1,075,441 $ 51,078 $ 52,709
----------- ----------- ----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ----------- ----------- ------------ ------------
</TABLE>
39
<PAGE>
SCHEDULE IX
E-SYSTEMS, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------------- -------------- --------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
(3)
(2) WEIGHTED
MAXIMUM AMOUNT AVERAGE AMOUNT AVERAGE
WEIGHTED OUTSTANDING OUTSTANDING INTEREST RATE
CATEGORY OF AGGREGATE BALANCE AT END AVERAGE DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS OF PERIOD INTEREST RATE PERIOD PERIOD PERIOD
- -------------------------------------- -------------- --------------- -------------- -------------- -------------
Year Ended December 31, 1993:
Notes payable to bank(1)............ -- -- $ 20,831,000 $ 19,817,000 6.49%
Year Ended December 31, 1992:
Notes payable to bank(1)............ $ 19,533,000 9.48% $ 19,533,000 $ 7,865,000 7.40%
Year Ended December 31, 1991:
Notes payable to bank(1)............ -- -- $ 11,900,000 $ 2,776,000 6.75%
<FN>
- ------------------------
(1) Notes payable to bank represent borrowings under lines of credit borrowing
arrangements which have a one year termination date and are reviewed
annually for renewal.
(2) The average amount outstanding during the period was computed by dividing
the total of the average monthly outstanding principal balances by 12.
(3) The weighted average interest rate during the period was computed by
calculating a monthly weighted average interest rate and summing to a
weighted average interest rate for the period.
</TABLE>
40
<PAGE>
INDEX OF EXHIBITS
SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM
- --------------- -----------------------------------------------------------------------------------------
<C> <S> <C>
3(i) Composite Articles of Incorporation as Amended April 21, 1987.
3(ii) Bylaws as Amended and Restated January 26, 1994.
10a* Employment Agreement of E. Gene Keiffer dated October 25, 1989 (filed as Exhibit 10.1 to
Annual Report on Form 10-K for fiscal year ended December 31, 1991).
10b* Employment Agreement of A. Lowell Lawson dated September 27, 1989 and Amendment dated
January 26, 1994.
10c* Employment Agreement of Terry W. Heil dated as of December 19, 1990 and Amendment dated
November 22, 1993.
10d* Employment Agreement of Peter A. Marino dated October 14, 1991 and Amendment dated
November 22, 1993.
10e* Employment Agreement of Brian D. Cullen dated October 14, 1991 and Amendment dated
November 22, 1993.
10f* Employment Agreement of James W. Crowley as Restated June 1, 1982 (filed as Exhibit 10.19
to Annual Report on Form 10-K for fiscal year ended December 31, 1992).
10g* Form of Indemnification Agreement with Officers and Directors (filed as Exhibit 10.2 to
Annual Report on Form 10-K for fiscal year ended December 31, 1991).
10h* E-Systems, Inc. Stock Appreciation Rights Plan (filed as Exhibit 10.9 to Annual Report on
Form 10-K for fiscal year ended December 31, 1991).
10i* E-Systems, Inc. 1980 Stock Option Plan (filed as Exhibit 10.10 to Annual Report on Form
10-K for fiscal year ended December 31, 1991).
10j* Form of Stock Option Agreement (rev. 1986) (filed as Exhibit 10.12 to Annual Report on
Form 10-K for fiscal year ended December 31, 1991).
10k* Form of Restricted Stock Award Agreement (rev. 1986) (filed as Exhibit 10.16 to Annual
Report on Form 10-K for fiscal year ended December 31, 1991).
10l Lease Agreement between City of Greenville and E-Systems, Inc. dated October 1, 1977, as
amended by Amendments No. 1 and 2 dated October 15, 1980; Amendment No. 3 dated October
1, 1981; Amendment No. 4 dated December 11, 1990.
10m* Executive Supplemental Retirement Plan effective June 1, 1982, as amended through
November 18, 1986 (filed as Exhibit 10.18 to Annual Report on Form 10-K for fiscal year
ended December 31, 1991).
10n* E-Systems, Inc. 1988 Employee Stock Option Plan, as amended.
10o Trust Agreement dated June 23, 1987 between E-Systems, Inc. and AmeriTrust Company,
National Association, Trustee, including First Amendment dated September 23, 1987 and
Second Amendment dated February 4, 1988 (filed as Exhibit 10.21 to Annual Report on Form
10-K for fiscal year ended December 31, 1992).
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM
- --------------- -----------------------------------------------------------------------------------------
10p E-Systems, Inc. 1994 Employee Stock Option Plan (filed as Exhibit 1 to Proxy Statement
dated March 25, 1994).
<C> <S> <C>
11 Statement re computation of per share earnings.
21 Subsidiaries of Registrant.
23 Consent of Independent Auditors.
99 Additional Exhibits (Annual Report on Form 11-K for the fiscal year ended December 31,
1993, for the E-Systems Tax Advantaged Capital Accumulation Plan: to be filed by
amendment).
<FN>
- ------------------------
*Each of these exhibits is a "management contract or compensatory plan,
contract, or arrangement."
</TABLE>
42
<PAGE>
EXHIBIT 3(i)
<PAGE>
CERTIFICATE AUTHORIZING THE FILING OF COMPOSITE
CERTIFICATE OF INCORPORATION
E-SYSTEMS, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY.
That the filing and recording of the Composite Certificate of Incorporation
of E-SYSTEMS, INC., a true and correct copy of which is attached hereto, was
duly authorized by the Company's Board of Directors at a meeting duly called and
held on November 24, 1987.
IN WITNESS WHEREOF, said E-SYSTEMS, INC. has caused this certificate to be
signed by JAMES W. CROWLEY, its Vice President and attested by LUTHER B. TERRY,
its Assistant Secretary this 16th day of March, 1988.
By: James W. Crowley
Vice President
ATTEST:
By: Luther B. Terry
Assistant Secretary
<PAGE>
COMPOSITE
CERTIFICATE OF INCORPORATION
OF
E-SYSTEMS, INC.
FIRST. The name of the corporation is
E-SYSTEMS, INC.
SECOND. The corporation's principal office in the State of Delaware is
located at No. 100 West Tenth Street, in the City of Wilmington, County of New
Castle. The name and address of its resident agent is The Corporation Trust
Company, No. 100 West Tenth Street, Wilmington 99, Delaware.
THIRD. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH. This corporation is authorized to issue 50,185,000 shares of
capital stock. Fifty million (50,000,000) of the authorized shares shall be
Common Stock, One Dollar ($1.00) par value each; and One Hundred Eighty-five
Thousand (185,000) of the authorized shares shall be preferred stock, Twenty
Dollars ($20.00) par value each. Shares of preferred stock may be issued from
time to time in one or more series to have such distinctive designation and
title as may be fixed by the Board of Directors prior to the issuance of any
shares thereof. Each such series shall have such preferences and relative,
participating, optional or other special rights, with such qualifications,
limitations, or restrictions of such preferences and/or rights as shall be
stated in the resolution or resolutions providing for the issue of such series
of preferred stock, as may be adopted from time to time by the Board of
Directors prior to the issuance of any shares thereof, in accordance with the
laws of the State of Delaware. Each share of any series of preferred stock
shall be identical with all other shares of such series, except as to the date
from which accumulated preferred dividends, if any, shall be cumulative.
FIFTH. Cumulative voting for the election of directors shall not be
permitted.
SIXTH. The minimum amount of capital with which the corporation will
commence business is One Thousand Dollars ($1,000).
SEVENTH. The names and places of residence of the incorporators are as
follows:
<PAGE>
NAMES RESIDENCES
A. D. Atwell Wilmington, Delaware
F. J. Obara, Jr. Wilmington, Delaware
A. D. Grier Wilmington, Delaware
EIGHTH: The corporation is to have perpetual existence.
NINTH. The private property of the stockholders shall not be subject to
the payment of the corporate debts or any extent whatever.
TENTH. The following provisions are adopted for the management of the
business and for the conduct of the affairs of the corporation, and for
creating, defining, limiting and regulating the powers of the corporation, its
directors, and stockholders:
(a) The business of the corporation shall be managed by its Board of
Directors and the Board of Directors shall have power to exercise all the powers
of the corporation, including (but without limiting the generality hereof) the
power to create mortgages upon the whole or any part of the property of the
corporation, real or personal, without any action of or by the stockholders,
except as otherwise provided by statute or by the By-Laws.
(b) The number of directors which shall constitute the whole Board
of Directors shall be such as is from time to time fixed in the manner provided
in the By-Laws, but in no case shall the number be less than three (3).
(c) (1) The directors (other than any directors which may be elected
by the class vote of any series of the preferred stock of the corporation
pursuant to the terms thereof, which directors shall be elected at the time and
serve for the term specified in the resolutions providing for the issue of such
series of preferred stock) shall be divided into three classes, each consisting
of one-third of such directors as nearly as may be.
(2) At the annual meeting of stockholders in 1972, one class of
such directors shall be elected for a one-year term, one class for a two-year
term and one class for a three-year term. At each succeeding annual meeting of
stockholders, successors to the class of directors whose term expires in that
year shall be elected for a three-year term. If the number of such directors
is changed, any increase or decrease in such directors shall be apportioned
among the classes so as to maintain the classes as nearly equal in number as
possible, and any additional director to any class shall hold office for a term
which shall coincide with the term of such class.
<PAGE>
(3) A director shall hold office until the annual meeting for
the year in which his term expires or his successor is elected and qualified;
subject however, to prior resignation, death or removal of any director, the
term of his successor shall be the same term as that of the director who has
so resigned, died or been removed. At each election the persons receiving the
greatest number of votes shall be the directors.
(d) The Board of Directors shall have power to make, alter or repeal
By-Laws, subject to such restrictions upon the exercise of such power as may be
imposed by the stockholders in any By-Laws adopted by them from time to time.
(e) The Board of Directors shall have power in its discretion to fix,
determine, and vary form time to time the amount to be retained as surplus, and
the amount or amounts to be set apart out of any of the funds of the corporation
available for dividends, as working capital, or a reserve or reserves for any
proper purpose, and to abolish any such reserve in the manner in which it was
created.
(f) The Board of Directors shall have power in its discretion from
time to time to determine whether and to what extent and at what times and
places and under what conditions and regulations the books and accounts of the
corporation, or any of them, other than the stock ledger shall be open to the
inspection of the stockholders; and no stockholder shall have any right to
inspect any account or book or document of the corporation, except as conferred
by law or authorized by resolution of the directors of the stockholders.
(g) Upon any sale, exchange or other disposal of the property and/or
assets of the corporation, payment therefore may be made either to the
corporation or directly to the stockholders in proportion to their interests,
upon the surrender of their respective stock certificates, or otherwise, as the
Board of Directors may determine.
(h) The Board of Directors shall have the power, by resolution adopted
by the affirmative vote of a majority of the whole Board of Directors, to
appoint one or more committees, including, but not limited to, an executive
committee, each committee to consist of two or more of the directors of the
corporation. Any such committee or committees, to the extent provided in the
resolution or in the By-Laws or in the laws of the State of Delaware and subject
thereto, shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the corporation.
(i) A special meeting of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by the Chairman
of the Board or by the President and shall be called by the President or
Secretary at the
<PAGE>
request in writing of a majority of the Board of Directors or at the request in
writing of stockholders owning a majority in amount of the entire capital stock
of the corporation issued and outstanding and entitled to vote.
(j) Notice of each meeting of stockholders, whether annual or special,
shall, at least ten days before the day on which the meeting is to be held, be
given to each stockholder of record entitled to vote by delivering a written or
printed notice thereof to him personally, or by mailing such notice in a postage
paid envelope addressed to him at his address as it appears on the stock books
of the corporation; provided, that no notice of any character of any meeting of
stockholders need be given to any stockholder to whom the delivery, mailing or
other giving of such notice would be unlawful (either absolutely or without
official license or consent) pursuant to the provisions of any law of the United
States or any rule, regulation, proclamation or executive order issued pursuant
thereto. Except as otherwise required by statute, no publication of any notice
of a meeting of stockholders shall be required. Every notice of a special
meeting of stockholders, besides stating the time and place of the meeting,
shall state briefly the purposes thereof.
(k) (1) Except as otherwise provided in this certificate of
incorporation, the affirmative vote of the holders of at least a majority of the
outstanding capital stock of the corporation entitled to vote shall be required
to authorize, adopt or approve any of the following:
A. The merger or consolidation of this corporation with or
into any other corporation or corporations organized under the laws of the State
of Delaware or any other state or country in the manner now or hereafter
permitted by law, except to the extent the vote of the stockholders is not
required under Sections 251 (f), 252 (e) or 253 of the General Corporation Law
of the State of Delaware or similar provisions of any succeeding legislation;
or
B. The sale, exchange, lease, transfer or other disposition
of all or substantially all the property or assets of this corporation including
its good will in a manner now or hereafter permitted by law, and in connection
therewith the winding up of its affairs and its dissolution.
(2) The affirmative vote of the holders of at least 80% of the
outstanding capital stock of the corporation entitled to vote shall be required
to authorize, adopt or approve any of the following:
A. The sale, exchange, lease, transfer or other disposition
by the corporation of all or substantially all of its property or assets to a
related corporation or an affiliate of a related corporation; or
<PAGE>
B. The consolidation of the corporation or its merger with
or into a related corporation or an affiliate of a related corporation; or
C. The merger into the corporation of a related corporation
or an affiliate of a related corporation; or
D. Any issuance or delivery of capital stock or other
securities of the corporation in exchange or payment for any properties or
assets of any related corporation or any affiliate of a related corporation in
a transaction for which the approval of stockholders of the corporation is
required by law or by any agreement between the corporation and any national
securities exchange; or
E. An agreement, contract or other arrangement with a
related corporation providing for any of the transactions described in the
foregoing clauses of this paragraph (2).
For the purpose of this paragraph (k), a 'related corporation' in
respect of a given transaction shall mean any corporation (other than the
corporation) which, together with affiliated and associated persons, owns of
record or beneficially, directly or indirectly, shares of the corporation
representing more than 5% of the total voting power of outstanding capital stock
entitled to vote upon such transaction as of the record date used to determine
the stockholders of the corporation entitled to vote on such transaction; an
'affiliate' of a related corporation shall mean any individual, joint venture,
trust, partnership or corporation which directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, the related corporation; and an 'associated person' of a related
corporation shall mean any officer or director or any beneficial owner directly
or indirectly of 10% or more of any class of equity security of such related
corporation or any affiliate. The determination of the Board of Directors of the
corporation, based on information known to the Board of Directors and made in
good faith, shall be conclusive as to whether any corporation is a related
corporation as defined in this paragraph (k).
(1) No action of the holders of the Common Stock of the
corporation may be taken by consent in lieu of a meeting.
ELEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for
<PAGE>
this corporation under the provisions of Section 291 of Title 8 of the Delaware
Code, or the application of trustees in dissolution or of any receiver or
receivers appointed for this corporation under the provisions of Section 279 of
Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders, or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
TWELFTH. No contract or other transaction between the corporation and any
other corporation, firm or individual shall be affected or invalidated by the
fact that any one or more of the directors or officers of this corporation is or
are interested in or is a director or officer of such other corporation, or a
member of such firm, and any director or officer, individually or jointly, may
be a party to or may be interested in any contract, or transaction, of this
corporation or in which this corporation is interested, and no contract, act or
transaction of this corporation with any person or persons, firms or
corporations, shall be affected or invalidated by the fact that any director or
officer of this corporation is a party to or interested in such contract, act or
transaction, or in any way connected with such person or persons, firms or
corporations, and each and every person who may become a director or officer of
this corporation is hereby relieved from any liability that might otherwise
exist from contracting with the corporation for the benefit of himself or any
firm or corporation in which he may be in anywise interested.
THIRTEENTH. Meetings of stockholders may be held outside the State of
Delaware, if the By-Laws so provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws. Elections of directors need not be by
ballot unless the By-Laws shall so provide.
FOURTEENTH. To the full extent permitted by the General Corporation Law of
the State of Delaware or any other applicable laws as presently or hereafter in
effect, no Director of the corporation shall be personally liable to the
corporation or its stockholders for or with respect to any acts or omissions in
the performance of his or her duties as a
<PAGE>
Director of the corporation. No amendment to or repeal of this Article
Fourteenth shall apply to or have any effect on the liability or alleged
liability of any Director of the corporation for or with respect to any acts or
omissions of such Director occurring prior to such amendment.
FIFTEENTH. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
We, the undersigned, being each of the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, hereby declaring and
certifying that the facts herein stated are true, and accordingly have hereunto
set our hands and seals this 28th day of December, A.D. 1964.
A. D. ATWELL (L.S.)
F. J. OBARA, JR (L.S.)
A. D. GRIER (L.S.)
STATE OF DELAWARE )
)
COUNTY OF NEW CASTLE )
BE IT REMEMBERED that on this 28th day of December, 1964, personally came before
me, a Notary Public for the State of Delaware, A. D. Atwell, F. J. Obara, Jr.
and A. D. Grier, all of the parties to the foregoing certificate of
incorporation, known to me personally to be such, and severally acknowledged the
said certificate to be the act and deed of the signers respectively and that the
facts therein stated are truly set forth.
GIVEN UNDER MY HAND AND SEAL of office the day and
HOWARD K. WEBB
NOTARY PUBLIC
APPOINTED JUNE 27, 1964
STATE OF DELAWARE
TERM 2 YEARS
HOWARD K. WEBB
Notary Public
<PAGE>
EXHIBIT 3(ii)
<PAGE>
AS AMENDED AND RESTATED JANUARY 26, 1994
BYLAWS
OF
E-SYSTEMS, INC.
ARTICLE I
OFFICES
Section 1. The principal office shall be in the city of Wilmington, County
of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual or special meetings of the stockholders shall be held at
such place within the United States of America as may be fixed by the board of
directors, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held such day and at
such time as may be fixed by the board of directors at which they shall elect by
a plurality vote a board of directors and transact such other business as may
properly be brought before the meeting.
Section 3. Written notice of the annual meeting shall be given to each
stockholder entitled to vote thereat at least ten days before the date of the
meeting.
Section 4. A complete list of the stockholders entitled to vote at any
election of directors, arranged in alphabetical order and showing the address of
each stockholder and the number of voting shares held by each, shall be prepared
by the officer in charge of the stock ledger and shall be filed at the place
where the election is to be held or at another place within the city, town or
village where the election is to be held (which place, if other than the meeting
place, shall be specified in the notice of the meeting) at least ten (10) days
before such election and shall at all times prior to the election during the
usual hours for business, and during the whole time of
<PAGE>
said election, be open to examination and inspection of any stockholder.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the Chairman of the Board or by the Chief
Executive Officer or the President and shall be called by the Chief Executive
Officer, the President or the Secretary at the request in writing of a majority
of the board of directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 6. Written notice of a special meeting of stockholders, stating
the time, place and object thereof, shall be given to each stockholder entitled
to vote thereat, at least ten days before the date fixed for the meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy
<PAGE>
provides for a longer period; and, except where the transfer books of the
corporation have been closed or a date has been fixed as a record date for the
determination of its stockholders entitled to vote, no share of stock shall be
voted on at any election for directors which has been transferred on the books
of the corporation within twenty days next preceding such election of directors.
Section 11. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action by any
provisions of the statutes or of the certificate of incorporation, the meeting
and vote of stockholders may be dispensed with if all the stockholders who would
have been entitled to vote upon the action if such meeting were held shall
consent in writing to such corporate action being taken.
ARTICLE III
DIRECTORS
Section 1. The number of directors shall be the number fixed from time to
time by resolutions of the board of directors; provided that the number shall be
not less than three (3) nor more than fifteen (15). Unless otherwise provided in
the certificate of incorporation, the directors shall be elected annually and
each director shall continue in office until a successor shall have been elected
and qualified, or until death, or until he or she shall resign, or shall have
been removed for adequate cause. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum; and the directors so
chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, unless sooner displaced.
Section 3. The business of the corporation shall be managed by its board
of directors, which may exercise all such powers of the corporation and do all
such lawful acts and things as are not by statute or by the certificate of
incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
Section 4. There shall be the position of "Chairman Emeritus" of the board
of directors, which shall be an honorary title which is bestowed on such person
or persons as the board may from time to time designate and shall carry with it
such rights, privileges, and perquisites as the board may establish.
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 6. The first meeting of each newly elected board of directors
shall be held immediately following the meeting of stockholders at which such
directors were elected, or be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event such meeting is not held immediately following
the annual meeting, or at the time and place so fixed by the stockholders, the
meeting may be held at such time and place as shall be specified in a notice
given as hereinafter provided for special meetings of the board of directors, or
as shall be specified in a written waiver signed by all of the directors.
Section 7. Regular meetings of the board of directors shall be held
without special notice at such time and at such place as shall from time to time
be determined by the board.
Section 8. Special meetings of the board of directors may be called by the
Chairman of the Board or by the President, or, on the written request of two
directors, by the Secretary on twenty-four hours' notice to each director either
personally or by mail or telegram.
Section 9. At any stated or special meeting of the board of directors a
majority of the directors at the time in office (but not less than one-third of
the whole board) shall constitute a quorum for the transaction of business and
the act of a majority of the directors present at any meeting at which a quorum
is present shall be the act of the board of directors except as may be otherwise
specifically provided by statute or by the certificate of incorporation. In the
absence of a quorum, a majority of the directors present may adjourn any meeting
from time to time until a quorum is present. No notice of any adjourned meeting
need be given.
COMMITTEES OF DIRECTORS
Section 10. The board of directors may, by resolution adopted by
affirmative vote of a majority of the whole board, appoint one or more
committees, including, but not limited to, an executive committee, each
committee to consist of two or more of the directors of the corporation. At any
meeting of the committees a majority of the members
<PAGE>
of the committee shall constitute a quorum for the transaction of business, and
the act of a majority of the members present at any meeting at which a quorum is
present shall be the act of the committee. Any such committee or committees,
other than the executive committee, appointed by the board of directors shall
have and may exercise only the power of recommending action to the board of
directors and of carrying out and implementing any instructions or any policies,
plans and programs theretofore approved and adopted by the board of directors.
The executive committee shall, during the intervals between meetings of the
board of directors, have and may exercise all of the powers of the board of
directors in the management of the business and affairs of the corporation,
including the election or appointment of officers of the corporation (other than
the President, Secretary and Treasurer), the declaration of dividends upon the
capital stock of the corporation subject to the provisions of these Bylaws, and
may authorize the seal of the corporation be affixed to all papers which may
require it; provided, however, that the executive committee may not rescind any
action previously taken by the board of directors. Meetings of the executive
committee may be called and notices given in the same manner as calling and
giving notice of special meetings of the board of directors.
Section 11. The committee shall keep regular minutes of their proceedings
and report the same to the board of directors, when required.
COMPENSATION OF DIRECTORS
Section 12. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may, if authorized by
the board of directors, be paid a fixed sum for attendance at each meeting of
the board of directors, a stated salary as a director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
Section 13. Any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting if prior to such action a written consent thereto is signed by all
members of the board or of such committee, as the case may be, and such written
consent is filed with the minutes of the proceedings of the board or committees.
<PAGE>
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in writing and
delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed given at the time when the same shall be mailed. Notice to directors may
also be given personally and by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The elected officers of the corporation shall be a Chairman of
the Board, a Chief Executive Officer (each of whom shall be a director), a
President and one or more Vice Presidents, with or without such descriptive
titles and designations as the board of directors shall deem appropriate, a Vice
President - Finance and Chief Financial Officer, a Vice President - Financial
Operations, a Treasurer, and a Secretary. The board of directors by resolution
may also appoint one or more Assistant Secretaries, Assistant Treasurers,
Assistant Controllers and such other officers and agents as from time to time
may appear to be necessary or advisable in the conduct of the affairs of the
corporation. Any two or more offices may be held by the same person except as
noted herein the Chairman of the Board, Chief Executive Officer or President
shall not hold the office of Secretary; and the offices of Treasurer and Vice
President - Financial Operations may not be held by the same person.
Section 2. The board of directors at its first meeting after each annual
meeting of stockholders shall elect and appoint the officers to fill the
positions designated in Section 1 of this Article V.
Section 3. The salaries of all elected officers of the corporation shall
be fixed by the board of directors.
Section 4. The officers of the corporation shall hold office until their
successors are chosen and qualified. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the whole board of directors. Any vacancy occurring in
<PAGE>
any office of the corporation by death, resignation, removal or otherwise shall
be filled by the board of directors.
CHAIRMAN OF THE BOARD
Section 5. The Chairman of the Board shall preside at all meetings of
stockholders, except as otherwise may be provided by statute, and at all
meetings of the board of directors. The Chairman of the Board shall perform
such other duties as the board of directors may from time to time designate.
CHIEF EXECUTIVE OFFICER
Section 6. The Chief Executive Officer shall be the chief executive
officer of the corporation, and, subject to the provisions of these Bylaws,
shall be responsible for general management of the affairs of the corporation.
The Chief Executive Officer shall preside in the absence of the Chairman of the
Board at all meetings of stockholders, except as otherwise be provided by
statute, and at all meetings of the board of directors. The Chief Executive
Officer shall have general authority to execute all bonds, deeds, contracts,
agreements and instruments in the name of the corporation and to cause the
corporate seal to be affixed thereto; and to delegate any such authority to any
other elected officer of the corporation. The Chief Executive Officer shall have
general authority to cause the employment or appointment of employees and agents
of the corporation and to fix their compensation; and to remove or suspend any
employee or agent who shall have been employed or appointed pursuant to this
authority or under authority of an officer subordinate to the Chief Executive
Officer.
The Chief Executive Officer shall direct and supervise the corporate staff,
including corporate staff officers, who shall report to the Chief Executive
Officer; and shall have the power to remove or suspend for cause any subordinate
officer to the Chief Executive Officer, pending final action by the authority
which elected or appointed such officer.
In general, the Chief Executive Officer is authorized to exercise all
powers usually appertaining to the office of the chief executive of a
corporation under applicable corporate law; and shall be primarily responsible
for implementing the policy of the board of directors towards achieving
objectives established for growth, profitability, corporate conduct and image.
In the absence of the Chief Executive Officer, such duties shall be performed
and such powers may be exercised by the President, or by such other officer as
the Chief Executive Officer may designate in writing, subject to review and
superseding action by the board of directors.
<PAGE>
PRESIDENT
Section 7. The President shall be the chief operating officer of the
corporation and, subject to the general supervision and direction of the
Chairman of the Board and Chief Executive Officer, shall be responsible for the
business and operations of the corporation. The President shall have authority
to execute contracts, agreements and instruments in the name of the corporation
in the ordinary course of business and to cause the corporate seal to be affixed
thereto; and to delegate any such authority to any subordinate elected officer
of the corporation. The President shall have general authority to cause the
employment of employees and agents for the business and operations of the
corporation and to fix their compensation and to remove or suspend any employee
or agent who shall have been employed under the President's authority or under
authority of a subordinate officer. The President shall direct and supervise
the operating officers and group executives, who shall report to the President;
and shall have the power to remove or suspend for cause any subordinate officer
pending final action by the authority which elected or appointed such officer.
In general, the President is authorized to exercise all powers usually
necessary to conduct the everyday business and operations of the corporation
towards achieving corporate goals and objectives.
In the absence of the President, the duties and powers of the office shall
be performed and be exercised by such other officer as the President shall
designate in writing, subject to review and superseding action by the Chief
Executive Officer or the board of directors.
VICE PRESIDENT - FINANCE AND CHIEF FINANCIAL OFFICER
Section 8. The Vice President - Finance and Chief Financial Officer shall
be chief accounting and financial officer of the corporation and shall have
active control of and shall be responsible for all matters pertaining to the
accounts and finances of the corporation; and all decisions affecting either
accounts or finances shall be subject to approval or concurrence by this
officer. The Vice President - Finance and Chief Financial Officer shall be
responsible for maintaining liaison with all government and other regulatory
bodies and shall establish comprehensive budget and cost control programs;
internal audit and operational analysis of overhead functions and approve all
major financial aspects of all contractual arrangements. The Vice President -
Finance and Chief Financial Officer shall be responsible for all financial
planning for the corporation on both a long-term and short-term basis and the
disposition
<PAGE>
of investments held by the corporation as authorized by the board of directors
or executive committee. The Vice President - Finance and Chief Financial
Officer shall direct the Treasurer and the Vice President - Financial Operations
in the performance of their duties. The Vice President - Finance and Chief
Financial Officer shall audit all payrolls and vouchers of the corporation and
shall direct the manner of certifying the same; shall supervise the manner of
keeping all vouchers for payment by the corporation and all other documents
relating to such payment; shall receive, audit and consolidate all operating and
financial statements of the corporation and its various subsidiaries and
divisions and shall have supervision of the books of account of the corporation,
its various subsidiaries and divisions, their arrangement and classification;
shall supervise the accounting and auditing practices of the corporation, and
shall have charge of all matters relating to insurance and taxation. The Vice
President - Finance and Chief Financial Officer may assign to the Treasurer and
the Vice President - Financial Operations or to one or more Assistant Treasurers
and Assistant Controllers such duties as may be deemed necessary or advisable.
VICE PRESIDENTS
Section 9. The several Vice Presidents shall perform duties and services as
shall be assigned to or required of them from time to time by the board of
directors or the officer to whom they report. Except as otherwise provided in
these Bylaws, the staff Vice Presidents shall report to and be under the
supervision and direction of the Chief Executive Officer, and the operating Vice
Presidents (including group executives) shall report to and be under the
supervision and direction of the President. Each Vice President shall have
authority to execute contracts, agreements and instruments in the name of the
corporation in the ordinary course of business and to cause the corporate seal
to be affixed thereto, subject to such limitations or restrictions as the
officer to whom such Vice President reports may direct.
SECRETARY AND ASSISTANT SECRETARIES
Section 10. The Secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all proceedings of the
meetings of the stockholders of the corporation and of the board of directors in
a book to be kept for that purpose, and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and meetings of the board of
directors. The Secretary shall be under the supervision of the Chairman of the
Board and the Chief Executive Officer and shall perform such other duties as may
<PAGE>
be prescribed by either the Chairman of the Board or the Chief Executive
Officer. The Secretary shall have charge of the seal of the corporation and
have authority to affix the same to any instrument requiring it, and when so
affixed it may be attested by the Secretary's signature or by the signature of
the Treasurer or an Assistant Secretary, which may be facsimile. The Secretary
shall keep and account for all books, documents, papers and records of the
corporation except those for which some other officer or agent is properly
accountable. The Secretary shall have authority to sign stock certificates, and
shall generally perform all the duties usually appertaining to the office of the
secretary of a corporation.
Assistant Secretaries in the order of their seniority, unless otherwise
determined by the board of directors, shall assist the Secretary, and in the
absence or disability of the Secretary perform the duties and exercise the
powers of the Secretary. They shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
TREASURER AND ASSISTANT TREASURERS
Section 11. Under the general direction of the Vice President - Finance and
Chief Financial Officer of the corporation, the Treasurer shall be responsible
for all matters pertaining to the finances of the corporation and its
subsidiaries. The Treasurer shall have charge of all matters pertaining to
taxation and insurance. The Treasurer shall have the care and custody of all
monies, funds and securities of the corporation and shall deposit all monies and
other valuable effects in the name of and to the credit of the corporation in
such depositories as may be designated by the board of directors. The Treasurer
shall cause to be recorded a statement of all receipts and disbursements of the
corporation in order that proper entries may be made in the books of account.
The Treasurer shall have the power to sign stock certificates, to endorse for
deposit or collection, or otherwise, all checks, drafts, notes, bills of
exchange, or other commercial paper payable to the corporation, and to give
proper receipts or discharges for all payments to the corporation. The
Treasurer shall be responsible for all terms of credit granted by the
corporation and for the collection of all its accounts. The Treasurer shall
perform such other duties as may be prescribed by the Vice President - Finance
and Chief Financial Officer. If required by the board of directors, the
Treasurer shall give the corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the board of directors for the faithful
performance of the duties of the office and for the restoration to the
corporation, in case of death, resignation, retirement or removal from office,
of all books, papers, vouchers, money
<PAGE>
and other property of whatever kind in the possession or under control of the
Treasurer belonging to the corporation.
In the absence of disability of the Treasurer, the duties of the office
shall be performed by an Assistant Treasurer or other designated person.
VICE PRESIDENT - FINANCIAL OPERATIONS
Section 12. Under the general direction of the Vice President - Finance and
Chief Financial Officer, the Vice President - Financial Operations shall be
responsible for all matters pertaining to the accounts of the corporation, its
subsidiaries and divisions, with the supervision of the books of account, their
installation, arrangement, and classification. The Vice President - Financial
Operations shall maintain adequate records of all assets, liabilities, and
transactions; shall audit all payrolls and vouchers for payment by the
corporation and all documents pertaining to such vouchers; coordinate the
efforts of the company's independent public accountants in its external audit
program; receive, review, and consolidate all operating and financial statements
of the corporation and its various departments and subsidiaries; and prepare
financial statements, reports and analyses; supervising the accounting practices
of the corporation and of each subsidiary and division of the corporation, and
prescribing the duties and powers of the chief accounting personnel of the
subsidiaries and divisions. The Vice President - Financial Operations shall
cause to be maintained an adequate system of financial control through a program
of budgets, financial planning and interpretive reports; and shall initiate and
enforce measures and procedures whereby the business of the corporation and its
subsidiaries and divisions shall be conducted with the maximum integrity,
efficiency, and economy. The Vice President - Financial Operations shall perform
such other duties as may be prescribed by the Vice President - Finance and Chief
Financial Officer.
ASSISTANT CONTROLLERS
Section 13. One or more Assistant Controllers may be designated to perform
such functions under the supervision of the Vice President - Financial
Operations as may be delegated or prescribed; and in the absence or disability
of the Vice President - Financial Operations, the duties of such office shall be
performed by the Assistant Controllers, in order of their seniority, unless
otherwise determined by the Board of Directors.
<PAGE>
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Section 1. Each person who is or was or had agreed to become a director or
officer of the corporation, or each such person who is or was serving or had
agreed to serve at the request of the board of directors or an officer of the
corporation as an employee or agent of the corporation or as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (including the heirs, executors, administrators or
estate of such person), shall be indemnified by the corporation to the full
extent permitted by the General Corporation Law of the State of Delaware or any
other applicable laws as presently or hereafter in effect. Without limiting the
generality or effect of the foregoing, the corporation may enter into one or
more agreements with any person which provide for indemnification greater or
different than that provided in this Article. No amendment or repeal of this
Article VI shall apply to or have any effect on the right to indemnity permitted
or authorized hereunder for or with respect to claims asserted before or after
such amendment or repeal arising from acts or omissions occurring in whole or in
part before the effective date of such amendment or repeal.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the Chief
Executive Officer, the President or Vice President and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation, certifying the number of shares owned by him in the corporation. If
the corporation shall be authorized to issue more than one class of stock, the
designation, preferences and relative, participating, optional or other special
rights of each class and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class of stock; provided, however, except as otherwise provided in Section 194
of the General Corporation Law of Delaware, 1953, in lieu of the foregoing
requirements, there may be set forth on the face or the back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests, the designations, preferences and relative, participating,
optional or other special rights of each class of stock or
<PAGE>
shares thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Where a certificate is countersigned by a transfer agent other
than the corporation or its employee, or by a registrar other than the
corporation or its employees, any other signature on the certificate may be a
facsimile, engraved, stamped or printed. In case any officer or officers who
have signed, or whose facsimile signature or signatures have been used on, any
such certificate or certificates shall cease to be such officer or officers of
the corporation, whether because of death, resignation or otherwise, before such
certificate or certificates have been delivered by the corporation such
certificate or certificates may nevertheless be adopted by the corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the corporation.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the board of directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his or her legal
representative, to advertise the same in such manner as it shall require and/or
to give the corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
<PAGE>
RECORD DATE
Section 5. The board of directors shall fix in advance a date, not
exceeding fifty days preceding the date of any meeting of stockholders, or the
date for the payment of any dividend, or the date for the allotment of rights,
or the date when any change or conversion or exchange of capital stock shall go
into effect, or a date in connection with obtaining such consent, as a record
date for the determination of the stockholders entitled to notice of, and to
vote at, any such meeting, and any adjournment thereof, or entitled to receive
payment of any such dividend, or to any such allotment of rights, or to exercise
the rights in respect of any such change, conversion or exchange of capital
stock, or to give such consent, and such stockholders and only such stockholders
as shall be stockholders of record on the date so fixed shall be entitled to
such notice of, and to vote at, such meeting and any adjournment thereof, or to
receive payment of such dividend, or to receive such allotment of rights, or to
exercise such rights, or to give such consent, as the case may be
notwithstanding any transfer of any stock on the books of the corporation after
any such record date fixed as aforesaid.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments, a person registered on its books as the owner of shares, and shall
not be bound to recognize an equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
STOCK OPTIONS AND AGREEMENTS
Section 7. Any stockholder of this corporation may enter into agreements
giving to any other stockholder or stockholders or any third party an option to
purchase any of his or her stock in the corporation; and such shares of stock
shall thereupon be subject to such agreement and transferable only upon proof of
compliance therewith; provided, however, that a copy of such agreement be filed
with the corporation and reference thereto placed upon the certificates
representing said shares of stock.
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors or by the executive committee of the board of directors
at any regular or special meeting thereof, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation; and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting, and
when called for by vote of the stockholders at any special meeting of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware". The
<PAGE>
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
ARTICLE IX
AMENDMENTS
Section 1. These Bylaws may be altered or repealed at any regular meeting
of the stockholders or of the board of directors or at any special meeting of
the stockholders or of the board of directors if notice of such alteration or
repeal be contained in the notice of such special meeting.
<PAGE>
EXHIBIT 10B
<PAGE>
Employment Agreement
Between
E-Systems, Inc.
and
A. Lowell Lawson
September 27, 1989
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective as of the 27th day of September, 1989 (the "Effective Date"), by
E-Systems, Inc. (hereinafter referred to as "ESY") and A. Lowell Lawson
(hereinafter referred to as "Employee").
RECITALS
WHEREAS, ESY and Employee have previously entered into an Employment
Agreement (the "Prior Agreement"), dated as of November 25, 1986, which is to
expire on November 30, 1991;
WHEREAS, upon the expiration of the Prior Agreement, certain benefits
thereunder are to become fully vested, including supplemental retirement,
death and disability benefits, medical, hospitalization and other benefits
and perquisites, all of which benefits and perquisites will survive the
expiration of the Prior Agreement (the "Vested Benefits");
WHEREAS, ESY desires that Employee continue to serve as a senior
executive officer of ESY subsequent to the expiration of the Prior Agreement,
and ESY expects Employee to continue to make major contributions to the
profitability, growth and financial strength of ESY;
WHEREAS, ESY desires that Employee agree to continue to serve as a senior
executive officer of ESY following the expiration of the Prior Agreement;
WHEREAS, Employee is willing to continue to serve as a senior executive
officer of ESY if the rewards for successful management of the enterprise and
for relinquishment of other opportunities which may be available to him are
commensurate with the responsibilities that would be undertaken by him;
WHEREAS, the Board of Directors of ESY (the "Board") recognizes
Employee's contributions to the growth and success of ESY during his
employment and desires to recognize such performance and to take into account
compensation and benefits, trends and practices in the high technology
industry in which ESY competes for business and executive talent; and
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, receipt of which is hereby acknowledged, ESY and
Employee hereby agree as follows:
1. Employment and Term. Commencing on the Effective Date, Employee's
employment shall continue hereunder through
<PAGE>
January 16, 1995, unless Employee retires pursuant to either Section 2(c)(1)
or 2(c)(3) hereof prior to such date. The term of this Agreement shall be
automatically extended for an additional period of three years commencing
January 17, 1995 and ending January 16, 1998, unless the Board of Directors or
the employee shall, not less than 120 days prior thereto, give notice in
writing to the other that this Agreement shall not be extended or unless the
term of this Agreement shall have otherwise terminated. Except as expressly
provided in Section 4 hereof, Employee will devote his full time and efforts
to ESY's business and not engage in any activities that would be inconsistent
with the strategies and objectives of ESY. During the term of this Agreement
(hereinafter referred to as the "Employment Period"), Employee shall serve as
President of ESY or in such other office or offices in ESY to which the Board
of Directors of ESY may from time to time elect or appoint him with his
advance written consent. The Employee's current office with ESY is set forth
on Exhibit B hereto.
2. Compensation and Benefits. In consideration of his services during
the Employment Period, Employee shall be paid compensation and receive
benefits from ESY as follows:
(a) During the Employment Period, Employee shall be paid a base salary
in equal installments not less frequently than monthly at an annual rate not
less than the greater of (1) $325,000 or (2) the base salary of the Employee
most recently approved by the Board of Directors of ESY. Employee's base
salary shall be subject to such increases (but not decreases) as may be
approved by the Board of Directors of ESY.
(b) Employee shall also receive such incentive compensation as may be
approved by the Board of Directors of ESY and any profit sharing, retirement
rights, or other perquisites to which Employee may be entitled under the terms
of this Agreement or otherwise.
(c) ESY will provide Employee with supplemental retirement, death, and
disability benefits as follows:
(1) Following Employee's retirement, he shall be paid a "Normal
Retirement Benefit" equal to 65% of "Average Monthly Compensation". "Normal
Retirement Benefit" and "Average Monthly Compensation" are defined in the
E-Systems, Inc. Executive Supplemental Retirement Plan as amended (the
"Executive Plan"), a copy of which is attached to this Agreement as Exhibit A.
The Executive Plan is incorporated in all respects herein; provided, however,
that the terms of this Agreement shall take precedence over any provisions to
the contrary contained in the Executive Plan. Employee may retire at any time
after January 16, 1998, having then attained age 60, upon reasonable notice to
the Board of
<PAGE>
Directors. Notwithstanding Section 5.1 of the Executive Plan, Employee shall
be eligible for benefits under the Executive Plan if Employee's employment is
terminated prior to the close of the Employment Period for any reason,
including (i) involuntary termination of employment by ESY; (ii) voluntary
termination of employment by the Employee; (iii) termination of employment due
to death or disability; or (iv) termination of employment for Cause (as
defined in Section 10 hereof). If employment is terminated by reason of the
preceding clause (i), the Employee's "Normal Retirement Date", as defined in
the Executive Plan, shall be such date of termination of employment. The
amounts payable pursuant to this Section 2(c)(1) shall be paid Employee and/or
his beneficiaries as provided in the Executive Plan. By way of example, and
not as a limitation on the foregoing provisions of this Section 2(c)(l), if
the Employee voluntarily terminates his employment prior to the close of the
Employment Period, Employee's rights to benefits under the Executive Plan and
all other of the Vested Benefits shall remain nonforfeitable.
(2) If Employee should die before retiring, or while permanently
disabled or retired, his surviving widow shall be paid a Spouse's Pension as
set forth in the Executive Plan. If the Employee dies without a surviving
spouse, but with one or more children who have not attained the age of 22
years, a Children's Pension shall be paid in accordance with the Executive
Plan. Upon the death of a surviving spouse who is receiving a Spouse's
Pension, surviving children of Employee shall receive a Children's Pension if
the requirements of the Executive Plan are met.
(3) If Employee should become permanently disabled, he shall be
entitled to retire as of the date of such a permanent disability without prior
notice to ESY and without any reduction in the benefit provided in Section
2(c)(1), and payable in accordance with the Executive Plan.
(4) It is expressly understood that ESY's obligations pursuant to
this Section 2(c) shall not be funded; except that the Board of Directors of
ESY may establish a trust or trusts out of which such obligations may be
satisfied, provided that the principal and income of such trust or trusts are
subject to the claims of creditors of ESY in the event of insolvency as
provided for under the terms of such trust or trusts; and neither Employee nor
his surviving spouse or children shall have any interest present or otherwise
in such payments until they are actually made.
(5) "Permanent disability" as used herein shall be defined as
Employee's physical or mental condition which totally prevents Employee from
performing the duties required of his position, and is reasonably expected to
be of a permanent duration. Employee's inability to perform
<PAGE>
such services due to illness or accident reasonably expected to incapacitate
him for no longer than three months shall not be deemed a permanent
disability. If Employee and ESY are in disagreement as to the existence of
such permanent disability, the parties hereby agree to be unconditionally
bound by the majority decision of three arbitrators who shall be licensed
physicians. The arbitrators shall be selected one by Employee, one by ESY and
the third by the first two arbitrators.
(6) The obligations of ESY under Sections 2(c) 2(e), 2(f), 3, 9 and
19 hereof, shall survive the expiration of the Employment Period and any
extension thereof.
(d) Employee shall be excused from performing any services for
ESY hereunder during periods of temporary incapacity and during reasonable
vacations without thereby in any way affecting the compensation to which he is
entitled hereunder. In no event shall Employee be assigned duties that would
(i) involve unreasonable personal hazard; (ii) necessitate prolonged absences
or changes in the place of his residence without his consent; or (iii) require
the Employee to have as his principal location of work any location that is in
excess of 25 miles from the Employee's principal place of work as of the date
hereof without his consent.
(e) Medical, hospital, surgical, dental, prescription drugs and
eyecare coverage equivalent to that furnished to Employee and his wife by ESY
as of the date of this Agreement will be provided to them for their lifetime
during the Employment Period and retirement through insurance or otherwise;
provided, however, that dental coverage after retirement shall be limited to a
combined aggregate of $500 per year for Employee and spouse.
(f) It is the intention of the parties that this Agreement be
an enhancement of, and not a reduction or limitation in, any benefit to which
Employee may be entitled whether under this Agreement, the Prior Agreement, or
under any benefit plan, program or policy in which Employee may be a
participant during the Employment Period, while disabled or while retired. If
the benefit to Employee shall be greater under the Prior Agreement or any
benefit plan, program or policy maintained by ESY, ESY shall promptly notify
Employee in writing and Employee shall be entitled to receive such larger or
greater benefit pursuant to such benefit plan, program or policy in lieu of or
in addition to (but not in duplication of) the benefit set forth in this
Agreement without in any respect waiving Employee's rights to receive any
other payment of benefits to which he may be entitled otherwise under this
Agreement.
<PAGE>
(g) The participation of the Employee in the benefit plans,
programs, and policies maintained by ESY shall not be reduced unless
Employee's participation in such plans, programs, and policies remains
proportionate to the participation in such plans, programs, and policies by
the officers of ESY, or a successor entity, taking into account the position,
responsibilities, and authority of the Employee.
3. Expenses and Perquisites. During the Employment Period, Employee
shall be allowed all reasonable expenses and perquisites and shall be
furnished office space and facilities suitable to his position and adequate
for the performance of his duties, in accordance with such general policies
as may be established by ESY from time to time for executive Employees
receiving comparable compensation. Further, in consideration of Employee's
commitment hereunder to remain in the employ of ESY to his attaining age 60,
ESY shall be obligated to furnish certain additional reasonable postretirement
perquisites and benefits, which shall be set forth in a letter to Employee
through the Chairman of the Compensation and Benefits Committee and shall
constitute a binding obligation upon ESY.
4. Conflicts of Interest and Competition. Without the prior consent of
ESY, Employee shall not, during the Employment Period, engage in any business
(directly or through any kind of ownership or other arrangement other than
ownership of securities of publicly-held corporations) that is competitive
with that of ESY or its subsidiaries or accept employment with or render
services to a competitor or take action inconsistent with the fiduciary
relationship of an executive to his corporation. Subject to such limitations,
Employee may make investments for his own account in any business or
enterprise whatsoever and serve as an officer or director thereof and receive
compensation therefor, provided such activity does not conflict with his
obligation to render his exclusive full-time services to ESY and its
subsidiaries during his employment hereunder.
5. Participation in Benefit Plans. Except as expressly provided herein,
this Agreement shall not in any way modify, limit, impair, or affect the
existing or future rights or interests of Employee to receive any Employee
benefit to which he would otherwise be entitled or as a participant in the
present or future Employee benefit plans of ESY.
6. Insurance. ESY in its sole discretion, may purchase in its name and
for its own benefit, life and disability insurance on Employee in any amount
or amounts considered advisable. Employee shall have no right, title or
interest therein, and will submit to required medical examinations and execute
and deliver any application, or
<PAGE>
other instrument in writing, reasonably necessary to effectuate such
insurance.
7. Damages; mitigation. In the event that this Agreement or the
employment of Employee by ESY hereunder is terminated by ESY other than
pursuant to Section 10 hereof, (i) Employee shall be entitled to the
compensation and benefits provided by Sections 2(a) and 2(b) for the balance
of the Employment Period and to the benefits provided by Sections 2(c), 2(e),
2(f), 3, 9 and 19 in accordance with the terms of such Sections, and (ii) ESY
shall acknowledge by notice to Employee that Employee offered to continue
employment with ESY and that such offer was rejected, and Employee shall use
reasonable efforts to mitigate his damages by seeking other comparable
employment; provided, however, that (a) in no event shall Employee be required
to accept a position of less importance or dignity or of substantially
different character, compensation or benefits than the position held as of the
date of this Agreement, nor shall he be required to accept a position other
than in a location within 25 miles of his principal place of work immediately
prior to the date of termination of employment, and (b) mitigation shall not
be required if the Employee elects at the time of termination to receive
payments under the terms of the Prior Agreement and the Executive Plan.
Subject to the foregoing provisions of this Section 7, in the event that
Employee secures other permanent employment with another corporation or other
legal person, he shall promptly notify ESY of the amount of cash compensation
received by him in his new employment and ESY shall be entitled to offset
against amounts otherwise due to the Employee an amount equal to the total
cash compensation actually paid to him in his new employment for services
rendered during the Employment Period; provided that in no event shall
Employee be required to repay any amounts earned in new employment that exceed
the amounts otherwise payable to him under this Agreement for a comparable
period. Except as otherwise expressly provided in this Section 7, Employee
shall not be required to mitigate the amount of any payment provided for in
this Agreement by seeking other employment or otherwise.
8. Set-off; Impact on Other Agreements. There shall be no right of
set-off or counter-claim in respect of any claim, debt or obligation against
any payment to Employee provided for in this Agreement, except as expressly
set forth above in Section 7. A termination of this Agreement by ESY or
Employee pursuant to this Agreement shall not affect any rights that Employee
may have pursuant to any other agreement, policy, plan, program or arrangement
of ESY, which rights shall be governed by the terms thereof, and the
obligations of ESY with respect to amounts payable pursuant thereto shall not
be affected by termination of this Agreement.
<PAGE>
9. Indemnification. If an amount paid hereunder is subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any successor provision thereto, ESY shall pay to
Employee an additional amount in cash equal to the amount necessary to cause
the aggregate remuneration received by Employee under this Agreement,
including such additional cash payment (net of all federal, state, and local
income taxes and all taxes payable as the result of the application of
Sections 280G and 4999 of the Code or any successor provision thereto) to be
equal to the aggregate remuneration Employee would have received under this
Agreement, excluding such additional payment (net of all federal, state, and
local income taxes), as if Sections 280G and 4999 (and any successors thereto)
had not been enacted into law.
10. (a) Termination. Subject to the provisions of Section 2(c)(l)
hereof, ESY may terminate this Agreement and all of its obligations hereunder,
except for obligations accrued but unpaid to the effective date of
termination, solely for "Cause". "Cause" shall mean (i) the Employee's
willful refusal, without reasonable excuse, to render services hereunder on
substantially a full-time basis; (ii) an intentional act of fraud,
embezzlement or theft in connection with his duties or in the course of his
employment with ESY; (iii) intentional wrongful damage to property of ESY;
(iv) intentional wrongful disclosure of secret processes or confidential
information of ESY; or (v) intentional wrongful engagement in any competitive
activity (as defined in Section 4); and any such act shall have been
materially harmful to ESY; provided, however, that no such act shall
constitute "Cause" if the Employee did not directly or indirectly induce the
act or acts resulting in harm to ESY. For purposes of this Agreement, no act
or failure to act on the part of the Employee shall be deemed "intentional" or
"willful" if it was due primarily to an error in judgment or negligence, but
shall be deemed "intentional" or "willful" only if done or omitted to be done
by the Employee not in good faith and without reasonable belief that his action
or omission was in the best interest of ESY. Notwithstanding the foregoing,
the Employee shall not be deemed to have been terminated for "Cause" hereunder
unless and until there shall have been delivered to the Employee a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the Board then in office at a meeting of the Board called and held for such
purpose, after reasonable notice to the Employee and an opportunity for the
Employee, together with his counsel (if the Employee chooses to have counsel
present at such meeting), to be heard before the Board, finding that, in the
good faith opinion of the Board, the Employee had committed an act
constituting "Cause" as herein defined and specifying the particulars thereof
in
<PAGE>
detail. Nothing herein will limit the right of the Employee or his
beneficiaries to contest the validity or propriety of any such determination.
(b) Effect on Prior Vested Benefits. It is specifically agreed that,
although restated herein, all the Vested Benefits under the Prior Agreement
shall remain fully vested and that termination of this Agreement for Cause or
otherwise shall in no way abrogate ESY's obligation to pay or furnish the
Vested Benefits. This Employment Agreement shall increase or enhance and not
reduce the benefits available to Employee under the Prior Agreement.
11. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Texas, without giving
effect to the principles of conflict of laws of such State.
12. Entire Agreement. This Agreement constitutes the whole agreement of
the parties hereto in reference to any employment of Employee by ESY and in
reference to any of the matters or things herein provided for or hereinbefore
discussed or mentioned in reference to such employment, all prior agreements,
promises, representations, and understandings relative thereto, including the
Prior Agreement, being herein merged.
13. Assignability.
(a) In the event that ESY shall merge or consolidate with any other
corporation or all or substantially all of ESY's business or assets shall be
transferred in any manner to any other person, such successors shall thereupon
succeed to, and be subject to, all rights, interests, duties and obligations
of, and shall thereafter be deemed for all purposes hereof to be ESY
hereunder. ESY agrees to require any successor to assume this Agreement and
all ESY's obligations hereunder, as a condition of any merger, consolidation,
or purchase and sale of the business and assets of ESY. This Agreement shall
be binding upon and inure to the benefit of any such successor and the legal
representatives of Employee.
(b) This Agreement is personal in nature and neither of the parties
hereto shall without the consent of the other assign or transfer this
Agreement or any rights or obligations hereunder except for operation of law
or pursuant to the terms of this Section 13. Without limiting the generality
of the foregoing, Employee's right to receive payments hereunder shall not be
assignable or transferable, whether by pledge, creation of a security interest
or otherwise, other than by a transfer by his will or by the laws of descent
and distribution and, in the event of any assignment or transfer contrary to
this Section 13, ESY
<PAGE>
shall have no liability to pay any amount so attempted to be assigned or
transferred.
14. Remedies Cumulative. Remedies under this Agreement of either party
hereto are in addition to any remedy or remedies to which such party is
entitled or may become entitled at law or in equity.
15. Severability. If any provision of this Agreement is determined by a
court of competent jurisdiction to be void or unenforceable, such provision
shall be regarded as severable and shall not affect the validity or
enforceability of the remaining provisions hereof.
16. Withholding of Taxes. ESY may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.
17. Amendments and Waivers. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms and covenants hereof
may be waived, only by written instrument executed by both of the parties
hereto or in the case of a waiver by the party waiving compliance. The
failure of either party at any time or times to require performance of any
provisions hereof shall in no manner affect the right at a later time to
enforce the same. No waiver by either party of the breach of any term or
covenant contained in this Agreement whether by conduct or otherwise by any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such breach or a waiver of the breach of any other
term or covenant contained in this Agreement.
18. Notice. For the purpose of this Agreement, all communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to ESY at its principal
executive office and to Employee at his principal residence, or to such other
address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of change of address shall be
effective only upon receipt.
19. Legal Fees and Expenses. It is the intent of ESY that Employee not
be required to incur the expenses associated with the enforcement of his
rights under this Agreement by litigation or other legal action because the
cost and expense thereof would substantially detract from the benefits
intended to be extended to Employee hereunder. Accordingly, if it should
appear to Employee that ESY has failed to comply with any of its obligations
under this Agreement or in the event that ESY or any other person takes
<PAGE>
any action to declare this Agreement void or unenforceable, or institutes any
litigation designed to deny, or to recover from, Employee the benefits
intended to be provided to Employee hereunder, ESY irrevocably authorizes
Employee from time to time to retain counsel of his choice, at the expense of
ESY as hereafter provided, to represent Employee in connection with the
initiation or defense of any litigation or other legal action, whether by or
against ESY or any director, officer, stockholder or other person affiliated
with ESY, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between ESY and such counsel, ESY irrevocably
consents to Employee's entering into an attorney-client relationship with such
counsel, and in that connection ESY and Employee agree that a confidential
relationship shall exist between Employee and such counsel. ESY shall pay and
be solely responsible for any and all attorneys' and related fees and expenses
incurred by Employee (a) as a result of ESY's failure to perform under this
Agreement or any provision thereof, or (b) as a result of ESY or any person
contesting the validity or enforceability of this Agreement or any provision
thereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ATTEST: E-SYSTEMS, INC.
James M. Bolding James W. Crowley
Assistant Secretary Vice President,
Secretary and General
Counsel
EMPLOYEE:
A. Lowell Lawson
<PAGE>
AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT
DATED AS OF SEPTEMBER 27, 1989
BETWEEN
E-SYSTEMS, INC.
AND
A. LOWELL LAWSON
In consideration of Mr. A. Lowell Lawson's being elected Chief Executive
Officer as well as President of E-Systems, Inc., effective January 26, 1994,
and in further consideration of the mutual promises herein contained, the
Employment Agreement dated as of September 27, 1989, is hereby amended as
follows:
1. E-Systems, Inc. and Mr. A. Lowell Lawson agree that the automatic
extension from January 17, 1995, and ending January 16, 1998, is to take
effect and neither party shall exercise its right to notify the other that the
Agreement shall not be extended.
2. Effective January 26, 1994, Exhibit B is amended to specify that the
position of Mr. A. Lowell Lawson is: Chief Executive Officer and President.
IN WITNESS WHEREOF, the parties have caused this Amendment No. One to the
Agreement dated as of September 27, 1989, as of this 26th day of January,
1994.
ATTEST: E-SYSTEMS, INC.
James M. Bolding James W. Crowley
Assistant Secretary Vice President,
Secretary and General
Counsel
EMPLOYEE:
A. Lowell Lawson
<PAGE>
EXHIBIT 10C
<PAGE>
EMPLOYMENT AGREEMENT
between
E-SYSTEMS, INC.
and
TERRY W. HEIL
December 19, l990
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective as of the 19th day of December, 1990 (the "Effective Date"), by
E-Systems, Inc. (hereinafter referred to as "ESY") and Terry W. Heil
(hereinafter referred to as "Employee").
RECITALS
WHEREAS, ESY and Employee have previously entered into an Employment
Agreement dated as of October 12, 1988, which the parties desire to replace in
order to provide for various matters as set forth in this Agreement;
WHEREAS, Employee is an executive officer of ESY and has made and is
expected to continue to make major contributions to the profitability, growth
and financial strength of ESY;
WHEREAS, ESY desires that Employee agree to serve as an executive officer
of ESY;
WHEREAS, Employee is willing to serve as an executive officer of ESY if
the rewards for successful management of the enterprise and for relinquishment
of other opportunities which may be available to him are commensurate with the
responsibilities that would be undertaken by him; and
WHEREAS, the Board of Directors of ESY recognizes Employee's contributions
to the growth and success of ESY during his employment and desires to recognize
such performance and to take into account compensation and benefits, trends
and practices in the high technology industry in which ESY competes for
business and executive talent.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, receipt of which is hereby acknowledged, ESY and
Employee hereby agree as follows:
1. Employment and Term. Commencing on the Effective Date, Employee's
employment shall continue hereunder through February 24, 1995, unless Employee
retires pursuant to Section 2(c)(3) hereof prior to such date. The term of this
Agreement shall be automatically extended for an additional period of five years
commencing February 25, 1995, and ending February 24, 2000, unless either the
Board of Directors or the Employee shall, not less than 120 days prior to
February 25, 1995, give notice in writing to the other that this Agreement shall
not be extended or unless this Agreement shall have been otherwise terminated.
An additional automatic renewal period shall extend from February 25, 2000, to
February 24, 2003; provided that the first renewal shall have occurred and that
neither party has given notice not less than 120 days prior to February 25,
2000, to the other in writing that this Agreement shall not be so extended or
unless this Agreement shall have been otherwise terminated. Employee will
devote his full time and efforts to ESY's business and not engage in any
activities that would be inconsistent with the strategies and objectives of ESY.
During this term (hereinafter referred to as the "Employment Period"), Employee
shall serve as an executive of ESY and agrees to serve in such office or offices
in ESY to which
<PAGE>
the Board of Directors of ESY may from time to time elect or appoint him, as
currently set forth in Schedule 1 hereto.
2. Compensation and Benefits. In consideration of his services during
the Employment Period, Employee shall be paid compensation and receive benefits
from ESY as follows:
(a) During the Employment Period, Employee shall be paid a base
salary in equal installments not less frequently than monthly at an annual rate
not less than the greater of (1) $275,000, or (2) the base salary of the
Employee most recently approved by the Board of Directors of ESY. Employee's
base salary shall be subject to such increases as may be approved by the Board
of Directors of ESY.
(b) Employee shall also receive such incentive compensation as may be
approved by the Board of Directors of ESY and any profit sharing, retirement
rights, or other perquisites to which Employee may be entitled under the terms
of this Agreement or otherwise. A description of current perquisites is
contained in Exhibit B attached hereto.
(c) ESY will provide Employee with supplemental retirement, death,
and disability benefits as follows:
(1) Following Employee's retirement, he shall be paid a "Normal
Retirement Benefit" equal to 50 percent (55 percent if the Agreement is extended
to February 24, 2000, as provided above and Employee retires on or after
February 24, 2000; 65 percent if the Agreement is extended to February 24, 2003,
as provided above and Employee retires on or after February 24, 2003) of
"Average Monthly Compensation". "Normal Retirement Benefit" and "Average
Monthly Compensation" are defined in the E-Systems, Inc. Executive
Supplemental Retirement Plan as amended (the "Executive Plan"), a copy of which
is attached to this Agreement as Exhibit A. The Executive Plan is incorporated
in all respects herein; provided, however, that the terms of this Agreement
shall take precedence over any provisions to the contrary contained in the
Executive Plan. Employee may retire at any time after February 24, 1998, upon
providing the company with reasonable notice. Notwithstanding Section 5.l of
the Executive Plan, Employee shall be eligible for benefits under the Executive
Plan unless (i) Employee voluntarily terminates his employment in breach of his
obligations under this Agreement, or (ii) ESY terminates Employee's employment
pursuant to Section 10 hereof. Employee shall otherwise remain eligible for
benefits under the Executive Plan upon involuntary termination of employment by
ESY, or upon termination of employment due to death or disability.
Employee's eligibility for benefits under the Executive Plan and this Section
2(c)(l) upon voluntary retirement shall not be accelerated by any provision of
Section 5.3 of the Executive Plan. The amounts payable pursuant to this
Section shall be paid Employee as provided in the Executive Plan. By way of
example, and not as a limitation on the foregoing provisions of this Section
2(c)(1), if the employment of Employee by ESY
<PAGE>
continues until February 24, 1998, Employee's rights to benefits under the
Executive Plan shall become nonforfeitable, and Employee may retire at any
time after February 24, 1998, and commence receiving his Normal Retirement
Benefit. If Employee is not employed by ESY following the termination of this
Agreement, the benefit provided by the Executive Plan shall be a deferred,
vested benefit available any time after February 24, 1998, at Employee's
election.
(2) If Employee should die before retiring, or while
permanently disabled or retired, his surviving widow shall be paid a Spouse's
Pension as set forth in the Executive Plan. If the Employee dies without a
surviving spouse, but with one or more children who have not attained the age of
22 years, a Children's Pension shall be paid in accordance with the Executive
Plan. Upon the death of a surviving spouse who is receiving a Spouse's Pension,
surviving children of Employee shall receive a Children's Pension if the
requirements of the Executive Plan are met.
(3) If Employee should become permanently disabled, he shall be
entitled to retire as of the date of such a permanent disability without prior
notice to ESY. The retirement benefit provided hereunder to Employee shall be
two-thirds of that amount specified in Section 2(c)(l) above, payable in
accordance with the Executive Plan.
(4) It is expressly understood that ESY's obligations pursuant
to this Section 2(c) may or may not be funded, but neither Employee nor his
surviving spouse or children shall have any interest present or otherwise in
such payments until they are actually made.
(5) "Permanent disability" as used herein shall be defined as
Employee's physical or mental condition which totally prevents Employee from
performing the duties required of his position, and is reasonably expected to be
of a permanent duration. Employee's inability to perform such services due to
illness or accident reasonably expected to incapacitate him for no longer than
three months shall not be deemed a permanent disability. If Employee and ESY
are in disagreement as to the existence of such permanent disability, the
parties hereby agree to be unconditionally bound by the majority decision of
three arbitrators who shall be licensed physicians. The arbitrators shall be
selected one by Employee, one by ESY and the third by the first two arbitrators.
(6) The obligations of ESY under Sections 2(c) 2(e), 2(f), 10,
and 19 shall survive expiration of the Employment Period and any extension
thereof.
(d) Employee shall be excused from performing any services for ESY
hereunder during periods of temporary incapacity and during reasonable vacations
without thereby in any way affecting the compensation to which he is entitled
hereunder. In no event shall Employee be assigned duties that would (i)
involve unreasonable personal hazard; (ii) necessitate prolonged absences
<PAGE>
or changes in the place of his residence without his consent; or (iii) require
the Employee to have as his principal location of work any location that is in
excess of 25 miles from the Employee's principal residence as of the date hereof
without his consent.
(e) Medical, hospital, surgical, dental, prescription drugs and eye
care coverage equivalent to that presently furnished to Employee and his wife by
ESY will be provided to them for their lifetime during the Employment Period and
retirement through insurance or otherwise; provided, however, that dental
coverage after retirement shall be limited to a combined aggregate of $500 per
year for Employee and spouse. A description of the present benefits at the date
of this Agreement is contained in Exhibit B hereto.
(f) It is the intention of the parties that this Agreement be an
enhancement of, and not a reduction or limitation in, any benefit to which
Employee may be entitled whether under this Agreement or under any benefit plan,
program or policy in which Employee may be a participant during the Employment
Period, while disabled or while retired. If the benefit to Employee shall be
greater under any benefit plan, program or policy maintained by ESY, ESY shall
promptly notify Employee in writing and Employee shall be entitled to receive
such larger or greater benefit pursuant to such benefit plan, program or
policy in lieu of or in addition to (but not in duplication of) the benefit
set forth in this Agreement without in any respect waiving Employee's rights
to receive any other payment of benefits to which he may be entitled otherwise
under this Agreement.
(g) The participation of the Employee in the qualified benefit plans,
programs, and policies maintained by ESY shall not be reduced or altered except,
and only to the extent, as required by law or governmental regulation.
3. Expenses and Perquisites. During the Employment Period, Employee
shall be allowed all reasonable expenses and perquisites and shall be furnished
office space and facilities suitable to his position and adequate for the
performance of his duties, in accordance with such general policies as may be
established by ESY from time to time for executive employees receiving
comparable compensation.
4. Conflicts of Interest and Competition. Without the prior consent of
ESY, Employee shall not, during the Employment Period, engage in any business
(directly or through any kind of ownership or other arrangement other than
ownership of securities of publicly-held corporations) that is competitive with
that of ESY or its subsidiaries or accept employment with or render services to
a competitor or take action inconsistent with the fiduciary relationship of an
executive to his corporation. Subject to such limitations, Employee may make
investments for his own account in any business or enterprise whatsoever and
serve as an officer or director thereof and receive compensation therefor,
provided such
<PAGE>
activity does not conflict with his obligation to render his exclusive
full-time services to ESY and its subsidiaries during his employment
hereunder.
5. Participation in Benefit Plans. Except as expressly provided herein,
this Agreement shall not in any way modify, limit, impair, or affect the
existing or future rights or interests of Employee to receive any employee
benefit to which he would otherwise be entitled or as a participant in the
present or future employee benefit plans of ESY.
6. Insurance. ESY in its sole discretion, may purchase in its name and
for its own benefit, life and disability insurance on Employee in any amount or
amounts considered advisable. Employee shall have no right, title or interest
therein, and will submit to required medical examinations and execute and
deliver any application, or other instrument in writing, reasonably necessary to
effectuate such insurance.
7. Mitigation. In the event that this Agreement or the employment of
Employee by ESY hereunder is terminated by ESY other than pursuant to Section
10 hereof, ESY shall acknowledge by notice to Employee that Employee offered
to continue employment with ESY and that such offer was rejected, and Employee
shall use reasonable efforts to mitigate his damages by seeking other
comparable employment; provided, however, that (a) in no event shall Employee
be required to accept a position of less importance or dignity or of
substantially different character, compensation or benefits than the position
held as of the date of this Agreement, nor shall he be required to accept a
position other than in a location within 25 miles of his principal residence
immediately prior to the date of termination of employment, and (b) mitigation
shall not be required if the Employee is eligible at the time of termination
to receive payments under the Executive Plan. Subject to the foregoing
provisions of this Section 7, in the event that Employee secures other
permanent employment with another corporation or other legal person, he shall
promptly pay over to ESY, as received by him in his new employment, an amount
equal to the total cash compensation actually paid to him in his new
employment for services rendered during the Employment Period; provided that
in no event shall Employee be required to repay any amounts earned in new
employment that exceed the amounts otherwise payable to him under this
Agreement for a comparable period. Except as otherwise expressly provided in
this Section 7, Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or
otherwise.
8. Set-off; Impact on Other Agreements. There shall be no right of
set-off or counterclaim in respect of any claim, debt or obligation against any
payment to Employee provided for in this Agreement. A termination of this
Agreement by ESY or Employee pursuant to this Agreement shall not affect any
rights that Employee may have pursuant to any other agreement, policy, plan,
program or arrangement of ESY, which rights shall be governed by the terms
thereof, and the obligations of ESY with respect to
<PAGE>
amounts payable pursuant thereto shall not be affected by termination of this
Agreement.
9. Indemnification. If an amount paid hereunder is subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor provision thereto, ESY shall pay to Employee an
additional amount in cash equal to the amount necessary to cause the aggregate
remuneration received by Employee under this Agreement, including such
additional cash payment (net of all federal, state, and local income taxes and
all taxes payable as the result of the application of Sections 280G and 4999 of
the Code or any successor provision thereto) to be equal to the aggregate
remuneration Employee would have received under this Agreement, excluding such
additional payment (net of all federal, state, and local income taxes), as if
Sections 280G and 4999 (and any successors thereto) had not been enacted into
law.
10. (a) Termination. Subject to the provisions of Section 2(c)(1)
hereof, ESY may terminate this Agreement and all of its obligations hereunder,
except for obligations accrued but unpaid to the effective date of
termination, solely for "Cause". "Cause" shall mean (i) the Employee's
willful refusal, without reasonable excuse, to render services hereunder on
substantially a full-time basis; (ii) an intentional act of fraud,
embezzlement or theft in connection with his duties or in the course of his
employment with ESY; (iii) intentional wrongful damage to property of ESY;
(iv) intentional wrongful disclosure of secret processes or confidential
information of ESY; or (v) intentional wrongful engagement in any competitive
activity (as defined in Section 4); and any such act shall have been materially
harmful to ESY; provided, however, that no such act shall constitute "Cause" if
the Employee did not directly or indirectly induce the act or acts resulting in
harm to ESY. For purposes of this Agreement, no act or failure to act on the
part of the Employee shall be deemed "intentional" or "willful" if it was due
primarily to an error in judgment or negligence, but shall be deemed
"intentional" or "willful" only if done or omitted to be done by the Employee
not in good faith and without reasonable belief that his action or omission
was in the best interest of ESY. Notwithstanding the foregoing, the Employee
shall not be deemed to have been terminated for "Cause" hereunder unless and
until there shall have been delivered to the Employee a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
Board then in office at a meeting of the Board called and held for such
purpose, after reasonable notice to the Employee and an opportunity for the
Employee, together with his counsel (if the Employee chooses to have counsel
present at such meeting), to be heard before the Board, finding that, in the
good faith opinion of the Board, the Employee had committed an act
constituting "Cause" as herein defined and specifying the particulars thereof
in detail. Nothing herein will limit the right of the Employee or his
<PAGE>
beneficiaries to contest the validity or propriety of any such determination.
(b) Effect on Prior Vested Benefits. It is specifically agreed that,
although restated herein, all the Vested Benefits under the Prior Agreement
shall remain fully vested and that termination of this Agreement for "Cause" or
otherwise shall in no way abrogate ESY's obligation to pay or furnish the Vested
Benefits. This Employment Agreement shall increase or enhance and not reduce
the benefits available to Employee under the Prior. Agreement.
11. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Texas, without giving
effect to the principles of conflict of laws of such State.
12. Entire Agreement. This Agreement constitutes the whole agreement of
the parties hereto in reference to any employment of Employee by ESY and in
reference to any of the matters or things herein provided for or hereinbefore
discussed or mentioned in reference to such employment, all prior agreements,
promises, representations, and understandings relative thereto being herein
merged.
13. Assignability.
(a) In the event that ESY shall merge or consolidate with any other
corporation or all or substantially all of ESY's business or assets shall be
transferred in any manner to any other person, such successors shall thereupon
succeed to, and be subject to, all rights, interests, duties and obligations
of, and shall thereafter be deemed for all purposes hereof to be ESY hereunder.
This Agreement shall be binding upon and inure to the benefit of any such
successor and the legal representatives of Employee.
(b) This Agreement is personal in nature and neither of the parties
hereto shall without the consent of the other assign or transfer this Agreement
or any rights or obligations hereunder except for operation of law or pursuant
to the terms of this Section 13. Without limiting the generality of the
foregoing, Employee's right to receive payments hereunder shall not be
assignable or transferable, whether by pledge, creation of a security interest
or otherwise, other than by a transfer by his will or by the laws of descent
and distribution and, in the event of any assignment or transfer contrary to
this Section 13, ESY shall have no liability to pay any amount so attempted to
be assigned or transferred.
14. Remedies Cumulative. Remedies under this Agreement of either party
hereto are in addition to any remedy or remedies to which such party is entitled
or may become entitled at law or in equity.
15. Severability. If any provision of this Agreement is determined by a
court of competent jurisdiction to be void or unenforceable, such provision
shall be regarded as severable and shall not affect the validity or
enforceability of the remaining provisions hereof.
<PAGE>
16. Withholding of Taxes. ESY may withhold from any amounts payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or government regulation or ruling.
17. Amendments and Waivers. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms and covenants hereof
may be waived, only by written instrument executed by both of the parties
hereto or in the case of a waiver executed by the party waiving compliance.
The failure of either party at any time or times to require performance of any
provisions hereof shall in no manner affect the right at a later time to
enforce the same. No waiver by either party of the breach of any term or
covenant contained in this Agreement whether by conduct or otherwise by any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such breach or a waiver of the breach of any other
term or covenant contained in this Agreement.
18. Notice. For the purpose of this Agreement, all communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to ESY at its principal
executive office and to Employee at his principal residence, or to such other
address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of change of address shall be
effective only upon receipt.
19. Legal Fees and Expenses. It is the intent of ESY that Employee not be
required to incur the expenses associated with the enforcement of his rights
under this Agreement by litigation or other legal action because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to Employee hereunder. Accordingly, if it should appear to Employee
that ESY has failed to comply with any of its obligations under this Agreement
or in the event that ESY or any other person takes any action to declare this
Agreement void or unenforceable, or institutes any litigation designed to deny,
or to recover from, Employee the benefits intended to be provided to Employee
hereunder, ESY irrevocably authorizes Employee from time to time to retain
counsel of his choice, at the expense of ESY as hereafter provided, to represent
Employee in connection with the initiation or defense of any litigation or other
legal action, whether by or against ESY or any director, officer, stockholder or
other person affiliated with ESY, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between ESY and such counsel, ESY
irrevocably consents to Employee's entering into an attorney-client
relationship with such counsel, and in that connection ESY and Employee agree
that a confidential relationship shall exist between Employee and such
counsel. ESY shall pay and be solely responsible for any and all attorneys'
and related fees and expenses incurred by Employee (a) as a result of ESY's
failure to perform under this Agreement or any provision thereof, or (b) as
<PAGE>
a result of ESY or any person contesting the validity or enforceability of
this Agreement or any provision thereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
ATTEST: E-SYSTEMS, INC.:
James W. Crowley By: E. Gene Keiffer
Secretary Chairman of the Board and
Chief Executive Officer
EMPLOYEE:
Terry W. Heil
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
Between
E-Systems, Inc.
and Terry W. Heil
dated
December 19, 1990
The first sentence in Section 2(c)(1) of this Agreement is amended to read
as follows:
(1) On December 1, 1993, Employee shall be entitled to a "Normal
Retirement Benefit", commencing on February 24, 1998 (or at retirement if
later), equal to 50 percent (55 percent if the Agreement is extended to
February 24, 2000, as provided above and Employee retires on or after
February 24, 2000; 65 percent if the Agreement is extended to February 24,
2003, as provided above and Employee retires on or after February 24, 2003) of
"Average Monthly Compensation".
Section 2(c)(1) is further amended by restating the final two sentences to
read as follows:
By way of example, and not as a limitation on the foregoing provisions of
this Section 2(c)(1), if the employment of Employee by ESY continues until
December 1, 1993, Employee's rights to benefits under the Executive Plan shall
become nonforfeitable, and Employee may retire at any time thereafter, and after
February 24, 1998, commence receiving his Normal Retirement Benefit. If
Employee is not employed by ESY following December 1, 1993, the benefit
provided by the Executive Plan shall be a deferred, vested benefit available
any time after February 24, 1998, at Employee's election.
In Witness Whereof, the parties have duly executed this Amendment as of
this date November 22, 1993.
ATTEST: E-SYSTEMS, INC.
James W. Crowley A. Lowell Lawson
Secretary President
(CORPORATE SEAL)
Employee:
<PAGE>
EXHIBIT 10D
<PAGE>
EMPLOYMENT AGREEMENT
between
E-SYSTEMS, INC.
and
PETER A. MARINO
OCTOBER 14, 1991
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective as of the 14th day of October 1991 (the "Effective Date"), by
E-Systems, Inc. (hereinafter referred to as "ESY") and Peter A. Marino
(hereinafter referred to as "Employee").
RECITALS
WHEREAS, Employee is willing to serve as an executive officer of ESY and
has the education, background and experience to make major contributions to the
profitability, growth and business of ESY;
WHEREAS, ESY desires that Employee agree to serve as an executive
officer of ESY;
WHEREAS, Employee is willing to serve as an executive officer of ESY if the
rewards for successful management of the enterprise and for relinquishment of
other opportunities which may be available to him are commensurate with the
responsibilities that would be undertaken by him; and
WHEREAS, the Board of Directors of ESY recognizes Employee's abilities to
contribute to the growth and success of ESY during his employment and desires to
reward such performance and to take into account compensation and benefits,
trends and practices in the high technology industry in which ESY competes for
business and executive talent.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, receipt of which is hereby acknowledged, ESY and
Employee hereby agree as follows:
1. EMPLOYMENT AND TERM. Commencing on the Effective Date, Employee's
employment shall continue hereunder through October 14, 1996, unless Employee
retires pursuant to Section 2(c)(3) hereof prior to such date. The term of this
Agreement shall be automatically extended for an additional period of five years
commencing October 14, 1996, and ending October 14, 2001, unless either the
Board of Directors or the Employee shall, not less than 120 days prior to
October 14, 1996, give notice in writing to the other that this Agreement shall
not be extended or unless this Agreement shall have been otherwise terminated.
Two additional automatic renewal periods shall extend from October 14, 2001 to
February 3, 2004 and February 3, 2004 to February 3, 2007, respectively;
provided that each prior renewal shall have occurred and that neither party has
given notice not less than 120 days prior to February 3, 2001 and February 3,
2004, respectively, to the other in writing that this Agreement shall not be so
extended or unless this Agreement shall have been otherwise terminated.
Employee will devote his full time and efforts to ESY's business and not engage
in any activities that would be inconsistent with the strategies and objectives
of ESY. During this term (hereinafter referred to as the "Employment Period"),
Employee shall serve as an executive of ESY and agrees to serve in such office
or offices in ESY to which the Board of Directors of ESY may from time to time
elect or appoint him, as currently set forth in Schedule 1 hereto.
2. COMPENSATION AND BENEFITS. In consideration of his services during
the Employment Period, Employee shall be paid compensation and receive benefits
from ESY as follows:
<PAGE>
(a) During the Employment Period, Employee shall be paid a base
salary in equal installments not less frequently than monthly at an annual
rate not less than the greater of (1) $275,000, or (2) the base salary
of the Employee most recently approved by the Board of Directors of
ESY. Employee's base salary shall be subject to such increases as may
be approved by the Board of Directors of ESY.
(b) Employee shall also receive such incentive compensation as may be
approved by the Board of Directors of ESY and any profit sharing,
retirement rights, or other perquisites to which Employee may be
entitled under the terms of this Agreement or otherwise. A description
of current perquisites is contained in Exhibit B attached hereto.
(c) ESY will provide Employee with supplemental retirement, death,
and disability benefits as follows:
(1) Following Employee's retirement, he shall be paid a "Normal
Retirement Benefit" equal to 50 percent of his Average Monthly
Compensation, but without reduction as specified in Section 6.1(a) of
the Executive Supplemental Retirement Plan ("Executive Plan") for
less than 10 years' vesting. If the Agreement is not extended beyond
February 3, 2001, and the employee retires on or after his "Normal
Retirement Date", the "Normal Retirement Benefit" shall be
50 percent. If the Agreement is extended to February 3, 2004, as
provided above and Employee retires on or after February 3, 2004, the
"Normal Retirement Benefit" shall be 55 percent; and 65 percent if
the Agreement is extended to February 3, 2007, as provided above and
Employee retires on or after February 3, 2007. "Normal Retirement
Benefit" and "Average Monthly Compensation" are defined in the
E-Systems, Inc. Executive Supplemental Retirement Plan as amended
(the "Executive Plan"), a copy of which is attached to this Agreement
as Exhibit A. The Executive Plan is incorporated in all respects
herein; provided, however, that the terms of this Agreement shall
take precedence over any provisions to the contrary contained in the
Executive Plan. Notwithstanding Section 5.l of the Executive Plan,
Employee shall be eligible for benefits under the Executive Plan
unless (i) Employee voluntarily terminates his employment in breach
of his obligations under this Agreement, or (ii) ESY terminates
Employee's employment pursuant to Section 9 hereof. Employee shall
otherwise remain eligible for benefits under the Executive Plan upon
involuntary termination of employment by ESY, or upon termination of
employment due to death or disability. Employee's eligibility for
benefits under the Executive Plan and this Section 2(c)(1) upon
voluntary retirement shall not be accelerated by any provision of
Section 5.3 of the Executive Plan. The amounts payable pursuant to
this Section shall be paid Employee as provided in the Executive
Plan. By way of example, and not as a limitation on the foregoing
provisions of this Section 2(c)(1), if the employment of Employee by
ESY continues until October 14, 1996, Employee's rights to benefits
<PAGE>
under the Executive Plan shall become nonforfeitable. If Employee is
not employed by ESY following the termination of this Agreement, the
benefit provided by the Executive Plan shall be a deferred, vested
benefit available any time after the "Normal Retirement Date" as
defined in the Executive Plan.
(2) If Employee should die before retiring, or while permanently
disabled or retired, his surviving widow shall be paid a Spouse's
Pension as set forth in the Executive Plan. If the Employee dies
without a surviving spouse, but with one or more children who have
not attained the age of 22 years, a Children's Pension shall be paid
in accordance with the Executive Plan. Upon the death of a surviving
spouse who is receiving a Spouse's Pension, surviving children of
Employee shall receive a Children's Pension if the requirements of
the Executive Plan are met.
(3) If Employee should become permanently disabled, he shall be
entitled to retire as of the date of such a permanent disability
without prior notice to ESY. The retirement benefit provided
hereunder to Employee shall be two-thirds of the applicable amount
specified in Section 2(c)(1) above, payable in accordance with the
Executive Plan.
(4) It is expressly understood that ESY's obligations pursuant
to this Section 2(c) may or may not be funded, but neither Employee
nor his surviving spouse or children shall have any interest present
or otherwise in such payments until they are actually made.
(5) "Permanent disability" as used herein shall be defined as
Employee's physical or mental condition which totally prevents
Employee from performing the duties required of his position, and is
reasonably expected to be of a permanent duration. Employee's
inability to perform such services due to illness or accident
reasonably expected to incapacitate him for no longer than three
months shall not be deemed a permanent disability. If Employee and
ESY are in disagreement as to the existence of such permanent
disability, the parties hereby agree to be unconditionally bound by
the majority decision of three arbitrators who shall be licensed
physicians. The arbitrators shall be selected one by Employee, one
by ESY and the third by the first two arbitrators.
(6) The obligations of ESY under Sections 2(c) 2(e), 2(f), 9,
and 18 shall survive expiration of the Employment Period and any
extension thereof.
(d) Employee shall be excused from performing any services for ESY
hereunder during periods of temporary incapacity and during reasonable
vacations without thereby in any way affecting the compensation to which
he is entitled hereunder. In no event shall Employee be assigned duties
that would (i) involve unreasonable personal hazard; (ii) necessitate
prolonged absences or changes in the place of his residence without his
consent; or (iii) require the Employee to have as his principal location
of work any location that is in excess of 25 miles from the Employee's
<PAGE>
principal residence specified in Schedule 1 attached without his consent.
(e) Medical, hospital, surgical, dental, prescription drugs and eye
care coverage equivalent to that presently furnished to Employee and his
wife by ESY will be provided to them for their lifetime during the
Employment Period and retirement through insurance or otherwise;
provided, however, that dental coverage after retirement shall be limited
to a combined aggregate of $500 per year for Employee and spouse. A
description of the present benefits at the date of this Agreement is
contained in Exhibit B hereto.
(f) It is the intention of the parties that this Agreement be an
enhancement of, and not a reduction or limitation in, any benefit to
which Employee may be entitled whether under this Agreement or under any
benefit plan, program or policy in which Employee may be a participant
during the Employment Period, while disabled or while retired. If the
benefit to Employee shall be greater under any benefit plan, program or
policy maintained by ESY, ESY shall promptly notify Employee in writing
and Employee shall be entitled to receive such larger or greater benefit
pursuant to such benefit plan, program or policy in lieu of or in
addition to (but not in duplication of) the benefit set forth in this
Agreement without in any respect waiving Employee's rights to receive any
other payment of benefits to which he may be entitled otherwise under
this Agreement.
(g) The participation of the Employee in the qualified benefit
plans, programs, and policies maintained by ESY shall not be reduced or
altered except, and only to the extent, as required by law or
governmental regulation.
3. EXPENSES AND PERQUISITES. During the Employment Period, Employee
shall be allowed all reasonable expenses and perquisites and shall be furnished
office space and facilities suitable to his position and adequate for the
performance of his duties, in accordance with such general policies as may be
established by ESY from time to time for executive employees receiving
comparable compensation.
4. CONFLICTS OF INTEREST AND COMPETITION. Without the prior consent of
ESY, Employee shall not, during the Employment Period, engage in any business
(directly or through any kind of ownership or other arrangement other than
ownership of securities of publicly-held corporations) that is competitive with
that of ESY or its subsidiaries or accept employment with or render services to
a competitor or take action inconsistent with the fiduciary relationship of an
executive to his corporation. Subject to such limitations, Employee may make
investments for his own account in any business or enterprise whatsoever and
serve as an officer or director thereof and receive compensation therefor,
provided such activity does not conflict with his obligation to render his
exclusive full-time services to ESY and its subsidiaries during his employment
hereunder.
5. PARTICIPATION IN BENEFIT PLANS. Except as expressly provided herein,
this Agreement shall not in any way modify, limit, impair, or affect the
existing or future rights or interests of Employee to receive any employee
benefit to which he would otherwise be entitled or as a participant in the
present or future employee benefit plans of ESY.
<PAGE>
6. INSURANCE. ESY in its sole discretion, may purchase in its name and
for its own benefit, life and disability insurance on Employee in any amount or
amounts considered advisable. Employee shall have no right, title or interest
therein, and will submit to required medical examinations and execute and
deliver any application, or other instrument in writing, reasonably necessary to
effectuate such insurance.
7. MITIGATION. In the event that this Agreement or the employment of
Employee by ESY hereunder is terminated by ESY other than pursuant to Section 9
hereof, ESY shall acknowledge by notice to Employee that Employee offered to
continue employment with ESY and that such offer was rejected, and Employee
shall use reasonable efforts to mitigate his damages by seeking other comparable
employment; provided, however, that (a) in no event shall Employee be required
to accept a position of less importance or dignity or of substantially different
character, compensation or benefits than the position held as of the date of
this Agreement, nor shall he be required to accept a position other than in a
location within 25 miles of his principal residence immediately prior to the
date of termination of employment, and (b) mitigation shall not be required if
the Employee is eligible at the time of termination to receive payments under
the Executive Plan. Subject to the foregoing provisions of this Section 7, in
the event that Employee secures other permanent employment with another
corporation or other legal person, he shall promptly pay over to ESY, as
received by him in his new employment, an amount equal to the total cash
compensation actually paid to him in his new employment for services rendered
during the Employment Period; provided that in no event shall Employee be
required to repay any amounts earned in new employment that exceed the amounts
otherwise payable to him under this Agreement for a comparable period. Except
as otherwise expressly provided in this Section 7, Employee shall not be
required to mitigate the amount of any payment provided for in this Agreement by
seeking other employment or otherwise.
8. SET-OFF; IMPACT ON OTHER AGREEMENTS. There shall be no right of
set-off or counterclaim in respect of any claim, debt or obligation against any
payment to Employee provided for in this Agreement. A termination of this
Agreement by ESY or Employee pursuant to this Agreement shall not affect any
rights that Employee may have pursuant to any other agreement, policy, plan,
program or arrangement of ESY, which rights shall be governed by the terms
thereof, and the obligations of ESY with respect to amounts payable pursuant
thereto shall not be affected by termination of this Agreement.
9. TERMINATION. Subject to the provisions of Section 2(c)(1) hereof,
ESY may terminate this Agreement and all of its obligations hereunder, except
for obligations accrued but unpaid to the effective date of termination, solely
for "Cause". "Cause" shall mean (i) the Employee's willful refusal, without
reasonable excuse, to render services hereunder on substantially a full-time
basis; (ii) an intentional act of fraud, embezzlement or theft in connection
with his duties or in the course of his employment with ESY or any prior
employment; (iii) intentional wrongful damage to property of ESY; (iv)
intentional wrongful disclosure of secret processes or confidential information
of ESY; or (v) intentional wrongful engagement in any competitive activity (as
defined in Section 4); provided that any such act or acts must have been
materially harmful to ESY; and further provided, however, that no
<PAGE>
such act shall constitute "Cause" if the Employee did not directly or indirectly
induce the act or acts resulting in material harm to ESY. For purposes of this
Agreement, no act or failure to act on the part of the Employee shall be deemed
"intentional" or "willful" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" or "willful" only if done or
omitted to be done by the Employee not in good faith and without reasonable
belief that his action or omission was in the best interest of ESY.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall have been
delivered to the Employee a copy of a resolution duly adopted by the affirmative
vote of not less than three-quarters of the Board then in office at a meeting of
the Board called and held for such purpose, after reasonable notice to the
Employee and an opportunity for the Employee, together with his counsel (if the
Employee chooses to have counsel present at such meeting), to be heard before
the Board, finding that, in the good faith opinion of the Board, the Employee
had committed an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of the
Employee or his beneficiaries to contest the validity or propriety of any such
determination.
10. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas, without giving
effect to the principles of conflict of laws of such State.
11. ENTIRE AGREEMENT. This Agreement constitutes the whole agreement of
the parties hereto in reference to any employment of Employee by ESY and in
reference to any of the matters or things herein provided for or hereinbefore
discussed or mentioned in reference to such employment, all prior agreements,
promises, representations, and understandings relative thereto being herein
merged.
12. ASSIGNABILITY.
(a) In the event that ESY shall merge or consolidate with any other
corporation or all or substantially all of ESY's business or assets shall be
transferred in any manner to any other person, such successors shall thereupon
succeed to, and be subject to, all rights, interests, duties and obligations of,
and shall thereafter be deemed for all purposes hereof to be ESY hereunder.
This Agreement shall be binding upon and inure to the benefit of any such
successor and the legal representatives of Employee.
(b) This Agreement is personal in nature and neither of the parties
hereto shall without the consent of the other assign or transfer this Agreement
or any rights or obligations hereunder except for operation of law or pursuant
to the terms of this Section 12. Without limiting the generality of the
foregoing, Employee's right to receive payments hereunder shall not be
assignable or transferable, whether by pledge, creation of a security interest
or otherwise, other than by a transfer by his will or by the laws of descent and
distribution and, in the event of any assignment or transfer contrary to this
Section 12, ESY shall have no liability to pay any amount so attempted to be
assigned or transferred.
13. REMEDIES CUMULATIVE. Remedies under this Agreement of either party
hereto are in addition to any remedy or remedies to
<PAGE>
which such party is entitled or may become entitled at law or in equity.
14. SEVERABILITY. If any provision of this Agreement is determined by a
court of competent jurisdiction to be void or unenforceable, such provision
shall be regarded as severable and shall not affect the validity or
enforceability of the remaining provisions hereof.
15. WITHHOLDING OF TAXES. ESY may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.
16. AMENDMENTS AND WAIVERS. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms and covenants hereof may
be waived, only by written instrument executed by both of the parties hereto or
in the case of a waiver executed by the party waiving compliance. The failure
of either party at any time or times to require performance of any provisions
hereof shall in no manner affect the right at a later time to enforce the same.
No waiver by either party of the breach of any term or covenant contained in
this Agreement whether by conduct or otherwise by any one or more instances
shall be deemed to be or construed as a further or continuing waiver of any such
breach or a waiver of the breach of any other term or covenant contained in this
Agreement.
17. NOTICE. For the purpose of this Agreement, all communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to ESY at its principal
executive office and to Employee at his principal residence, or to such other
address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
18. LEGAL FEES AND EXPENSES. It is the intent of ESY that Employee not
be required to incur the expenses associated with the enforcement of his rights
under this Agreement by litigation or other legal action because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to Employee hereunder. Accordingly, if it should appear to Employee
that ESY has failed to comply with any of its obligations under this Agreement
or in the event that ESY or any other person takes any action to declare this
Agreement void or unenforceable, or institutes any litigation designed to deny,
or to recover from, Employee the benefits intended to be provided to Employee
hereunder, ESY irrevocably authorizes Employee from time to time to retain
counsel of his choice, at the expense of ESY as hereafter provided, to represent
Employee in connection with the initiation or defense of any litigation or other
legal action, whether by or against ESY or any director, officer, stockholder or
other person affiliated with ESY, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between ESY and such counsel, ESY
irrevocably consents to Employee's entering into an attorney-client relationship
with such counsel, and in that connection ESY and Employee agree that a
confidential relationship shall exist between Employee and such counsel. ESY
shall pay and be solely responsible for any and all attorneys' and related fees
and expenses incurred by Employee (a) as a result of ESY's failure to perform
under this Agreement or any provision thereof, or (b) as
<PAGE>
a result of ESY or any person contesting the validity or enforceability of this
Agreement or any provision thereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
ATTEST: E-SYSTEMS, INC.:
James W. Crowley, Secretary E. Gene Keiffer
Chairman of the Board and
Chief Executive Officer
EMPLOYEE:
Peter A. Marino
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
Between
E-Systems, Inc. and
Peter A. Marino, dated October 14, 1991
The first sentence in Section 2(c)(1) of this Agreement is amended to read
as follows:
(1) On December 1, 1993, Employee shall be entitled to a "Normal
Retirement Benefit", commencing at "Normal Retirement Date" (or at retirement if
later), equal to 50 percent of his Average Monthly Compensation, but without
reduction as specified in Section 6.1(a) of the Executive Supplemental
Retirement Plan ("Executive Plan") for less than 10 years' vesting.
Section 2(c)(1) is also amended by adding the following after the first
sentence:
"Normal Retirement Date" is defined in the Executive Plan.
Section 2(c)(1) is further amended by restating the final two sentences to
read as follows:
By way of example, and not as a limitation on the foregoing provisions of
this Section 2(c)(1), if the employment of Employee by ESY continues until
December 1, 1993, Employee's rights to benefits under the Executive Plan shall
become nonforfeitable. If Employee is not employed by ESY following December 1,
1993, the benefit provided by the Executive Plan shall be a deferred, vested
benefit available any time after the "Normal Retirement Date" as defined in the
Executive Plan.
In Witness Whereof, the parties have duly executed this Amendment as of
this date November 22, 1993.
ATTEST: E-SYSTEMS, INC.
James W. Crowley A. Lowell Lawson
Secretary President
(CORPORATE SEAL)
Employee:
Peter A. Marino
<PAGE>
EXHIBIT 10E
<PAGE>
EMPLOYMENT AGREEMENT
between
E-SYSTEMS, INC.
and
BRIAN D. CULLEN
October 14, 1991
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective as of the 14th day of October, 1991 (the "Effective Date"), by
E-Systems, Inc. (hereinafter referred to as "ESY") and Brian D. Cullen
(hereinafter referred to as "Employee").
RECITALS
WHEREAS, Employee is an executive officer of ESY and has made and is
expected to continue to make major contributions to the profitability, growth
and financial strength of ESY;
WHEREAS, ESY desires that Employee agree to serve as an executive officer
of ESY;
WHEREAS, Employee is willing to serve as an executive officer of ESY if the
rewards for successful management of the enterprise and for relinquishment of
other opportunities which may be available to him are commensurate with the
responsibilities that would be undertaken by him; and
WHEREAS, the Board of Directors of ESY recognizes Employee's abilities to
contribute to the growth and success of ESY during his employment and desires to
reward such performance and to take into account compensation and benefits,
trends and practices in the high technology industry in which ESY competes for
business and executive talent.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, receipt of which is hereby acknowledged, ESY and
Employee hereby agree as follows:
1. EMPLOYMENT AND TERM. Commencing on the Effective Date, Employee's
employment shall continue hereunder through November 8, 1996, unless Employee
retires pursuant to Section 2(c)(3) hereof prior to such date. The term of this
Agreement shall be automatically extended for an additional period of five years
commencing November 8, 1996, and ending November 8, 2000, unless either the
Board of Directors or the Employee shall, not less than 120 days prior to
November 8, 2000, give notice in writing to the other that this Agreement shall
not be extended or unless this Agreement shall have been otherwise terminated.
Two additional automatic renewal periods shall extend from November 8, 2000 to
November 8, 2002, and from November 8, 2002 to November 8, 2005, respectively;
provided that each prior renewal shall have occurred and that neither party has
given notice not less than 120 days prior to November 8, 2000 or November 8,
2002, respectively, to the other in writing that this Agreement shall not be so
extended or unless this Agreement shall have been otherwise terminated. Employee
will devote his full time and efforts to ESY's business and not engage in any
activities that would be inconsistent with the strategies and objectives of ESY.
During this term (hereinafter referred to as the "Employment Period"), Employee
shall serve as an executive of ESY and agrees to serve in such office or offices
in ESY to which the Board of Directors of ESY may from time to time elect or
appoint him, as currently set forth in Schedule 1 hereto.
<PAGE>
2. COMPENSATION AND BENEFITS. In consideration of his services during
the Employment Period, Employee shall be paid compensation and receive benefits
from ESY as follows:
(a) During the Employment Period, Employee shall be paid a base
salary in equal installments not less frequently than monthly at an annual rate
not less than the greater of (1) $187,000 or (2) the base salary of the Employee
most recently approved by the Board of Directors of ESY. Employee's base salary
shall be subject to such increases as may be approved by the Board of Directors
of ESY.
(b) Employee shall also receive such incentive compensation as may be
approved by the Board of Directors of ESY and any profit sharing, retirement
rights, or other perquisites to which Employee may be entitled under the terms
of this Agreement or otherwise. A description of current perquisites is
contained in Exhibit B attached hereto.
(c) ESY will provide Employee with supplemental retirement, death,
and disability benefits as follows:(1) Following Employee's retirement, he
shall be paid a "Normal Retirement Benefit" equal to 50 percent (55 percent if
the Agreement is extended to November 8, 2002, as provided above and Employee
retires on or after November 8, 2002; 65 percent if the Agreement is extended to
November 8, 2005, as provided above and Employee retires on or after November 8,
2005) of "Average Monthly Compensation". "Normal Retirement Benefit" and
"Average Monthly Compensation" are defined in the E-Systems, Inc. Executive
Supplemental Retirement Plan as amended (the "Executive Plan"), a copy of which
is attached to this Agreement as Exhibit A. The Executive Plan is incorporated
in all respects herein; provided, however, that the terms of this Agreement
shall take precedence over any provisions to the contrary contained in the
Executive Plan. Notwithstanding Section 5.1 of the Executive Plan, Employee
shall be eligible for benefits under the Executive Plan unless (i) Employee
voluntarily terminates his employment in breach of his obligations under this
Agreement, or (ii) ESY terminates Employee's employment pursuant to Section 9
hereof. Employee shall otherwise remain eligible for benefits under the
Executive Plan upon involuntary termination of employment by ESY, or upon
termination of employment due to death or disability. Employee's eligibility
for benefits under the Executive Plan and this Section 2(c)(1) upon voluntary
retirement shall not be accelerated by any provision of Section 5.3 of the
Executive Plan. The amounts payable pursuant to this Section shall be paid
Employee as provided in the Executive Plan. By way of example, and not as a
limitation on the foregoing provisions of this Section 2(c)(1), if the
employment of Employee by ESY continues until November 8, 1996, Employee's
rights to benefits under the Executive Plan shall become nonforfeitable. If
Employee is not employed by ESY following the termination of this Agreement, the
benefit provided by the Executive Plan shall be a deferred, vested benefit
available at Employee's "Normal Retirement Date" as defined in the Executive
Plan.
<PAGE>
(2) If Employee should die before retiring, or while permanently
disabled or retired, his surviving widow shall be paid a Spouse's Pension as set
forth in the Executive Plan. If the Employee dies without a surviving spouse,
but with one or more children who have not attained the age of 22 years, a
Children's Pension shall be paid in accordance with the Executive Plan. Upon
the death of a surviving spouse who is receiving a Spouse's Pension, surviving
children of Employee shall receive a Children's Pension if the requirements of
the Executive Plan are met.
(3) If Employee should become permanently disabled, he shall be
entitled to retire as of the date of such a permanent disability without prior
notice to ESY. The retirement benefit provided hereunder to Employee shall be
two-thirds of the applicable amount specified in Section 2(c)(1) above, payable
in accordance with the Executive Plan.
(4) It is expressly understood that ESY's obligations pursuant
to this Section 2(c) may or may not be funded, but neither Employee nor his
surviving spouse or children shall have any interest present or otherwise in
such payments until they are actually made.
(5) "Permanent disability" as used herein shall be defined as
Employee's physical or mental condition which totally prevents Employee from
performing the duties required of his position, and is reasonably expected to be
of a permanent duration. Employee's inability to perform such services due to
illness or accident reasonably expected to incapacitate him for no longer than
three months shall not be deemed a permanent disability. If Employee and ESY
are in disagreement as to the existence of such permanent disability, the
parties hereby agree to be unconditionally bound by the majority decision of
three arbitrators who shall be licensed physicians. The arbitrators shall be
selected one by Employee, one by ESY and the third by the first two arbitrators.
(6) The obligations of ESY under Sections 2(c) 2(e), 2(f), 9,
and 18 shall survive expiration of the Employment Period and any extension
thereof.
<PAGE>
(d) Employee shall be excused from performing any services for ESY
hereunder during periods of temporary incapacity and during reasonable vacations
without thereby in any way affecting the compensation to which he is entitled
hereunder. In no event shall Employee be assigned duties that would (i) involve
unreasonable personal hazard; (ii) necessitate prolonged absences or changes in
the place of his residence without his consent; or (iii) require the Employee to
have as his principal location of work any location that is in excess of 25
miles from the Employee's principal residence specified in Schedule 1 attached
without his consent.
(e) Medical, hospital, surgical, dental, prescription drugs and eye
care coverage equivalent to that presently furnished to Employee and his wife by
ESY will be provided to them for their lifetime during the Employment Period and
retirement through insurance or otherwise; provided, however, that dental
coverage after retirement shall be limited to a combined aggregate of $500 per
year for Employee and spouse. A description of the present benefits at the date
of this Agreement is contained in Exhibit B hereto.
(f) It is the intention of the parties that this Agreement be an
enhancement of, and not a reduction or limitation in, any benefit to which
Employee may be entitled whether under this Agreement or under any benefit plan,
program or policy in which Employee may be a participant during the Employment
Period, while disabled or while retired. If the benefit to Employee shall be
greater under any benefit plan, program or policy maintained by ESY, ESY shall
promptly notify Employee in writing and Employee shall be entitled to receive
such larger or greater benefit pursuant to such benefit plan, program or policy
in lieu of or in addition to (but not in duplication of) the benefit set forth
in this Agreement without in any respect waiving Employee's rights to receive
any other payment of benefits to which he may be entitled otherwise under this
Agreement.
(g) The participation of the Employee in the qualified benefit plans,
programs, and policies maintained by ESY shall not be reduced or altered except,
and only to the extent, as required by law or governmental regulation.
3. EXPENSES AND PERQUISITES. During the Employment Period, Employee
shall be allowed all reasonable expenses and perquisites and shall be furnished
office space and facilities suitable to his position and adequate for the
performance of his duties, in accordance with such general policies as may be
established by ESY from time to time for executive employees receiving
comparable compensation.
<PAGE>
4. CONFLICTS OF INTEREST AND COMPETITION. Without the prior consent of
ESY, Employee shall not, during the Employment Period, engage in any business
(directly or through any kind of ownership or other arrangement other than
ownership of securities of publicly-held corporations) that is competitive with
that of ESY or its subsidiaries or accept employment with or render services to
a competitor or take action inconsistent with the fiduciary relationship of an
executive to his corporation. Subject to such limitations, Employee may make
investments for his own account in any business or enterprise whatsoever and
serve as an officer or director thereof and receive compensation therefor,
provided such activity does not conflict with his obligation to render his
exclusive full-time services to ESY and its subsidiaries during his employment
hereunder.
5. PARTICIPATION IN BENEFIT PLANS. Except as expressly provided herein,
this Agreement shall not in any way modify, limit, impair, or affect the
existing or future rights or interests of Employee to receive any employee
benefit to which he would otherwise be entitled or as a participant in the
present or future employee benefit plans of ESY.
6. INSURANCE. ESY in its sole discretion, may purchase in its name and
for its own benefit, life and disability insurance on Employee in any amount or
amounts considered advisable. Employee shall have no right, title or interest
therein, and will submit to required medical examinations and execute and
deliver any application, or other instrument in writing, reasonably necessary to
effectuate such insurance.
7. MITIGATION. In the event that this Agreement or the employment of
Employee by ESY hereunder is terminated by ESY other than pursuant to Section 9
hereof, ESY shall acknowledge by notice to Employee that Employee offered to
continue employment with ESY and that such offer was rejected, and Employee
shall use reasonable efforts to mitigate his damages by seeking other comparable
employment; provided, however, that (a) in no event shall Employee be required
to accept a position of less importance or dignity or of substantially different
character, compensation or benefits than the position held as of the date of
this Agreement, nor shall he be required to accept a position other than in a
location within 25 miles of his principal residence immediately prior to the
date of termination of employment, and (b) mitigation shall not be required if
the Employee is eligible at the time of termination to receive payments under
the Executive Plan. Subject to the foregoing provisions of this Section 7, in
the event that Employee secures other permanent employment with another
corporation or other legal person, he shall promptly pay over to ESY, as
received by him in his new employment, an amount equal to the total cash
compensation actually paid to him in his new employment for services rendered
during the Employment Period; provided that in no event shall Employee be
required to repay any amounts earned in new employment that exceed the amounts
otherwise payable to him under this Agreement for a comparable period. Except
as otherwise expressly provided in this Section 7, Employee shall not be
required to mitigate the amount of any payment provided for in this Agreement by
seeking other employment or otherwise.
<PAGE>
8. SET-OFF; IMPACT ON OTHER AGREEMENTS. There shall be no right of
set-off or counterclaim in respect of any claim, debt or obligation against any
payment to Employee provided for in this Agreement. A termination of this
Agreement by ESY or Employee pursuant to this Agreement shall not affect any
rights that Employee may have pursuant to any other agreement, policy, plan,
program or arrangement of ESY, which rights shall be governed by the terms
thereof, and the obligations of ESY with respect to amounts payable pursuant
thereto shall not be affected by termination of this Agreement.
9. TERMINATION. Subject to the provisions of Section 2(c)(1) hereof, ESY
may terminate this Agreement and all of its obligations hereunder, except for
obligations accrued but unpaid to the effective date of termination, solely for
"Cause". "Cause" shall mean (i) the Employee's willful refusal, without
reasonable excuse, to render services hereunder on substantially a full-time
basis; (ii) an intentional act of fraud, embezzlement or theft in connection
with his duties or in the course of his employment with ESY or any prior
employment; (iii) intentional wrongful damage to property of ESY;
(iv) intentional wrongful disclosure of secret processes or confidential
information of ESY; or (v) intentional wrongful engagement in any competitive
activity (as defined in Section 4); provided that any such act or acts must have
been materially harmful to ESY; and further provided, however, that no such act
shall constitute "Cause" if the Employee did not directly or indirectly induce
the act or acts resulting in material harm to ESY. For purposes of this
Agreement, no act or failure to act on the part of the Employee shall be deemed
"intentional" or "willful" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" or "willful" only if done or
omitted to be done by the Employee not in good faith and without reasonable
belief that his action or omission was in the best interest of ESY.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall have been
delivered to the Employee a copy of a resolution duly adopted by the affirmative
vote of not less than three-quarters of the Board then in office at a meeting of
the Board called and held for such purpose, after reasonable notice to the
Employee and an opportunity for the Employee, together with his counsel (if the
Employee chooses to have counsel present at such meeting), to be heard before
the Board, finding that, in the good faith opinion of the Board, the Employee
had committed an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of the
Employee or his beneficiaries to contest the validity or propriety of any such
determination.
10. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas, without giving
effect to the principles of conflict of laws of such State.
11. ENTIRE AGREEMENT. This Agreement constitutes the whole agreement of
the parties hereto in reference to any employment of Employee by ESY and in
reference to any of the matters or things herein provided for or hereinbefore
discussed or mentioned in reference to such employment, all prior
<PAGE>
agreements, promises, representations, and understandings relative thereto being
herein merged.
12. ASSIGNABILITY.
(a) In the event that ESY shall merge or consolidate with any other
corporation or all or substantially all of ESY's business or assets shall be
transferred in any manner to any other person, such successors shall thereupon
succeed to, and be subject to, all rights, interests, duties and obligations of,
and shall thereafter be deemed for all purposes hereof to be ESY hereunder. This
Agreement shall be binding upon and inure to the benefit of any such successor
and the legal representatives of Employee.
(b) This Agreement is personal in nature and neither of the parties
hereto shall without the consent of the other assign or transfer this Agreement
or any rights or obligations hereunder except for operation of law or pursuant
to the terms of this Section 12. Without limiting the generality of the
foregoing, Employee's right to receive payments hereunder shall not be
assignable or transferable, whether by pledge, creation of a security interest
or otherwise, other than by a transfer by his will or by the laws of descent and
distribution and, in the event of any assignment or transfer contrary to this
Section 12, ESY shall have no liability to pay any amount so attempted to be
assigned or transferred.
13. REMEDIES CUMULATIVE. Remedies under this Agreement of either party
hereto are in addition to any remedy or remedies to which such party is entitled
or may become entitled at law or in equity.
14. SEVERABILITY. If any provision of this Agreement is determined by a
court of competent jurisdiction to be void or unenforceable, such provision
shall be regarded as severable and shall not affect the validity or
enforceability of the remaining provisions hereof.
15. WITHHOLDING OF TAXES. ESY may withhold from any amounts payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or government regulation or ruling.
<PAGE>
16. AMENDMENTS AND WAIVERS. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms and covenants hereof may
be waived, only by written instrument executed by both of the parties hereto or
in the case of a waiver executed by the party waiving compliance. The failure
of either party at any time or times to require performance of any provisions
hereof shall in no manner affect the right at a later time to enforce the same.
No waiver by either party of the breach of any term or covenant contained in
this Agreement whether by conduct or otherwise by any one or more instances
shall be deemed to be or construed as a further or continuing waiver of any such
breach or a waiver of the breach of any other term or covenant contained in this
Agreement.
17. NOTICE. For the purpose of this Agreement, all communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to ESY at its principal
executive office and to Employee at his principal residence, or to such other
address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
18. LEGAL FEES AND EXPENSES. It is the intent of ESY that Employee not be
required to incur the expenses associated with the enforcement of his rights
under this Agreement by litigation or other legal action because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to Employee hereunder. Accordingly, if it should appear to Employee
that ESY has failed to comply with any of its obligations under this Agreement
or in the event that ESY or any other person takes any action to declare this
Agreement void or unenforceable, or institutes any litigation designed to deny,
or to recover from, Employee the benefits intended to be provided to Employee
hereunder, ESY irrevocably authorizes Employee from time to time to retain
counsel of his choice, at the expense of ESY as hereafter provided, to represent
Employee in connection with the initiation or defense of any litigation or other
legal action, whether by or against ESY or any director, officer, stockholder or
other person affiliated with ESY, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between ESY and such counsel, ESY
irrevocably consents to Employee's entering into an attorney-client relationship
with such counsel, and in that connection ESY and Employee agree that a
confidential relationship shall exist between Employee and such counsel. ESY
shall pay and be solely responsible for any and all attorneys' and related fees
and expenses incurred by Employee (a) as a result of ESY's failure to perform
under this Agreement or any provision thereof, or (b) as a result of ESY or any
person contesting the validity or enforceability of this Agreement or any
provision thereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
ATTEST: E-SYSTEMS, INC.:
James W. Crowley, Secretary E. Gene Keiffer
<PAGE>
Chairman of the Board and
Chief Executive Officer
EMPLOYEE:
Brian D. Cullen
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT Between
E-Systems, Inc. and
Brian D. Cullen
dated October 14,1991
The first sentence in Section 2(c)(1) of this Agreement is amended to
read as follows:
(1) On December 1, 1993, Employee shall be entitled to a "Normal
Retirement Benefit", commencing at "Normal Retirement Date" (or at retirement if
later), equal to 50 percent (55 percent if the Agreement is extended to November
8, 2002, as provided above and Employee retires on or after November 8, 2002; 65
percent if the Agreement is extended to November 8, 2005, as provided above and
Employee retires on or after November 8, 2005) of "Average Monthly
Compensation".
Section 2(c)(1) is also amended by adding the following after the
first sentence:
"Normal Retirement Date" is defined in the Executive Plan.
Section 2(c)(1) is further amended by restating the final two sentences to
read as follows:
By way of example, and not as a limitation on the foregoing provisions of
this Section 2(c)(1), if the employment of Employee by ESY continues until
December 1, 1993, Employee's rights to benefits under the Executive Plan shall
become nonforfeitable. If Employee is not employed by ESY following December 1,
1993, the benefit provided by the Executive Plan shall be a deferred, vested
benefit available at Employee's "Normal Retirement Date" as defined in the
Executive Plan.
In Witness Whereof, the parties have duly executed this Amendment as of
this date November 22, 1993.
ATTEST: E-SYSTEMS, INC.
James W. Crowley, Secretary A. Lowell Lawson
President
(CORPORATE SEAL)
Employee:
Brian D. Cullen
<PAGE>
EXHIBIT 101
<PAGE>
AMENDMENT #5
TO 1977 LEASE AGREEMENT
-----------------------
THIS AMENDMENT #5 OF AGREEMENT OF LEASE dated as of December 11, 1990 between
-----------------
the CITY OF GREENVILLE, TEXAS, a Municipal Corporation of the State of Texas
(herein referred to as "LESSOR"), and E-SYSTEMS, INC., a Delaware Corporation
(herein referred to as "LESSEE");
WITNESSETH:
WHEREAS LESSOR owns and operates an Airport in Hunt County, Texas,known as
Majors Field (herein referred to as the "AIRPORT");
WHEREAS LESSOR and LESSEE have entered into a Lease Agreement as of October 1,
1977, as amended by Amendment #1 and Amendment #2,dated October 15,1980, and
Amendment #3, dated October 1, 1981, and Amendment #4 dated July 15, 1990 with
respect to certain premises at the Airport (herein referred to as the "LEASE" or
"LEASE AGREEMENT"); and
WHEREAS LESSOR and LESSEE have agreed to amend the Lease as pertains to the
lease boundaries. Tract "B" to increase by approximately 81.09 acres; and
WHEREAS LESSOR AND LESSEE have agreed that on the effective date of this Lease
Amendment #5 the Ground Rental of the premises shall be $5,216.35 per month from
that time forward but without alteration in any previously paid ground rent;
* NOTE ESCULATION CLAUSE ONLY APPLIES TO 81.09 ACS (@ $ 1,216.35 mo.)
WHEREAS LESSOR and LESSEE have agreed to amend the Lease to include an
Escalation clause applicable only to the ground rent attributable to the
additional 81.09 acres added by this and future amendments;
1
<PAGE>
NOW, THEREFORE, for and in the consideration of the mutual covenants contained
in this Amendment #5, the LESSOR and LESSEE agree to amend the Lease in the
manner set forth below. All references to parts and section numbers of a part
contained in the 1977 Lease Agreement as amended by Amendment #1 and Amendment
#2 and Amendment #3 and said sections are hereby amended to read as set forth
below. All section and parts of the Lease Agreement and Amendment #1 and
Amendment #2 and Amendment #3 and Amendment #4 thereto, not modified hereby,
remain in full force and effect.
1. Delete all prior versions of Part 1 and Insert the following:
PART I
AIRCRAFT MAINTENANCE PREMISES
-----------------------------
SECTION 1.1 PREMISES - DEMISE
- -----------------------------
2. Effective as of January 1, 1991, LESSOR leases to LESSEE and LESSEE takes
---------------
for its exclusive use the area including all improvements, indicated as
Tract "A&B" on Exhibit "B" Revised 1990, which replaces prior Exhibits
A,B,C,D, attached hereto. Tract "A&B" land and improvements are
collectively referred to as the "Maintenance Premise" and are described in
the legal description set forth in Exhibit "B" Revised 1990 and amended by
the Map, attached hereto and made a part hereof as Exhibit "A" Revised
1990.
Section 1.2 TERM
- ----------------
a) The initial term of the tenancy created under this Part I commenced on
October 1, 1977, and expires on October 1, 2017. The parties agree that
prior to the expiration of the lease term, they will, in good faith,
consider the execution of a new Lease Agreement, or an amendment to the
existing lease, for a like term of years, with respect to any facilities
covered by this agreement which, at the expiration of the lease term,
are not and will not (during the term of the new Lease Agreement) be
required by the City for the exclusive use of the general public.
2
<PAGE>
SECTION 1.S RENTAL
- ------------------
a) Commencing on January 1, 1991 the "Commencement Date', and continuing
---------------
through October 1, 2017, the LESSEE shall pay Ground Rental in monthly
installments of $5,216.35 per month. Rent is based on Fair Market Value as
established using the average of two certified appraisals taken in 1983
and escalated. In addition, LESSEE shall pay an amount representing a
Consumer's Price Adjustment as defined below.
Every fifth anniversary following the "Commencement Date" shall be an
Adjustment Date. LESSOR shall give notice to LESSEE, thirty (30) days prior
to the Adjustment Date, of increases in the Consumer Price Index (CPI).
(CPI for Urban Wage Earners and Clerical Workers-U.S. Average, CPI-U Dallas
1984=102.3). It is agreed that the CPI on the Commencement Date is 122.2,
the Commencement Date Index Number. The formula to be used in calculating
the amount of the adjustment is as follows:
Adjustment Date Index Number DIVIDED BY Commencement Date Index Number -
1 X $1216.35 Monthly Adjustment amount for the next 5 years, The Monthly
--------
Adjustment amount shall be added to the monthly ground rental of $5,216.35
to yield the total monthly ground rent for the five year period following
the Adjustment Date.
2. Except as modified by this Amendment #5, the Lease remains in full force
and effect. This Amendment #5 makes no change in rent or other terms in
effect prior to the date of execution of this Amendment #5.
THIS AMENDMENT #5 is executed as of the date first shown on Page one (1)
of this Amendment.
3
<PAGE>
CITY OF GREENVILLE, TEXAS
/s/ Bill F. Morgan
-------------------------
Mayor
ATTEST:
/s/ Pat Adams
- --------------------
Pat Adams, City Secretary
APPROVED AS TO FORM:
/s/ Diane Callander
- --------------------
Diane Callander, City Attorney
E-SYSTEMS, INC.
/s/ B.
-------------------------
V.P. & General Manager
ATTEST:
/s/ Joseph P. Kulik
- --------------------
Assistant Secretary
4
<PAGE>
LEGAL DESCRIPTION
Exhibit "B" Revised 1990 (Replaces Exhibits A, B, C, D)
TRACT "A"
- ---------
All that certain lot, tract or parcel of land situated in the City of
Greenville, Hunt County, Texas, and being part of the Andrew McDonald Survey,
Abstract No. 679, and the Hardin Denney Survey, Abstract No. 244, Hunt County,
Texas, and being part of Majors Field and being more particularly described as
follows:
BEGINNING at an iron rod found for corner in the centerline of County Road No.
3303, said point being in the common line between Hardin Denney Survey, Abstract
No. 244, and the John McGrew Survey, Abstract No. 688, said point also being the
most Easterly Northeast corner of Tract A of the 1977 Lease Agreement between
the City of Greenville, Texas, and E-Systems, Inc., as recorded in Volume 810,
Page 1, Hunt County Deed Record;
THENCE S. 01 deg. 01 min. 13 sec. W. along the centerline of said county road
and also said common line a distance of 2209.45 feet to an iron rod found for
corner in the North line of the James C. Warren Survey, Abstract No. 1114, said
point also being the Southwest corner of said McGrew Survey and the most
Easterly Southeast corner of said Denney Survey;
THENCE N. 88 deg. 44 min. 28 see. W. along the North line of said Warren Survey
a distance of 746.74 feet to an iron rod found for a corner at the Northwest
corner of said Warren Survey;
THENCE S. 01 deg. 53 min. 35 sec. W. along the West line of said Warren Survey a
distance of 1239.69 feet to a point for corner, said point being the most
Southerly corner of the above cited Tract A;
THENCE N. 44 deg. 17 min. 32 sec. W. a distance of 4696.87 feet to a point for
Corner;
THENCE N. 00 deg. 41 min. 59 sec. E. a distance of 1700.00 feet to a point for
corner in a fence line, said point being in the North line of the Andrew
McDonald Survey, Abstract No. 689;
THENCE S. 89 deg. 18 min. 01 sec. E. along a fence line along the North line of
said McDonald Survey a distance of 1240.00 feet to an iron rod found for corner
at the Northeast corner of said McDonald Survey, said point also being the
Northwest corner of said Denney Survey;
THENCE S. 00 deg. 31 min. 34 sec. W. along the common line between the McDonald
Survey and the Denney Survey a distance of 881.06 feet to an iron rod found for
corner in a fence line;
THENCE S. 89 deg. 13 min. 32 sec. E. along a fence line a distance of 539-08
feet to an iron rod found for corner;
THENCE S. 88 deg. 59 min. 50 sec. E. along a fence line a distance of 1348.42
feet to an iron rod found for corner at the Northwest corner of a 15.00 acre
tract of land described in a Deed from Charlie G. Martin, et ux, to E. W.
Lindley and James Lindley, as recorded in Volume 479, Page 114, Hunt County
Deed Records;
THENCE S. 00 deg. 03 min. 16 sec. E. along the West line of said 15.00 acre
tract a distance of 215.17 feet to an iron rod found for corner;
1
<PAGE>
Exhibit "B" Revised 1990 (cont)
TRACT "A" (cont)
- ---------
THENCE S. 03 deg. 26 min. 16 sec. E. along the West line of said 15.00 acre
tract a distance of 472.42 feet to an iron rod found for corner at the Southwest
corner of said 15.00 acre tract, said point being in a fence line;
THENCE S. 89 deg. 00 min. 10 sec. E. along a fence line passing an iron rod
found for corner at the Southwest corner of a 4.00 acre tract of land described
in a Deed from Audie Anderson to Darrell Watson, et ux, as recorded in Volume
973, Page 90, Hunt County Deed Records, at a distance of 102.09 feet and
continuing along the South line of said 4.00 acre tract passing the Southeast
corner of said 4.00 acre tract at a distance of 882.91 feet and continuing for a
total distance of 938.55 feet to the POINT OF BEGINNING and containing 251.030
acres of land.
TRACT "B"
- ---------
All that certain lot, tract or parcel of land situated in the City of
Greenville, Hunt County, Texas, and being part of the A. Essary Survey, Abstract
No. 296, William Andrews Survey, Abstract No. 4. Andrew McDonald Survey,
Abstract No. 689, S. McBride Survey, Abstract No. 717, C.B. McDonald Survey,
Abstract No. 692, E.G. Eliff Survey, Abstract No. 298, and being part of Majors
Field and being more particularly described as follows:
BEGINNING at an iron rod found for corner in the East R.O.W. line of F.M.
Highway No. 1570 at the Southwest corner of a tract of land occupied by a City
of Greenville electrical sub-station and sewer pump station, said point being S.
00 deg. 47 min. 09 sec. W. a distance of 264.74 feet from the Northwest corner
of a 225.90 acre tract of land described in a Warranty Deed from Hunt County,
Texas, to the City of Greenville, Texas, as recorded in Volume 643, Page 496,
Hunt County Deed Records, said point also being the most Westerly
Northwest corner of Tract B in the 1977 Lease Agreement between the City of
Greenville, Texas, and E-Systems, Inc., as recorded in Volume 810, Page 1, Hunt
County Deed Records;
THENCE S. 89 deg. 06 min. 19 sec. E. along the South line of said Electrical
sub- station and Sewer pump station Tract a distance of 850.00 feet to an iron
rod found for corner at the Southeast corner of said Tract;
THENCE N. 00 deg. 47 min. 09 sec. E. along the East line of said Electrical
sub-station and Sewer pump station Tract a distance of 419.36 feet to an iron
rod found for corner at the Northeast corner of said tract, said point also
being in the South line of a 4.196 acre tract of land described as Tract Two
in a Warranty Deed from Joe B. Gibson and wife, Jan Gibson, to E-Systems, Inc.,
as recorded in Volume 972, Page 180, Hunt County Deed Records;
THENCE N. 89 deg. 6 min. 46 sec. W. along the South line of said 4.196 acre
tract a distance of 21.34 feet to an iron rod found for corner at the Southwest
corner of said Tract;
THENCE N. 01 deg. 13 min. 20 sec. E. along the West line of said 4.196 acre
tract a distance of 186.70 feet to an iron rod found for corner a the Northwest
corner of said tract, said point also being the Southwest corner of a 7.158 acre
tract of land described as Tract One in the above cited Gibson to E-Systems
Tract;
2
<PAGE>
Exhibit "B" Revised 1990 (cont)
TRACT "B" (cont)
THENCE S. 89 deg. 16 min. 48 sec. E. along the common line between said 4.196
acre tract and 7.158 acre tract a distance of 1058.90 feet to an iron rod set
for corner in the East line of a 1.610 acre tract of land described as Tract
Three in the above cited Gibson to ESystems Tract;
THENCE N. 07 deg. 41 min. 09 sec. W. along the East line of said 1.610 acre
tract of land a distance of 275.65 feet to an iron rod found for corner in a
fence line:
THENCE S. 63 deg. 53 min. 51 sec. E. along a fence line along the North line of
County Road No. 3302 a distance of 178.94 feet to an iron rod found for corner
THENCE S. 87 deg. 25 min. 19 sec. E. along a fence line along the North line of
said county road a distance of 307.25 feet to an iron rod found for corner;
THENCE N. 88 deg. 30 min. 42 sec. E. along a fence line along the North line of
said county road a distance of 190.34 feet to an iron rod found for a corner;
THENCE S. 00 deg. 04 min. 13 sec. E. a distance of 22.43 feet to an iron rod set
for corner in the centerline of said county road;
THENCE N. 87 deg. 21 min. 00 sec. E. along the centerline of said county road a
distance of 684.63 feet to an iron rod found for corner;
THENCE S. 00 deg. 42 min. 28 sec. W. a distance of 1290.32 feet to an iron rod
found for corner;
THENCE N. 89 deg. 17 min. 32 sec. W. a distance of 245.17 feet to an iron rod
found for corner;
THENCE S. 00 deg. 42 min. 28 sec. W. a distance of 4931.53 feet to an iron rod
found for corner;
THENCE N. 89 deg. 17 min. 06 sec. W. passing the most Southerly Southeast
corner of the above cited Tract D of said lease a distance of 249.95 feet and
continuing for a total distance of 704.43 feet to an iron rod found for corner
at the most Southerly Southwest corner of said Tract B;
THENCE N. 00 deg. 36 min. 09 sec. E. a distance of 329.74 feet to an iron rod
found for corner;
THENCE N. 87 deg. 47 min. 22 sec. W. a distance of 527.20 feet to an iron rod
found for corner;
THENCE N. 59 deg. 41 min. 48 sec. W. a distance of 3.02 feet to an iron rod
found for corner in a chain link fence line;
THENCE in a Northwesterly direction along the Northeasterly line of an existing
asphalt street along a curve to the right having a central angle of 65 deg. 38
min. 17 sec., a radius of 197.24 feet, a chord bearing of N. 55 deg. 23 min. 15
sec. W., a chord of 213.81 feet, an arc length of 225.96 feet to an iron rod
found for corner;
THENCE N. 22 deg. 34 min. 06 sec. W. along the Northeasterly line of said street
a distance of 340.87 feet to an iron rod found for corner;
THENCE in a Northwesterly direction along the Northerly line of said street
along a curve to the left having a central angle of 66 deg. 54 min. 09 sec., a
radius of 148.09 feet, a chord bearing of N. 56 deg. 01 min. 10 sec. W., a chord
of 163.26 feet, an arc length of 172.92 feet to an iron rod found for corner;
THENCE N. 89 deg. 28 min. 14 sec. W. along the North line of said street a
distance of 879.14 feet to an iron rod found for corner;
3
<PAGE>
Exhibit "B" Revised 1990 (cont)
TRACT "B" (cont)
THENCE N. 00 deg. 43 min. 47 sec. E. a distance of 1000.87 feet to an iron rod
found for a corner;
THENCE S. 87 deg. 30 min. 36 sec. W. a distance of 106.03 feet to an iron rod
found for corner;
THENCE along a curve to the right having a central angle of 06 deg. 49 min. 29
sec., a radius of 252.50 feet, a chord bearing of N. 88 deg. 55 min. 53 sec. W.,
a chord of 30.06 feet, an arc length of 30.08 feet to an iron rod found for
corner in the East R.O.W. line of F.M. Highway No. 2101;
THENCE N. 02 deg. 00 min. 31 sec. W. along the East R.O.W. line of said highway
a distance of 87.93 feet to a concrete monument found for corner at a flare in
said R.O.W.;
THENCE N. 49 deg. 33 min. 56 sec. W. along said R.O.W. flare a distance of 69.70
feet to a concrete R.O.W. marker found for corner;
THENCE in a Northerly direction along the East R.O.W. line of said highway along
a curve to the left having a central angle of 01 deg. 07 min. 36 sec., a radius
of 11509.16 feet, a chord bearing of N. 02 deg. 52 min. 16 sec. W., a chord of
226.29 feet, an arc length of 226.30 feet to a concrete R.O.W. marker found for
corner;
THENCE N. 36 deg. 20 min. 23 sec. E. along a flare in said R.O.W. a distance
of 70.96 feet to a concrete R.O.W. marker found for corner;
THENCE N. 02 deg. 12 min. 49 sec. W. along said flare a distance of 96.96 feet
to a concrete R.O.W. marker found for corner;
THENCE N. 48 deg. 45 min. 49 sec. W. along said flare a distance of 70.78 feet
to a concrete R.O.W. marker found for corner;
THENCE in a Northerly direction along the East R.O.W. line of said highway along
a curve to the left having a central angle of 00 deg. 28 min. 17 sec., a radius
of 11509.16 feet, a chord bearing of N. 05 deg. 14 min. 02 sec. W., a chord of
94.69 feet, an arc length of 94.69 feet to a concrete R.O.W. marker found for
corner;
THENCE N. 0.5 deg. 07 min. 18 sec. W. along the East R.O.W. line of said highway
a distance of 784.09 feet to a concrete R.O.W. marker found for corner;
THENCE N. 41 deg. 10 min. 52 sec. E. along a flare in said R.O.W. a distance of
58.48 feet to a concrete R.O.W. marker found for corner;
THENCE N. 05 deg. 39 min. 50 sec. W. along said flare a distance of 100.93 feet
to a concrete R.O.W. marker found for corner;
THENCE N. 43 deg. 53 min. 44 sec. W. a distance of 66.25 feet to a concrete
R.O.W. marker found for corner in the East R.O.W. line of F.M. Highway No.
1570;
THENCE in a Northerly direction along the East R.O.W. line of said highway along
a curve to the left having a central angle of 02 deg. 48 min. 28 sec., a radius
of 11409.16 feet, a chord bearing of N. 03 deg. 21 min. 51 sec. W., a chord of
559.03 feet, an arc length of 559.09 feet to concrete R.O.W. marker found for
corner;
THENCE N. 45 deg. 55 min. 19 sec. E. along a flare in said R.O.W. a distance of
122.72 feet to a concrete R.O.W. marker found for corner;
THENCE N. 00 deg. 50 min. 27 sec. E. along said flare a distance of 100.02 feet
to a concrete R.O.W. marker found for corner;
THENCE N. 44 deg. 07 min. 56 sec. W. along said flare a distance of 137.60 feet
to a concrete R.O.W. marker found for corner;
4
<PAGE>
Exhibit "B" Revised 199O (cont)
TRACT "B" (cont)
THENCE in a Northerly direction along the East R.O.W. line of said highway along
a curve to the left having a central angle of 01 deg. 18 min. 12 sec., a radius
of 11409.16 feet, a chord bearing of N. 00 deg. 11 min. 46 sec. E., a chord of
259.49 feet, an arc length of 259.51 feet to a concrete R.O.W. marker found for
corner;
THENCE N. 00 deg. 47 min. 09 sec. E. along the East R.O.W. line of said highway
a distance of 822.33 feet to the POINT OF BEGINNING and containing 356.723 acres
of land.
TRACT "C"
All that certain lot, tract or parcel of land situated in the City of
Greenville, Hunt County, Texas, and being part of the Elisha Brake Survey,
Abstract No. 64, Andrew McDonald Survey, Abstract No. 689, Hardin Denney Survey,
Abstract No. 244, David Hall Survey, Abstract No. 484, John Manos Survey,
Abstract No. 725, F. Thweatt Survey, Abstract No. 1342, and the William Mooney
Survey, Abstract No. 694, Hunt County, Texas, and being part of Majors Field and
being more particularly described as follows:
BEGINNING at an iron rod found for corner at the centerline of intersection of
County Road No. 3303 and County Road No. 3304, said point being the Southwest
corner of the James C. Warren Survey, Abstract No. 1114, said point also being
the Southeast corner of Tract C in the 1977 Lease Agreement between the City of
Greenville, Texas, and E-Systems, Inc., as recorded in Volume 810, Page 1, Hunt
County Deed Records;
THENCE N. 89 deg. 15 min. 32 sec. W. along the centerline of County Road No.
3304 a distance of 1791.20 feet to a nail found for corner;
THENCE N. 00 deg. 59 min. 38 sec. E. a distance of 208.00 feet to an iron rod
found for corner;
THENCE N. 89 deg. 11 min. 53 sec. W. a distance of 422.82 feet to an iron rod
found for corner;
THENCE S. 00 deg. 08 min. 08 sec. W. a distance of 208.46 foot to a nail found
for corner in the centerline of County Road No. 3304;
THENCE N. 89 deg. 15 min. 32 sec. W. along the centerline of said county road
part-way a distance of 1521.42 feet to an iron rod found for corner;
THENCE S. 00 deg. 45 mi. 51 sec. W. along a fence line a distance of 643.21 feet
to an iron rod found for corner;
THENCE S. 01 deg. 06 min. 49 sec. W. along a fence line a distance of 588.16
feet to an iron rod found for corner at a fence corner post, said point being
the most Southerly Southeast corner of the above cited Tract C;
THENCE N. 89 deg. 23 min. 04 sec. W. along a fence line a distance of 265.35
feet to an iron rod found for corner at a fence corner post;
THENCE S. 89 deg. 51 min. 22 sec. W. along a fence line a distance of 492.02
feet to an iron rod found for corner at a fence corner post;
THENCE N. 00 deg. 18 min. 18 sec. E. along a fence line a distance of 651:64
feet to an iron rod found for corner at a fence corner post;
5
<PAGE>
Exhibit "B" Revised 1990 (cont)
TRACT "C" (cont)
THENCE S. 88 deg. 29 min. 17 sec. W. along a fence line a distance of 940.84
feet to an iron rod found for corner at a fence corner post;
THENCE N. 00 deg. 11 min. 43 sec. W. along a fence line a distance of 51.06 feet
to an iron rod found for corner;
THENCE N. 00 deg. 2l min. 32 sec. W. along a fence line a distance of 594.42
feet to an iron rod found for corner at a fence corner post;
THENCE S. 89 deg. 14 min. 45 sec. E. a distance of 358.40 feet to an iron rod
set for corner, said point being the Southeast corner of Tract B of the above
cited lease;
THENCE N. 00 deg. 42 min. 54 sec. E. along the East line of said Tract D a
distance of 1952.00 feet to a point for corner in the East line of the
North-South ramp, said point being the most Southerly Southeast corner of
Tract B of said lease, said point also being the most Easterly Northeast corner
of said Tract D;
THENCE S. 89 deg. 17 min. 06 sec. E. a distance of 249.95 feet to an iron rod
found for corner;
THENCE N. 00 deg. 42 min. 28 sec. E. a distance of 4931.53 feet to an iron rod
found for corner;
THENCE S. 89 deg. 17 min. 32 sec. E. a distance of 245.17 feet to an iron rod
found for corner;
THENCE N. 00 deg. 42 min. 28 sec. E. a distance of 1290.32 feet to an iron rod
set for corner in the centerline of County Road No. 3302;
THENCE N. 00 deg. 55 min. 57 sec. E. a distance of 762.32 feet to an iron rod
found for corner at a fence corner post;
THENCE N. 01 deg. 09 min. 17 sec. W. along a fence line a distance of 516.49
feet to an iron rod found for corner at a fence corner post:
THENCE S. 88 deg. 55 min. 25 sec. E. along a fence line a distance of 225.69
feet to an iron rod found for corner;
THENCE N. 89 deg. 35 min. 42 sec. E. along a fence line a distance of 373.88
feet to an iron rod found for corner;
THENCE N. 88 deg. 59 min. 43 sec. E. along a fence line a distance of 371.52
feet to an iron rod set for corner in the centerline of County Road No. 3302;
THENCE S. 01 deg. 00 min. 01 sec. W. a distance of 2066.41 feet to a P-K nail
found for corner in the centerline of an asphalt road, said point being in the
North line of the Andrew McDonald Survey, Abstract No. 689;
THENCE S. 89 deg. 18 min. 01 sec. E. along the North line of said McDonald
Survey a distance of 338.31 feet to a point for corner;
THENCE S. 00 deg. 41 min. 59 sec. W. a distance of 1700.00 feet to a point for
corner;
THENCE S. 44 deg. 17 min. 32 sec. E. a distance of 4696.87 feet to a point for
corner in the West line of the above cited Warren Survey, Abstract No. 1114;
THENCE S. 01 deg. 53 min. 35 sec. W. along the West line of said Warren Survey a
distance of 444.66 feet to an iron rod found for corner;
THENCE S. 00 deg. 42 min. 07 sec. W. along the West line of said Warren Survey
along the centerline of County Road No. 3303 a distance of 1960.52 feet to the
POINT OF BEGINNING and containing 656.544 acres of land.
6
<PAGE>
Exhibit "B" Revised 1990 (cont)
TRACT "D"
All that certain lot, tract or parcel of land situated in the City of
Greenville, Hunt County, Texas, and being part of the C.B. McDonald Survey,
Abstract No. 692, and the.E.G. Eliff Survey, Abstract No. 298, Hunt County,
Texas, and being part of Majors Field and being more particularly described as
follows:
BEGINNING at a point in the East line of the North-South ramp, said point being
the most Southerly Southeast corner of Tract B of the 1977 Lease Agreement
between the City of Greenville and E-Systems, Inc., as recorded in Volume 810,
Page 1, Hunt County Deed Records, said point also being the most Easterly
Northeast corner of Tract D in said lease;
THENCE S. 00 deg. 42 min. 54 sec. W. along the East line of said Tract D a
distance of 1952.00 feet to a point for corner, said point being the Southeast
corner of the above cited Tract D;
THENCE N. 89 deg. 14 min. 45 sec. W. passing an iron rod found for corner at
an interior corner of Majors Field at a distance of 358.40 feet and continuing
along the South line of Majors Field for a total distance of 1006.45 feet to an
iron rod found for corner;
THENCE N. 89 deg. 19 min. 42 sec. W. along the South line of Majors Field a
distance of 350.47 feet to an iron rod found for corner;
THENCE N. 89 deg. 19 min. 10 sec. W. along the South line of said Majors Field a
distance of 416.22 feet to an iron rod found for corner;
THENCE N. 89 deg. 12 min. 43 sec. W. along the South line of said Majors Field a
distance of 461.77 feet to an iron rod found for corner in the Northeasterly
R.O.W. line of F.M. Highway No. 2101;
THENCE in a Northeasterly direction along a curve to the right having a central
angle of 06 deg. 51 min. 24 sec., a radius of 1095.92 feet, a chord bearing of
N. 36 deg. 01 min. 32 sec. W. a chord of 131.07 feet, an arc length of 131.15
feet to an iron rod found for corner;
THENCE N. 00 deg. 43 min. 47 sec. E. a distance 2710.25 feet to a point for
corner, said point being in the North line of an existing asphalt street;
THENCE S. 89 deg. 28 min. 14 sec. E. along the North line of said street a
distance of 879.14 feet to an iron rod set for corner;
THENCE along the North line of said asphalt street along a curve to the right
having a central angle of 66 deg. 54 min. 09 sec., a radius of 148.09 feet, a
chord bearing of S. 56 deg. 01 min. 10 sec. E., a chord of 163.26 feet, an arc
length of 172.92 feet to an iron rod set for corner;
THENCE S. 22 deg. 34 min. 06 sec. E. along the Northeasterly line of said street
a distance of 340.87 feet to an iron rod found for corner;
THENCE along the Northeasterly line of said street along a curve to the left
having a central angle of 65 deg. 38 min. 17 sec., a radius of 197.24 feet, a
chord bearing of S. 55 deg. 23 min. 15 sec. E., a chord of 213.81 feet, an arc
length of 225.96 feet to an iron rod found for corder in a chain link fence;
THENCE S. 59 deg. 41 min. 48 sec. E. along and near said fence line a distance
of 3.02 feet to an iron rod found for corner;
7
<PAGE>
Exhibit "B" Revised 1900 (cont)
TRACT "D" (cont)
THENCE S. 87 deg. 47 min. 22 sec. E. a distance of 527.20 feet to an iron rod
found for corner;
THENCE S. 00 deg. 36 min. 09 sec. W. a distance of 329.74 feet to an iron rod
found for corner at the most Southerly Southwest corner of Tract B;
THENCE S. 89 deg. 17 min. 06 sec. E. a distance of 454.48 feet to the POINT OF
BEGINNING and containing 131.210 acres of land.
8
<PAGE>
AMENDMENT #5
RECAP OF TRACT "B" ACREAGE & RENT
<TABLE>
<CAPTION>
ACREAGE
-------
<S> <C>
Basic 1977 Tract "B" 275.63
Acreage Added in Amendment #3 +45.80
Acreage Purchased by E-Systems -12.96
(To Resolve Title Dispute Between
City and Local Landowner)
Acreage South of Airport Blvd -12.59
Returned to City in Amendment #5
Acreage Added to E-Systems +60.84
Tract "B" Eastern Boundary --------
In Amendment #5
Revised Tract "B" through Amendment #5 356.72
Less Basic Acreage -275.63
--------
Net Increase to Tract "B" Acreage 81.09
Fair Market Value Per Acre Per Year $180.00
--------
Net Increase to Tract "B" Rent $14,596.20
DIVIDED BY 12
--------
Net Increase to Monthly Tract "B" Rent $1,216.35
Amount of Basic Tract "B" Monthly Rent 4,000.00
--------
Revised Tract "B" Monthly Rent $5,216.35
</TABLE>
<PAGE>
AMENDMENT #4
TO 1977 LEASE AGREEMENT
THIS AMENDMENT #4 (the "Amendment") OF AGREEMENT OF LEASE dated as of
July 15, 1990, between the CITY OF GREENVILLE, TEXAS, a municipal corporation of
the State of Texas (the "Lessor"), and E-SYSTEMS, INC., a Delaware corporation
(the "Lessee");
W I T N E S S E T H:
WHEREAS, Lessor owns and operates an airport in Hunt County, Texas known
as Majors Field (the "Airport");
WHEREAS, Lessor and Lessee have entered into a Lease Agreement as of
October 1, 1977, as amended by Amendment #1 dated October 15, 1980, Amendment
#2 dated October 15, 1980 and Amendment #3 dated October 15, 1981 with
respect to certain premises at the Airport (the Lease Agreement and Amendments
#1, #2 and #3 in the aggregate herein referred to as the "Lease");
WHEREAS, Lessor owns as part of the Airport approximately 720.02 acres
referred in the Lease as the Base Facilities, which is the flight operations
area for the public generally;
<PAGE>
WHEREAS, Industrial Development Corporation Greenville, Texas, (the
"Corporation") has been created and has authorized the issuance of $9,350,000 of
its airport revenue bonds (the "Series 1990 Bonds") to pay for repairs and
improvements to the runways, aprons, and taxiways that are part of Base
Facilities as well as necessary drainage facilities to remove water from the
Base Facility (the "Project"); and
WHEREAS, Lessor and Lessee has agreed to amend the Lease to provide for
additional rental sufficient to pay all debt service on the Series 1990 Bonds in
consideration for the issuance of the Series 1990 Bonds by the Corporation and
in consideration for the continued operation of the Base Facilities by the
Lessor.
NOW THEREFORE, Lessor and Lessee, for and in consideration of the mutual
covenants herein contained, agree to amend the Lease as set forth below. All
sections and parts of the Lease not modified by this Amendment remain in full
force and affect.
The Lease is hereby modified by this Amendment by the addition
of Part X and all sections contained therein to read as follows:
<PAGE>
PART X
SECTION 10.1 BASE FACILITIES IMPROVEMENTS
The proceeds of the Series 1990 Bonds, less the costs of issuance of the
Series 1990 Bonds paid out of such proceeds, will be deposited in the
Construction Fund created by and as defined in the Trust Indenture for the
Series 1990 Bonds (the "Indenture"), and will be used for the Project.
The Project, when completed, will be owned and managed by the Lessor. The
Lessee hereby makes an irrevocable election, binding on the Lessee and all
successors in interest, not to claim depreciation or an investment credit with
respect to any part of the Project. The Lessor and Lessee acknowledge that the
Lessee has no option to purchase the Project. Any unexpended funds remaining
in the Construction Fund after completion of the Project will be transferred
to the Bond Fund created by and as defined in the Indenture, unless such funds
are needed to pay arbitrage rebate to the United States pursuant to section
148 of the Internal Revenue Code of 1986. In addition, any eligible funds
received by the Lessor from the federal government for use in connection with
the Project, including but not limited to the Federal Emergency Management
Agency, which are payments received for repairs or improvements as part of the
Project, shall be deposited promptly by the Lessor in the Unit Account of the
Bond Fund and will offset the Lessee's obligation to pay Additional Rent as
more fully set forth in Section 10.2.
<PAGE>
SECTION 10.2 ADDITIONAL RENT
For and in consideration of the Corporation's issuing the Series 1990 Bonds
for the Project and for and in consideration of the City's continued operation
of the Project, the Lessee unconditionally agrees to pay additional rent
("Additional Rent") while the Series 1990 Bonds are outstanding, in an amount
equal to (i) all debt service on the Series 1990 Bonds, plus (ii) all fees and
expenses incurred in connection with the issuance, payment and redemption or a
Determination of Taxability (as defined in the Indenture) of the Series 1990
Bonds, including arbitrage rebate and the expense of calculating arbitrage
rebate, to the extent such fees and expenses are not paid out of Series 1990
Bond proceeds (including investment proceeds), minus (iii) funds on hand in the
Unit Account of the Bond Fund created by and as defined in the Indenture which
are available for payment of such debt service. Lessee's obligation to the City
to pay Additional Rent shall be satisfied by the Lessee transferring the
Additional Rent payment owed for each accrual period on the Series 1990 Bonds in
immediately available funds by wire transfer to the Unit Account (as defined in
the Indenture) at the Corporation's Trustee for the Series 1990 Bonds no later
than three business days prior to each debt service payment date on the Series
1990 Bonds. Pursuant to the Indenture to be entered into between the Corporation
and the Trustee, the
<PAGE>
Trustee will send the following information to the Lessee by facsimile
transmittal (or by telephone, promptly confirmed by facsimile transmittal no
later than five business days prior to each debt service payment date on the
Series 1990 Bonds: (i) the amount of the debt service on the Series 1990 Bonds
to be paid on the next payment date plus any unpaid fees and expenses incurred
in connection with the Series 1990 Bonds for the current accrual period and
anticipated fees and expenses for the subsequent accrual period, (ii) funds on
hand in the Unit Account of the :Bond Fund available to pay debt service on the
next payment date; and (iii) the balance to be paid as Additional Rent by the
Lessee.
The obligation of the Lessee to make Additional Rent payments is
unconditional and independent of any other provision of this Lease, as long as
the Indenture remains in effect.
10.3 ASSIGNMENT AND DEFEASANCE
The Lessee has no right to assign or delegate its obligations under this
Amendment or to terminate the Lease while the Series 1990 Bonds are outstanding.
In the event the Lease is terminated for whatever cause, the Lessee shall
deposit into escrow cash and governmental obligations certified by an
independent accounting firm of national reputation to
<PAGE>
mature as to principal and interest in such amounts and at such times as will,
without further investment or reinvestment, be sufficient to make all principal,
premium (if any), and interest payments on the Series 1990 Bonds when due (or
when redeemable). Such escrow shall further meet all requirements of section 148
of the Internal Revenue Code of 1986, and the report by the independent
accounting firm of national reputation shall certify that the yield on the
escrow is less than the yield on the Series 1990 Bonds, as calculated under
section 148 of the Code.
This Amendment #4 is executed as of the date first shown on page one of
this Amendment.
ATTEST CITY OF GREENVILLE
/s/ Pat Adams /s/ Bill F. Morgan
- ----------------- --------------------
City Clerk Mayor
APPROVED AS TO FORM:
/s/ Diane Callander
- --------------------
City Attorney
ATTEST: E-SYSTEMS, INC
/s/ /s/
- -------------------- ---------------------
Assistant Secretary Vice President
<PAGE>
E-SYSTEMS
SERIES 1990
-----------
-----------
DEBT SERVICE SCHEDULE
---------------------
---------------------
<TABLE>
<CAPTION>
DATE PRINCIPAL COUPON INTEREST PERIOD T0TAL FISCAL TOTAL
- ---- ---------- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
2/1/91 378,035.00 378,035.00
8/1/91 500,000.00 7.000000 347,175.00 847,175.00 1,225,210.00
2/1/92 329,675.00 329,675.00
8/1/92 600,000.00 7.05OOOO 329,675.OO 929,675.00 1,259,350.00
2/1/93 308,525.00 308,525.00
8/1/93 600,000.00 7.100000 308,525.00 308,525.00 1,217,050.00
2/1/94 287,225.00 287,225.00
8/1/94 650,000.00 7.200000 287,225.00 937,225.00 1,224,450.00
2/1/95 263,825.00 263,825.00
8/1/95 700,000.00 7.300000 263,825.00 963,825.00 1,227,650.00
2/1/96 238,275.00 238,275.00
8/1/96 700,000.00 7.400000 238,275.00 938,275.00 1,176,550.00
2/1/97 212,375.00 212,375.00
8/1/97 800,000.00 7.450000 212,375.00 1,012,375.00 1,224,750.00
2/1/98 182,575.00 182,575.00
8/1/98 800,000.00 7.500000 182,575.00 982,575.00 1,165,150.00
2/1/99 152,575.00 152,575.00
8/1/99 900,000.00 7.550000 152,575.00 1,052,575.00 1,205,150.00
2/1/ 0 118,600.00 118,600.00
8/1/ 0 1,000,000.00 7.600000 118,600.00 1,118,600.00 1,237,200.00
2/1/ 1 80,600.00 80,600.00
8/1/ 1 1,000,000.00 7.650000 80,600.00 1,080,600.00 1,161,200.00
2/1/ 2 42,350.00 42,350.00
8/1/ 2 1,100,000.00 7.700000 42,350.00 1,142,350.00 1,184,700.00
------------ ------------ -------------
9,350,000.00 5,158,410.00 14,508,410.00
ACCRUED 98,366.25 98,366.25
9,350,000.00 5,060,043.75 14,410,043.75
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
Dated 7/15/90 with Delivery of 9/6/90
<TABLE>
<S> <C>
Bond Years 68,515,556
Average Coupon 7.528816
Average Life 7.327867
HIC % 7.528816 % Using 100.0000000
</TABLE>
TEXAS COMMERCE BANK
<PAGE>
EXHIBIT 10.17
AMENDMENT #3
TO 1977 LEASE AGREEMENT
THIS AMENDMENT #3 OF AGREEMENT OF LEASE dated as of October 1, 1981,
between the CITY OF GREENVILLE, TEXAS, a municipal corporation of the State of
Texas (herein referred to as "Lessor"), and E-SYSTEMS, INC., a Delaware
corporation (herein referred to as "Lessee");
W I T N E S S E T H:
WHEREAS, Lessor owns and operates an airport in Hunt County, Texas known as
Majors Field (herein referred to as the "Airport");
WHEREAS, Lessor and Lessee have entered into a Lease Agreement as of
October 1, 1977, as amended by Amendment #1 and Amendment #2, dated October 15,
1980, with respect to certain premises at the Airport (herein referred to as the
"Lease" or "Lease Agreement");
WHEREAS, E-Systems desires to make certain improvements to existing
facilities and construct new additional improvements (facilities); and
WHEREAS, Lessor has agreed to the use of the Construction Fund to finance
improvements to existing facilities more fully described on Exhibit J attached
hereto; and
WHEREAS, Lessor has agreed to allow E-Systems to construct new additional
improvements (facilities), more fully described on Exhibit K attached hereto,
utilizing financing provided by E-Systems, Inc.; and
WHEREAS; Lessor has agreed to amend this lease as pertains to term and to
increase Tract B (Exhibit B) by approximately 45.30 acres as described in
Exhibit L attached hereto.
NOW, THEREFORE, the parties hereto for and in the consideration of the
mutual covenants herein contained agree to amend the 1977 Lease Agreement dated
as of October 1, 1977, as amended by Amendment #1 and Amendment #2 on October
15, 1980, as set forth below. All references to parts and section numbers for
Part I. shall be a reference to that section number of that part contained in
the 1977 Lease Agreement as amended by Amendment #1 and Amendment #2 and said
sections are hereby amended in their entirety to provide as set forth below.
All sections and parts of the Lease Agreement and Amendment #1 and Amendment #2
thereto, not modified hereby, remain in full force and effect.
<PAGE>
PART I
AIRCRAFT MAINTENANCE PREMISES
SECTION 1.1 PREMISES - DEMISE
(a) Effective as of the date hereof, Lessor hereby leases and rents and
Lessee hereby hires and takes for its exclusive use those certain premises,
indicated as Tracts A & B on Exhibit A attached hereto, consisting of an area of
approximately 580.68 acres, and the improvements thereon, such premises and
improvements being herein collectively referred to as the "Maintenance
Premises", which are further described in the legal description set forth in
Exhibit B, and amended by Exhibit L attached hereto.
SECTION 1.2 TERM
(a) The initial term of the tenancy created under this Part I. shall
commence on October 1, 1977, and.shall expire on October 1, 2017. The parties
agree that prior to the expiration of the lease term, they will, in good faith,
consider the execution of a new lease agreement,or an amendment to the existing
lease, for a like term of years, with respect to any facilities covered by this
agreement which, at the expiration of the lease term, are not and will not
(during the term of the new lease agreement) be required by the city for the
exclusive use of the general public.
SECTION 1.3 RENTAL
(a) Commencing on the first day of the first month after execution of
Amendment #2 and continuing until August 31, 1981, Lessee shall pay Ground
Rental for the Maintenance Premises in monthly installments of $725 as Ground
Rental and commencing on September 1, 1981, and continuing through the initial
term of this Lease October 1, 2017, the sum of $4,000 per month.
(b) In the event Lessor shall issue Revenue Bonds and using the proceeds
thereof shall reimburse Lessee its costs as approved by Lessor which were
incurred in the construction of improvements on the Additional Maintenance
Premises, provision for debt service on such Bonds through payment by Lessee or
additional rental shall be as provided in Part II. of this Agreement.
(c) In the event Lessor shall issue Revenue Bonds and using the proceeds
thereof shall reimburse Lessee its costs as approved by Lessor which were
incurred in the construction of Engineering Building 113 provision for debt
service on such Bonds through payment by Lessee of additional rental shall be as
provided in Part VII. of this Agreement.
<PAGE>
SECTION 1.3 CONT...
(d) In the event Lessor shall improve the asphalt overlay of certain ramps,
streets, and parking lots and improve the roofs of the premises with
foam/diathon within the next three years from the date of this Amendment #2 in
an amount estimated to be $1,752,000, then Lessee shall reimburse Lessor for
such repairs through payment by Lessee of additional rental as provided in Part
VIII. of this Agreement.
(e) In the event Lessor shall improve the existing facilities, as
described on Exhibit J attached hereto, in an amount estimated to be $775,000.
then Lessee shall reimburse Lessor for such expenditures through payment by
Lessee of additional rental as provided in Part IX of this agreement.
<PAGE>
THE FOLLOWING PARTS AND SECTIONS ABE IN ADDITION TO THE 1977 LEASE AGREEMENT AND
AMENDMENT #1 AND AMENDMENT #2, THERETO AND ARE INCORPORATED THEREIN BY
REFERENCE. ALL PARTS AND SECTIONS OF THE 1977 LEASE AGREEMENT AND AMENDMENTS #1
AND #2 THERETO NOT MODIFIED HEREBY REMAIN IN FULL FORCE AND EFFECT.
PART II.
SECTION 2.1 LEASE OF ADDITIONAL MAINTENANCE PREMISES
Effective as of October 1, 1977 (but subject to the provisions of Section
2.17 hereof), the Lessor hereby leases and rents and Lessee hereby hires and
takes for its exclusive use those certain premises indicated as Building 136B,
108, and 116 on Exhibit E attached hereto, consisting of an area of
approximately 103,250 square feet and the improvements thereon or to be
constructed thereon such premises and improvements being in this part referred
to as "Additional Maintenance Premises" which are further described in the legal
description set forth in Exhibit E.
The term of the tenancy of this Part II. of this Agreement shall expire on
October 1, 2017. At the end of this term, Lessor and Lessee may determine to
renew the term of the lease in accordance with Section 1.2 herein.
<PAGE>
PART VII.
SECTION 7.1 LEASE OF ENGINEERING BUILDING 113
Effective as of the date hereof, (but subject to the provisions of Section
7.15 hereof) the Lessor hereby leases and rents and Lessee hereby hires and
takes for its exclusive use those certain premises indicated on Exhibit F
attached hereto, consisting of an area of approximately 16,000 square feet, and
the improvements to be constructed hereon, such premises and improvements being
in this Part referred to as "Engineering Building" or "Facilities" which is
further described in the description set forth in Exhibit G.
The initial term of the tenancy created under Part VII. of this Agreement
shall expire on October 1, 2017. At the end of this term, Lessor and Lessee may
determine to renew the term of the lease in accordance with Section 1.2 herein.
<PAGE>
PART VIII.
SECTION 8.1 FACILITY IMPROVEMENTS
Effective as of the date of this Amendment the Lessor hereby leases and
rents and Lessee hereby hires and takes for its use those Facility Improvements
to the premises more fully described on Exhibit H attached hereto. Such
Facility Improvements are generally described as asphalt overlays of certain
ramps, roads and parking lots. In addition, such Facility Improvements include
the application of foam/diathon to the roofs of existing buildings on the
premises.
The initial term of the tenancy created under this Part VIII. of this
Agreement shall expire on October 1, 2017. At the end of this term, Lessor and
Lessee may determine to renew the term of the lease in accordance with Section
1.2 herein.
SECTION 8.3 FACILITY IMPROVEMENTS CONSTRUCTION
Lessor agrees that from time to time within a three-year period from the
date of this Amendment it shall make the Facility Improvements more fully
described in Exhibit H attached hereto to the premises. The parties estimate
that the total cost of the Facilities Improvements is approximately $1,752,000.
Lessor shall not be required to expend funds above this estimated amount.
Lessor and Lessee agree that in the event Lessor does not expend the estimated
amount, then the Net Rent provided for above shall be reduced by the difference
between the actual cost of construction and said estimate.
<PAGE>
PART IX
SECTION 9.1 FACILITY IMPROVEMENTS
Effective as of the date of the Amendment the Lessor hereby leases and
rents and Lessee hereby hires and takes those Facility Improvements to the
premises more fully described on Exhibit J "Description of Modifications to
Existing Facilities" and Exhibit K "Description of New Constructed Facilities"
attached hereto. Such Facility Improvements, known generally as the E-Systems
Greenville Division 1981 Construction Program are specifically;
(1) Modifications to Hangar 102, Bay 1
(2) Addition of Mezzanine to Building 116
(3) New 2 story Administration Building
designated Building 137
(4) New Large Aircraft Hangar designated Hangar 152.
The initial term of the tenancy created under this Part IX. of this
Agreement shall expire on October 1, 2017. At the end of this term, Lessor and
Lessee may determine to renew the term of the lease in accordance with Section
1.2 herein.
SECTION 9.2 NET RENT
For and in consideration of Lessor's adding the Facility Improvements under
this Part IX. and Lessee's enjoyment of additional rights pursuant to the
provisions of this Part IX. cumulative of and in addition to all other rentals,
fees or payments for which Lessee is obligated to pay Lessor under Part I. of
this Agreement. Lessee further agrees to pay Lessor additional rentals known as
"Net Rent" as follows:
Commencing on January 1, 1982, the Net Rent shall be $25,000 per month with
a like installment due and payable on the same day of each month thereafter
through May 1, 1983.
<PAGE>
SECTION 9.2 CONT...
Lessor and Lessee agree that all payments received by Lessor pursuant to
this Part IX. shall be deposited in the Airport Construction Fund and that
Lessor and Lessee will meet each year to evaluate the need for any adjustment in
the amount of payments in order that such payments are sufficient to fund all
Facility Improvements covered by Part IX of this agreement.
SECTION 9.3 FACILITY IMPROVEMENTS CONSTRUCTION
Lessor agrees that within an eighteen (18) month period from the date of
this Amendment it shall make the Facility Improvements, as described in Exhibits
J and K attached hereto, to the premises. The parties estimate that the total
cost of the Facilities Improvements is approximately $3,800,000. of which
$775,000 is to be paid for from the Construction Fund, the balance being
financed by E-Systems.
Lessor and Lessee agree that in the event Lessor exceeds or does not expend
the estimated amount from Construction Funds
($775,000), then the Net Rent provided for above shall be adjusted accordingly
and said adjustment be reflected in the monthly installments beginning 1 January
1983.
<PAGE>
SECTION 9.4 TITLE TO FACILITIES IMPROVEMENTS AND LESSOR
The parties hereby confirm and agree that title to the Facilities
Improvements (or any portion thereof) which may be constructed on or after the
date of this Amendment is vested in Lessor subject to Lessee's possessory rights
and that title to any such facilities (or any portions thereof) which may be
constructed or completed after the date of the Agreement shall vest in Lessor as
the same are affixed to the land, subject to such possessory rights of Lessee.
SECTION 9.5 CONSTRUCTION OF FACILITIES IMPROVEMENTS
CONDEMNATION OF FACILITIES IMPROVEMENTS
The provisions of Section 1.18 or 1.20 shall control where all or
substantially all of the Facilities Improvements are (1) destroyed by an insured
casualty or (2) taken under color of governmental authority in the exercise of
the power of eminent domain.
SECTION 9.6 PROVISIONS OF PART I. MADE APPLICABLE
Except as to the terms of the Lease and renewals thereof (contained in
Section 9.1) all of the provisions of Part I. of this Agreement shall also be
applicable to the Facilities Improvements and for the purposes of Part I. the
same shall also be considered a Maintenance Facilities thereunder upon
completion of the Facilities Improvements whichever shall first occur.
SECTION 9.7 CONSTRUCTION FUND
All payments received by Lessor under this Part IX. shall be deposited in a
Construction Fund with the City's depository bank.
Disbursements from the Construction Fund and investment of moneys therein,
pending the use thereof for authorized purposes, shall be governed by an escrow
agreement by and between the City and the depository bank. The mayor is hereby
authorized and directed to execute an appropriate escrow agreement, which shall
be subject to approval by the City Attorney and the Lessee, which agreement
shall be in customary terms and:
(1) not be in conflict with any provisions of this Agreement; and
<PAGE>
SECTION 9.7 CONT...
(2) provide:
(a) funds may be disbursed only for the purpose of paying the cost of
construction and acquisition of the Additional Maintenance Premises and
Facilities Improvements until all such costs have been paid, and then as
provided in this instrument.
(b) funds may be disbursed upon approval of the same by a representative
of the Lessor and Lessee; that the representative of the Lessor shall be the
person acting as the City Manager of the City of Greenville, Texas.
(3) no change order may be executed, during the construction of the
project, which increases the amount of any contract to be paid by the City
unless the same has been approved by the City Council; nor shall any payment be
made under any contract until such contract has been approved by the City
Council.
SECTION 9.8 PLANS AND SPECIFICATIONS, APPROVALS, CONSTRUCTION
CHANGES, CONTRACTS
(a) The facilities Improvements shall be acquired, constructed, installed,
fabricated and equipped in accordance with plans and specifications approved by
the City and the Lessee.
Lessee shall prepare final plans and specifications of the Facilities
Improvements, which shall be submitted by Lessee to the City for approval, and
construction shall be substantially in accordance with such plans and
specifications as may be approved by the City with such changes as may be
reasonably requested by Lessee and approved by the City.
(b) Upon completion of the final plans and specifications of the
Facilities Improvements and approval of the same, bids will be taken by the City
for construction, acquisition, and/or fabrication of the Facilities
Improvements based on such plans and specifications. Following the receipt of
bids from responsible bidders, the City and Lessee will consider and approve
such bids, and contracts will then be awarded by the City to install, construct,
fabricate and equip the Facilities. Lessee may, with the City's prior approval,
enter into contracts for the design work and for the preparation of the
preliminary and final plans and specifications for the Facilities Improvements
prior to the time that proceeds from the sale of the Bonds are available.
<PAGE>
SECTION 9.8 CONT...
(c) Whenever approval of either the City or Lessee is required in this
Section 9.8, such approval shall not be unreasonably withheld by either the City
or the Lessee; provided, however, nothing herein shall be construed as requiring
the City to undertake any such project.
(d) Contracts relating to the construction, acquisition, equipping,
fabrication or installation (or purchases in connection therewith) of the
Facilities Improvements shall include appropriate provisions for expediting the
work and for performance and payment bonds so as to assure completion by
specified performance dates and to protect the Facilities Improvements against
liens, such bonds to name the City as the beneficiary thereof.
(e) All necessary approvals from governmental agencies shall be obtained
prior to acquiring, constructing, fabricating, equipping or installing the
Facilities, and such improvements shall be acquired, constructed, fabricated,
equipped or installed in compliance with all state and local laws, ordinances
and regulations applicable thereto. Upon completion of the Facilities
Improvements, all required occupancy permits and authorizations from appropriate
authorities contemplated by Lessee shall be obtained by Lessee. All changes,
alterations, extras or additions (hereinafter in this subsection (e) called
"changes") to or from and contracts or purchase order executed or entered into
pursuant to the provisions of this Part IX. shall be approved in advance by the
parties hereto. All requests, approvals and agreements required shall be in
writing and signed by a duly designated representative of the party making such
request, granting such approval or entering into such agreement. All changes to
the Facilities Improvements may be made after consultation with and approval by
the Lessee.
<PAGE>
SECTION 9.8 CONT...
This Amendment #3 is executed as of the date first shown on page one of
this Amendment.
ATTEST: CITY OF GREENVILLE
/s/ Irene Wilson /s/ William F. Elkins
- ---------------------------- ----------------------------
City Clerk Mayor
APPROVED AS TO FORM:
/s/ D. Adami
- ----------------------------
City Attorney
ATTEST: E-SYSTEMS, INC.
/s/ Joe D. Reynolds /s/ A. L. Lawson
- ---------------------------- ----------------------------
Assistant Secretary Vice President
<PAGE>
EXHIBIT J
"Description of Modifications to Existing Facilities"
Modifications to existing Facilities referenced in Amendment #3 to the
1977 Lease Agreement consists of two separate projects;
- Modifications to Hangar 102, Bay 1, and;
- Addition of Mezzanine to Building 116
The modifications to Hangar 102, Bay 1 consist of the addition of a
nosewell and enlargement of the tailwell. These modifications will enable this
Bay to house KC-135 size aircraft.
The addition of a mezzanine to Building 116 will add approximately 45,000
square feet to that facility. The original design and construction of Building
116 contemplated the addition of subject mezzanine at some future date. The
mezzanine will include a covered overhead walkway to Hangar 102 and an outside
freight elevator.
<PAGE>
EXHIBIT K
"Description of New Constructed Facilities"
New Constructed Facilities referenced in Amendment #3 to the 1977 Lease
Agreement consists of two separate projects;
- New 2 Story Administration Building
Designated Building 137, and;
- New Large Aircraft Hangar
Designated Hangar 152
Building 137 will be a Two-Story Office Building of 20,000 square feet each
floor for a total of 40,000 square feet of floor space. This building will be
located due West of Building 136, adjacent to Building 140, on what is presently
parking lot space.
The New Large Aircraft Hangar (Hangar 152) will be located due West and
adjacent to Hangar 150 and be of the same general design. This Hangar will be
sized to house two 727 T-Tail Type Aircraft or one 747 Type Aircraft with the
tail outside.
<PAGE>
EXHIBIT L
Beginning at a point being the Southwest corner of the intersection of
Seventh Street and Avenue "D", said corner being an inside corner of Majors
Field's Western boundary line as described in said Warranty Deed from Hunt
County, Texas to the City of Greenville, Texas, recorded in Volume 643,
Page 496 in the Deed Records of Hunt County, Texas.
Thence East 1330 feet;
Thence South 1500 feet;
Thence West 1330 feet;
Thence North 1500 feet to the point of beginning and containing 45.7989
acres of land, more or less.
<PAGE>
AMENDMENT #2
TO 1977 LEASE AGREEMENT
THIS AMENDMENT #2 OF AGREEMENT OF LEASE dated as of October 15, 1980,
between the CITY OF GREENVILLE, TEXAS, a municipal corporation of the State of
Texas (herein referred to as "Lessor"), and E-SYSTEMS, INC., a Delaware
corporation (herein referred to as "Lessee");
W I T N E S S E T H:
WHEREAS, Lessor owns and operates an airport in Hunt County, Texas known as
Majors Field (herein referred to as the "Airport");
WHEREAS, Lessor and Lessee have entered into a Lease Agreement as of
October 1, 1977, as amended by Amendment #1 dated October 15, 1980, with respect
to certain premises at the Airport (herein referred to as the "Lease" or "Lease
Agreement");
WHEREAS, E-Systems desires to have Lessor construct additional improvements
on said premises; and
WHEREAS, Lessor has agreed to construct said improvements, provided that an
adjustment in the Net Rent is made and the Ground Rental of the premises is
increased to $4,000 per month.
NOW, THEREFORE, the parties hereto for and in the consideration of the
mutual covenants herein contained agree to amend the 1977 Lease Agreement dated
as of October 1, 1977, as amended by Amendment #1 on October 15, 1980, as set
forth below. All references to parts and sections numbers for Part I. shall be
a reference to that section number of that part contained in the 1977 Lease
Agreement as amended by Amendment #1 and said sections are hereby amended in
their entirety to provide as set forth below. All sections and parts of the
Lease Agreement and Amendment #1 thereto, not modified hereby, remain in full
force and effect.
PART I.
AIRCRAFT MAINTENANCE PREMISES
SECTION 1.3 RENTAL
(a) Commencing on the first day of the first month after execution of this
amendment and continuing until August 31, 1981, Lessee shall pay Ground Rental
for the Maintenance Premises in monthly installments of $725 as Ground Rental
and commencing on
<PAGE>
September 1, 1981, and continuing through the initial term of this Lease (August
31, 1991), the sum of $4,000 per month.
(b) In the event Lessor shall issue Revenue Bonds and using the proceeds
thereof shall reimburse Lessee its costs as approved by Lessor which were
incurred in the construction of improvements on the Additional Maintenance
Premises, provision for debt service on such Bonds through payment by Lessee of
additional rental shall be as provided in Part II. of this Agreement.
(c) In the event Lessor shall issue Revenue Bonds and using the proceeds
thereof shall reimburse Lessee its costs as approved by Lessor which were
incurred in the construction of Engineering Building 113 provision for debt
service on such Bonds through payment by Lessee of additional rental shall be as
provided in Part VII. of this Agreement.
(d) In the event Lessor shall improve the asphalt overlay of certain
ramps, streets, and parking lots and improve the roofs of the premises with
foam/diathon within the next three years from the date of this Amendment #2 in
an amount estimated to be $1,752,000, then Lessee shall reimburse Lessor for
such repairs through payment by Lessee of additional rental as provided in Part
VIII. of this Agreement.
SECTION 1.21 MISCELLANEOUS OPERATION PROVISIONS
(a) With the prior written approval of the Lessor, Lessee may erect,
maintain or display signs of advertising at or on the exterior parts of the
Maintenance Premises or in or on the Leased Premises so as to be visible outside
the Maintenance Premises. Exterior signs affecting public safety and security
shall be subject to approval by Lessee and the Lessor. If the Lessor has not
given approval, as aforesaid upon receipt of notice the Lessee shall remove,
obliterate or paint out any and all advertising, signs, posters and similar
devices placed by the Lessee on the Maintenance Premises. In the event of a
failure on the part of the Lessee so to remove, obliterate or paint out
unapproved signs affecting public safety and to restore the necessary work and
the Lessee shall pay the cost thereof to the Lessor on demand.
(b) The Lessee shall maintain such obstruction lights and landing lights
as the Lessor may install, and Lessor shall furnish and install the bulbs and
furnish the electricity necessary for the operation thereof, and Lessee shall
operate the same in accordance with the requirements of F.A.A. The Lessor
hereby
- 2 -
<PAGE>
directs that all said lights shall, until further notice, be operated for a
period commencing thirty (30) minutes before sunset and ending thirty (30)
minutes after sunrise (as sunset and sunrise may vary from day to day throughout
each year) and for such other periods as may be directed or requested by the
control tower of the Airport. In addition, Lessee shall also provide and
maintain fire protection and safety equipment at the Maintenance Facilities and
all other equipment of every kind and nature required by any law, rule, order,
ordinance or resolution of any governmental authority having jurisdiction over
the Airport.
(c) Except to the extent required for the performance of the obligations
or the exercise of rights of the Lessee hereunder, nothing contained in this
agreement shall grant to the Lessee any rights whatsoever in the air space above
the Maintenance Premises in excess of a height set forth in the plans and
specifications for the Maintenance Premises.
(d) All personal property and all property and installations (including
trade fixtures) removable without material damage to the Maintenance Premises,
which are installed by Lessee in or on the Maintenance Premises, shall be deemed
to be and remain the property of the Lessee. All such property and
installations may at Lessee's option be removed by Lessee from the Maintenance
Premises at any time during the term of this Agreement, and, unless otherwise
agreed in writing by the parties, shall be removed by Lessee at or before the
expiration of other termination of the term of this Agreement provided that any
damage to the Maintenance Premises caused by said removal shall be repaired by
Lessee so as to return the premises to the Lessor in the same or similar
condition as when entered by Lessee, reasonable wear and tear excepted. Any
such property remaining on the Maintenance Premises beyond thirty (30) days
thereafter shall be deemed to be abandoned by Lessee.
(e) All water, gas, oil and mineral rights in and under the soil are
expressly reserved by the Lessor.
(f) Title to all existing permanent improvements on the Maintenance
Premises and title to any permanent buildings or permanent structures hereafter
constructed on such Maintenance Premises shall immediately vest in the Lessor as
a part of the Airport.
(g) Lessee agrees to restrict the use of the gun/shooting range located
and situated on the southeast end of the Maintenance Premises to duly appointed
policemen and security staff who are on duty and need to shoot qualifying rounds
for the retention of their positions. Lessee agrees to use its best efforts to
relocate said range to an area compatible with airport operations. At such time
as this is accomplished, Lessee agrees to permanently and completely close the
existing range.
- 3 -
<PAGE>
(h) Lessee agrees that the area located at the South end of the South
aircraft parking ramp will not be used as a storage area for obsolete equipment.
Additionally, Lessee agrees that remaining equipment shall be relocated and
rearranged so as to present an orderly appearance.
(i) Lessee agrees to relocate its Southerly boundary fence (portable type)
Northward an adequate distance to facilitate comfortable parking of the general
public's aircraft. It is hereby understood between Lessor and Lessee that
should Lessee need any of this area to directly serve new aircraft servicing
buildings, Lessee may, after reasonable notice, move the fence southward to the
extent necessary for such facilities.
SECTION 1.22 ADDITIONAL PROVISIONS FOR OPERATIONS
Lessee agrees to operate and maintain that portion of said airport facility
located and situated within the area described in Exhibits A and C (herein
called Base Facilities) in conformity with each and all of the provisions and
requirements set forth and referred to in Paragraphs 6 and 22 of Part V of
Federal Aviation Administration Form 5100-100, the same being and composing a
part of the grant agreement entered into by and between Lessor and the United
States of America, and which provides, among other things, for a grant of funds
pursuant to Airport Development and Aid Program Project No. 7-48-0098-01 for the
construction of certain improvements to said Base Facility, and reference to
which being here made for all purposes as if the same were copied in their
entirety herein, accepting hereby the same responsibilities and undertakings as
Lessor assumes upon the execution of said grant agreement.
Under this agreement, Lessee has been given certain authority and
responsibilities in connection with the operation and maintenance of the
facilities within the area described in Exhibits A and C. However, the parties
hereto recognize that it is the basic responsibility of Lessor to comply with
its operational and maintenance responsibilities pursuant to its obligations
under the Federal Grant Agreement and surplus property deeds. Therefore, the
parties agree that Lessee's rights hereunder are subject to the rights of Lessor
and Lessor may direct the minimum procedures to be followed by Lessee or itself
assume such responsibilities.
It is understood and agreed that Lessee shall indemnify and hold harmless
Lessor, and each and all of the officials, officers, agents, servants and
employees of Lessor, from and against all claims and causes of action, damages,
losses and expenses, including all costs of court and attorney's fees incidental
thereto, arising out of or resulting from the undertakings
- 4 -
<PAGE>
specified and referred to in the preceding paragraphs hereof by Lessee, any
subcontractor thereof, anyone directly or indirectly employed by either of them,
or anyone whose acts, errors or omissions any of them may be liable, which are
caused in whole or in part by any error, omission or act of any of them.
In a like manner, it is understood and agreed that Lessor shall indemnify
and hold harmless Lessee, and each and all of the officers, agents, servants and
employees of Lessee, from and against all claims and causes of action, damages,
losses and expenses, including all costs of court and attorney's fees incidental
thereto, arising out of or resulting from the operations of Lessor upon said
Airport Facilities, or anyone directly or indirectly employed it, or anyone
whose acts, errors or omissions any of them may be liable, which are caused in
whole or in part by any error, omission or act of any of them; excepting,
however, any of those acts, errors or omissions set forth and specified in the
preceding paragraph hereof.
In connection with the obligations assumed by Lessee in the first paragraph
of this Section, it is understood and agreed that in the event Lessor permits or
agrees to permit third parties (other than those owning or operating aircraft
exempted by said ADAP grant and Lessee's customers or guests) regular use
(defined as aircraft parking by tenants on the airport or otherwise for in
excess of three hours on any four days during any calendar month or four
aircraft touchdowns from flight during any calendar month) of any facility
within the area described in Exhibits A and C, Lessor shall impose (and,
periodically, based on subsequent experience, adjust the amount of) uniform use
fees which are sufficiently large to offset and reasonably anticipated increases
in maintenance costs attributable to such third party use (but in no event above
the levels which are competitive with those charged by similar airports in North
and Central Texas for similar airport use). In determining the amount of such
use fees, Lessor shall have the right of examining relevant portions of Lessee's
books and records, and such examination may only be conducted by Lessor's
Director of Finance or a Certified Public Accountant (as designated by Lessor)
having no conflict of interest with any such third party. It is understood and
agreed that Lessor will use all due diligence (and Lessee will cooperate with
Lessor as needed) in seeking and obtaining federal and state assistance to
perform major renovation and/or upgrading of facilities on said tract provided
local matching funds are made available by Lessor's Governing Body or are made
available to said Governing Body by others. Lessee shall have the
responsibility for collecting any use fees charged hereunder and depositing the
same in the Construction Fund.
- 5 -
<PAGE>
It is further agreed that in case a building, buildings or other
improvements are located on the land described in Exhibits A and B, the
provisions of this paragraph shall control if the same are destroyed or damaged
by fire, the elements or other disaster and for which insurance coverage is in
effect as provided for in this Lease, or for which a third party shall have
provided insurance coverage, Lessor, at the option of Lessee, will authorize the
replacement or repair of said buildings or improvements, the same to be paid for
out of the proceeds of the insurance as aforesaid, and the monthly rental will
be proportionately abated with respect to the buildings or improvements, which
Lessee is deprived of use for and during the period of disuse and pending their
repair or replacement. Should buildings or other improvements be destroyed as
aforesaid so as to make the premises, as a whole, unsuitable for Lessee's
continued occupancy, Lessee may at such time cancel the herein Lease and
thereafter all rights to Lessee's possession thereof shall at once cease and
this lease shall terminate as to both parties.
It is further agreed that Lessor will consider assuming the maintenance of
Tract C, insofar as the same involves painting, striping, poisoning and mowing,
Lessee will assist Lessor in the updating of the airport layout plan
required under the provisions of Paragraph 25 of Part V of said FAA Form
5100-100, and will not make or permit the making of any changes or alterations
in said airport or any of its facilities other than in conformity with such
airport layout plan as so approved by the Federal Aviation Administration, if
such changes or alterations might adversely affect the safety, utility or
efficiency of said airport.
SECTION 1.23 PROVISIONS FOR TESTING
The provisions of this Section shall be subordinate to the provisions of
any existing or future agreement entered into between the Lessor and the United
States to obtain Federal aid for the improvement or operation and maintenance of
the airport.
It is specifically understood and agreed that nothing herein contained
shall be construed as granting or authorizing the granting of an exclusive right
within the meaning of Section 308a of the Federal Aviation Act.
The Lessor reserves the right to take any action it considers necessary to
protect the aerial approaches of the airport against obstruction, together with
the right to prevent the Lessee from erecting, or permitting to be erected, any
building or other structures on the airport which, in the opinion of the Lessor,
would limit the usefulness of the airport or constitute a hazard to aircraft.
Lessee shall have the right to utilize the public air opera-
- 6 -
<PAGE>
tions area in said Base Facilities in conjunction with the public, generally,
for flight operations, aeronautical testing, electronic testing and other
aviation related activities subject, however, to the same regulations,
requirements and limitations lawfully imposed upon the public.
In conjunction with its normal operations, Lessee shall have the right to
temporarily obstruct for aircraft electronic testing or aircraft launch
purposes, one of the runways or the North or South portion of the North-South
parallel taxiway in said Base Facilities provided that during such periods the
tower is manned and operating and provided the runway or taxiway is
appropriately marked as obstructed, safety requirements of FAA and good practice
are implemented, and (in the case of a runway) an alternate runway is available
for aircraft traffic. Lessee agrees to remove obstructions at all times said
runway is not needed for launching purposes.
Lessor agrees to use its best efforts to obtain governmental assistance in
funding construction to extend the parallel taxiway to the physical ends of the
North-South runway, including holding and launch pads at each end. At such time
as the aforementioned improvements are completed, Lessee agrees to keep the
parallel taxiway area free from obstructions and until such time Lessee agrees
to mark and/or light such obstructions in accordance with FAA recommendations.
Lessor shall not perform or suffer performance of any act on land in the
Base Facilities owned or controlled by Lessor which would unreasonably
interfere, or can be reasonably expected to interfere with, Lessee's said
electronic or aviation operations in said Base Facilities.
Lessor shall utilize said Tract only in a manner compatible with normal
airport uses.
THE FOLLOWING PARTS AND SECTIONS ARE IN ADDITION TO THE 1977 LEASE
AGREEMENT AND AMENDMENT #1 THERETO AND ARE INCORPORATED THEREIN BY REFERENCE.
ALL PARTS AND SECTIONS OF THE 1977 LEASE AGREEMENT AND AMENDMENT #1 THERETO NOT
MODIFIED HEREBY REMAIN IN FULL FORCE AND EFFECT.
PART VIII.
SECTION 8.1 FACILITY IMPROVEMENTS
Effective as of the date of this Amendment the Lessor hereby leases and
rents and Lessee hereby hires and takes for its use those Facility Improvements
to the premises more fully described on Exhibit H attached hereto. Such
Facility Improvements are generally described as asphalt overlays of certain
ramps, roads and parking lots. In addition, such Facility Improvements include
the application of foam/diathon to the roofs of existing buildings on the
premises.
- 7 -
<PAGE>
The initial term of the tenancy created under this Part VIII. of this
Agreement shall expire on August 31, 1991. Lessee shall have the option to
renew such term for a period, during the time that the property tenancy created
in Part I. of this Agreement is in effect ending August 31, 2006. During such
renewal period, the Ground Rent specified in Section 1.3 shall also be the
Ground Rent for the Facility Improvements covered by this Part VIII. of this
Agreement. Lessee shall not be deemed to have exercised the foregoing option
unless notice of the exercise of the option has been received not less than
sixty (60) days before the expiration of the initial term and thereafter such
notice has been received not less than sixty (60) days before any extension
under said option.
SECTION 8.2 NET RENT
For and in consideration of Lessor's adding the Facility Improvements under
this Part VIII. and Lessee's enjoyment of additional rights pursuant to the
provisions of this Part VIII. cumulative of and in addition to all other
rentals, fees or payments for which Lessee is obligated to pay Lessor under
Part I. of this Agreement. Lessee further agrees to pay Lessor additional
rentals known as "Net Rent" as follows:
1. A monthly rental of $30,000 per month commencing on the effective date
of this Amendment with a like installment due on the same day of each month
thereafter through December l, 1980.
2. Commencing on January 1, 1981, the Net Rent shall be $60,000 per month
with a like installment due and payable on the same day of each month thereafter
through December 1, 1981.
3. Commencing on January 1, 1982, the Net Rent shall be $35,000 per month
with a like installment due and payable on the same day of each month thereafter
through September 1, 1983.
Lessor and Lessee agree that all payments received by Lessor pursuant to
this Part VIII. shall be deposited in the Airport Construction Fund and that
Lessor and Lessee will meet each year to evaluate the need for any adjustment in
the amount of both payments in order that such payments are sufficient to fund
all Facility Improvements and to retire all special purpose airport improvements
bonds issued in 1966 through 1969 by the end of the term of this Lease, August
31, 1991. Lessor and Lessee shall take into consideration the appropriate
Interest and Sinking Fund of the Lessor including its earnings and the earnings
of the Airport Construction Fund.
- 8 -
<PAGE>
SECTION 8.3 FACILITY IMPROVEMENTS CONSTRUCTION
Lessor agrees that from time to time within a three-year period from the
date of this Amendment it shall make the Facility Improvements more fully
described in Exhibit H attached hereto to the premises. The parties estimate
that the total cost of the Facilities Improvements is approximately $1,752,000.
Lessor shall not be required to expend funds above this estimated amount.
Lessor and Lessee agree that in the event Lessor does not expend the estimated
amount, then the Net Rent provided for above shall be reduced by the difference
between the actual cost of construction and said estimate. This reduction shall
first be applied pro rata to the installment payments due for the period of
January 1, 1982 through September 1, 1983. Should further reduction be
required, then the reduction shall be applied pro rata to the monthly
installments due for the period of January 1, 1981 through December 1981.
Should further reductions be required, then such reduction shall be applied pro
rata to the installments due from the effective date of this Amendment through
December 1, 1980.
SECTION 8.4 TITLE TO FACILITIES IMPROVEMENTS AND LESSOR
The parties hereby confirm and agree that title to the Facilities
Improvements (or any portion thereof) which may be constructed on or after the
date of this Amendment is vested in Lessor subject to Lessee's possessory rights
and that title to any such facilities (or any portions thereof) which may be
constructed or completed after the date of this Agreement shall vest in Lessor
as the same are affixed to the land, subject to such possessory rights of
Lessee.
SECTION 8.5 CONSTRUCTION OF FACILITIES IMPROVEMENTS,
CONDEMNATION OF FACILITIES IMPROVEMENTS
The provisions of Section 1.18 or 1.20 shall control where all or
substantially all of the Facilities Improvements are (1) destroyed by an insured
casualty or (2) taken under color of governmental authority in the exercise of
the power of eminent domain.
SECTION 8.6 PROVISIONS OF PART I. MADE APPLICABLE
Except as to the terms of the Lease and renewals thereof (contained in
Section 8.1) all of the provisions of Part I. of
- 9 -
<PAGE>
this Agreement shall also be applicable to the Facilities Improvements and for
the purposes of Part I. the same shall also be considered as Maintenance
Facilities thereunder upon completion of the Facilities Improvements whichever
shall first occur.
SECTION 8.7 CONSTRUCTION FUND
All payments received by Lessor under this Part VIII. shall be deposited in
a Construction Fund with the City's depository bank.
Disbursements from the Construction Fund and investment of moneys therein,
pending the use thereof for authorized purposes, shall be governed by an escrow
agreement by and between the City and the depository bank. The mayor is hereby
authorized and directed to execute an appropriate escrow agreement, which shall
be subject to approval by the City Attorney and the Lessee, which agreement
shall be in customary terms and:
(1) not be in conflict with any provisions of this Agreement; and
(2) provide:
(a) funds may be disbursed only for the purpose of paying the cost of
construction and acquisition of the Additional Maintenance
Premises and Facilities Improvements until all such costs have
been paid, and then as provided in this instrument.
(b) funds may be disbursed upon approval of the same by a
representative of the Lessor and Lessee; that the representative
of the Lessor shall be the person acting as the City Manager of
the City of Greenville, Texas.
(3) no change order may be executed, during the construction of the
project, which increases the amount of any contract to be paid by the City
unless the same has been approved by the City Council; nor shall any payment be
made under any contract until such contract has been approved by the City
Council.
SECTION 8.8 PLANS AND SPECIFICATIONS, APPROVALS, CONSTRUCTION
CHANGES, CONTRACTS
(a) The Facilities Improvements shall be acquired, constructed, installed,
fabricated and equipped in accordance with
- 10 -
<PAGE>
plans and specifications; approved by the City and the Lessee.
Lessee shall prepare final plans and specifications of the Facilities
Improvements, which shall be submitted by Lessee to the City for approval, and
construction shall be substantially in accordance with such plans and
specifications as may be approved by the City with such changes as may be
reasonably requested by Lessee and approved by the City.
(b) Upon completion of the final plans and specifications of the
Facilities Improvements and approval of the same, bids will be taken by the City
for construction, acquisition, and/or fabrication of the Facilities Improvements
based on such plans and specifications. Following the receipt of bids from
responsible bidders, the City and Lessee will consider and approve such bids,
and contracts will then be awarded by the City to install, construct, fabricate
and equip the Facilities. Lessee may, with the City's prior approval, enter
into contracts for the design work and for the preparation of the preliminary
and final plans and specifications for the Facilities Improvements prior to the
time that proceeds from the sale of the Bonds are available.
(c) Whenever approval of either the City or Lessee is required in this
Section 8.8, such approval shall not be unreasonably withheld by either the City
or the Lessee; provided, however, nothing herein shall be construed as requiring
the City to undertake any such project.
(d) Contracts relating to the construction, acquisition, equipping,
fabrication or installation (or purchases in connection therewith) of the
Facilities Improvements shall include appropriate provisions for expediting the
work and for performance and payment bonds so as to assure completion by
specified performance dates and to protect the Facilities Improvements against
liens, such bonds to name the City as the beneficiary thereof.
(e) All necessary approvals from governmental agencies shall be obtained
prior to acquiring, constructing, fabricating, equipping or installing the
Facilities, and such improvements shall be acquired, constructed, fabricated,
equipped or installed in compliance with all state and local laws, ordinances
and regulations applicable thereto. Upon completion of the Facilities
Improvements, all required occupancy permits and authorizations from appropriate
authorities contemplated by Lessee shall be obtained by Lessee. All changes,
alterations,
- 11 -
<PAGE>
extras or additions (hereinafter in this subsection (e) called "changes") to or
from and contracts or purchase orders executed or entered into pursuant to the
provisions of this Article VIII. shall be approved in advance by the parties
hereto. All requests, approvals and agreements required shall be in writing and
signed by a duly designated representative of the party making such request,
granting such approval or entering into such agreement. All changes to the
Facilities Improvements may be made after consultation with and approval by the
Lessee.
This Amendment #2 is executed as of the date first shown on page one of
this Amendment.
ATTEST: CITY OF GREENVILLE
/s/ Irene Wilson /s/ William F. Elkins
- ---------------------------- ----------------------------
City Clerk Mayor
APPROVED AS TO FORM:
/s/ Debra Adami
- ----------------------------
City Attorney
ATTEST: E-SYSTEMS, INC.
/s/ Joe D. Reynolds /s/ A. L. Lawson
- ---------------------------- ----------------------------
Assistant Secretary Vice President
<PAGE>
THE STATE OF TEXAS )
)
COUNTY OF HUNT )
BEFORE ME, the undersigned authority in and for Hunt County, Texas, on this
day personally appeared A. L. Lawson of E-SYSTEMS, INC., known to me to be the
person whose name is subscribed to the foregoing instrument and known to me to
be the Vice-President of E-SYSTEMS, INC., and acknowledged to me that he
executed the same for the purposes and consideration therein expressed and in
the capacity therein stated as the act and deed of E-SYSTEMS, INC.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 2nd day of
February, 1981.
/s/ Betty English
-------------------------------
Notary Public, State of Texas
THE STATE OF TEXAS )
)
COUNTY OF HUNT )
BEFORE ME, the undersigned authority in and for Hunt County, Texas, on this
day personally appeared WILLIAM F. ELKINS, of the City of Greenville, Texas,
known to me to be the person whose name is subscribed to the foregoing
instrument and known to me to be the Mayor of the City of Greenville, Texas, and
acknowledged to me that he executed the same for the purposes and consideration
therein expressed and in the capacity therein stated as the act and deed of the
city of Greenville, Texas.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 2nd day of
February, 1981.
/s/ Irene Wilson
--------------------------------
Notary Public, State of Texas
<PAGE>
AMENDMENT #1
TO 1977 LEASE AGREEMENT
THIS AMENDMENT #1 OF AGREEMENT OF LEASE dated as of October 15, 1980
between the CITY OF GREENVILLE, TEXAS, a municipal Corporation of the State of
Texas (herein referred to, as "Lessor"), and E-SYSTEMS, INC., a Delaware
corporation (herein referred to as "Lessee");
W I T N E S S E T H:
WHEREAS, Lessor owns and operates an airport in Hunt County, Texas known as
Majors Field (herein referred to as the "Airport");
WHEREAS, Lessor and Lessee have entered into a Lease Agreement as of
October 1, 1977, with respect to certain premises at the Airport (herein
referred to as the "Lease" or "Lease Agreement";
WHEREAS, E-Systems desires to have Lessor construct additional improvements
on said premises and extend the initial term of the Lease;
WHEREAS, Lessor has agreed to construct said improvements and to extend the
term of said Lease provided that the ground rental of the premises is increased
to 4,000 per month.
NOW, THEREFORE, the Parties hereto, for and in the consideration of the
mutual covenants herein contained agree to amend the 1977 Lease Agreement dated
as of October 1, 1977 as set forth below.
All references to parts and section numbers for Parts I. and II. shall be a
reference to that section number of that part contained in the 1977 Lease
Agreement and said sections are hereby amended in their entirety to provide as
set forth below. All sections and parts of the Lease Agreement not modified
hereby remain in full force and effect.
PART I.
AIRCRAFT MAINTENANCE PREMISES
SECTION 1.2 TERM
The initial term of the tenancy created under this Part I. shall commence
on October 1, 1977 and shall expire on August 31, 1991. Lessee shall have the
option to renew such term for three consecutive five-year terms on the same
terms and conditions, except for such right of renewal and except that during
each such renewal term Lessee shall pay the ground rental only
<PAGE>
as provided in Section 1.3 hereof. Lessee shall not be deemed to have exercised
the foregoing option unless notice of the exercise of the option has been
received not less than sixty (60) days before the expiration of the initial term
and thereafter such notice has been received not less than sixty (60) days
before the expiration of any extension of the term of this Lease under said
option.
SECTION 1.3 RENTAL
(a) Commencing on November 1, 1977 and continuing until December 31, 1980,
Lessee shall pay Ground Rental for the Maintenance Premises in monthly
installments of $30,725 as Ground Rent, and thereafter from January 1, 1981
through August 31, 1991 (and any Lease extensions) the Lessee shall, pay as
Ground Rental for the Maintenance Premises in monthly installments of $725 as
Ground Rent.
(b) In the event Lessor shall issue revenue bonds and using the proceeds
thereof, shall reimburse Lessee its costs as approved by Lessor which were
incurred in the construction of improvements on the additional maintenance
premises, provision for debt service on such bonds through payment by Lessee of
additional rental shall be as provided in Part II. of this Agreement.
(c) In the event Lessor shall issue revenue bonds and using the proceeds
thereof shall reimburse Lessee its costs as approved by Lessor which were
incurred in the construction of Engineering Building 113, provision for debt
service on such bonds through payment by Lessee of additional rental shall be as
provided in, Part VII. of this Agreement.
PART II.
SECTION 2.1 LEASE OF ADDITIONAL MAINTENANCE PREMISES
Effective as of October 1, 1977 (but subject to the provisions of Section
2.17 hereof), the Lessor hereby leases and rents and Lessee hereby hires and
takes for its exclusive use those certain premises indicated as Building 136B,
108 and 116 on Exhibit E attached hereto, consisting of an area of approximately
108,250 square feet and the improvements thereon or to be constructed thereon
such premises and improvements being in this part referred to as "Additional
Maintenance Premises" which are further described in the legal description set
forth in Exhibit E.
The initial term of the tenancy under this Part II. of this Agreement shall
expire on August 31, 1991 Lessee shall have the option to renew such term for a
period, during the
- 2 -
<PAGE>
time that the property tenancy created in Part I. of this Agreement is in
effect, ending August 31, 2006. During such renewal period, the ground rent
specified in Section 1.3 shall also be the ground rent for the property covered
by Part II. of this Agreement. Lessee shall not be deemed to have exercised the
foregoing option unless notice of exercise of the option has been received not
less than sixty (60) days before the expiration of the initial term and
thereafter such notice has been received not less than sixty (60) days before
any extension under said option.
THE FOLLOWING PARTS AND SECTIONS ARE IN ADDITION TO THE PARTS AND SECTIONS
OF THE 1977 LEASE AGREEMENT AND ARE INCORPORATED THEREIN BY REFERENCE. ALL
PARTS AND SECTIONS OF THE 1977 LEASE AGREEMENT NOT MODIFIED HEREBY REMAIN IN
FULL FORCE AND EFFECT.
PART VII.
SECTION 7.1 LEASE OF ENGINEERING BUILDING 113
Effective as of the date hereof, (but subject to the provisions of Section
7.15 hereof) the Lessor hereby leases and rents and Lessee hereby hires and
takes for its exclusive use those certain premises indicated on Exhibit F
attached hereto, consisting of an area of approximately 16,000 square feet, and
the improvements to be constructed thereon, such premises and improvements being
in this Part referred to as "Engineering Building" or "Facilities" which is
further described in the description set forth in Exhibit G.
The initial term of the tenancy created under Part II. of this Agreement
shall expire on August 31, 1991. Lessee shall have the option to renew such
term for a period, during the time that the property tenancy created in Part I.
of this Agreement is in effect, ending August 31, 2006. During such renewal
period, the Ground Rent specified in Section 1.3 shall also be the Ground Rent
for the property covered by Part VII. of this Agreement. Lessee shall not be
deemed to have exercised the foregoing option unless notice of the exercise of
the option has been received not less than sixty (60) days before the expiration
of the initial term and thereafter such notice has been received not less than
sixty (60) days before any extension under said option.
SECTION 7.2 ENGINEERING BUILDING
The Engineering Building consists of that land and improvements and
structures to be located on the land described in Exhibit F subject to the
provisions of Section 7.15 hereof, the parties mutually agree that Lessor shall
proceed to issue and deliver its Revenue Bonds in the principal sum of
$1,000,000 to
- 3 -
<PAGE>
provide for the cost of the construction of the improvements which constitute
the Engineering Building. The proceeds of the sale of such Bonds shall be
employed in the manner sat forth in this Part and under the provisions of the
ordinance authorizing such Bonds (hereafter called Bond Ordinance) it being the
intent of the parties that said proceeds shall be used in accomplishing
financing of the intended Facilities including all improvements related or
incidental thereto, as contemplated by the plans and specifications heretofore
approved by Lessor and Lessee, including, further, reasonable items for
contingencies, architectural and engineering fees, expenses of issuance of
Bonds, fees of the fiscal agent retained to consult with the parties and arrange
for the sale of the Bonds.
SECTION 7.3 ACCEPTANCE OF COVENANTS
It is understood that upon the authorization of the issuance of Bonds, the
Lessor, by approving the Bond Ordinance shall signify not only acceptance and
final approval of these presents but also complete acceptance, awareness and
final approval of the terms and conditions of said Bond Ordinance and the Bonds
therein prescribed. By its acceptance Lessee acknowledges that the covenants of
the Bond Ordinance constitute contractual arrangements between Lessor and the
purchasers of the Bonds. It is further understood that Lessor, the purchasers
of the Bonds and all others concerned in any manner with their issuance and the
securities supporting them may rely upon certified copy of said resolution of
Lessee's Board of Directors as conclusive evidence of Lessee's approval and
acceptance hereof and the terms and conditions of said Bond Ordinance and the
Bonds therein prescribed.
Based upon such approvals of Lessee, Lessor agrees to do all things
required by law and these presents to issue the Bonds and make delivery thereof
to the purchasers in accordance with the terms of sale as promptly as
practicable. Lessee understands that upon delivery of the Bonds to the
purchasers the requirements for payment of Net Rent provided in Section 7.5
hereof shall be effective as specified without acknowledgement or other action
on the part of Lessee or Lessor.
SECTION 7.4 BOND PROCEEDS
A. The proceeds from the sale of the Bonds shall be deposited in the
Series 1980 Construction Fund (hereinafter referred to as "Construction Fund"),
except the (1) accrued interest which shall be deposited in the Interest and
Sinking Fund and $ -O- shall be deposited in the Reserve Fund. From the bond
proceeds Lessor shall make payments as required for outlays in the acquisition
and construction of the Engineering Building including redemption, payment and
discharge of interim financing obligations. All items for which Lessee may seek
reimbursement
- 4 -
<PAGE>
and all such further expenditures required to complete the Engineering Building
and make payment therefor shall be approved for payment by the City Council of
Lessor only upon approval and recommendation for payment by Lessor's City
Manager.
B. Any and all amounts which may remain from the proceeds of the sale of
the Bonds after all the aforementioned obligations have been discharged thereby
shall be used, to the nearest multiple of $5,000, for the purchase and
redemption of Bonds of said Series in the open market or, of no bonds available
at a reasonable price any remaining proceeds shall be transferred into the
Interest and Sinking Fund provided for in said Bond Ordinance.
7.5 NET RENT
A. For and in consideration of Lessor's performance of its obligations
hereunder and Lessee's enjoyment of its rights pursuant to the provisions
hereof, cumulative of and in addition to all other rentals, fees or payments for
which Lessee is obligated to Lessor under Part I. of this Agreement, Lessee
further agrees to pay Lessor additional rentals known as "Net Rent" as follows:
(1) On or before the 15th day of January 1981, and on or before the
15th day of each month thereafter, a sum of money equal to (a) one-sixth of
the interest installment next to become due on the Bonds; and (b)
one-twelfth of the amount of principal to become due on the next succeeding
principal maturity date; and (c) the amount, if any, required to be
deposited in the Reserve Fund by Section 14 of the Bond Ordinance.
(2) On the first day of the month next preceeding an interest payment
date, the Lessor shall render a bill for charges as may be imposed on
Lessor by the paying agent or agents performing such services under such
Bonds and any other expense necessary and incident to the payment thereof
and such amount shall be paid by the Lessee within 15 days.
For the convenience of the parties a schedule of Bond requirements referred to
in subparagraph (1) above is to be attached hereto and marked "Attachment B"
when Bonds are issued as contemplated by Section 7.2 hereof. It is provided,
however, if at any time Lessor or any successor to Lessor, with its own funds or
with funds available to it from sources other than Net Rent, shall prepay and
retire or make cash provision for the payment and retirement of any or all of
the Bonds, or shall deliver to the holders of the Bonds or any part thereof
other and different Bonds of the Lessor or of its successor in exchange for such
Bonds so that no payment of principal and interest shall be due
- 5 -
<PAGE>
on all or such part of the Bonds, Lessee shall, nevertheless, make payments of
Net Rent under this Section at the same times and in the same amounts as would
be payable under such Section if the Bonds were still due and outstanding and
were bearing interest in the normal course of their maturities.
SECTION 7.6 PAYMENT OF RENTAL
A. Net Rent shall be paid without further notice or billing.
The Lessee shall in no way be responsible for the application by Lessor of
such Net Rent made by Lessee.
B. Lessee may tender Lessor Bonds of the issue herein referred to
(provided all unmatured interest coupons are attached) for application on
amounts otherwise required to be paid by Lessee as Net Rent under the provisions
hereof. In such event, Lessor shall cancel such tendered Bonds and credit Lessee
(i) for the face value of such Bonds in each of the billings which would
otherwise reflect amounts needed to retire the principal thereof had they
remained outstanding and (ii) for all interest which would have accrued on such
tendered Bonds to maturity had they remained outstanding.
C. It is the intention of the parties that the Net Rent payable by Lessee
shall be equal to the amount necessary to enable Lessor to establish and
maintain a Reserve Fund and to enable Lessor to retire the Bonds as they mature,
together with interest thereon as it accrues, and together with the expenses
related thereto, at no cost to Lessor and it is acknowledged by Lessee that the
Bonds will be purchased in reliance upon the unconditional obligation of the
Lessee to pay Net Rent once such Bonds are issued and become outstanding; that
regardless of any other provision in this Agreement, Lessee shall on the dates
indicated on Attachment B make payments to the Lessor in the amount of such Net
Rent until the Bonds have been paid and retired, and no default by the Lessor
shall excuse performance by the Lessee of this obligation. It is provided,
however, that nothing contained in this Section shall be construed to release
the Lessor from the performance of any of the agreements on its part contained
in this Lease, and in the event the Lessor shall fail to perform any of such
agreements, the Lessee may institute such action against the Lessor as the
Lessee may deem necessary to compel performance or recover its damages for
nonperformance and may pursue any other lawful remedy, so long as such action
shall not do violence to the agreement of Lessee to pay the Net Rent hereunder
in the amounts and at the time stated.
SECTION 7.7 APPLICATION OF NET RENT TO PAYMENT OF BONDS
A. Lessor agrees to provide a special fund for the Bonds
- 6 -
<PAGE>
into which all payments received from Lessee as Net Rent (under Sinking Fund and
the Reserve Fund as required by the Bond Ordinance and used for no purpose other
than for the payment, security, retirement and redemption of such Bonds, and
interest thereon, or bonds issued on a parity therewith in accordance with the
terms and provisions of the Bond Ordinance. All sums received from the
purchasers of the Bonds as accrued interest thereon to date of delivery shall
be placed in the Interest and Sinking Fund and applied in reduction of payments
to be made with respect to the first semiannual interest installment on the
Bonds. Subject
to the provisions of paragraphs B and C of Section 7.6 hereof, any and all
proceeds from the sale of the Bonds which may remain unexpended upon final
completion of the Engineering Building and payment of all proper costs
incidental thereto, shall be transferred to and deposited in the Interest and
Sinking Fund and applied in reduction of next monthly rental payment or payments
otherwise required of Lessee following such transfer of funds.
B. Any and all payments received by Lessor from Lessee as Net Rent shall
be irrevocably pledged to and shall be deposited in the Interest and Sinking
Fund established by the Bond Ordinance. Any and all payments received as Reserve
Fund payments shall be deposited in the Reserve Fund.
C. It is agreed that the official depository of Lessor shall be the
custodian of the Interest and Sinking Fund and that prior to each principal and
interest maturity date it shall be the duty of Lessor to withdraw from said fund
and place with the paying agent bank money sufficient in the amount to pay the
principal and interest installments which will be due on such maturity date.
SECTION 7.8 SECURITY FOR FUNDS
All amounts deposited into the Interest and Sinking Fund and Reserve Fund
for the payment and security of Bonds and additional bonds shall be kept
separate and apart from all other City funds and continuously secured by valid
pledge of direct obligations of or obligations unconditionally guaranteed by the
United States of America having a par value, or market value when less than par,
exclusive of accrued interest, at all times at least equal to the amount of
money deposited in said fund to the extent the same are not covered by F.D.I.C.
insurance or secured as trust fund deposits. All sums of money deposited in
said funds shall be held as a trust fund for the benefit of the holders of the
Bonds and additional bonds, the beneficial interest in which shall be regarded
as existing in such bondholders.
SECTION 7.9 TITLE TO FACILITIES IN LESSOR
- 7 -
<PAGE>
The parties hereby confirm and agree that title to the Engineering Building
(or any portion thereof) which may be constructed on or before the date of this
Agreement is vested in Lessor subject to Lessee's possessory rights and that
title to any such facilities (or any portions thereof) which may be constructed
or completed after the date of this Agreement shall vest in Lessor as the same
are affixed to the land, subject to such possessory rights of Lessee.
SECTION 7.10 DESTRUCTION OF PREMISES, CONDEMNATION OF PREMISES
During the time any Bonds or obligations issued by the City payable from
any revenues obtained by reason of this Agreement (herein sometimes referred to
as "Additional Bonds") are outstanding then as to the Engineering Building, the
provisions of this Section (and not Section 1.18 or 1.20) shall control where
all or substantially all of the Engineering Building are (1) destroyed by an
insured casualty or (2) taken under color of governmental authority in the
exercise of the power of eminent domain.
Where this Section applies, the Leasee may elect whether the insurance or
condemnation proceeds will be applied (1) to the reconstruction or relocation of
the Engineering Building or (2) applied to the payment and retirement of Bonds
or Additional Bonds provided that if such proceeds and the amount then on hand
in the funds created for the benefit and payment of the Bonds and Additional
Bonds are not sufficient to finally pay such obligations, the Leasee shall
forthwith pay the deficiency into the Interest and Sinking Fund created for the
security of the Bonds and Additional Bonds.
In no event shall the destruction of or condemnation of all or any part of
the Engineering Building or any other event cause a change or reduction in the
obligation of the Leasee to pay Net Rent in an amount adequate to pay the
principal of, interest on, the Reserve Fund requirements and the fees of the
paying agent with respect to the Bonds and Additional Bonds.
SECTION 7.11 PROVISIONS OF PART I. MADE APPLICABLE
Except as to the terms of the lease and renewals thereof (contained in
Section 7.1) and the provisions relating to insurance and condemnation (as
contained in Section 2.11) - which provisions shall always control as to the
Engineering Building while Bonds are outstanding, all of the provisions of Part
I. of this Agreement shall also be applicable to the Engineering Building and
for the purposes of Part I., the same shall also be considered as Maintenance
Facilities thereunder upon completion of the Engineering Building or their
occupancy by the Lessee, whichever shall first occur.
- 8 -
<PAGE>
SECTION 7.12 CONSTRUCTION FUND
All proceeds of Bonds or additional bonds not required by the ordinance
authorizing their issuance or the other provisions of Part VII. of this
Agreement to be deposited in some other fund or funds, shall be deposited in the
Construction Fund with the City's depository bank.
Disbursements from the Construction Fund and investment of moneys therein,
pending the use thereof for authorized purposes, shall be governed by an escrow
agreement by and between the City and the depository bank. With respect to the
Bonds, the Mayor is hereby authorized and directed to execute an appropriate
escrow agreement, which shall be subject to approval by the City Attorney and
the Lessee, which agreement shall be in customary terms and:
(1) not be in conflict with any provisions of the Bond Ordinance or this
Agreement; and
(2) provide:
(a) funds may be disbursed only for the purpose of paying the cost of
construction and acquisition of the Engineering Building until the costs to
be provided by the bond proceeds have been paid, and then as provided in
this instrument and the Bond Ordinance.
(b) funds may be disbursed upon approval of the same by a
representative of the Lessor and Lessee; that the representative of the
Lessor shall be the person acting as the City Manager of the City of
Greenville, Texas.
(3) no change order may be executed, during the construction of the
project, which increases the amount of any contract to be paid by the City
unless the same has been approved by the City Council; nor shall any payment be
made under any contract until such contract has been approved by the City
Council.
SECTION 7.13 PLANS AND SPECIFICATIONS, APPROVALS, CONSTRUCTION, CHANGES,
CONTRACTS
(a) The Engineering Building Facilities shall be acquired, constructed,
installed, fabricated and equipped in accordance with plans and specifications
approved by the City and the Lessee.
Lessee shall prepare final plans and specifications of the Facilities,
which shall be submitted by Lessee to the City for approval, and construction
shall be substantially in accordance with such plans and specifications as may
be approved by the
- 9 -
<PAGE>
City with such changes as may be reasonably requested by Lessee and approved by
the City.
(b) Upon completion of the final plans and specifications of the
Facilities and approval of the same, bids will be taken by the City for
construction, acquisition, and/or fabrication of the Facilities based on such
plans and specifications. Following the receipt of bids from responsible
bidders, the City and Lessee will consider and approve such bids, and contracts
will then be awarded by the City to install, construct, fabricate and equip the
Facilities. Lessee may, with the City's prior approval, enter into contracts
for the design work and for the preparation of the preliminary and final plans
and specifications for the Facilities prior to the time that proceeds from the
sale of the Bonds are available.
(c) Whenever approval of either the City or Lessee is required in this
Section 7.13, such approval shall not be unreasonably withheld by either the
City or the Lessee; provided, however, nothing herein shall be construed as
requiring the City to undertake any such project.
(d) Contracts relating to the construction, acquisition, equipping,
fabrication or installation (or purchases in connection therewith) of the
Facilities shall include appropriate provisions for expediting the work and for
performance and payment bonds so as to assure completion by specified
performance dates and to protect the Facilities against liens, such bonds to
name the City as the beneficiary thereof.
(e) All necessary approvals from governmental agencies shall be obtained
prior to acquiring, constructing, fabricating, equipping or installing the
Facilities, and such improvements shall be acquired, constructed, fabricated,
equipped or installed in compliance with all state and local laws, ordinances
and regulations applicable thereto. Upon completion of the Facilities, all
required occupancy permits and authorizations from appropriate authorities
contemplated by Lessee shall be obtained by Lessee. All changes, alterations,
extras or additions (hereinafter in this subsection (e) called "changes") to or
from and contracts or purchase orders executed or entered into pursuant to the
provisions of this Article VI. shall be approved in advance by the parties
hereto. All requests, approvals and agreements required shall be in writing and
signed by a duly designated representative of the party making such request,
granting such approval or entering into such agreement. All changes to the
Facilities may be made after consultation with and approval by the Lessee.
(f) It is expressly agreed and understood that the City will not and shall
not be required to expend any of the proceeds of the Bonds for any purposes, or
in any amounts which are contrary to the terms of the Bond Ordinance.
- 10 -
<PAGE>
SECTION 7.14 INSUFFICIENCY IN FUNDS
In the event the proceeds from the sale of the Bonds are insufficient to
pay Construction Costs in full, then the Lessee shall pay the amount of the
insufficiency.
SECTION 7.15 EFFECTIVENESS OF PART VII.
This Part VII. shall be effective from and after the date the Revenue
Bonds (contemplated in Section 7.2 hereof) are sold by the Lessor.
In the event additional facilities are to be hereafter constructed (as
contemplated by Section 2.14) the approval of the Lessee of the interest rates
and other terms and conditions thereof shall be approved by the Vice President
of the Lessee.
ATTEST: CITY OF GREENVILLE
/s/ Irene Wilson /s/ William F. Elkins
- ---------------------------- ----------------------------
City Clerk Mayor
APPROVED AS TO FORM:
/s/ Debra Adami
- ----------------------------
City Attorney
ATTEST: E-SYSTEMS, INC.
/s/ Joe D. Reynolds /s/ A. L. Lawson
- ---------------------------- ----------------------------
Assistant Secretary Vice President
- 11 -
<PAGE>
STATE OF TEXAS )
COUNTY OF HUNT )
BEFORE ME, the undersigned authority in and for Hunt County, Texas, on this
day personally appeared A. L. Lawson of E-SYSTEMS, INC., known to me to be the
person whose name is subscribed to the foregoing instrument and known to me to
be the VICE PRESIDENT of E-SYSTEMS, INC., and acknowledged to me that he
executed the same for the purposes and consideration therein expressed and in
the capacity therein stated as the act and deed of E-SYSTEMS, INC.
GIVEN UNDER MY HAND AND SEAL of office this the 2nd day of
February, 1981.
[SEAL]
/s/ Betty English
----------------------------
Notary Public in and for
Hunt County, Texas
STATE OF TEXAS )
COUNTY OF HUNT )
BEFORE ME, the undersigned authority in and for Hunt County, Texas, on this
day personally appeared William F. Elkins of the City of Greenville, Texas,
known to me to be the person whose name is subscribed to the foregoing
instrument and known to me to be the Mayor of the City of Greenville, Texas, and
acknowledged to me that he executed the same for the purposes and consideration
therein expressed and in the capacity therein stated as the act and deed of the
City of Greenville, Texas.
GIVEN UNDER MY HAND AND SEAL of office this the 3rd day of
February, 1981.
[SEAL]
/s/ Irene Wilson
----------------------------
Notary Public in and for
Hunt County, Texas
- 12 -
<PAGE>
1977 LEASE AGREEMENT
THIS AGREEMENT OF LEASE dated as of October 1, 1977, between the CITY OF
GREENVILLE, TEXAS, a municipal corporation of the State of Texas (herein
referred to as "Lessor"), and E Systems, Inc., a Delaware Corporation (herein
referred to as "Lessee");
W I T N E S S E T H:
WHEREAS, Lessor owns and operates an airport in Hunt County, Texas, known
as Majors Field (herein referred to as the "Airport")
WHEREAS, Lessee is engaged in the business of aircraft maintenance and
modification, including the design, manufacture and installation of
communication, navigation and guidance systems for commercial, military and
publicly owned aircraft; and
WHEREAS, Lessor and Lessee have heretofore entered into certain leases
(which are described in Section 6.6) with respect to certain premises at the
Airport which are consolidated, restated and amended by this instrument; and
WHEREAS, it is the intention of the parties that title to any improvements
heretofore or hereafter constructed by Lessee on such lease premises shall vest
in Lessor as the same are affixed to the land and that possession thereof shall
revert to Lessor at the expiration or earlier termination of the several and
separate tenancies created under this agreement; and
NOW, THEREFORE, the parties hereto, for and in consideration of the mutual
covenants herein contained, agree with respect to the several and separate
tenancies hereinafter more particularly identified as follows:
PART I
AIRCRAFT MAINTENANCE PREMISES
SECTION 1.1 PREMISES - DEMISE
(a) Effective as of the date hereof, Lessor hereby leases and rents and
Lessee hereby hires and takes for its exclusive use those certain premises,
indicated as Tracts A & B on Exhibit A attached hereto, consisting of an area of
approximately 534.88 acres, and the improvements thereon, such premises and
improvements being herein collectively referred to as the "Maintenance
Premises", which are further described the legal description set forth in
Exhibit B.
(b) Effective as of the date hereof, Lessor hereby leases and rents and
Lessee hereby hires and takes for its non-exclusive use those certain premises
indicated as Tract C on Exhibit A attached hereto, consisting of approximately
720.02 acres, and the improvements thereon, such premises and improvements being
the runways, aprons, and taxiways being herein collectively referred to as Base
Facilities and further described in the description set forth in Exhibit C.
-1-
<PAGE>
(c) The Maintenance Premises and the Base Facilities are collectively
referred to as the Premises. The term Airport includes the Premises as well as
other properties located upon the land within the boundaries set forth in
Exhibit D.
SECTION 1.2 TERM
The initial term of the tenancy created under this Part I shall commence on
the date hereof and expire on August 31, 1981. Lessee shall have the option to
renew such term for three consecutive five year terms on the same terms and
conditions, except for such right of renewal and except that during each such
renewal term Lessee shall pay ground rental only, as provided in Section 1.3
hereof. Lessee shall not be deemed to have exercised the foregoing option
unless notice of the exercise of the option has been received not less than
sixty (60) days before the expiration of the initial term and hereafter such
notice has been received not less than sixty (60) days before any extension
under said option.
SECTION 1.3 GROUND RENTAL
(a) Commencing on the first day of the month immediately following the
execution hereof by both parties, and continuing until December 31, 1980, Lessee
shall pay ground rental for the Maintenance Premises in monthly installments of
$30,725 as Ground Rent, and thereafter from January 1, 1981 through August 31,
1981 (and any lease extensions) the Lessee shall pay as ground rental for the
Maintenance Premises in monthly installments of $725 as Ground Rent.
(b) In the event Lessor shall issue revenue bonds and using the proceeds
thereof shall reimburse Lessee its costs, as approved by Lessor, which were
incurred in the construction of improvements on the Additional Maintenance
premises, provision for debt service on such bonds through payment by Lessee of
additional rental shall be as provided in Part II of this Agreement.
SECTION 1.4 USE OF PREMISES AND AIRPORT
Lessee shall have the exclusive use (subject to the provisions hereof) of
the Maintenance Premises and the non-exclusive use of the Base Facilities.
SECTION 1.5 LESSEE'S IMPROVEMENTS
Lessee shall have the right to construct additional maintenance facilities
on land described in Exhibit B in accordance with the plans and specifications
approved by Lessor, as are appropriate for the use thereof for the purposes
authorized under Section 1.4, above, including aircraft hangar and maintenance
facilities and aircraft and vehicular parking areas.
-2-
<PAGE>
SECTION 1.6 ACCESS TO PREMISES
Lessee shall have full and unrestricted access to and egress from the
Maintenance Premises for Lessee, aircraft owned by Lessee, its employees,
passengers, guests, patrons, invitees, suppliers of materials and furnishers of
service, its or their equipment, vehicles, machinery and other property without
charge to Lessee or such other enumerated parties except for such charges to be
paid by Lessee as are expressly provided for in this Part I.
SECTION 1.7 ASSIGNMENT AND SUBLETTING
(a) No assignment or subletting pursuant to this Section 1.7 shall release
Lessee from its obligations under this Part I. Lessee shall have the right to
assign its rights and interest under this Part I to any parent, subsidiary,
affiliated or successor corporation. The consent of Lessor thereto shall not be
required but due notice thereof shall be given Lessor within 60 days after any
such assignment is executed.
The Lessee may assign or sublet to any party (not a parent, subsidiary,
affiliated or successor corporation) of the Maintenance Premises only with the
written consent of the Lessor. Such consent shaLl not be arbitrarily withheld.
(b) Any corporation affiliated with, subsidiary of or successor to Lessee
shall have the right to use the Maintenance Premises in the same manner and to
the same extent as Lessee without the payment of any additional rental, fees or
charges to Lessor therefor.
SECTION 1.8 RULES AND REGULATIONS
Lessor may adopt and enforce reasonable rules and regulations, which Lessee
agrees to observe and obey, with respect to the use of the Base Facilities,
which shall provide for the safety of those using the same; provided that such
rules and regulations shall be consistent with safety and with rules,
regulations and orders of the Federal Aviation Administration with respect to
aircraft operations at the Base Facilities and provided further that such rules
and regulations shall not be inconsistent with the provisions of this Agreement.
SECTION 1.9 NOTICES
Notices provided for in this Agreement shall be sufficient if sent by
registered or certified mail, postage prepaid, addressed, if to Lessor, to City
of Greenville, Attention: City Manager, P. O. Box 1049, Greenville, Texas 75401;
and if to Lessee, to E Systems, Inc., Attention: General Manager, P. O. Box
1056, Greenville, Texas 75401, or to such other respective addresses as the
parties may designate in writing from time to time.
-3-
<PAGE>
SECTION 1.10 QUIET ENJOYMENT, USE
Upon and subject to the other terms and provisions hereof and unless a
material default shall have occurred hereunder, the Lessee shall be suffered and
permitted to have peaceful possession and quiet enjoyment of the Premises for
any lawful purpose, incident and related to the Lessee's business operations.
SECTION 1.11 INGRESS AND EGRESS
(a) As to all Premises hereunder, the Lessee and its officers, employees,
invitees, guests, and suppliers of materials and furnishers of services, shall
have the right of free and uninterrupted ingress and egress between the Premises
and any public street or roadway outside the Airport by means of the roadways
leading to and from the Airport.
The use of such roadways within the Base Facilities shall be subject to the
reasonable rules and regulations of the Lessor now in effect or which may
hereafter be promulgated, for the safe and efficient operation of the Base
Facilities. In any event the Lessee and its officers, employees, guests,
invitees, suppliers of materials and furnishers of services shall have at all
times free and unrestricted and uninterrupted vehicular ingress and egress to
and from the Maintenance Premises.
(b) The Lessor may, at any time, temporarily or permanently, close, or
consent to, or request the closing of, any such roadway and any other area
within the Base Facilities presently or hereafter used as such, so long as a
reasonably equivalent means of ingress and egress, as provided above, remains
available to Lessee. Lessee hereby releases and discharges the Lessor, its
successors and assigns, of and from any and all claims, demands or causes of
action Lessee may have against the Lessor by reason of the exercise of any of
the powers reserved to the City under this subsection.
SECTION 1.12 UTILITY SERVICES RELATED TO THE MAINTENANCE PREMISES
(a) Included in the Construction Costs of the Maintenance Premises shall
be all amounts necessary to provide connection costs to Lessor owned and
operated utility services (electric, water and sewer) to the Maintenance
Premises. Lessee will provide at no cost to the Lessor all other utilities
required or desired for the Maintenance Premises. Lessee will pay all bills for
water, light, heat, electricity, sewer, gas and other utility services used on
the Maintenance Premises during the term of this Agreement. Charges for Lessor
owned and operated utilities shall be at the same rates which are charged other
customers in the same classification as Lessee.
(b) No failure to furnish, or no delay or interruption in, any utility
service or services, whether such service or services shall be supplied by the
Lessor or by others, shall relieve or be construed to relieve the Lessee of any
of its obligations hereunder, or shall be construed to be an eviction by the
Lessor, or shall constitute grounds for any diminution or abatement of the
Ground Rent or the Net Rent payable under this Agreement, or grounds for any
claim by the Lessee for damages, consequential or otherwise, except when
resulting from the willful failure of
-4-
<PAGE>
the Lessor to furnish or suppLy such services, if any (except where the Lessee
is in default in the payment of rentals). It is provided, however, that nothing
herein shall diminish or abate the requirement herein that Net Rent shall be
paid unconditionally.
(c) Nothing in this Agreement shall be construed as limiting the right of
the Lessor to disconnect or discontinue utility service or services if Lessee
fails to pay the established rates and charges (as contemplated by the paragraph
(a) of this Section) but such remedy shall be in addition to other remedies
provided herein.
SECTION 1.13 CARE, MAINTENANCE AND REPAIRS OF PREMISES
(a) The Lessee shall at all times keep in a clean and orderly condition
and appearance of the Maintenance Premises, and all of the Lessor's fixtures,
equipment and personal property which are located in or upon any part thereof.
(b) The Lessee shall paint, repair, replace or rebuild all or any part of
the Maintenance Premises, interior or exterior, structural or non-structural,
which may be damaged or destroyed. The Lessee shall have the right to apply
available insurance proceeds to such purposes as contemplated by Section 1.18 or
Section 1.19 hereof.
(c) Additionally the Lessee shall take good care of the Maintenance
Premises; shall maintain the same at all times in good condition; shall make all
repairs and replacements inside and outside, ordinary or extraordinary,
structural or otherwise which repairs and replacements by the Lessee shall be in
first class quality; and shall pay promptly the costs and expenses of such
repairs, replacements and maintenance.
SECTION 1.14 SERVICES TO AIRPORT USERS, DISCRIMINATION
The Lessee, in its operation of the Maintenance Premises or in the use of
any portion of the Premises or in exercise of any privileges under this
Agreement, shall not on the grounds of race, creed, color or national origin
discriminate or permit discrimination against any person or group of persons in
any manner whatsoever.
SECTION 1.15 GOVERNMENTAL REQUIREMENTS, CITY REGULATIONS
(a) The Lessee shall comply with any applicable Federal Aviation
Regulations, as the same may be amended from time to time, and any other present
or future laws, rules, regulations, orders or directions of the United States of
America, or the State of Texas, which from time to time may be applicable to the
Lessee's operations hereunder.
-5-
<PAGE>
(b) The Lessee shall procure from all governmental authorities having
jurisdiction of the operations of the Lessee hereunder, all licenses,
franchises, certificates, permits and other authorization which may be necessary
for the conduct of such operations, and it shall comply with all laws and lawful
ordinances, and governmental rules, regulations and orders during the term of
this Agreement which from time to time may be applicable to the Lessee's
operations on the Maintenance Premises.
(c) The Lessee covenants and agrees to observe and obey (and to require
its officers and employees to observe and obey and to exercise its best efforts
to require guests and invitees and those doing business with it to observe and
obey) the reasonable rules and regulations of the Lessor (including amendments
and supplements thereto) governing the conduct and operations of the Lessee and
others on the Base Facilities, and such future reasonable rules and regulations
as may, from time to time during the term hereof, be promulgated by the Lessor
for reasons of safety, health, sanitation and other order; provided that any
such rules and regulations shall not be inconsistent with the provisions of this
Agreement or with the rules and regulations of the Federal Aviation
Administration. The obligation of the Lessee to exercise its best efforts to
require such observance on the part of its guests, invitees and business
visitors shall apply only while such persons are on the Base Facilities.
(d) With respect to the Base Facilities, any license, franchise,
certificates, permits or other authorizations shall be obtained in the name of
the Lessor.
SECTION 1.16 PROHIBITED ACTS
(a) The Lessee shall commit no nuisances (as defined in Article 4477-1,
Section 2, V.A.C.S.) on the Premises, and shall not do or permit to be done
anything which may result in the creation or commission or maintenance of a
nuisance thereon.
(b) The Lessee shall not permit a lien or liens to become attached to the
remainder interests of the Lessor, or upon the leasehold intent of the Lessee,
without the consent of the Lessor, or suffer or permit a lien or liens for taxes
to be imposed or attached thereto, unless Lessee is contesting in good faith
the tax or claim that is the basis of the lien, in which event Lessee shall
dissolve the lien or stay or prevent its foreclosure by bond or other
appropriate legal procedure. The City shall cooperate with the Lessee in the
protest or defense of any unjust claim or levy of tax upon the Lease Premises
or the leasehold interest of the Lessee.
SECTION 1.17 INSURANCE RELATING TO MAINTENANCE PREMISES
(a) During the acquisition, construction, fabrication and installation
period and until the Maintenance Premises or any part thereof are occupied, the
Lessor shall provide, or cause to be provided, builder's risk insurance as to
all items of construction and all other insurance as to other items required and
reasonably obtainable with responsible insurers to insure against risks of loss
or damage to such facilities, so as to protect the interest of the Lessor, the
Lessee, contractors and suppliers therein. During such period the Lessor shall
also maintain, or cause the contractors or suppliers to maintain, liability
insurance, which shall comply with the requirements of paragraph iii, below.
-6-
<PAGE>
Immediately prior to occupancy of all or any part of the Maintenance
Premises, the Lessee shall obtain and thereafter maintain or cause to be
maintained, with responsible insurers, the following kinds and the following
amounts of insurance, with such variations as shall reasonably be required to
conform to applicable standard or customary Texas insurance provision, to wit:
(i) with respect to every structure and the contents and fixtures thereof
constituting part of the Maintenance Premises, multi-risk insurance on each
structure and its fixtures and contents, covering direct physical loss or damage
(including the cost of removal of debris) to such structure and its fixtures and
contents, in such amount and of such character as, under the terms and
provisions thereof, will provide a recovery, in the event of the occurrence of
any loss or damage from an insured cause, equal to the full amount of loss or
damage on a replacement cost basis up to the amount reasonably obtainable as the
maximum probable loss or damage (including the cost of removal of debris) to
such structure and its fixtures and contents from any such cause; provided,
however, that Lessee's insurance may contain a co-insurance clause providing for
coverage of not less than eighty per cent (80%) of such replacement cost and a
deductible not exceeding One Hundred Thousand Dollars ($100,000) respecting any
one casualty. The risks to be insured against pursuant to this paragraph are
the risks against direct physical damage or loss from fire and so-called
extended coverage periods to the extent such coverage is reasonably obtainable;
(ii) on all other structures to become part of the Maintenance Premises
during the construction or reconstruction thereof by the Lessee, such builder's
risk insurance as is customarily carried by others with respect to similar
construction or reconstruction, but the Lessee shall not be required to maintain
any such insurance to the extent that
such insurance is carried by contractors for the benefit of the Lessee and the
Lessor;
(iii) public and other liability insurance of such character and amount as
shall be reasonably adequate to insure the Lessor and the Lessee against risks
to which the Lessor and/or the Lessee may reasonably be or become subject in the
operation, construction or reconstruction of the Maintenance Premises, but the
Lessee shall not be required to maintain any such insurance to the extent that
such insurance is carried for its benefit by any licensee or other person
operating, occupying or using any part of the Maintenance Premises or by
contractor. Initially, such insurance shall provide coverage of not less than
Five Hundred Thousand Dollars ($500,000) for injury to or death of a person or
persons in any one occurrence and not less than One Hundred Thousand Dollars
($100,000) for damage to property in any one accident, with a deductible for
such occurrence or accident in a reasonable amount at Lessee's option; and
(iv) such workmen's compensation or employer's liability insurance as may
be customarily carried or required by law and such other insurance as is
customarily carried by others engaged in business similar to Lessee.
-7-
<PAGE>
(b) All policies evidencing insurance maintained or caused to be
maintained by the Lessee with respect to the Maintenance Premises shall be
issued by the home office of the insurer(s) or by a duly authorized agent of the
insurer(s) and shall name the Lessor and the Lessee as insureds, as their
interest shall appear, and shall be deposited with the Lessee but subject to
inspection and examination by the Lessor. Any such insurance may be written in
blanket policies issued to Lessee covering other property and operations so long
as the Maintenance Premises are specifically stated to be covered in such
policies. All proceeds from claims shall be paid directly to the Lessee. The
Lessor shall have the right and is hereby authorized in its own name to demand
and sue, collect and receive claims and moneys hereunder if Lessee fails to do
so. The net proceeds of any and all such insurance required by paragraph (i)
and (ii) of subsection (a), above, shall be applied as prescribed in Section
1.18 below.
SECTION 1.18 DAMAGE, DESTRUCTION, DISPOSITION OF INSURANCE PROCEEDS
(a) In the event the Maintenance Premises or a substantial part thereof
are damaged or destroyed by an insured casualty, the following provisions shall
be applicable:
(i) the Lessee shall have the right to determine whether the Maintenance
Premises should be reconstructed or repaired. If the Lessee elects not to
reconstruct or repair the Maintenance Premises, any insurance proceeds shall be
paid to and retained by the Lessor and this Part I of the Agreement and all
unaccrued obligations thereunder shall thereupon be terminated. If the Lessee
elects to reconstruct or repair the Maintenance Premises and if the insurance
proceeds are sufficient to reconstruct or repair the Maintenance Premises or if
the insurance proceeds are insufficient and the Lessee agrees to bear and pay
the deficiency, the insurance proceeds and the amount paid by the Lessee shall
be applied to the repair or restoration of the Maintenance Premises, in
accordance with the original plans and specifications, together with any
alterations or modifications made or agreed upon prior to the casualty, or in
accordance with new or modified plans and specifications, the alternative to be
determined by the Lessee. If the said proceeds are in excess of the amount
necessary for repair or restoration, any such excess shall be paid to and
retained by the Lessee.
(ii) Before any reconstruction or repair under this Section, Lessee shall
submit plans and specifications to the Lessor for approval and construction
shall be substantially in accordance therewith subject to such changes as may be
reasonably requested by Lessee and approved by the Lessor. The Lessor reserves
the right specifically to approve the contractor and/or the architect/engineer
selected by the Lessee for such reconstruction or repair work.
(iii) in the event the Maintenance Premises are damaged by an insured
casualty, but the destruction is not all or substantially all of the Maintenance
Premises, then the insurance proceeds shall be applied by the Lessor to the
reconstruction and repair of the premises and the Lessee agrees to bear and
-8-
<PAGE>
pay the deficiency. The Premises shall be repaired or restored in accordance
with the original plans and specifications, together with any alterations or
modifications made or agreed upon by the parties hereto. If the proceeds of
insurance are in excess of the amount required for such repair or restoration,
any excess shall be paid to and be retained by the Lessee.
SECTION 1.19 MISCELLANEOUS INSURANCE COVENANTS
(a) The Lessee shall, no later than the first day of January in each year
during the term hereof, file or cause to be filed with the Lessor a certificate
stating in reasonable detail the insurance with respect to the Maintenance
Facilities then in effect pursuant to the requirements of Section 1.17 hereof or
otherwise, and with respect to each policy the name of the insurer, the amount,
policy number, premium, the expiration date, and the hazards covered thereby,
and that the premium thereof has been paid; and whether the Lessee is then
maintaining or causing to be maintained insurance conforming in all respects
with the requirements of Section 1.17 hereof.
(b) Any appraisal or adjustment of any loss, claim or damage under any
policy of insurance with respect to the Maintenance Premises, and any settlement
or payment of proceeds under any such policy which may be agreed upon between
the Lessee and any insurer, shall be evidenced by a certificate of the Lessee
filed with the Lessor, approving such appraisal, adjustment, settlement or
payment as required and satisfactory in the interests of the Lessor and the
Lessee.
(c) Lessee's obligation under this Section shall not effect its right to
carry additional insurance solely for its own account
(d) In the event the Lessee fails to maintain or cause to be maintained
the full insurance coverage required by this Agreement, the Lessor may (but
shall be under no obligation to) obtain the required insurance coverage and pay
the premiums for the same; and all amounts so advanced therefor by the Lessor
shall become an additional obligation of the Lessee to the Lessor, which
amounts, together with interest thereon at the rate of 10% per annum for the
date of payment thereof, the Lessee agrees to pay upon demand.
SECTION 1.20 CONDEMNATION
(a) In the event that title to or use of the Lease Premises or a
substantial part thereof is taken under color of governmental authority and
there are no bonds or additional bonds outstanding then the provisions of this
Section shall govern. In the event there are bonds or additional bonds
outstanding at the time title to or use of lease premises or a substantial part
thereof is taken, under color of governmental authority, then the provisions of
Section 2.11 shall apply.
-9-
<PAGE>
(b) In the event this Section is applicable, than the Lessee may:
(i) request that the Maintenance Premises be rebuilt elsewhere and
agree to pay any deficiency not covered by the condemnation proceeds as
Ground Rent, or if such proceeds are in excess of the amount necessary for
such purpose, any such excess shall be paid to the Construction Fund. The
rebuilding of the Maintenance Premises shall be in accordance with the
original plans and specifications, together with alterations or
modifications made or agreed upon prior to the taking, or in accordance
with new or modified plans and specifications, the alternative to be
determined by the Lessee. In the event of rebuilding under this paragraph,
the Ground Rent shall abate as to any of the Leased Land rendered useless
by the taking, as of the time of the taking, and the parties shall
appropriately amend the description of the Leased Land and the new Ground
Kent shall become effective as of the date the Lessee is given beneficial
use of the rebuilt Maintenance Premises.
(ii) or cancel the lease, in which event, all Condemnation proceeds
shall be paid to the Lessor.
(c) Tn the event that title to or use of less than a substantial part of
the Leased Premises is taken by the power of eminent domain (that is, if the
primary use of the Maintenance Premises is not substantially impaired by
deletion of the part taken) the Lessee shall determine whether any rebuilding is
necessary. Any condemnation proceeds not used for the purpose of rebuilding
shall be applied until exhausted in reduction of the Ground Rent payable
hereunder.
(d) Section 2.14 hereof shall apply to any rebuilding under this Section,
to the same extent as it applies to new construction undertaken by the Lessor.
SECTION 1.21 MISCELLANEOUS OPERATION PROVISIONS
(a) With the prior written approval of the Lessor, Lessee may erect,
maintain or display signs of advertising at or on the exterior parts of the
Maintenance Premises or in or on the Leased Premises so as to be visible outside
the Maintenance Premises. Exterior signs affecting public safety and security
shall be subject to approval by Lessee and the Lessor. If the
-10-
<PAGE>
Lessor has not given approval, as aforesaid upon receipt of notice the Lessee
shall remove, obliterate or paint out any and all advertising, signs, posters
and similar devices placed by the Lessee on the Maintenance Premises. In the
event of a failure on the part of the Lessee so to remove, obliterate or paint
out unapproved signs affecting public safety and to restore the necessary work
and the Lessee shall pay the cost thereof to the Lessor on demand.
(b) The Lessee shall maintain such obstruction lights and landing lights
as the Lessor may install, and Lessor shall furnish and install the bulbs and
furnish the electricity necessary for the operation thereof, and Lessee shall
operate the same in accordance with the requirements of F.A.A. The Lessor
hereby directs that all said lights shall, until further notice, be operated for
a period commencing thirty (30) minutes before sunset and ending thirty (30)
minutes after sunrise (as sunset and sunrise may vary from day to day throughout
each year) and for such other periods as may be directed or requested by the
control tower of the Airport. In addition, Lessee shall also provide and
maintain fire protection and safety equipment at the Maintenance Facilities and
all other equipment of every kind and nature required by any law, rule, order,
ordinance or resolution of any governmental authority having jurisdiction over
the Airport.
(c) Except to the extent required for the performance of the obligations
or the exercise of rights of the Lessee hereunder, nothing contained in this
Agreement shall grant to the Lessee any rights whatsoever in the air space above
the Maintenance Premises in excess of a height set forth in the plans and
specifications for the Maintenance Premises.
(d) All personal property and all property and installations (including
trade fixtures) removable without material damage to the Maintenance Premises,
which are installed by Lessee in or on the Maintenance Premises, shall be deemed
to be and remain the property of the Lessee. All such property and
installations may at Lessee's option be removed by Lessee from the Maintenance
Premises at any time during the term of this Agreement, and, unless otherwise
agreed in writing by the parties, shall be removed by Lessee at or before the
expiration or other termination of the term of this Agreement provided that any
damage to the Maintenance Premises caused by said removal shall be repaired by
Lessee so as to return the premises to the Lessor in the same or similar
condition as when entered by Lessee, reasonable wear and tear excepted. Any
such property remaining on the Maintenance Premises beyond thirty (30) days
thereafter shall be deemed to be abandoned by Lessee.
(e) All water, gas, oil and mineral rights in and under the soil are
expressly reserved by the Lessor.
(f) Title to all existing permanent improvements on the Maintenance
Premises and title to any permanent buildings or permanent structures hereafter
constructed on such Maintenance Premises shall immediately vest in the Lessor as
a part of the Airport.
-11-
<PAGE>
SECTION 1.22 ADDITIONAL PROVISIONS FOR OPERATIONS
Lessee agrees to operate and maintain that portion of said airport facility
located and situated within the area described in Exhibits A and C (herein
called Base Facilities) in conformity with each and all of the provisions and
requirements set forth and referred to in paragraphs 6 and 22 of Part V of
Federal Aviation Administration Form 5100-100, the same being and composing a
part of the grant agreement entered into by and between Lessor and the United
States of America, and which provides, among other things, for a grant of funds
pursuant to Airport Development and Aid Program Project No. 7-48-0098-01 for the
construction of certain improvements to said Base Facility, and reference to
which being here made for all purposes as if the same were copied in their
entirety herein, accepting hereby the same responsibilities and undertakings as
Lessor assumes upon the execution of said grant agreement.
It is understood and agreed that Lessee shall indemnify and hold harmless
Lessor, and each and all of the officials, officers, agents, servants and
employees of Lessor, from and against all claims and causes of action, damages,
losses and expenses, including all costs of court and attorney's fees incidental
thereto, arising out of or resulting from the undertakings specified and
referred to in the preceding paragraph hereof by Lessee, any subcontractor
thereof, anyone directly or indirectly employed by either of them, or anyone
whose acts, errors or omissions any of them may be liable, which are caused in
whole or in part by any error, omission or act of any of them.
In a like manner, it is understood and agreed that Lessor shall indemnify
and hold harmless Lessee, and each and all of the officers, agents, servants and
employees of Lessee, from and against all claims and causes of action, damages,
losses and expenses, including all costs of court and attorney's fees incidental
thereto, arising out of or resulting from the operations of Lessor upon said
Airport Facilities, or anyone directly or indirectly employed by it, or anyone
whose acts, errors or omissions any of them may be liable, which are caused in
whole or in part by any error, omission or act of any of them; excepting,
however, any of those acts, errors or omissions set forth and specified in the
preceding paragraph hereof.
In connection with the obligations assumed by Lessee in the first paragraph
of this Section, it is understood and agreed that in the event Lessor permits or
agrees to permit third parties (other than those owning or operating aircraft
exempted by said ADAP grant and Lessee's customers or guests) regular use
(defined as aircraft parking by tenants on the airport or otherwise for in
excess of three hours on any four days during any calendar month or four
aircraft touchdowns from flight during any calendar month) of any facility
within the area described in Exhibit A and C, Lessor shall impose (and,
periodically, based on subsequent experience, adjust the amount of) uniform use
fees which are sufficiently large to offset and reasonably anticipated increases
in maintenance costs attributable to such third party use (but in no event above
the levels which are competitive with those charged by similar airports in North
and Central Texas for similar airport use). In determining the amount of such
use fees,
-12-
<PAGE>
Lessor shall have the right of examining relevant portions of Lessee's books and
records, and such examination may only be conducted by Lessor's Director of
Finance or a Certified Public Accountant (as designated by Lessor) having no
conflict of interest with any such third party. It is understood and agreed
that Lessor will use all due diligence (and Lessee will cooperate with Lessor as
needed) in seeking and obtaining federal and state assistance to perform major
renovation and/or upgrading of facilities on said tract provided local matching
funds are made available by Lessor's Governing Body or are made available to
said Governing Body by others. Lessee shall have the responsibility for
collecting any use fees charged hereunder and depositing the same in the
Construction Fund.
It is further agreed that in case a building, buildings or other
improvements are located on the land described in Exhibits A and B, the
provisions of this paragraph shall control if the same are destroyed or damaged
by fire, the elements or other disaster and for which insurance coverage is in
effect as provided for in this Lease, or for which a third party shall have
provided insurance coverage, Lessor, at the option of Lessee, will authorize the
replacement or repair of said buildings or improvements, the same to be paid for
out of the proceeds of the insurance as aforesaid, and the monthly rental will
be proportionately abated with respect to the buildings or improvements, which
Lessee is deprived of use for and during the period of disuse and pending their
repair or replacement. Should buildings or other improvements be destroyed as
aforesaid so as to make the premises, as a whole, unsuitable for Lessee's
continued occupancy, Lessee may at such time cancel the herein Lease and
thereafter all rights to Lessee's possession thereof shall at once cease and
this lease shall terminate as to both parties.
Lessee will assist Lessor in the updating of the airport layout plan
required under the provisions of Paragraph 25 of Part V of said FAA Form
5100-100, and will not make or permit the making of any changes or alterations
in said airport or any of its facilities other than in conformity with such
airport layout plan as so approved by the Federal Aviation Administration, if
such changes or alterations might adversely affect the safety, utility or
efficiency of said airport.
SECTION 1.23 PROVISIONS FOR TESTING
The provision of this Section shall be subordinate to the provisions of any
existing or future agreement entered into between the Lessor and the United
States to obtain Federal aid for the improvement or operation and maintenance of
the airport.
It is specifically understood and agreed that nothing herein contained
shall be construed as granting or authorizing the granting of an exclusive right
within the meaning of Section 308a of the Federal Aviation Act.
The Lessor reserves the right to take any action it considers necessary to
protect the aerial approaches of the airport against obstruction, together with
the right to prevent the Lessee from erecting, or permitting to be erected, any
building or other structures on the airport which, in the opinion of the Lessor,
would limit the usefulness of the airport or constitute a hazard to aircraft.
-13-
<PAGE>
Lessee shall have the right to utilize the public air operations area in
said Base Facilities in conjunction with the public, generally, for flight
operations, aeronautical testing, electronic testing and other aviation related
activities subject, however, to the same regulations, requirements and
limitations lawfully imposed upon the public.
In conjunction with its normal operations, Lessee shall have the right to
temporarily obstruct for aircraft electronic testing or aircraft launch
purposes, one of the runways or the south portion of the North-South parallel
taxiway in said Base Facilities, (the North portion of this taxiway is
permanently blocked) provided that during such periods the tower is manned and
operating and provided the runway or taxiway is appropriately marked as
obstructed, safety requirements of FAA and good practice are implemented, and
(in the case of a runway) an alternate runway is available for aircraft traffic.
Lessor shall not perform or suffer performance of any act on land in the
Base Facilities owned or controlled by Lessor which would unreasonably
interfere, or can be reasonably expected to interfere with, Lessee's said
electronic or aviation operations in said Base Facilities.
Lessor shall utilize said Tract only in a manner compatible with normal
airport uses.
SECTION 1.24 ADDITIONAL COVENANTS
The Lessee for itself, its successors in interest, and assigns, as a part
of the consideration hereof, does hereby covenant and agree as a covenant
running with the land that in the event facilities are constructed, maintained,
or otherwise operated on the said property described in this lease for a purpose
for which a Department of Transportation program or activity is extended or for
another purpose involving the provision of similar services or benefits, the
lessee shall maintain ad operate such facilities and services in compliance with
all other requirements imposed pursuant to Title 49, Code of Federal
Regulations, Department of Transportation Subtitle A, Office of the Secretary,
Part 21, Nondiscrimination in Federally-assisted programs of the Department of
Transportation-Effectuation of Title VI of the Civil Rights Act of 1964, and as
said Regulations may be amended.
The Lessee for itself, its successors in interest, and assigns, as a part
of the consideration hereof, does hereby covenant and agree as a covenant
running with the land that (1) no person on the grounds of race, color, or
national origin shall be excluded from participation in, denied the benefits of,
or be otherwise subjected to discrimination in the use of said facilities,
(2) that in the construction of any improvements on, over, or under such land
and the furnishing of services thereon, no person on the grounds of race,
color, or national origin shall be excluded from participation in, denied the
benefits of, or otherwise be subjected to discrimination, (3) that the Lessee
shall use the premises in compliance with all other requirements imposed by or
pursuant to Title 49, Code of Federal Regulations, Department of Transportation,
Subtitle A, Office of the Secretary, Part 21, Nondiscrimination in
Federally-assisted programs of the Department of Transportation-Effectuation
of Title VI of the Civil Rights Act of 1964, and as said Regulations may
be amended.
-14-
<PAGE>
That in the event of breach of any of the above nondiscrimination
covenants. City of Greenville shall have the right to terminate the lease and
to re-enter and repossess said land and the facilities thereon, and hold the
same as if said lease had never been made or issued.
Neither FAA approval of nor FAA consent to this lease shall be construed as
a waiver or in abrogation of any right or power of the Federal Government under
any existing or future lease, deed or other agreement of any kind, nor shall
such action by FAA be construed as no more than a finding of no objection under
then-current FAA policies, and shall not bar later action by the FAA to enforce,
or have the airport owner enforce, FAA policies affecting the airport.
It is further understood that such approval or other consent action by the
FAA creates no contractual relationship between Lessee herein and the FAA.
-15-
<PAGE>
PART II
SECTION 2.1 LEASE OF ADDITIONAL MAINTENANCE PREMISES
Effective as of the date hereof, (but subject to the provisions of Section
2.17 hereof) the Lessor hereby leases and rents and Lessee hereby hires and
takes for its exclusive use those certain premises indicated as building 136B,
108 and 116 on Exhibit E attached hereto, consisting of an area of approximately
108,250 square feet, and the improvements thereon or to be constructed thereon,
such premises and improvements being in this Part referred to as "Additional
Maintenance Premises" which are further described in the legal description set
forth in Exhibit E.
The initial term of the tenancy created under Part II of this Agreement
shall expire on August 31, 1989. Lessee shall have the option to renew such
term for a period, during the time that the property tenancy created in Part I
of this Agreement is in effect, ending August 31, 1996. During such renewal
period, the Ground Rent specified in Section 1.3 shall also be the Ground Rent
for the property covered by Part II of this Agreement. Lessee shall not be
deemed to have exercised the foregoing option unless notice of the exercise of
the option has been received not less than sixty (60) days before the expiration
of the initial term.
SECTION 2.2 ADDITIONAL MAINTENANCE PREMISES
The Additional Maintenance Premises consist of that additional land,
improvements and structures located or to be located on the land described in
Section 2.1 subject to the provisions of Section 2.17 hereof, the parties
mutually agree that Lessor shall proceed to issue and deliver its Revenue Bonds
in the principal sum of $2,100,000 to provide for the cost of the construction
of the improvements which constitute a part of the Additional Maintenance
Premises. The proceeds of the sale of such Bonds shall be employed in the
manner set forth in this Part and under the provisions of the ordinance
authorizing such Bonds (hereafter called Bond Ordinance) it being the intent of
the parties that said proceeds shall be used in accomplishing a complete
financing of the intended Facilities including all improvements related or
incidental thereto, as contemplated by the plans and specifications heretofore
approved by Lessor and Lessee, including, further, reasonable items for
contingencies, architectural and engineering fees, expenses of issuance of
Bonds, fees of the fiscal agent retained to consult with the parties and arrange
for the sale of the Bonds.
-16-
<PAGE>
SECTION 2.3 ACCEPTANCE OF COVENANTS
It is understood that upon the authorization of the issuance of Bonds, the
Lessor, by approving the Bond Ordinance shall signify not only acceptance and
final approval of these presents but also complete acceptance, awareness and
final approval or the terms and conditions of said Bond Ordinance and the Bonds
therein prescribed. By its acceptance Lessee acknowledges that the covenants of
the Bond Ordinance constitute contractual arrangements between Lessor and the
purchasers of the Bonds. It is further understood that Lessor, the purchasers
of the Bonds and all others concerned in any manner with their issuance and the
securities supporting them may rely upon certified copy of said resolution of
Lessee's Board of Directors as conclusive evidence of Lessee's approval and
acceptance hereof and the terms and conditions of said Bond Ordinance and the
Bonds therein prescribed.
Based upon such approvals of Lessee, Lessor agrees to do all things
required by law and these presents to issue the Bonds and make delivery thereof
to the purchasers in accordance with the terms of sale as promptly as
practicable. Lessee understands that upon delivery of the Bonds to the
purchasers the requirements for payment of Net Rent provided in Section 2.5
hereof shall be effective as specified without acknowledgement or other action
on the part of Lessee or Lessor.
SECTION 2.4 BOND PROCEEDS
A. The proceeds from the sale of the Bonds shall be deposited in the
Construction Fund, except the accrued interest which shall be deposited in the
Interest and Sinking Fund and $ -0- shall be deposited in the Reserve Fund.
From the bond proceeds Lessor shall make payments as required for all outlays in
the acquisition and construction of the Additional Maintenance Premises
including redemption, payment and discharge of interim financing obligations.
All items for which Lessee may seek reimbursement and all such further
expenditures required to complete the Additional Maintenance Premises and make
payment therefor shall be approved for payment by the City Council of Lessor
only upon approval and recommendation for payment by Lessors' Director of
Community Development.
B. Any and all amounts which may remain from the proceeds of the sale of
the Bonds after all the aforementioned obligations have been discharged thereby
shall be used, to the nearest multiple of $5,000, for the purchase and
redemption of Bonds of said Series in the open market, of no bonds available at
a reasonable price and any remaining proceeds shall be transferred into the
interest and Sinking Fund provided for in said Bond Ordinance.
-17-
<PAGE>
SECTION 2.5 NET RENT
A. For and in consideration of Lessor's performance of its obligations
hereunder and Lessee's enjoyment of its rights pursuant to the provisions
hereof, cumulative of and in addition to all other rentals, fees or payments for
which Lessee is obligated to Lessor under Part I of this agreement, Lessee
further agrees to pay Lessor, additional rentals known as "Net Rent" as follows:
(1) On or before the 15th day of January, 1978, and on or before the
15th day of each month thereafter, a sum of money equal to (a) one-sixth of
the interest installment next to become due on the Bonds; and
(b) one-twelfth of the amount of principal to become due on the next
succeeding principal maturity date; and (c) the amount, if any, required to
be deposited in the Reserve Fund by Section 14 of the Bond Ordinance.
(2) On the 1st day of the month next preceding an interest payment
date, the Lessor shall render a bill for charges as may be imposed on
Lessor by the paying agent or agents performing such services under such
Bonds and any other expense necessary and incident to the payment thereof
and such amount shall be paid by the Lessee within 15 days.
For the convenience of the parties a schedule of Bond requirements referred to
in subparagraph (1) above is to be attached hereto and marked "Attachment A"
when Bonds are issued as contemplated by Section 2.2 hereof. It is provided,
however, if at any time Lessor or any successor to Lessor, with its own funds or
with funds available to it from sources other than Net Rent, shall prepay and
retire or make cash provision for the payment and retirement of any or all of
the Bonds, or shall deliver to the holders of the Bonds or any part thereof
other and different Bonds of the Lessor or of its successor in exchange for
such Bonds so that no payment of principal and interest shall be due on all or
such part of the Bonds, Lessee shall, nevertheless, make payments of Net Rent
under this Section at the same times and in the same amounts as would be payable
under such Section if the Bonds were still due and outstanding and were bearing
interest in the normal course of their maturities.
SECTION 2.6 PAYMENT OF RENTAL
A. Net Rent shall be paid without further notice or billing.
The Lessee shall in no way be responsible for the application by Lessor of
such Net Rent made by Lessee.
B. Lessee may tender Lessor Bonds of the issue herein referred to
(provided all unmatured interest coupons are attached) for application on
amounts otherwise required to be paid by Lessee as Net Rent under the provisions
hereof. In such event, Lessor shall cancel such tendered Bonds and credit
Lessee (i) for the face value of such Bonds in each of the billings which would
otherwise reflect amounts needed to retire the principal thereof had they
remained outstanding and (ii) for all interest which would have accrued on such
tendered Bonds to maturity had they remained outstanding.
-18-
<PAGE>
C. It is the intention of the parties that the Net Rent payable by Lessee
shall be equal to the amount necessary to enable Lessor to retire the bonds as
they mature, together with interest thereon as it accrues, and together with the
expenses related thereto, at no cost to Lessor and it is acknowledged by Lessee
that the Bonds will be purchased in reliance upon the unconditional obligation
of the Lessee to pay Net Rent once such Bonds are issued and become outstanding;
that regardless of any other provision in this Agreement, Lessee shall on the
dates indicated on Attachment A make payments to the Lessor in the amount of
such Net Rent until the Bonds have been paid and retired, and no default by the
Lessor shall excuse performance by the Lessee of this obligation. It is
provided, however, that nothing contained in this Section shall be construed to
release the Lessor from the performance of any of the agreements on its part
contained in this Lease, and in the event the Lessor shall fail to perform any
of such agreements, the Lessee may institute such action against the Lessor as
the Lessee may deem necessary to compel performance or recover its damages for
nonperformance and may pursue any other lawful remedy, so long as such action
shall not do violence to the agreement of Lessee to pay the Net Rent hereunder
in the amounts and at the time stated.
SECTION 2.7 APPLICATION OF NET RENT TO PAYMENT OF BONDS
A. Lessor agrees to provide a special fund for the Bonds into which all
payments received from Lessee as Net Rent (under Section 2.5 hereof) shall be
deposited (in the Bond Fund and the Reserve Fund) as required by the Bond
Ordinance and used for no purpose other than for the payment, security,
retirement and redemption of such Bonds, and interest thereon, or bonds issued
on a parity therewith in accordance with the terms and provisions of the Bond
Ordinance. All sums received from the purchasers of the Bonds as accrued
interest thereon to date of delivery shall be placed in the Interest and Sinking
Fund and applied in reduction of payments to be made with respect to the first
semiannual interest installment on the Bonds. Subject to the provisions of
paragraphs B and C of Section 2.6 hereof, any and all proceeds from the sale of
the Bonds which may remain unexpended upon final completion of the Additional
Maintenance Premises and payment of all proper costs incidental thereto, shall
be transferred to and deposited in the Interest and Sinking Fund and applied in
reduction of next monthly rental payment or payments otherwise required of
Lessee following such transfer of funds.
B. Any and all payments received by Lessor from Lessee as Net Rant shall
be irrevocably pledged to and shall be deposited in the Bond Fund and Reserve
Fund as required by the Bond Ordinance
C. It is agreed that the official depository of Lessor shall be the
custodian of the Interest and Sinking Fund and that prior to each principal and
interest maturity date it shall be the duty of Lessor to withdraw from said fund
and place with the paying agent bank money sufficient in the amount to pay the
principal and interest installments which will be due on such maturity date.
-19-
<PAGE>
SECTION 2.8 SECURITY FOR FUNDS
All amounts deposited into the Interest and Sinking Fund and Reserve Fund
for the payment and security of Bonds and additional bonds shall be kept
separate and apart from all other City funds and continuously secured by valid
pledge of direct obligations of or obligations unconditionally guaranteed by the
United States of America having a par value, or market value when less than par,
exclusive of accrued interest, at all times at least equal to the amount of
money deposited in said fund to the extent the same are not covered by F.D.I.C.
insurance or secured as trust fund deposits. All sums of money deposited in
said funds shall be held as a trust fund for the benefit of the holders of the
Bonds and additional bonds the beneficial interest in which shall be regarded as
existing in such bondholders.
SECTION 2.9 PUBLIC NATURE OF ADDITIONAL MAINTENANCE PREMISES
The Additional Maintenance Premises herein referred to are recognized by
the parties and are hereby declared to be acquired and shall be used for public
and governmental purposes and as matters of public necessity as contemplated by
and defined in the Texas "Municipal Airport Act", the Bonds herein referred to
shall therefore relate to public projects and facilities to be owned by City and
to be operated on its behalf.
SECTION 2.10 TITLE TO FACILITIES IN LESSOR
The parties hereby confirm and agree that title to all the Additional
Maintenance Premises (or any portion thereof) which may be constructed on or
before the date of this agreement is vested in Lessor subject to Lessee's
possessory rights and that title to any such facilities (or any portions
thereof) which may be constructed or completed after the date of this agreement
shall vest in Lessor as the same are affixed to the land, subject to such
possessory rights of Lessee.
-20-
<PAGE>
SECTION 2.11 DESTRUCTION OF PREMISES, CONDEMNATION OF PREMISES
During the time any Bonds or obligations issued by the City payable from
any revenues obtained by reason of this Agreement (herein sometimes referred to
as "Additional Bonds") are outstanding then as to the Additional Maintenance
Premises, the provisions of this Section (and not Section 1.18 or 1.20) shall
control where all or substantially all of the Additional Maintenance Premises
are (1) destroyed by an insured casualty or (2) taken under color of
governmental authority in the exercise of the power of eminent domain.
Where this Section applies, the Lessee may elect whether the insurance or
condemnation proceeds will be applied (1) to the reconstruction or relocation of
the Additional Maintenance Facilities or (2) applied to the payment and
retirement of Bonds or Additional Bonds provided that if such proceeds and the
amount then on hand in the funds created for the benefit and payment of the
Bonds and Additional Bonds are not sufficient to finally pay such obligations,
the Lessee shall forthwith, pay the deficiency into the Bond Fund created for
the Security of the Bonds and Additional Bonds.
In no event shall the destruction of or condemnation of all or any part of
the Additional Maintenance Premises or any other event cause a change or
reduction in the obligation of the Lessee to pay Net Rent in an amount adequate
to pay the principal of, interest on, the Reserve Fund requirements and the
fees of the paying agent with respect to the Bonds and Additional Bonds.
-21-
<PAGE>
SECTION 2.12 PROVISIONS OF PART I MADE APPLICABLE
Except as to the terms of the lease and renewals thereof (contained in
Section 2.1) and the provisions relating to insurance and condemnation (as
continued in Section 2.11) - which provisions shall always control as to the
Additional Maintenance Facilities while Bonds are outstanding, all of the
provisions of Part I of this agreement shall also be applicable to the
Additional Maintenance Facilities and for the purposes of Part I, the same shall
also be considered as Maintenance Facilities thereunder upon completion of the
Additional Maintenance Facilities or their occupancy by the Lessee, whichever
shall first occur.
SECTION 2.13 CONSTRUCTION FUND
All proceeds of Bonds or additional bonds not required by the ordinance
authorizing their issuance or the other provisions of Part II of this agreement
to be deposited in some other fund or funds, shall be deposited in the
Construction Fund with the City's depository bank.
Disbursements from the Construction Fund and investment of moneys therein,
pending the use thereof for authorized purposes, shall be governed by an escrow
agreement by and between the City and the depository bank. With respect to the
Bonds, the mayor is hereby authorized and directed to execute an appropriate
escrow agreement, which shall be subject to approval by the City Attorney and
the Lessee, which agreement shall be in customary terms and:
(1) not be in conflict with any provisions of the Bond Ordinance or this
agreement; and
(2) provide:
(a) funds may be disbursed only for the purpose of paying the cost of
construction and acquisition of the Additional Maintenance Premises until
all such costs have been paid, and then as provided in this instrument and
the Bond Ordinance.
(b) funds may be disbursed upon approval of the same by a
representative of the Lessor and Lessee; that the representative of the
Lessor shall be the person acting as the Director of Community Development
of the City of Greenville, Texas.
(3) no change order may be executed, during the construction of the
project, which increases the amount of any contract to be paid by the City
unless the same has been approved by the City Council; nor shall any payment be
made under any contract until such contract has been approved by the City
Council.
-22-
<PAGE>
SECTION 2.14 CONSTRUCTION OF ADDITIONAL FACILITIES
(a) Lessor may hereafter issue revenue bonds to reimburse Lessee for all
outlays made by Lessee and approved by Lessor in connection with providing the
improvements and related facilities, provided, however, that such bonds shall be
issued only upon terms satisfactory to both Lessor and Lessee.
(b) If and when Lessee desires additional facilities or improvements to be
acquired and financed by the Lessor, Lessor and Lessee shall consult with a view
to agreeing upon mutual satisfactory terms for such revenue bonds, including
interest rate and arrangements assuring application of the proceeds thereof.
Upon receiving a proposal satisfactory to it for the sale of such bonds, Lessor
will inform Lessee of its terms, including the proposed effective interest rate
thereon. Within 3 hours thereafter (Saturday and Sunday excepted), Lessee will
advise Lessor in writing of its acceptance or rejection of such proposal.
In the event Lessee accepts such proposal, Lessor shall, subject to the
execution and delivery of a supplementary agreement as referred to in (c) below,
thereupon take such action as is required to authorize the issuance of such
bonds and shall proceed with the sale thereof in accordance with the terms of
said proposal. It is contemplated that bonds will be sold in an amount
sufficient to cover the cost of designing, engineering and constructing the
aforesaid improvements, expenses of issuance of bonds, legal fees, fee of the
Fiscal Agent retained to consult with the parties and arrange for the placement
of the bonds, and, at Lessee's election, such additional amounts as may be
required to anticipate and satisfy such reserve requirements as may be required
under the terms of the bond ordinance.
In the event Lessor and Lessee shall be unable to obtain or agree upon
mutually satisfactory financing arrangements, and, as a consequence, revenue
bonds are not issued and sold by Lessor for such purpose, the cost of designing,
engineering and constructing the aforesaid improvements, shall, be and remain
the sole obligation of Lessee.
(c) Subject to obtaining mutually satisfactory financing arrangements for
the sale of revenue bonds as aforesaid, Lessor and Lessee shall mutually agree
upon, execute and deliver an amendatory agreement supplementary hereto which
shall set forth (i) Lessee's obligations in respect to payment of additional
rental to Lessor (which shall be in addition to all other payments herein
prescribed or heretofore provided for in previous agreements) related to
requirements for the payment of principal and interest on said bonds, to
satisfying any reserve requirements in connection therewith and, in addition, to
meeting or causing to be met such other obligation as may be required on the
part of Lessee under such ordinance as may be adopted by the City Council of the
City of Greenville in respect to such bonds and (ii) Lessor's obligations in
respect to the issuance, sale and delivery of said bonds and the application of
the proceeds thereof, and, in addition, such other obligations as may be
required on the part of Lessor under said ordinance. Such rent is sometimes
referred to in this agreement as Net Rent.
(d) The provisions of paragraph (b) and (c) hereof shall apply to any
project which is to be financed in whole or in part by the City.
-23-
<PAGE>
SECTION 2.15 PLANS AND SPECIFICATIONS, APPROVALS, CONSTRUCTION, CHANGES,
CONTRACTS
(a) The Facilities shall be acquired, constructed, installed, fabricated
and equipped in accordance with plans and specifications approved by the City
and the Lessee.
Lessee shall prepare final plans and specifications of the
Facilities, which shall be submitted by Lessee to the City for approval, and
construction shall be substantially in accordance with such plans and
specifications as may be approved by the City with such changes as may be
reasonably requested by Lessee and approved by the City.
(b) Upon completion of the final plans and specifications of the
Facilities and approval of the same, bids will be taken by the City for
construction, acquisition, and/or fabrication of the Facilities based on such
plans and specifications. Following the receipt of bids from responsible
bidders, the City and Lessee will consider and approve such bids, and contracts
will then be awarded by the City to install, construct, fabricate and equip the
Facilities. Lessee may, with the City's prior approval, enter into contracts
for the design work and for the preparation of the preliminary and final plans
and specifications for the Facilities prior to the time that proceeds from the
sale of the Bonds are available.
(c) Whenever approval of either the City or Lessee is required in this
Section 3.2, such approval shall not be unreasonably withheld by either the City
or the Lessee; provided, however, nothing herein shall be construed as requiring
the City to undertake any such project.
(d) Contracts relating to the construction, acquisition, equipping,
fabrication or installation (or purchases in connection therewith) of the
Facilities shall include appropriate provisions for expediting the work and for
performance and payment bonds so as to assure completion by specified
performance dates and to protect the Facilities against liens, such bonds to
name the City as the beneficiary thereof.
(e) All necessary approvals from governmental agencies shall be obtained
prior to acquiring, constructing, fabricating, equipping or installing the
Facilities, and such improvements shall be acquired, constructed, fabricated,
equipped or installed in compliance with all state and local laws, ordinances
and regulations applicable thereto. Upon completion of the Facilities, all
required occupancy permits and authorizations from appropriate authorities
contemplated by Lessee shall be obtained by Lessee. All changes, alterations,
extras or additions [hereinafter in this subsection (e) called "changes"] to or
from and contracts or purchase orders executed or entered into pursuant to the
provisions of this Article II shall be approved in advance by the parties
hereto. All requests, approvals and agreements required shall be in writing and
signed by a duly designated representative of the party making such request,
granting such approval or entering into such agreement. All changes to the
Facilities may be made after consultation with and approval by the Lessee.
(f) It is expressly agreed and understood that the City will not and shall
not be required to expend any of the proceeds of the Bonds for any purposes, or
in any amounts which are contrary to the terms of the Bond Ordinance.
SECTION 2.16 INSUFFICIENCY IN FUNDS
In the event the proceeds from the sale of the Bonds are insufficient to
pay Construction Costs in full, then the Lessee shall pay the amount of the
insufficiency.
-24-
<PAGE>
SECTION 2.17 EFFECTIVENESS OF PART II
This Part II shall be effective from and after the date the Revenue Bonds
(contemplated in Section 2.2 hereof) are sold by the Lessor.
In the event additional facilities are to be hereafter constructed (as
contemplated by Section 2.14) the approval of the Lessee of the interest rates
and other terms and conditions thereof shall be approved by the Vice President
of the Lessee.
-25-
<PAGE>
PART III
REPRESENTATIONS
SECTION 3.1 REPRESENTATIONS BY THE CITY
The City makes the following representations as the basis for the
undertakings on its part herein contained:
(a) The City is a duly and lawfully incorporated and existing municipal
corporation of the State of Texas having the power to enter into the transaction
contemplated by this Agreement and to carry out its obligations hereunder, and
by proper action of the City's governing body has been authorized to execute and
deliver this Agreement; and
(b) The City has good title to the Leased Land.
SECTION 3.2 REPRESENTATIONS BY LESSEE
The Lessee makes the following representations as the basis for its
undertakings herein contained:
(a) It is a corporation duly incorporated under the laws of the State of
Delaware; is in good standing under its Certificate of Incorporation or Charter
and the laws of said State; is duly authorized to do business in the State of
Texas; has the power to enter into this Agreement without violating the terms of
any other agreement to which it may be a part; and by proper corporate action
has been duly authorized to execute and deliver this Agreement; and
(b) It will operate the Base Facilities on behalf of the City for the
public purposes for which the same were acquired or constructed and are to be
operated hereunder, upon and subject to the control and jurisdiction of the City
in accordance with the terms hereof.
-26-
<PAGE>
PART IV
EVENT OF DEFAULT AND REMEDIES
SECTION 4.1 EVENTS OF DEFAULT DEFINED
The following shall be "events of default as to the Lessee" under this
Agreement and the term "events of default as to the Lessee" shall mean, whenever
it is used in this Agreement, any one or mare of the following events:
(a) Failure by the Lessee to pay when due or cause to be paid when due
either the Ground Rent or the Net Rent, or both, required to be paid under
Article V hereof.
(b) Failure by the Lessee to observe and perform any covenant, condition
or agreement on its part to be observed or performed other than as referred to
in subsection (a), next above, for a period of thirty (30) days after written
notice, specifying such failure and requesting that it be remedied, given to the
Lessee by the City, unless the City shall agree in writing to an extension of
such time prior to its expiration.
(c) The Leased Premises shall be abandoned, deserted or vacated by the
Lessee or any lien shall be filed against the Leased Premises or any part
thereof in violation of this Agreement and shall remain unreleased for a period
of sixty (60) days from the date of such filing unless within said period the
Lessee is contesting in good faith the validity of such lien.
(d) The dissolution or liquidation of the Lessee or the filing by the
Lessee of a voluntary petition in bankruptcy, or failure by the Lessee within
sixty (60) days to lift any execution, garnishment or attachedment of such
consequence as will impair its ability to carry on its operations at the
Facilities, or the adjudication of the Lessee as a bankrupt, or general
assignment by the Lessee for the benefit of its creditors, or the entry by the
Lessee into an agreement of composition with its creditors, or the approval by a
court of competent jurisdiction of a petition applicable to the Lessee in any
proceedings for its reorganization instituted under the provisions of the
general bankruptcy act, as amended, or under any similar act which may hereafter
be enacted. The term "dissolution or liquidation of the Lessee," as used in
this subsection, shall not be construed to include the cessation of the
corporate existence of the Lessee resulting either from a merger or
consolidation of the Lessee into or with another corporation or a dissolution or
liquidation of the Lessee following a transfer of all or substantially all of
its assets as an entirety, under the conditions permitting such actions
contained in Section 1.7 hereof.
SECTION 4.2 REMEDIES ON DEFAULT
Whenever any event of default as to the Lessee referred to in Section 5.1
hereof shall have happened and be subsisting, the City may take any one or more
of the following remedial steps as against the Lessee:
(a) The City may re-enter and take possession of the Leased Premises
without terminating this Agreement and sublease (or operate as sublessee) the
Facilities for the Account of the Lessee, holding the Lessee liable for the
difference between the rents and other amounts payable by the Lessee hereunder
and the rents and other amounts payable by such sublessee in such subleasing or,
if operated by the City, the difference between the net revenues received from
such operations and the rents and other amount payable by Lessee hereunder.
-27-
<PAGE>
(b) The City may terminate this Agreement, exclude the Lessee from
possession of the Leased Premises and use its best efforts to lease the same to
another party for the account of the Lessee, holding the Lessee liable for all
rents and other amounts due under this Agreement and not paid by such other
party.
(c) The City may take whatever other action at law or in equity as may
appear necessary or desirable, to collect the rent then due and thereafter to
become due, or to enforce performance and observance of any obligation,
agreement or covenant of the Lessee under this Agreement.
SECTION 4.3 NO REMEDY EXCLUSIVE
No remedy herein conferred upon or reserved to the City is intended to be
exclusive of any other available remedy or remedies, but each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
under this Agreement, or hereafter existing under law or in equity. No delay or
omission to exercise any right or power accruing upon any default shall impair
any such right or power or shall be construed to be a waiver thereof, but any
such right and power may be exercised from time to time and as often as may be
deemed expedient. In order to entitle the City to exercise any remedy reserved
to it in this Article, it shall not be necessary to give any notice, unless such
notice is herein expressly required or is required by law.
SECTION 4.4 AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES
In the event there should be a default under any of the provisions of this
Agreement and the City should determine the services of an attorney are required
or the City incurs other expenses for the collection of rent or the enforcement
of performance or observance of any obligation or agreement on the part of
Lessee, the Lessee agrees that it will on demand therefor pay to the City the
reasonable, just and necessary fee of such attorneys and other reasonable
expenses so incurred.
SECTION 4.5 NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER
In the event any covenant contained in this Agreement should be breached by
either party and thereafter waived by the other party, such waiver shall be
limited to the particular breach so waived and shall not be deemed to waive any
other breach hereunder.
-28-
<PAGE>
PART V
TERMINATION BY LESSEE
SECTION 5.1 WHILE BONDS OUTSTANDING
As provided in this Agreement, Net Rent is not subject to termination by
Lessee while any Bonds are outstanding and not fully and finally paid.
SECTION 5.2 TERMINATION FOR OTHER PURPOSES
As to the payment of Ground Rent, and as to all rental after all the Bonds
are fully and finally paid, Lessee may terminate this Agreement upon the
occurrence of any one or more of the following reasons:
(a) If Lessee shall be prevented from using the Facilities for:
(i) A period longer than thirty (30) consecutive days, resulting from
any condition at the Airport not due to the fault of Lessee; or
(ii) A period longer than ninety (90) consecutive days, resulting
from a permanent injunction issued by any court of competent jurisdiction;
or
(iii) A period longer than ninety (90) consecutive days, resulting
from any order, rule or regulation of the Federal Aviation Administration,
or other governmental agency having jurisdiction over the operations of
Lessee, with which Lessee is unable to comply at reasonable cost or
expense.
(b) The City shall fail to perform any of its obligations under this
Agreement within twenty (20) days after receipt of notice of default hereunder
from Lessee (except where fulfillment of its obligation required activity over a
period of time and the City shall commence to perform whatever may be required
for fulfillment within twenty (20) days after the receipt of notice and continue
such performance without interruption, except for causes beyond its control).
Upon the occurrence of any of the foregoing events, or at any time
thereafter during the continuance of any such condition, Lessee may, by twenty
(20) days, written notice terminate this Agreement, such termination to be
effective upon the date set forth in such notice and to have the same effect as
if the term hereof had expired on that date, subject, as aforesaid, to the
provisions of Section 5.1 hereof.
No waiver by Lessee of any default on the part of the City in the
performance of any of the terms, covenants or conditions hereof to be performed,
kept or observed by the City shall be or be construed to be a waiver by Lessee
of any other or subsequent default in the performance of any of said terms,
covenants and conditions.
-29-
<PAGE>
PART VI
SECTION 6.1 ADDITIONS. EXTENSIONS AND MODIFICATIONS OF FACILITIES,
REFUNDING BONDS
(a) The Lessee shall not, without the prior written approval of the City,
erect or permit to bc erected any structures or make (1) any improvements,
alterations, modifications, additions, or repairs which require a change in the
foundation of a building or structure or (2) replacements of any structure built
on the Maintenance Premises, except as specifically provided herein; nor shall
it install or permit to be installed any fixtures (other than fixtures,
removable without material damage to the Maintenance Premises, any such damage
to be immediately repaired by the Lessee and which fixtures Lessee shall be
entitled to remove) without such written approval.
(b) In the event the Lessee shall, for the purpose of achieving
interest-cost savings or otherwise, consider it desirable to issue Refunding
Bonds for the purpose of refunding or refinancing all or any part of the Bonds
at the time outstanding, the City agrees to issue the Refunding Bonds thus
requested, provided (i) such Refunding Bonds are at the time permitted by the
laws of the State of Texas; (ii) they can be issued with the interest tax-exempt
under the Laws of the United States; (iii) their issuance can be accomplished
without violating any provisions of the Bonds or the rights of the holders
thereof. The City expressly agrees not to issue any Refunding Bonds without the
consent and approval of the Lessee.
SECTION 6.2 REFUNDING BONDS
The City and the Lessee acknowledge that as economic conditions change it
may become necessary or desirable to issue Bonds for the purpose of refunding or
refinancing of any part or all of the Bonds from time to time outstanding.
Accordingly, the City agrees to reserve the right to issue Bonds for such
purposes in the Bond Ordinance, and the same may be issued hereafter, subject to
the terms of Section 6.1(b) hereof.
SECTION 6.3 FORMAL APPROVALS BY LESSEE
(a) With respect to the approvals herein required of the Lessee, Lessee
shall furnish to the City a certificate signed by its Secretary or an Assistant
Secretary, under the seal of the corporation, and such certificate shall set
forth the officers or representatives of Lessee who are authorized to grant such
approvals
-30-
<PAGE>
and to bind the Lessee thereto; and the City and all third parties affected by
any such approvals, including the holders of Bonds, may rely upon any writing
purporting to grant such approvals signed by any officer or representative thus
certified as being conclusively binding upon Lessee, and any such writing shall
itself constitute conclusive evidence that any and all corporate actions
necessary to be taken with respect to the matter thus approved by such officer
or representative shall be conclusively presumed to have been so taken by the
corporation, and that the approval therein given has been authorized by the
corporation.
(b) Whenever herein the approval of Lessee is required in connection with
additional bonds, the same shall be deemed to mean the complete ordinance,
except for rate of interest, award provisions and the terms of sale and any
other matters deferred until the date of sale as contemplated by Section 2.17,
Section 2.3 (last sentence of the first paragraph) governs the Bonds.
SECTION 6.4 REMEDIES AGAINST CONTRACTORS AND SUBCONTRACTORS AND SURETIES
Lessee shall participate in the planning, design and the award of any
contracts for the construction of the Facilities. Tn the event of default of
any contractor or subcontractor under any contract made by it in connection with
the construction of the Facilities, the City will promptly proceed, either
separately or in conjunction with others, to exhaust the remedies of the City
against the contractor or subcontractor so in default and against the surety of
each for the performance of such contract. The City agrees to advise the Lessee
of the steps it intends to take in connection with any such default. Any
amounts recovered by way of damages, refunds, adjustments or otherwise in
connection with the foregoing prior to the completion of any construction, shall
be made a part of the funds available for the payment of the Construction Costs.
If any such recoveries are made after the completion of any construction in
connection with the Facilities, the amounts recovered shall be applied in
accordance with Sections 2.4(3) hereof.
SECTION 6.5 NOTICES
Notices provided for in this Agreement shall be sufficient if sent by
registered or certified mail, postage prepaid, addressed, if to the City - Mayor
& City Council, Greenville, Texas. P.O. Box 1049, Greenville, Texas 75401,
Attention: City Manager, or to such other addresses and person as it may direct
in writing; and if to Lessee - E-Systems, Inc., Aircraft System Group,
P.O. Box 1056, Greenville, Texas 75401, Attention: General Manager, or to such
other address and person as it may direct in writing. Notices shall be deemed
completed when mailed unless otherwise herein required.
-31-
<PAGE>
SECTION 6.6 PRIOR AGREEMENTS CANCELLED
The following lease agreements heretofore entered by and between the Lessor
(or its predecessor companies) and the City are hereby canceled: The Primary
Lease Agreement executed on the 28th day of February, 1951, effective as of
April 1, 1951, with Lessee's predecessor company, Texas Engineering and
Manufacturing Company (hereinafter referred to as the "Primary Lease"); and
Amendment No. 1, effective July 23, 1951; Amendment No. 2, effective August 21,
1951; Amendment No. 3, effective September 21, 1951; Amendment No. 4, effective
July 1, 1953; Amendment No. 5, effective September 1, 1953; Amendment No. 6,
effective December 1 1954; Amendment No. 7, effective June 30, 1955; Amendment
No. 8, effective December 6, 1956; Amendment No. 9, effective September 1, 1958;
Amendment No. 10, effective July 1, 1959; Amendment No. 11, effective May 1,
1961; Amendment No. 12, effective August 1, 1962; Amendment No. 13, effective
April 1, 1964; Amendment No. 14, effective November 1, 1964; Amendment No. 15,
effective July 1, 1965; Amendment No. 16, effective August 1, 1966; Amendment
No. 17, effective May 1, 1967; Amendment No. 18, effective July 1, 1968;
Amendment No. 19, effective July 1, 1969; Amendment No. 20, effective November
1, 1974; Amendment No. 21, effective December 18, 1974; Amendment No. 22,
effective January 10, 1975; and Amendment No. 23, effective April 9, 1976,
Agreement of Lease dated May 8, 1975 and recorded in Volume 764, pages 528-534
of the Deed Records of Hunt County, Texas by and between Lessor and Lessee three
additional tracts of land adjacent to the real property leased to Lessee under
the Primary Lease was also leased to Lessee; and it is provided however, that
any payment of Ground Rent under such Leases made prior to the execution of this
document by Lessee shall discharge any obligation to make a Ground Rent payment
under the provisions of this agreement; that the rental is the same and is to be
collected by the City only once; that the execution of this contract and the
cancellation of the prior contract are to be simultaneous and with respect to
rental, the date of the contract as set forth in the preceding contract is not
controlling on the question of Ground Rent between the date of this contract and
its execution. Net Rent is due on the dates specified herein.
This Agreement is executed as of the date shown on page one of this
Agreement.
CITY OF GREENVILLE
By /s/ Kenneth Linden
----------------------------
ATTEST: Mayor
/s/ Irene Wilson
- ------------------------------
City Clerk
APPROVED AS TO FORM
/s/ Debra Adami
- ------------------------------
City Attorney
E-SYSTEMS, INC.
By /s/ A. L. Lawson
----------------------------
Vice President
ATTEST:
/s/ J. D. Reynolds
- ------------------------------
Assistant Secretary
-32-
<PAGE>
THE STATE OF TEXAS )
)
COUNTY OF HUNT )
BEFORE ME, the undersigned authority in and for Hunt County, Texas, on this
day personally appeared ___________________________, of E SYSTEMS, INCORPORATED,
known to me to be the person whose name is subscribed to the foregoing
instrument and known to me to be the VICE PRESIDENT of E SYSTEMS, INCORPORATED
and acknowledged to me that he executed the same for the purposes and
consideration therein expressed and in the capacity therein stated as the act
and deed of E SYSTEMS, INCORPORATED.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the ____ day
of________________________, 1977.
______________________________
Notary Public in and for
Hunt County, Texas
(Notary Seal)
THE STATE OF TEXAS )
)
COUNTY OF HUNT )
BEFORE ME, the undersigned authority in and for Hunt County, Texas, on this
day personally appeared _______________________, of the City of Greenville,
Texas, known to me to be the person whose name is subscribed to the foregoing
instrument and known to me to be the Mayor of the City of Greenville, Texas and
acknowledged to me that he executed the same for the purposes and consideration
therein expressed and in the capacity therein stated s the act and deed of the
City of Greenville, Texas.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the _____ day of
__________________________, 1977.
______________________________
Notary Public in and for
Hunt County, Texas
(Notary Seal)
-33-
<PAGE>
EXHIBIT B
Being all that certain tract and parcel of land located and situated within the
County of Hunt and State of Texas, being out of and a part of the A. Essary
Survey, Abstract Number 296, William Andrews Survey, Abstract Number 4, Andrew
McDonald Survey, Abstract Number 689, Hardin Denny Survey, Abstract Number 244,
E. G. Eliff Survey, Abstract Number 298, C. B. McDonald Survey, Abstract Number
692 and S. McBride Survey, Abstract Number 717 and more particularly described
as follows:
Tract A per Exhibit A
BEGINNING at the most Eastern Northeast corner of Majors Field, said point being
the Northeast corner of a 117.67 acre tract of land described ln warranty deed
from W. C. Mellaw to the City of Greenville, Texas, being recorded in Volume
414, Page 402 in the Deed Records of Hunt County, Texas;
THENCE 50"26'W, 1936 feet along the Eastern boundary line of Majors Field to a
point for a corner;
THENCE S47"27'W, 810.4 feet along said boundary line to a point for a corner:
THENCE S1"14'W, 1150 feet along said boundary line to a point for a corner;
THENCE N45"00'W, 4960 feet along a line to a point for a corner;
THENCE North, 1700 feet along a line to a point in the Northern boundary line of
Majors Field for a corner;
THENCE East, 1240 feet along said Northern boundary line of Majors Field to a
point for a corner;
THENCE South, 876.64 feet along said boundary line to a point for a corner;
THENCE East, 1887.5 feet along said boundary line to a point for a corner:
THENCE South, 693.06 feet along said boundary line to a point for a corner;
THENCE East, 1015.5 feet along said boundary line to the POINT OF BEGINNING and
containing 259.26 acres of land, more or less.
Tract B
BEGINNING at a point in the Eastern right-of-way of F.M. 1570 and Western
boundary line of Majors Field, said point being 279 feet S1"08'W from F. M. 1570
Highway Station Number 123+06.4 and a Northwest corner of a 225.9 acre tract of
land described in warranty deed from Hunt County, Texas to the City of
Greenville, Texas, being recorded In Volume 643, Page 496 in the Deed Records of
Hunt County, Texas, said point also being the Southwest corner of a tract of
land being occupied by a City of Greenville electrical sub-station and sewer
pump station;
THENCE East, 850 feet along the Southern boundary line of said electrical
sub-station and sewer pump station tract of land to its Southeast corner for a
corner;
THENCE N1"08'E, 427 feet along the Eastern boundary line of said electrical
substation and sewer pump station tract of land to its Northeast corner for a
corner, said corner being an inside corner of Majors Field's Northern boundary
line;
THENCE North, 349.2 feet along the Northern boundary line of Majors Field to a
point for a corner:
THENCE East, 880.2 feet along said boundary line to a point for a corner;
THENCE S30"00'E, 2180 feet along a line to a point for a corner, said point
lying in the Eastern boundary line of the North/South Ramp;
THENCE South, 4302.3 feet along the Eastern boundary line of said Ramp to a
point for a corner;
THENCE West, 485 feet along a line to a point in the Western boundary line of
said Ramp for a corner, said point being the Northeast corner of the General
Aviation Apron;
<PAGE>
Exhibit B
Page 2
THENCE North, 375 feet along said Western boundary line of said Ramp to its
intersection with the Northern boundary line of Ninth Street for a corner;
THENCE West, 550 feet along said Northern boundary line of Ninth Street to its
intersection with the Eastern boundary line of Avenue "A" for a corner;
THENCE North, 1500 feet along the Eastern boundary line of Avenue "A" to its
intersection with the Southern boundary line of Seventh Street for a corner;
THENCE West, 1330 feet along the Southern boundary line of Seventh Street to the
Southwest corner of the intersection of Seventh Street and Avenue "D", said
corner being an inside corner of Majors Field's Western boundary line as
described in said warranty deed from Hunt County, Texas to the City of
Greenville, Texas, recorded in Volume 643, Page 496 in the Deed Records of Hunt
County, Texas;
THENCE S88"15'W, 106 feet along said boundary line to a point for a corner;
THENCE in a Northwesterly direction 30.1 feet along said boundary line and a
curve to the right having a radius of 252.5 feet and a central angle of 6"49'48"
to its intersection with the Eastern right-of-way line of F.M. 2101 for a
corner;
THENCE in a Northerly direction along the Eastern right-of-way line of said F.M.
2101 the following: N1"45'W, 88.2 feet; N46"45'W, 71.3 feet; Northwesterly 223
feet along a curve to the left having a radius of 11,509.2 feet and a central
angle of 1"6'36"; N41"08'E, 71.3 feet; N3"52'W, 100 feet; N48"52'W, 71.3 feet;
Northwesterly 94.1 feet along a curve to the left having a radius of 11,509.2
feet and a central angle of 0"28'6"; N4"50'W, 783.6 feet; N40"10'E, 59.3 feet;
N4"50'W, 100 feet; N43"52'W, 66 feet; Northeasterly 559.2 feet along a curve to
the right having a radius of 11,409.2 feet and a central angle of 2"48'3";
N46"08'E, 123.1 feet; N1"08'E, 100 feet; N43"52'W, 137.2 feet; Northwesterly
255.6 feet along a curve to the right having a radius of 11,405.2 feet and a
central angle of 1"18'14" to its intersection with the Eastern right-of-way line
of F.M. 1570;
THENCE N1"08"E, 830.7 feet along said right-of-way line of F.M. 1570 to the
POINT OF BEGINNING and containing 275.63 acres of land, more or less.
<PAGE>
EXHIBIT C
Being all that certain tract and parcel of land located and situated within the
County of Hunt and State of Texas, being out of and a part of the William
Andrews Survey, Abstract Number 4, Joseph Prewitt Survey, Abstract Number 852,
Elisha Brake Survey, Abstract 64, Andrew McDonald Survey, Abstract Number 689,
Hardin Denny Survey, Abstract Number 244, John Manos Survey, Abstract Number
725, David Hall Survey, Abstract Number 484, William Mooney Survey, Abstract
Number 694, F. Thweatt Survey, Abstract Number 1342, E. G. Eliff Survey,
Abstract Number 298, and S. McBride Survey, Abstract Number 717 and more
particularly described as follows:
BEGINNING at the most Northern Northeast corner of Tract B per Exhibit A, said
corner being an inside corner of Majors Field's Northern boundary line, said
corner also being 349.2 feet North and 1578.1 feet East of the most Northern
Northwest corner of a 225.9 acre tract of land described in warranty deed from
Hunt County, Texas to the City of Greenville, Texas, being recorded in Volume
643, Page 496 in the Deed Records of Hunt County, Texas;
THENCE North, 180.8 feet along the Northern boundary line of Majors Field to a
point for a corner;
THENCE East, 761.9 feet along said boundary line to a point for a corner;
THENCE South, 176.3 feet along said boundary line to a point for a corner;
THENCE East, 672 feet along said boundary line to a point for a corner;
THENCE North, 1251.4 feet along said boundary line to a point for a corner;
THENCE East. 971.4 feet along said boundary line to a point for a corner;
THENCE South, 1979 feet along said boundary line to a point for a corner;
THENCE East, 430 feet along said boundary line to a point for a corner, said
point being the most Northern Northwest corner of Tract A per Exhibit A;
THENCE South, 1700 feet along a line to a point for a corner;
THENCE S45"00'E, 4960 feet along a line to a point in the Eastern boundary line
of Majors Field for a corner;
THENCE S1"14'W, 77.5 feet along the Eastern boundary of Majors Field to a point
for a corner;
THENCE in a Southwesterly direction 2144.7 feet along said boundary line to a
point in the Southern boundary line of said Majors Field for a corner;
THENCE West, 1749.5 feet along the Southern boundary line of Majors Field to a
point for a corner;
THENCE North, 188 feet along said boundary line to a point for a corner;
THENCE West, 423.4 feet along said boundary line to a point for a corner;
THENCE South, 188 feet along said boundary line to a point for a corner;
THENCE West, 1517 feet along said boundary line to a point for a corner;
THENCE South, 1248 feet along said boundary line to a point for a corner;
THENCE West, 750 feet along said boundary line to a point for a corner;
THENCE North, 648 feet along said boundary line to a point for a corner;
THENCE West, 927.44 feet along said boundary line to a point for a corner;
THENCE North, 600 feet along said boundary line to a point for a corner;
<PAGE>
Exhibit C
Page 2
THENCE East, 343.64 feet along a line to its intersection with the Eastern
boundary line of the North/South Ramp projected for a corner;
THENCE North, 6254.3 feet along said projected line of said Ramp and the Eastern
boundary line of said Ramp to a point for a corner;
THENCE N30"00'W, 2180 feet along a line to the POINT OF BEGINNING and containing
720.02 acres of land, more or less.
<PAGE>
EXHIBIT D
Being Tracts A, B, C, and D per Exhibit A and being all that certain tract and
parcel of land located and situated within the County of Hunt and State of
Texas, being out of and a part of the A. Essary Survey, Abstract Number 296,
William Andrews Survey, Abstract Number 4, Joseph Prewitt Survey, Abstract
Number 852, Elisha Brake Survey, Abstract Number 64, Andrew McDonald Survey,
Abstract Number 689, Hardin Denny Survey, Abstract Number 244, John Manos
Survey, Abstract Number 725, David Hall Survey, Abstract Number 484, William
Mooney Survey, Abstract Number 694, F. Thweatt Survey, Abstract Number 1342, R.
Barker Survey, Abstract Number 107, E. G. Eliff Survey, Abstract Number 298, C.
B. McDonald Survey, Abstract Number 692 and S. McBride Survey, Abstract Number
717 and more particularly described as follows:
BEGINNING at a point in the Eastern right-of-way of F. M. 1570 and Western
boundary line of Majors Field, said point being 279 feet S1"08'W from F. M. 1570
Highway Station Number 123+06.4 and a Northwest corner of a 225.9 acre tract of
land described in warranty deed from Hunt County, Texas to the City of
Greenville, Texas, being recorded in Volume 643, Page 496 in the Deed Records of
Hunt County, Texas, said point also being the Southwest corner of a tract of
land being occupied by a City of Greenville electrical sub-station and sewer
pump station;
THENCE East, 850 feet along the Southern boundary line of said electrical
sub-station and sewer pump station tract of land to its Southeast corner for a
corner;
THENCE N1"08'E, 427 feet along the Eastern boundary line of said electrical
sub-station and sewer pump station tract of land to its Northeast corner for a
corner, said corner being an inside corner of Majors Field's Northern boundary
line;
THENCE North, 349.2 feet along the Northern boundary line of Majors Field to a
point for a corner;
THENCE East, 880.2 feet along said boundary line to a point for a corner;
THENCE North, 180.8 feet along said boundary line to a point for a corner;
THENCE East, 761.3 feet along said boundary line to a point for a corner;
THENCE South, 176.3 feet along said boundary line to a point for a corner;
THENCE East, 672 feet along said boundary line to a point for a corner;
THENCE North, 1251.4 feet along said boundary line to a point for a corner;
THENCE East, 971.4 feet along said boundary line to a point for a corner;
THENCE South, 1979 feet along said boundary line to a point for a corner;
THENCE East, 1670 feet along said boundary line to a point for a corner;
THENCE South, 876.64 feet along said boundary line to a point for a corner;
THENCE East, 1887.5 feet along said boundary line to a point for a corner;
THENCE South 693.06 feet along said boundary line to a point for a corner;
THENCE East, 1015.5 feet along said boundary line of Majors Field to a point in
the Eastern boundary line of said Majors Field for a corner;
THENCE S0"26'W, 1936 feet along the Eastern boundary line of Majors Field to a
point for a corner;
THENCE S47"27'W, 810.4 feet along said boundary line to a point for a corner;
THENCE S1"4'W, 1227.5 feet along said boundary line to a point for a corner;
THENCE in a Southwesterly direction 2144.7 feet along said boundary line to a
point in the Southern boundary line of said Majors Field for a corner;
THENCE West, 1749.5 feet along the Southern boundary line of Majors Field to a
point for a corner;
<PAGE>
Exhibit D
Page 2
THENCE North, 188 feet along said boundary line to a point for a corner;
THENCE West, 423.4 feet along said boundary line to a point for a corner;
THENCE South, 188 feet along said boundary line to a point for a corner;
THENCE West, 1517 feet along said boundary line to a point for a corner;
THENCE South, 1248 feet along said boundary line to a point for a corner;
THENCE West, 750 feet along said boundary line to a point for a corner;
THENCE North, 648 feet along said boundary line to a point for a corner;
THENCE West 927.44 feet along said boundary line to a point for a corner;
THENCE North, 600 feet along said boundary line to a point for a corner;
THENCE West 1956.46 feet along said boundary line to a point for a corner, said
corner lying in the Eastern right-of-way line of F.M. 2101 and the Western
boundary line of Majors Field;
THENCE in a Northwesterly direction, 133 feet along a curve to the right having
a radius of 1145.92 feet and a central angle of 6''39', to a point for a corner
said curve being said Eastern right-of-way line of F.M. 2101 and Western
boundary line of Majors Field;
THENCE North 3740.9 feet along said Western boundary line of Majors Field to a
point for a corner;
THENCE S88"15'W, 106 feet along said boundary line to a point for a corner;
THENCE in a Northwesterly direction 30.1 feet along said boundary line and a
curve to the right having a radius of 252.5 feet and a central angle of 6"49'48"
to its intersection with the Eastern right-of-way line of F.M. 2101 for a
corner;
THENCE in a Northerly direction along the Eastern right-of-way line of said F.M.
2101 the following: N1"45'W, 88.2 feet; N46"45'w, 71.3 feet; Northwesterly 223
feet along a curve to the left having a radius of 11,509.2 feet and a central
angle of 1"'36"; N41"08'E, 71.3 feet; N3"52'W, 100 feet; N48"52'W, 71.3 feet;
Northwesterly 34.1 feet along a curve to the left having a radius of 11,509.2
feet and a central angle of 0"28'6"; N4"50'W, 783.6 feet; N40"10'E, 59.3 feet;
N4"50'W, 100 feet; N43"52'W, 66 feet; Northeasterly 559.2 feet along a curve to
the right having a radius of 11,409.2 feet and a central angle of 2"48'30';
N46"08'E, 123.1 feet; N1"08'E, 100 feet; N43"52'W, 137.2 feet; Northwesterly
259.6 feet along a curve to the right having a radius of 11,409.2 feet and a
central angle of 1"18'14" to its intersection with the Eastern right-of-way line
of F.M. 1570;
THENCE N1"08'E, 830.7 feet along said right-of-way line of F.M. 1570 tb the
POINT OF BEGINNING and containing 1422.41 acres of land, more or less.
<PAGE>
EXHIBIT E
FIELD NOTES
Being all that certain tracts and parcels of land located and situated within
the County of Hunt and State of Texas, being out of a part of the A. Essary
Survey, Abstract Number 296, William Andrews Survey, Abstract Number 4, Andrew
McDonald Survey, Abstract Number 689, C. B. McDonald Survey, Abstract Number 692
and S. McBride Survey, Abstract Number 717 and more particularly described as
follows:
TRACT I (BUILDING 136-B)
BEGINNING at a point 1195.98 feet East and 69.5 feet South of the
intersection of the center line of 3rd Street and the East boundary line of F.M.
1570;
THENCE East 150 feet for a corner;
THENCE South 125 feet for a corner;
THENCE West 150 feet for a corner;
THENCE North 125 feet to the POINT OF BEGINNING and containing 18,750 square
feet of land.
TRACT II (BUILDING 116)
BEGINNING at a point 1602.75 feet East and 1510.10 feet S O degrees 03' 20"W of
the intersection of the center line of 3rd Street and the East boundary line of
F.M. 1570;
THENCE S 89 degrees 56'40" E, 240 feet for a corner;
THENCE S 0 degrees 03'20"W, 300 feet for a corner;
THENCE N 89 degrees 56'40"W, 240 feet for a corner;
THENCE N 0 degrees 03'20"E, 300 feet to the POINT OF BEGINNING and containing
72,000 square feet of land.
TRACT III (BUILDING 108)
BEGINNING at a point 1850.28 feet East and 330 feet South of the
intersection of the center line of 3rd Street and the East boundary line of F.M.
1570;
THENCE South 125 feet for a corner;
THENCE West 140 feet for a corner;
THENCE North 125 feet for a corner;
THENCE East 140 feet of the POINT OF BEGINNING and containing 17,500 square feet
of land.
<PAGE>
EXHIBIT 10N
<PAGE>
E-SYSTEMS, INC.
1988 EMPLOYEE STOCK OPTION PLAN
as amended
This 1988 Stock Option Plan adopted by the Board of Directors of E-Systems, Inc.
on December 16, 1987, and amended August 29, 1990.
W I T N E S S E T H:
1. Purpose. The Plan is to provide key employees with a proprietary interest
in the Company through the granting of options to purchase shares of the Company
and the granting of awards of shares of the Company to key employees subject to
certain restrictions, as more specifically hereinafter set forth, for the
following purposes:
(a) to increase the interest in the Company's welfare of those key
employees who share primary responsibility for the management, growth and
protection of the business of the Company;
(b) to furnish an incentive to such employees to continue their services
for the Company; and
(c) to provide a means through which the Company may attract able persons
to enter its employment.
2. Administration. The Plan shall be administered by the Compensation and
Benefits Committee ("Committee") composed of members of the Board. The
Committee, which shall consist of three members unless otherwise set a greater
number by the Board, shall be appointed and vacancies shall be filled by the
Board. The Committee shall keep minutes of its activities.
3. Participants. The Committee shall determine from time to time those key
employees of the Company or of any Subsidiary corporation of the Company to whom
options or stock awards are to be granted and the number of shares optioned or
granted to each such employee. Such employees upon the grant of options or award
of shares to them shall become participants in the Plan.
4. Restrictions on Eligibility. No option shall be granted to or award made
to:
(a) any director of the Company who is not an employee of the Company or
any of its Subsidiary corporations; or
(b) any person who is the beneficial owner of 5% or more of the total
combined voting power or value of all classes of stock of the Company or a
Subsidiary corporation; or who upon exercise of the option granted or award of
the stock awarded would become the beneficial owner of 5% or more of such
combined voting power or value of all classes of stock of the Company.
<PAGE>
5. Shares Subject to the Plan. The Committee from time to time may provide for
options and awards of common stock under this Plan not in excess of an aggregate
of 3,500,000 shares of the Common Stock of the Company. These shares shall be
made available from either the authorized but unissued Common Stock of the
Company or treasury stock held by the Company. Other than shares that have been
subject to Stock Appreciation Rights hereunder, any shares that by reason of the
expiration of an option or otherwise are no longer subject to purchase pursuant
to an option granted, or are no longer subject to delivery under an award made,
under the Plan may be reoffered under the Plan.
6. Allotment of Shares. The Committee shall determine the number of shares of
Common Stock to be offered from time to time by grant of options or awards to
key employees of the Company or its Subsidiary corporations. The selection of an
employee as a participant in any grant of options or awards under the Plan shall
not be deemed to either entitle such employee to, or to disqualify such employee
from, any participation in any other grant of options or awards under the Plan.
7. Grant of Options and Awards. The Committee shall be responsible for and
authorized to grant options and awards under the Plan. The grant of options and
awards shall be evidenced by agreements containing such terms and provisions as
are approved by the Committee, but not more favorable than the terms of the
Plan. The Company shall execute such agreements upon instruction from the
Committee. Stock Appreciation Rights may be granted from time to time with
respect to any options granted under the Plan, as an alternative method of
exercise of any option. All provisions, terms and conditions of the E-Systems,
Inc. Stock Appreciation Rights Plan ("SAR Plan") adopted January 30, 1979 and
approved and ratified by the stockholders on April 18, 1979, and as amended, are
incorporated herein by reference. For purposes of such incorporation by
reference, the "Stock Option Plan" as defined in the SAR Plan shall be deemed to
include this Plan.
8. Option and Award Price. The price of the common stock with respect to which
an option or award is granted pursuant to this plan shall be determined by the
Committee on the date of grant or award. The exercise price of each option shall
be the fair market value of the shares on the date of option grant. The
consideration for a restricted stock award shall be nominally $1.00 per share.
The Committee shall also determine the fair market value of the stock on the
date of grant, and shall set forth the determination in its minutes; provided if
the stock is listed on a recognized securities exchange, the fair market value
will be taken as the reported average price of the stock on such exchange on the
date of grant of the option or award, or if no sale of the stock shall have been
reported on such date of grant, on the next preceding day when a sale was
reported.
<PAGE>
9. Stock Option Exercise Period. The option period shall commence on the date
the Committee authorizes the grant of an option. The Committee may provide any
period of time for exercising an option, provided that no option shall be for a
period of more than 10 years from the date of grant of the option by the
Committee. The Committee may provide for the exercise of options in installments
and upon such terms, conditions and restrictions as may be determined by the
Committee.
10. Rights in Event of Death of Optionee. If a participant dies prior to
termination of his or her rights to exercise an option in accordance with the
provisions of the stock option agreement without having exercised his or her
option as to all shares covered thereby, the Committee may provide that the
option may be exercised by the participant's estate or a person who acquired the
right to exercise the option by bequest or inheritance or by reason of the death
of the participant, vesting the right to all unexercised shares as of the date
of the participant's death; provided the period during which the option may be
so exercised shall not continue beyond the earlier of 10 years from the date of
grant of the option or two years from the date of the participant's death.
11. Special Provisions with Respect to Restricted Stock Awards. The following
special restrictions apply to the award of shares by the Committee:
(a) Shares of common stock awarded pursuant to this Plan shall be issued
and registered in the name of the employee participant and placed in escrow. The
participant may not voluntarily dispose of such award shares prior to the
earliest of the following events:
(i) the participant's retirement under any retirement plan of the
Company or a subsidiary corporation;
(ii) the participant's death;
(iii) in extraordinary cases, with the consent of the Committee,
delivery of such shares to the participant following the participant's
termination of employment prior to retirement or death; or
(iv) expiration of the period of time specified in the award, not to
exceed ten years.
(b) The Committee may, but need not, at the time of making of an award, or
at any subsequent time prior to expiration of the restrictions set forth in
subparagraph (a) above, impose additional restrictions on voluntary disposition
and release from escrow of the shares awarded pursuant to this Plan, including,
without limitation, permitting disposition and release of shares only in
installments over a period of years.
<PAGE>
(c) In order to administer restrictions required or permitted on the
release and delivery of award shares to a participant the certificates
evidencing such shares awarded hereunder, although issued in the name of the
participant, shall be held in escrow by an escrow agent appointed from time to
time by the Company, subject to delivery to the participant or to the Company at
such times and in such amounts as shall be directed by the Committee under the
terms of this Plan or the agreement of award with the participant. A
participant's acceptance of an award of shares pursuant to the Plan shall
constitute such participant's irrevocable power of attorney to the escrow agent
to cause the transfer and delivery to the Company of any such award shares which
the Committee shall direct to be so transferred and delivered pursuant to the
provisions of this Plan or of the award agreement with the participant.
(d) Unless otherwise provided by the Committee, the voting rights on
restricted shares shall belong to each participant with respect to those share
awards held in escrow. Dividends, if any, on shares held in escrow shall be paid
to each participant unless the Committee provides otherwise at the time of
making the award.
12. Payments and Withholding Tax.
(a) As to option shares, full payment for shares purchased upon exercise
of an option shall be made at the time of exercise. Any federal, state or local
taxes required to be paid by or withheld from the employee at the time of
exercise shall also be paid or withheld prior to delivery of any shares upon
such exercise. The exercise price of an option may be paid by delivering shares
of the Company's Common Stock valued at current market prices in exchange for
additional shares upon exercise of an employee's option. Payment may also be
made by delivering a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price and, if applicable, any required
federal, state and local taxes required to be collected by, or withheld by, the
Company in connection with such exercise. No participant shall have any rights
as a stockholder until such shares are issued upon exercise of the options.
(b) Provision for or payment by the participant of any state, federal or
local withholding taxes attributable to the exercise of an option or delivery of
any award shares shall be made in a manner satisfactory to the Company. The
Committee in its sole discretion may permit a participant to elect to have the
Company withhold, or to tender back to the Company, the number of shares
necessary to satisfy the payment of any taxes required to be paid by reason of
the exercise of an option or the delivery of any award shares.
(c) As to award shares, upon the satisfaction of any conditions for
delivery to the employee otherwise set forth in the Plan or in the share award
agreement with the participant, shares will be delivered to the participant only
upon payment by
<PAGE>
him to the Company of the amount of any withholding tax which may be imposed
thereon under the provisions of the Internal Revenue Code as then in effect or
any law of any other taxing jurisdiction requiring payment of any such taxes or
withholding tax. Should such participant fail to make the required payment
within 30 days following the date of removal of restrictions on the delivery of
such shares, such participant shall be deemed to have instructed the escrow
agent to sell for such participant's account at the best price reasonably
obtained as many of the shares deliverable to such participant as may be
necessary to obtain the amount of the required tax payment and the balance of
such shares shall then be delivered to the participant.
13. Issuance of Shares. The provisions governing options granted and shares
awarded under this Plan shall be evidenced in an appropriate agreement with each
participant and shall set forth such terms, conditions, restrictions and
agreements as the Committee may provide; however, no such agreement shall
conflict with the terms of this Plan and, in the event of any such conflict, the
provisions of this Plan shall be deemed to control.
14. Capital Adjustments. The number of shares authorized in the aggregate for
this Plan shall be adjusted, and the number of shares of common stock covered by
each outstanding option or award granted by this Plan and the option price
(where app1icable) thereof shall be subject to an equitable adjustment, as
determined by the Committee, to reflect any stock dividend, stock split, or
share combination, or to reflect any exchange of shares, recapitalization,
merger, consolidation, reorganization, liquidation, or the like, of or by the
Company.
15. Nonassignability. The options and awards granted pursuant to this Plan
shall not be transferable (other than by will or by the laws of dissent and
distribution) assigned, pledged or hypotheticated in any way whether by
operation of law or otherwise, or be subject to execution, attachment or similar
process. Upon any attempt to so transfer, assign, pledge, hypotheticate, or upon
the levy by reason of any attachment or similar process, contrary to the
provisions hereof, of any option or award, such option or award shall
immediately become null and void. During a participant's lifetime options shall
be exercisable only by, and awards deliverable only to, him or her.
16. Termination of Options Rights and Awards. The Committee may provide for the
termination of options and the revocation of share awards in the case of a
participant's termination of employment with the Company or a Subsidiary
corporation for cause for defalcation, theft, embezzlement, falsification of
records with intent to defraud or any act involving moral turpitude or crime
constituting a felony. Upon such termination of employment, the participant's
rights to exercise any options granted pursuant to this Plan or to receive any
shares awarded pursuant hereto shall cease. In the case of award shares the
Committee shall direct the escrow agent to return all forfeited shares to the
Company.
17. Interpretation. The Committee shall interpret this Plan and shall prescribe
such rules and regulations in connection with the
<PAGE>
operation of the Plan as it shall determine to be necessary or advisable for the
administration hereof consistent with the purposes herein contained. The
Committee shall have the power and authority to rescind, amend and modify its
rules and regulations.
18. Amendment or Discontinuation. This Plan may be amended, altered or
discontinued by the Company without approval of the shareholders, except the
Board of Directors shall not have the power or authority to change the employees
or class of employees who are eligible to participate in the Plan, increase the
aggregate number of shares which may be issued under options and awards or
materially increase the benefits accruing to participants under the Plan. In the
event any law, rule or regulation issued or promulgated by the Internal Revenue
Service, New York Stock Exchange, Securities and Exchange Commission or other
governmental agency requires the Plan to be amended, the Plan will be amended at
the time and all options and awards granted and outstanding will be subject to
such amendment.
19. Effect of the Plan. Neither the adoption of this Plan nor any action of the
Board or Committee shall be deemed to give any officer or employee any right to
be granted an option or award with respect to the Common Stock of the Company or
to any other rights whatsoever except as may be evidenced by a stock option
agreement or share award agreement and any amendment thereto, duly executed on
behalf of the Company, and then only to the extent and on terms and conditions
expressly set forth therein.
20. Term. Unless sooner terminated by action of the Board, this Plan shall
terminate December 15, 1997 and no options or awards may be granted pursuant
hereto after such date.
21. Definitions. For purposes of this Plan, unless the context requires
otherwise, the following words shall have the meanings indicated:
(a) "Plan" shall mean this 1988 Employee Stock Option Plan as amended from
time to time in accordance with the terms thereof.
(b) "Company" shall mean E-Systems, Inc. and its successors and assigns.
(c) "Board" shall mean the Board of Directors of E-Systems, Inc. and its
successors and assigns.
(d) "Committee" shall mean the Compensation and Benefits Committee
appointed by the Board and described in Paragraph 2., Administration, of this
Plan.
(e) "Common Stock" shall mean the $1.00 par value common stock of the
Company subject to the right of the Company to change the authorized number of
shares of such class and to provide no par or change in par value for such
stock.
<PAGE>
(f) "Subsidiary corporation" shall mean any corporation (other than the
employer corporation) in an unbroken chain of corporations beginning with the
employer corporation if, at the time of the granting of the option or making of
the award hereunder, each of the corporations other than the last corporation in
the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
23. Effectiveness of the Plan. This Plan shall be subject to approval and
ratification on or before the next regular or special stockholders' meeting of
the Company by the vote of the holders of the majority of the shares of stock of
the Company present or represented at the meeting to which the Plan is
submitted. Subject to such approval and ratification, the Plan is effective at
once. Options and awards may be granted under the Plan prior to such approval
and ratification, but each such option or award granted shall be subject to the
approval and ratification of the Plan by the stockholders. If the Plan shall not
be so approved and ratified, all options and awards granted shall be of no
effect. The date of the grant of any option or award granted prior to such
approval and ratification by the stockholders shall be determined for all
purposes as if the option or award had not been subject to such approval and
ratification; however, no option granted may be exercised and no award made may
be delivered to a participant prior to such approval and ratification.
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding............................................... 33,476 32,538 32,132
Net effect of dilutive stock options based on the treasury stock method
using average market price.............................................. 565 403 591
-------- -------- --------
Total.............................................................. 34,041 32,941 32,723
Net Income (Loss)........................................................ $121,866 $(69,491) $109,538
-------- -------- --------
-------- -------- --------
Per Share Amount......................................................... $ 3.58 $ (2.11) $ 3.35
-------- -------- --------
-------- -------- --------
FULLY DILUTED
Average shares outstanding............................................... 33,476 32,538 32,132
Net effect of dilutive stock options based on the treasury stock method
using the year end price, if higher than average market price........... 595 799 591
-------- -------- --------
Total.............................................................. 34,071 33,337 32,723
Net Income (Loss)........................................................ $121,866 $(69,491) $109,538
-------- -------- --------
-------- -------- --------
Per Share Amount......................................................... $ 3.58 $ (2.08) $ 3.35
-------- -------- --------
-------- -------- --------
</TABLE>
43
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following table contains a list of all significant subsidiaries of the
Registrant, the state or other jurisdiction of incorporation or organization and
the names under which such subsidiaries do business.
<TABLE>
<CAPTION>
JURISDICTION OF NAMES UNDER
NAME ORGANIZATION WHICH DOES BUSINESS
- ------------------------------- ---------------------- --------------------------------------------------
<S> <C> <C>
ESY Export Company, Inc. U.S. Virgin Islands E-Systems
Serv-Air, Inc. Delaware Serv-Air, "Maintenance Aircraft Company, Inc." and
"Air-Serv, Inc."
Engineering Research Maryland "ERA"
Associates, Inc.
HRB Systems, Inc. Delaware "HRB"
E-Systems Medical Electronics Delaware "E-MED"
Inc.
Advanced Video Products, Inc. Massachusetts "AVP"
</TABLE>
44
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 2-77230, Post Effective Amendment Number 1 to Form S-8 No.
2-77230; Form S-8 No. 2-98894; Form S-8 No. 33-23740 and Form S-8 No. 33-42745)
pertaining to Employee Stock Option Plans of E-Systems, Inc. and the related
Prospectuses and the Registration Statements (Form S-8 No. 2-88384; and Form S-8
No. 33-28356) pertaining to the E-Systems Tax Advantaged Capital Accumulation
Plan of E-Systems, Inc. and Subsidiaries and the related Prospectuses of our
report dated January 27, 1994, with respect to the consolidated financial
statements and schedule of E-Systems, Inc. and Subsidiaries included in the
Annual Report (Form 10-K) for the year ended December 31, 1993.
ERNST & YOUNG
Dallas, Texas
March 23, 1994
45
