<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 Commission file number
July 31, 1995 0-10964
MAXWELL LABORATORIES, INC.
--------------------------
(Exact name of Registrant as specified in its charter)
Delaware 95-2390133
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8888 Balboa Avenue
San Diego, California 92123
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(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (619) 279-5100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
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Title of each class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405 of this chapter) 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
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State the aggregate market value of the voting stock
held by non-affiliates of the Registrant:
$22,237,259 at August 31, 1995
The Registrant has one outstanding class of Common Stock. 2,689,185 shares were
outstanding at August 31, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the 1995 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A (including the Appendix thereto) are incorporated by
reference in Part II and III of this Report.
<PAGE>
PART I
ITEM 1. BUSINESS
Founded thirty years ago, the Registrant has over the years provided
state-of-the-art technical products and services in support of advanced defense
programs, principally nuclear weapons effects research. In the past several
years, the Registrant has broadened its business base by applying its core
technologies and capabilities to both commercial and government markets and now
provides diverse products and services primarily involving computer-oriented
technologies, ranging from PC based hardware to sophisticated software and
network solutions, and high-energy power conversion systems and components.
The Registrant has a strong foundation in advanced computer programming
and mathematical techniques used in understanding and analyzing complex physical
phenomena. This foundation, previously oriented to defense and space programs,
has recently led to a new focus on business initiatives involving sophisticated
but user-friendly software and integrated network solutions to the information
and data processing needs of state and local agencies. The Registrant also
designs and sells customized PC-based computer systems for integration by
original equipment manufacturers into equipment for real-time commercial and
industrial applications. A leader in pulsed power technology -- the delivery of
brief, high-voltage bursts of electrical energy at high peak power or high
average power when repetitive pulses are generated -- the Registrant designs,
develops and manufactures power conversion systems and components designed to
meet individual customer requirements for pulsed power. These systems and
components range from individual energy storage capacitors to major integrated
pulsed power systems. They are used in a variety of applications including
nuclear effects simulation and conventional defense programs, commercial and
governmental research and development projects, medical equipment and devices,
and purification equipment for the reduction of microbial contamination of food,
packaging, medical products, air and water.
The Registrant's business is conducted in two industry segments: (i)
Commercial, Industrial and Scientific Products and (ii)Technology Programs and
Services. In its Commercial, Industrial and Scientific Products industry
segment the Registrant designs, manufactures and sells products to a broad range
of commercial and governmental customers, a significant portion of which
products and services are derived from technologies developed through activities
in its other industry segment. The Technology Programs and Services industry
segment is comprised of research, development, engineering, analysis, design,
testing services and manufacturing primarily for the federal government but also
for foreign governments and occasionally industrial and defense companies.
The following table sets forth, for the periods indicated, the
Registrant's approximate revenues attributable to its Commercial, Industrial and
Scientific Products industry segment and its Technology Programs and Services
industry segment:
<TABLE>
<CAPTION>
Year Ended July 31
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1995 1994 1993
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Commercial, Industrial and
Scientific Products $42,762 $43,014 $38,419
Technology Programs and
Services 32,242 42,449 48,483
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Total $75,004 $85,463 $86,902
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</TABLE>
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Additional financial information relating to these two segments is contained in
Note 11 of Notes to the Consolidated Financial Statements contained in the
Appendix to the Registrant's Proxy Statement for its 1995 Annual Meeting of
Shareholders (the "Proxy Statement Appendix").
The Registrant was originally incorporated in California in 1965 and
reincorporated in the State of Delaware in 1986. Its principal place of
business and executive offices are located in San Diego, California.
COMMERCIAL, INDUSTRIAL AND SCIENTIFIC PRODUCTS
The Registrant develops, manufactures and sells a variety of products
which have evolved from or employ technology developed through the Registrant's
technology programs or were derived from acquisitions. These products include
critical components, subsystems and complete turnkey systems.
Commercial and Industrial PC Computers. Through its I-Bus Division,
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the Registrant is engaged in the design, development and manufacture of
customized PC computers, and components such as enclosures, CPUs and passive
backplanes, for real-time commercial and industrial applications. These
products are sold primarily through strategic partnerships with Original
Equipment Manufacturers (OEMs) in which I-Bus typically performs custom design
and engineering services to meet the OEM's particular requirements and then
manufactures and sells the computers to the OEM for integration into the final
product. I-Bus' products are used as data processing and control elements, and
incorporate advanced computer technology into complex products and systems. I-
Bus sells to OEMs in a variety of markets including voice processing, light
industrial, telecommunications, networking, medical imaging and instrumentation.
In recent fiscal years, and again in fiscal 1995, sales of these
products are a substantial portion of the Registrant's total business. I-Bus'
industry is highly competitive, with price, delivery, reliability and service
being of significant importance to customers. The I-Bus products are in a
growing market and are subject to price erosion. Moreover, I-Bus' business is
characterized by continuous technological change, which can lead to product
obsolescence.
Purification Technologies. The Registrant has been developing new
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methods and equipment that could significantly alter techniques for reducing
microbial contamination. Following seven years of proprietary research and
development funded by the Registrant and companies in the food industry, the
Registrant formed its majority-owned subsidiary in November, 1988, then named
Foodco Corporation and in 1995 renamed PurePulse Technologies, Inc., to actively
pursue commercial markets for this technology. While food industry applications
remain a key focus, substantial markets are emerging for medical and
pharmaceutical sterilization as well as for purification of air and water. Two
of the world's leading food processing and packaging companies, Kraft General
Foods and Tetra Laval Group, hold minority interests in PurePulse Technologies,
Inc. ("PurePulse").
During fiscal 1995, testing at pilot-line facilities as well as
extensive laboratory testing continued to validate the effectiveness of the
PureBright/TM/ (pulsed light) technology being commercialized by PurePulse for
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food packaging applications.
During fiscal 1995, a significant portion of PurePulse's activities were
performed under a $6.5 million, three-year technology development agreement with
Tetra Laval, originally signed in fiscal 1993, to further develop the PureBright
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technology for certain applications. This work is expected to result in the
development of commercial PureBright equipment for certain applications which
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Tetra Laval will have the exclusive right to commercialize, subject to further
agreement on appropriate royalties and other provisions. During fiscal 1995,
PurePulse began a concentrated program to demonstrate satisfaction of stringent
lamplife requirements involved in the major application of current interest to
Tetra Laval. Early in fiscal 1996, PurePulse also reached agreement in
principle for
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an extension of the funding provided by Tetra Laval under the technology
development agreement for an additional 18 months to support several programs
including the lamplife development effort. Continued work under such programs,
and the funding for such work, will require demonstration of sufficient
technical progress in the lamplife program. While PurePulse believes that the
required lamplife will be achieved, technical issues remain and a significant
amount of experimental and testing data must be accumulated to reach the project
goals. Loss or curtailment of this technology development funding or a decision
by Tetra Laval to delay or decrease its expected commercial use of this
technology would have a material adverse impact on PurePulse.
PurePulse is also developing technology for cool pasteurization of
liquid foods and beverages under the trade name CoolPure/TM/. Testing and
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development of the CoolPure technology is being funded by PurePulse and under
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contracts with the U.S. Army Natick Food Laboratory.
Marketing and product research for non-food applications of PurePulse's
technologies are being pursued in areas such as sterilization of medical
supplies and packaging, killing of airborne bacterial and viral contaminants in
hospitals and water purification. The activity for application studies in each
of these areas increased in fiscal 1995. During the last fiscal year, PurePulse
also continued to pursue required clearances from the U. S. Food and Drug
Administration for certain applications of its technologies and in July, 1995,
received notification from that agency that the use of CoolPure technology for
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food treatment does not require a food additive petition. This notice allows
PurePulse to begin commercial marketing of CoolPure systems for food treatment.
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Power Conversion Systems and Components. The Registrant manufactures
---------------------------------------
and sells compact, high performance power conversion systems and components to
government and university laboratories and industrial customers for a wide
variety of applications.
The Registrant develops, manufactures and sells compact capacitors which
are used to store and deliver electrical energy in single or repetitive pulses,
generally at high voltage. The Registrant's capacitors are used for commercial
and military applications requiring high levels of reliability and performance.
The majority of these capacitors are manufactured using modifications and
variations of the Registrant's standard designs to fit specific customer needs.
The Registrant continues to be a major supplier of capacitors for use in
portable heart defibrillators - medical devices used to restore the normal
rhythm of an erratically-beating heart. During fiscal 1995 the Registrant's
Sierra Capacitor/Filter Division successfully introduced a new line of patented
feedthrough filter capacitors for use in filtering out electromagnetic
interference in implantable pacemakers and defibrillators, and is in commercial
production of these devices.
The Registrant also develops, manufactures and sells a line of compact
capacitor charging power supplies for both commercial and military markets. The
power supply line was primarily developed by the Registrant under funding from
the NASA Center for the Commercial Development of Space Power Systems at Auburn
University. The product line, introduced in fiscal 1991, is manufactured under
license from Auburn University. The compact power supplies charge high voltage
pulsed power systems used in industrial, medical and scientific lasers,
accelerators and research and development devices. Power supplies for other
industrial and commercial applications requiring highly regulated current and
voltage were added to this product line in fiscal 1993 to broaden the market
potential.
Computer Based Information Systems. Fiscal 1995 saw the further
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expansion of a new business area for the Registrant which began in fiscal 1994,
consisting of computer software, networking and integration services to solve
information and data processing needs of state and local agencies. The
Registrant continued work on a $1.7 million project started last fiscal year
under which the Registrant is providing networking services for a state-wide
child support enforcement system in South Carolina. During fiscal 1995 work
began on a two-year $5.2 million program to provide an integrated criminal
justice information system for Sarasota County, Florida, which will integrate
the information and data
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processing requirements of all the County's criminal justice agencies and the
criminal courts into one networked system. This integrated system will be among
the first of its kind in the country. At fiscal 1995 year end the Registrant was
selected by the Florida Association of Court Clerks to implement a $3.2 million
networked offender-based tracking and case management system in 37 counties in
Florida. In each of the projects in Florida, the Registrant is teamed with AT&T
to provide computer hardware and other support and with local software vendors.
Other Products. The Registrant is marketing accounting and management
--------------
information software programs, as well as software that is used on personal
computers as an aid to analyze and present experimental data. During fiscal
1995 the Registrant signed a software development and license agreement with
Glencoe/McGraw-Hill under which the Registrant will develop multimedia software
products on CD ROM to supplement textbooks in high school physics and algebra
classes. Glencoe, the market leader in supplying textbooks to high schools,
will provide development funding to the Registrant, will market the software and
will pay royalties to the Registrant on sales of such products. The physics
product is substantially completed and will be marketed in the current fiscal
year, and the algebra products (Algebra I and II) will be written during the
current fiscal year and marketed thereafter.
Additionally, the Registrant has a line of laboratory pulse generators
and related equipment that will meet the needs of companies requiring
sophisticated electromagnetic pulse (EMP) testing and simulation.
TECHNOLOGY PROGRAMS AND SERVICES
The Registrant is engaged in technology programs and services related to
nuclear and advanced conventional weapons and their effects as well as chemical
analytical services. Research and development is performed under contract to
develop improved pulsed power components for above ground simulation devices and
conventional weapons development. Computer-based modeling is performed for
electromagnetic effects due to both naturally occurring and nuclear weapon
environments. Chemical analysis technologies are utilized in the analysis,
detection and control of environmental pollutants.
On October 1, 1995, the Defense Nuclear Agency ("DNA"), an agency of the
Department of Defense ("DOD") and the principal customer of the Registrant in
its Technology Programs and Services segment, ceased operations at three of the
four major radiation simulators owned by DNA and operated by the Registrant in
San Diego. This facility close down is part of DNA's overall strategic response
to reduced global threats and shrinking defense budgets. The Registrant expects
to provide significant assistance to DNA in the closure of the facilities, which
is expected to take two years to complete. The Registrant may experience
additional significant reductions in its defense business and there is no
assurance that these reductions will be offset by growth in commercial revenues.
Environmental Programs. The Registrant is involved in pollution control
----------------------
consisting primarily of the analysis of environmental samples for hazardous
substances. This work is primarily performed under contracts with large
engineering firms involved in remediation of military sites. In prior years,
under multi-year consulting contracts with the EPA, the Registrant developed
technical, quality control and administrative procedures that have become models
for EPA testing facilities. A major capital investment in fiscal 1994 resulted
in a new facility for chemical analytical services, consolidating operations
into a state-of-the-art laboratory.
During fiscal year 1995, the Registrant also continued its consulting
services in environmental concerns, advising private companies on procedures and
quality assurance methodologies required to meet EPA requirements.
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Capacitor Research and Development Program. Under an agreement with
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Auburn University, in which the Registrant obtained an exclusive license to
develop an innovative capacitor concept, and under its own research programs,
the Registrant is exploring promising technologies at the low-voltage end of the
high-energy-density capacitor market. Currently, the development is primarily
focused on capacitors for electrically powered vehicles under a DOE contract.
The Registrant expects to manufacture and market capacitors for electric and
hybrid vehicles, utility applications requiring uninterruptible power sources,
and other commercial applications if the development is successful. Under this
program the technical goals have been exceeded and scalability to full size
units has been demonstrated. The next phase is to produce and test a number of
full size units and obtain performance and reliability data to validate
commercially acceptable performance.
Nuclear and Advanced Conventional Weapons Effects Research. A
----------------------------------------------------------
substantial portion of this work is performed under contracts with agencies of
the DOD, primarily DNA. Modern military operations, both strategic and
tactical, depend upon the reliability and survivability of missiles, satellites
and other military and telecommunications equipment. Legislation enacted during
the Registrant's 1992 fiscal year and Executive action during fiscal year 1993
limiting underground testing resulted in a shift of activities in this area to a
greater emphasis on vulnerability and lethality analysis and experimental
verification by above-ground simulation testing. Recent world events have
resulted in a reduction in funding for testing of military equipment hardened
against the effects of the hostile environment produced by a nuclear or advanced
conventional weapon.
The Registrant continues, however, to be involved in many aspects of
weapons effects testing and research, including test design and analysis of
weapons effects, as well as designing, building and operating above-ground
simulation test facilities. Three of the four radiation simulators in San Diego
which were designed, built, and operated by the Registrant and owned by the
United States Government ceased operation on October 1, 1995, as previously
described. The Registrant will continue to provide testing and analysis on the
fourth simulation facility and with its gamma ray source after the closure of
the other three simulation devices.
The Registrant's radiation effects engineering group provides a complete
range of services for the hardening of electronics. Hardening is the process by
which a component or system is built or modified to withstand hazardous effects
of a hostile environment. These hardening services encompass concept
definition, development, production assistance, test and field development. The
Registrant participates in large non-nuclear simulation tests performed by the
DOD. The Registrant provides test design services, develops new instrumentation
and participates in performing measurements on such tests.
The Registrant also develops new technology and hardware for more
powerful, and compact, next-generation X-ray simulators.
Conventional Defense Technology. The potential use of compact pulsed-
-------------------------------
power systems to deliver billions of watts of electrical power to a gun barrel
offers an alternate approach to extending the range of artillery and naval
bombardment guns, and for air defense and defense against tactical ballistic
missiles. The Registrant operates an experimental gun facility for DNA for
several mission-oriented programs including projectile development, extended
range shore bombardment and anti-armor. The Registrant continued support work
in fiscal 1995 on an electrothermal cartridge program which combines electrical
energy with chemical energy (chemically inert propellants) to create major
improvements in projectile velocities, range and lethality.
INTERNALLY-FUNDED, COMPANY-SPONSORED RESEARCH AND DEVELOPMENT
The Registrant conducts internally-funded, company-sponsored research
and development to refine and expand its products and services. In addition,
internally-funded, company-sponsored engineering, research and development work
is performed to prepare proposals both for research and
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<PAGE>
development contracts and contracts to manufacture and deliver products. In
fiscal 1995, 1994, and 1993, the Registrant expended approximately $5,038,000,
$4,794,000, and $5,650,000 respectively, on internally-funded, company-sponsored
research and development.
BACKLOG
As of July 31, 1995, 1994 and 1993, the Registrant's funded backlog
amounted to approximately $38 million, $32 million, and $39 million,
respectively. The funded backlog consists of the unexpended funding under cost
reimbursement contracts not yet completed, remaining revenues to be recognized
on contracts accounted for on a percentage of completion basis and firm orders
for products not yet delivered. The Registrant expects to complete or deliver
substantially all of its currently funded backlog within twenty-four months. At
July 31, 1995, the unfunded portion of contracts awarded was an additional $33
million, compared to $53 million at July 31, 1994 and $54 million at July 31,
1993.
CUSTOMERS
A substantial portion of the Registrant's sales (approximately 43% in
fiscal 1995 and 54% in fiscal 1994) is derived from contracts with the United
States government, principally agencies of the DOD, and subcontracts with
government suppliers. The DNA is the Registrant's largest single customer,
accounting for 14% and 15% of the Registrant's total sales and 32% and 31% of
sales of Technology Programs and Services in fiscal 1995 and 1994, respectively.
No other customer accounted for as much as 10% of the Registrant's total sales
during such periods.
GOVERNMENT BUSINESS
The reductions in defense budgets over the past three years have already
affected the Registrant's activities, particularly in the area of system
survivability products and services. In particular, reductions in research and
development funding by the government agencies with which the Registrant does
business is having a material adverse effect upon the Registrant's operations.
For example, the superconducting super collider project, which accounted for
approximately $4 million of the Registrant's fiscal 1993 revenue, was terminated
at the convenience of the government in fiscal 1994. In addition, as described
above, operations at major simulation facilities run by the Registrant for DNA
have been terminated and closure activities have begun.
As a result of overall defense cutbacks, the Registrant has experienced
increased competition in bidding for ongoing programs from contractors seeking
to replace their lost business. Such defense cutbacks and increased competition
have resulted in relatively high costs of doing business in many of the
Registrant's defense areas and in price pressure on awarded programs.
The Registrant's funded government contracts are typically performable
over a one-year period. While no assurance can be given that the Registrant
will receive further funding under these contracts or be awarded any additional
contracts, the Registrant historically has received continuous funding from the
DNA under a series of contracts since 1968; however, there has been a continued
decrease in funding for such programs over the past few years. Government
agencies may terminate their contracts, in whole or in part, at their
convenience. In such event, the government agency is obligated generally to pay
the costs incurred by the Registrant thereunder plus a fee based upon work
completed. The Registrant has been adversely impacted by curtailment in several
of these programs, and further substantial curtailment of these government
programs would have a material adverse effect upon the Registrant's sales and
income.
Contract costs for services or products supplied to government agencies,
including allocated indirect costs, are subject to audit and adjustment.
Contract costs have been agreed upon through fiscal 1992. Contract revenues for
periods subsequent to fiscal 1992 have been recorded in amounts which are
expected to be realized upon final settlement.
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NATURE OF CONTRACTS
Contracts entered into by the Registrant are fixed price contracts or
cost reimbursement contracts. Under a fixed price contract, the customer agrees
to pay a specific price for the Registrant's performance. Under a cost
reimbursement contract, the customer (a government agency or government prime
contractor in substantially all cases) agrees to pay an amount which is equal to
the Registrant's allowable costs in performing the contract, plus a fixed or
incentive fee. Certain costs of doing business, such as interest and
advertising expenses, are not allowable under cost reimbursement contracts.
Greater risks are involved under a fixed price contract than under a
cost reimbursement contract because in a fixed price contract the Registrant
assumes responsibility for providing the specified product or services
regardless of the actual costs incurred. Failure to anticipate technical
problems, estimate costs accurately or control costs during contract performance
will reduce or eliminate the contemplated profit and can result in a loss. On
the other hand, higher profit margins are generally permitted by the government
in establishing prices for fixed price contracts because of such risks. During
fiscal 1995 and 1994, approximately 65% and 63%, respectively, of the
Registrant's sales were derived from fixed price contracts and standard purchase
orders and approximately 35% and 37%, respectively, of the Registrant's sales
were derived from cost reimbursement contracts. Substantially all of the
Registrant's sales in the Commercial, Industrial and Scientific products area
are under fixed price contracts and standard purchase orders. In the Technology
Programs and Services, area approximately 72% and 67% of sales were derived from
cost reimbursement contracts in fiscal 1995 and 1994, respectively, and the
balance of Technology Programs and Services sales in such years were under fixed
price contracts.
MATERIALS
The Registrant generally purchases components and materials, such as
electronics components, dielectric materials, and enclosures of metal and
plastic, from a number of suppliers. The Registrant's I-Bus Division, however,
does rely on a single qualified supplier for some of its critical components,
primarily CPU boards and power supplies, and interruptions in shipments from
such suppliers can have a material short-term impact on the operations of the I-
Bus Division. The Registrant is working with its OEM customers to expand the
number of qualified suppliers for these components.
In addition, in its power conversion systems and components business,
the Registrant has traditionally used one supplier each for capacitor grade
paper and polyester film and has considered the availability of these materials
to be adequate. During the past two years, however, the Registrant has
experienced problems with both of these critical suppliers. The primary paper
manufacturer, a German company, has gone through bankruptcy proceedings, but was
able to continue supporting the Registrant through the transition. The supplier
of polyester film unilaterally imposed a substantial increase in its prices.
The Registrant is taking steps to minimize the future likelihood and impact of
such occurrences by evaluating alternate sources.
SALES AND MARKETING
The Registrant's sales and marketing activities are coordinated by the
relevant operating division or subsidiary which is responsible for its own sales
and marketing planning, product development and sales support activities,
supplemented by participation from the Registrant's senior management. The
Registrant has sales personnel or product champions for each of its principal
product lines with support from scientists, applications engineers and technical
specialists. The Registrant develops contract opportunities for its customer-
funded technology programs through its technical staff. The Registrant's new
business focus is to define proprietary products and services utilizing its core
technologies and professional capabilities to meet the requirements of its
customers and to position the Registrant to enter new niche markets.
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Sales and marketing in the United States for the Registrant's products
are handled directly by the Registrant as well as through sales representatives
for selected products. The Registrant utilizes sales representatives to assist
senior management in marketing its products outside the United States.
EMPLOYEES
At July 31, 1995, the Registrant employed 579 persons, of whom 50 hold
Ph.D. degrees, 57 hold Masters degrees and 140 hold Bachelors degrees primarily
in the physical sciences and engineering. None of the Registrant's employees is
represented by a labor union. The Registrant considers its relations with its
employees to be good.
PATENTS, LICENSES AND TRADEMARKS
The Registrant relies primarily on its technological and engineering
abilities and on its design and production capabilities for the development and
maintenance of its business, rather than on patents. However, the Registrant
does file patent applications on concepts and processes developed by the
Registrant's personnel and has obtained a number of patents which the Registrant
believes provide protection for certain of its technologies and products. The
Registrant secures from all of its employees agreements designed to preserve the
confidentiality of proprietary information and to vest in the Registrant the
right to inventions developed in the course of employment.
COMPETITION AND OTHER BUSINESS RISKS
In most of its activities, the Registrant has a number of competitors,
some of which have been established longer and have substantially greater
financial and other resources. In its nuclear weapons effects simulation
business, the Registrant has one principal competitor.
The Registrant believes its ability to compete successfully is based
substantially upon its capability to design and manufacture products which are
responsive to the high quality, performance and reliability requirements of its
customers at competitive prices and to perform its technology contracts. The
Registrant's success also depends upon its ability to hire and retain highly
qualified engineers, scientists and management personnel.
The government obtains certain rights to technology and technical data
developed by the Registrant under its government funded contracts. Under
certain circumstances, the government may make such technology and data
available to the Registrant's competitors for use by them under other government
contracts. Except for these rights reserved to the government, the Registrant
retains all rights to the technology and technical data developed by it under
its government funded research.
ITEM 2. DESCRIPTION OF PROPERTY
The Registrant owns in fee a 45,600 square foot industrial building, a
22,000 square foot high bay manufacturing facility, and a 35,000 square foot
engineering and administrative support facility situated on approximately 8.9
acres of land located in San Diego, California. The Registrant also leases five
other facilities in the San Diego area. The Registrant utilizes its facilities
in the following manner: corporate, sales and administrative (32,000 sq. ft.);
manufacturing, assembly and testing, research and development laboratories and
engineering (301,000 sq. ft.). From time to time each of the facilities is
utilized in both of the Registrant's industry segments.
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The Registrant's leased facilities in San Diego, California are for
varying terms and some of them contain options permitting the Registrant to
extend the lease term as shown in the table below:
Leased Facilities - San Diego, California
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<TABLE>
<CAPTION>
Approximate Year of Approximate
Square Lease Option Current
Footage Expiration Period Annual Rent(1)
----------- ---------- ---------- ---------------
<S> <C> <C> <C>
68,000 2006 5 Years $420,000
50,000 1999 None $330,000
43,000 1996 5 Years (2) $230,000
19,700 1999 10 Years (3) $120,000
37,900 2000 10 Years (3) $310,000
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TOTAL: 218,600
=======
</TABLE>
(1) Annual rentals are subject to adjustments pursuant to Consumer Price Index
or other escalation clauses in certain of the leases included in the table.
(2) Consecutive one year options.
(3) Two (2) five-year options.
The Registrant also leases or has commitments to lease approximately
3,200; 7,210; 7,580; 350 and 200 square feet of office space in Reston and
Alexandria, Virginia; Albuquerque, New Mexico; Huntsville, Alabama; and Mission
Viejo, California, respectively, at a total approximate annual rent of $283,000.
The Registrant also owns a 12,400 square foot industrial building on 2.6 acres
of land located in Carson City, Nevada.
In addition to the facilities described above, the Registrant utilizes,
on a rent free basis, 10,100 square feet of space owned by the government
located adjacent to one of the Registrant's research and development facilities
in San Diego, California. Additionally, the Registrant utilizes, on a rent free
basis, 22,000 square feet at Kirtland Air Force Base in Albuquerque, New Mexico.
The Registrant also operates a 500 acre test site in San Diego under a
facilities contract with DNA.
The Registrant believes that its facilities are well maintained, in good
operating condition and are sufficient for its present operating needs.
ITEM 3. LEGAL PROCEEDINGS
In January 1991, the California Department of Toxic Substances Control
(DTSC) notified the Registrant that it had been identified as one of a number of
"potentially responsible parties" with respect to alleged hazardous substances
released into the environment at a recycling facility in San Diego County. As
the Registrant is not in the business of transporting or disposing of waste
materials, the Registrant retained the services of the owners of the recycling
facility to transport certain waste materials generated by the Registrant.
After properly delivering the materials to the transporter, the Registrant was
not further involved in the transportation, treatment or disposal of the
materials. Under California and Federal "Superfund" laws, the Registrant is a
potentially responsible party, even though the Registrant was not involved in
the transport or disposal of the substances. Moreover, it is the Registrant's
understanding that alleged hazardous substances from at least approximately 160
other parties were released at the facility, and that response costs of
approximately $7.9 million have been incurred at the site by the DTSC.
-10-
<PAGE>
In August 1992, the Registrant and approximately 40 other potentially
responsible parties signed a Consent Order which had been negotiated with the
DTSC agreeing to pay for $4 million of the $7.9 million response costs
previously incurred, and to pay for certain future interim response actions
outlined in the Consent Order.
The currently estimated cost of such interim response actions is $9.1
million, and the Registrant's share of the cost, as allocated by the parties to
the Consent Order, is currently estimated at approximately 7.0%. The eventual
cost of all removal and remediation activities, for which the Registrant and the
other potentially responsible parties will share in additional reimbursements to
the State, and including the $9.1 million referred to above, is currently
estimated at the range of $15-$20 million. On the basis of amounts accrued by
the Registrant, it is management's opinion that any additional liability
resulting from this situation will not have a material effect on the
Registrant's financial statements.
Government investigators are following-up on allegations of wrongful
conduct first made in July, 1994, by a former employee at the Registrant's
Sierra Capacitor/Filter Division. The Registrant is cooperating with the
investigating agents and has conducted its own examination into the charges.
After considerable internal investigation, the Registrant has found no evidence
of wrongdoing at the Division and believes that the former employee's charges
are unfounded.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant as of the date of this report
are set forth in the following table. Officers of the Registrant serve at the
pleasure of the Board of Directors.
Name Age Position
- ---- --- --------
Alan C. Kolb 66 President, Chief Executive Officer, and Director.
Dr. Kolb served as President and Chief Executive
Officer of the Registrant from 1970 until June,
1980. In June, 1980 Dr. Kolb was elected Chief
Executive Officer, and in August, 1992 he also
assumed the duties of President of the Registrant.
From 1980 to 1995 Dr. Kolb served as Chairman of the
Board.
Donn A. Starry 70 Chairman of the Board and Director. General Starry,
U.S. Army, Retired, has served on the Registrant's
Board of Directors since 1988 and was elected
Chairman in October, 1995. General Starry retired
from the Army in 1983 and joined Ford Aerospace
Corporation. He retired as Executive Vice President
of Ford Aerospace Corporation in 1990 and thereafter
has served as consultant and advisor to industry and
government in the United States and several foreign
countries.
Sean M. Maloy 37 Executive Vice President, Chief Operating Officer
and Director. Mr. Maloy has been employed with the
Registrant since December, 1982 and served as Vice
President-Finance and Administration, Chief
Financial Officer and Treasurer of the Registrant
from September,
-11-
<PAGE>
Name Age Position
- ---- --- --------
1985 to March, 1994 at which time he assumed his
current duties as Chief Operating Officer.
Gary J. Davidson 39 Vice President-Finance and Administration, Treasurer
and Chief Financial Officer. Mr. Davidson served as
Corporate Controller of the Registrant from May,
1986 until his appointment as Vice President-
Finance, Treasurer and Chief Financial Officer in
March, 1994. Mr. Davidson assumed the duties of
Vice President-Administration in March, 1995.
Kedar D. Pyatt, Jr. 62 Senior Vice President, Chief Technical Officer and
Director. Dr. Pyatt has served as a Vice President
and a Director of the Registrant since January,
1984. He had previously served S-Cubed as Senior
Vice President from 1975 and Chairman of the Board
from January, 1983 to January, 1984.
Eduardo M. Waisman 51 Vice President. Dr. Waisman was appointed Vice
President in March, 1994 and at the same time named
President of the S-Cubed Division. From 1989 to
1992 he was Manager of the Plasma Physics Group of
S-Cubed. From 1992 to 1994, Dr. Waisman served as
Vice President of the Pulsed Power X-ray Simulator
Sector of the Balboa Division.
Richard E. Smith 54 Vice President. Mr. Smith was named Vice President
of the Registrant and President of the Balboa
Division in November, 1994. Prior thereto he was
General Manager of M/A-COM PHI, a subsidiary of M/A-
COM, Inc., and from 1989-1994 he was President of
the Ryan Electronics and Kinetics Division of
Teledyne, Inc. Since 1993 Mr. Smith has been a
member of the Board of Directors of Velcon
Industries.
Richard C. Eppel 55 Vice President. Mr. Eppel was appointed Vice
President in August, 1995. He is the President of
the I-Bus Division and has served in that capacity
since the acquisition of that business by the
Registrant in 1991.
Donald M. Roberts 47 General Counsel. Mr. Roberts has served as General
Counsel since joining the Registrant in April, 1994.
For more than five years prior thereto, Mr. Roberts
was a shareholder of the law firm of Parker,
Milliken, Clark, O'Hara & Samuelian, A Professional
Corporation, and a partner of the predecessor law
partnership, and in that capacity had served the
Registrant as outside legal advisor for more than
ten years.
Karl M. Samuelian 63 Secretary and Director. Mr. Samuelian has served as
Secretary of the Registrant since 1967. From 1978
to June, 1980, he also held the office of Chairman
of the Board of
-12-
<PAGE>
Name Age Position
- ---- --- --------
the Registrant. For more than five years, Mr.
Samuelian has been a shareholder of the law firm of
Parker, Milliken, Clark, O'Hara & Samuelian, A
Professional Corporation and a partner of the
predecessor law partnership.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS.
The information required by this Item is contained in Note 13 (Quarterly
Results of Operations and Stock Information (Unaudited)) to the Registrant's
consolidated financial statements appearing in the Proxy Statement Appendix
(filed as Exhibit 13 hereto) at page A-19, and is incorporated herein by this
reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is contained in the Proxy
Statement Appendix at page A-5 under the caption "Five Year Selected Financial
Data" and is incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this Item is contained in the Proxy
Statement Appendix at pages A-2 to A-4 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and is
incorporated herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of the Registrant and
its subsidiary, included in the Proxy Statement Appendix at pages A-6 to A-20,
are incorporated herein by this reference:
1. Report of Ernst & Young LLP, Independent Auditors
2. Consolidated Balance Sheet at July 31, 1995 and 1994
3. Consolidated Statement of Income for the Years Ended July 31, 1995, 1994
and 1993
4. Consolidated Statement of Shareholders' Equity for the Three Years Ended
July 31, 1995
5. Consolidated Statement of Cash Flows for the Years Ended July 31, 1995,
1994 and 1993
6. Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-13-
<PAGE>
PART III
ITEMS 10. THROUGH 13.
The information required under Item 10 (Directors and Executive Officers
of the Registrant), Item 11 (Executive Compensation), Item 12 (Security
Ownership of Certain Beneficial Owners and Management) and Item 13 (Certain
Relationships and Related Transactions) will be reported in the Registrant's
Proxy Statement for the 1995 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A as follows and is
incorporated herein by reference:
Heading in Proxy
Item Number Statement
----------- ----------------
10...................... "ELECTION OF DIRECTORS"
11...................... "EXECUTIVE COMPENSATION"
12...................... "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT"
13...................... "EXECUTIVE COMPENSATION"
(See also Item 4.1 -"Executive Officers of the Registrant," Part I, supra).
-----
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)1. FINANCIAL STATEMENTS.
The following consolidated financial statements of the Registrant and its
subsidiary, included in the Registrant's Proxy Statement Appendix, are
incorporated by reference in Part II, Item 8 of this report:
1. Report of Ernst & Young LLP, Independent Auditors
2. Consolidated Balance Sheet at July 31, 1995 and 1994
3. Consolidated Statement of Income for the Years Ended July 31, 1995,
1994 and 1993
4. Consolidated Statement of Shareholders' Equity for the Three Years
Ended July 31, 1995
5. Consolidated Statement of Cash Flows for the Years Ended July 31,
1995, 1994 and 1993
6. Notes to Consolidated Financial Statements
-14-
<PAGE>
(a)2. FINANCIAL STATEMENT SCHEDULES.
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are omitted because they
are inapplicable or not required under the related instructions.
(a)3. EXHIBITS.
3.1 Restated Certificate of Incorporation of the Registrant - Exhibit 3.1
to the Registrant's Form 10-K Annual Report for the year ended July
31, 1987 ("1987 Form 10-K") is incorporated by reference.
3.2 Bylaws of the Registrant as amended to date - Exhibit 3.2 to the 1987
Form 10-K is incorporated by reference.
4.1 Form of Rights Certificate - Exhibit 1 to the Registrant's Form 8-A
filed June 30, 1989 is hereby incorporated by reference.
4.2 Form of Rights Agreement between the Registrant and First Interstate
Bank, the Rights Agent - Exhibit 4.2 to the Registrant's Form 10-K
Annual Report for the year ended July 31, 1990 ("1990 Form 10-K") is
incorporated by reference.
10.1 Maxwell Laboratories, Inc. Director Stock Option Plan - Exhibit 10.23
to the Registrant's Form 10-K Annual Report for the year ended July
31, 1989 ("1989 Form 10-K") is incorporated by reference.
10.2 Maxwell Laboratories, Inc. 1985 Stock Option Plan as amended to date -
Exhibit 10.3 to the Registrant's Form 10-K Annual Report for the year
ended July 31, 1991 ("1991 Form 10-K") is incorporated by reference.
10.3 Maxwell Laboratories, Inc. 1995 Stock Option Plan.
10.4 Maxwell Laboratories, Inc. 1994 Employee Stock Purchase Plan.
10.5 Maxwell Laboratories, Inc. 1994 Director Stock Purchase Plan.
10.6 Lease dated December 1, 1988 between Philip MacDonald, as Lessor, and
the Registrant, as Lessee - Exhibit 10.4 to the 1989 Form 10-K is
incorporated by reference.
10.7 Lease dated March 8, 1978 between S-Cubed (formerly known as Systems,
Science and Software), as lessee, and Cal-Sorrento, Ltd. (formerly
known as Industrial Developers, Ltd.), as lessor -- assumed by
Registrant pursuant to the Merger - Exhibit 10.8 to the 1984 Form 10-K
is incorporated by reference.
10.8 Lease dated February 28, 1986 between the Registrant, as lessee, and
Elkhorn Ranch, Inc., as lessor - Exhibit 10.11 to the Registrant's
Form 10-K Annual Report for the year ended July 31, 1986 ("1986 Form
10-K") is incorporated by reference.
10.9 Maxwell Laboratories, Inc. Executive Deferred Compensation Plan -
Exhibit 10.18 to the Registrant's Form 10-K Annual Report for the year
ended July 31, 1983 is incorporated by reference.
-15-
<PAGE>
10.10 Office Lease Agreement dated August 28, 1987 by and between Airport
Property Company, a N.M. Limited Partnership, as lessor, and the
Registrant, as lessee - Exhibit 10.16 to the Registrant's 1988 Form
10-K is incorporated by reference.
10.11 Agreement of May, 1994 between the Registrant and Compagnie Europeene
de Composants Electroniques - LCC under which the Registrant licenses,
manufactures and distributes certain capacitors.
10.12 Lease dated April 17, 1995, by and between Cody Three, Inc., as
lessor, and the Registrant, as lessee.
10.13 Maxwell Laboratories, Inc. Special Severance Pay Plan - Exhibit 10.22
to the 1989 Form 10-K is incorporated by reference.
10.14 Employment Agreement dated June 20, 1989 between the Registrant and
Alan C. Kolb - Exhibit 10.26 to the 1989 Form 10-K is incorporated by
reference.
10.15 Employment Agreement dated June 20, 1989 between the Registrant and
Kedar D. Pyatt, Jr. - Exhibit 10.28 to the 1989 Form 10-K is
incorporated by reference.
10.16 Letter Agreement dated December 21, 1989 between the Registrant and
Alan C. Kolb - Exhibit 10.17 to the Registrant's Form 10-K Annual
Report for the year ended July 31, 1994 ("1994 Form 10-K") is
incorporated by reference.
10.17 Letter Agreement dated December 21, 1989 between the Registrant and
Kedar D. Pyatt, Jr. - Exhibit 10.18 to the 1994 Form 10-K is
incorporated by reference.
10.18 Lease dated October 12, 1994 by and between Madison Square
Partnership, as Lessor, and PurePulse Technologies, Inc. (formerly
Foodco Corporation) as Lessee.
10.19 Office Lease dated July 24, 1990 by and between King Street I
Associates, as Lessor, and the Registrant, as Lessee - Exhibit 10.27
to the 1990 Form 10-K is incorporated by reference.
10.20 Line of Credit Agreement dated February 4, 1994, between the
Registrant and Sanwa Bank of California - Exhibit 10.21 to 1994 Form
10-K is incorporated by reference.
10.21 License Agreement dated effective March 13, 1991 between the
Registrant and Auburn University - Exhibit 10.26 to the 1991 Form 10-K
is incorporated by reference.
10.22 Lease dated February 13, 1994 by and between Terilee Enterprises,
Inc., as Lessor, and the Registrant, as Lessee - Exhibit 10.23 to 1994
Form 10-K is incorporated by reference.
10.23 Agreement of Purchase and Sale of Assets dated February 13, 1992
between Registrant, Sierra Aerospace Technology, Inc., Donald Pruett,
Dick Ni and Annie Ni. Exhibit 10.32 to the 1992 Form 10-K is
incorporated by reference.
13 Proxy Statement for 1995 Annual Meeting of Shareholders, with
Appendix.
23 Consent of Independent Auditors.
27 Financial Data Schedule
-16-
<PAGE>
(b) REPORTS ON FORM 8-K.
The Registrant filed no Reports on Form 8-K during the fourth quarter of its
fiscal year ended July 31, 1995.
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.
MAXWELL LABORATORIES, INC.
By /s/ Alan C. Kolb
-------------------------------------
Alan C. Kolb, Chief Executive Officer
and President
October 24, 1995
----------------
Date
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 dates indicated.
/s/ Alan C. Kolb Chief Executive October 24, 1995
- ------------------------ Officer, President
Alan C. Kolb and Director
/s/ Donn A. Starry Chairman of the October 24, 1995
- ------------------------ Board and Director
Donn A. Starry
/s/ Lewis J. Colby, Jr. Director October 24, 1995
- ------------------------
Lewis J. Colby, Jr.
/s/ Adolphe G. Gueymard Director October 24, 1995
- ------------------------
Adolphe G. Gueymard
/s/ Kedar D. Pyatt, Jr. Director October 24, 1995
- ------------------------
Kedar D. Pyatt, Jr.
-17-
<PAGE>
/s/ Karl M. Samuelian Director and Secretary October 24, 1995
- ------------------------
Karl M. Samuelian
/s/ John W. Weil Director October 24, 1995
- ------------------------
John W. Weil
Director October __, 1995
- ------------------------
Thomas B. Hayward
/s/ Henry F. Owsley Director October 24, 1995
- ------------------------
Henry F. Owsley
/s/ Sean M. Maloy Executive Vice President, October 24, 1995
- ------------------------ Chief Operating Officer,
Sean M. Maloy and Director
/s/ Gary J. Davidson Vice President-Finance October 24, 1995
- ------------------------ & Administration, Treasurer,
Gary J. Davidson and Chief Financial Officer
(Principal Financial and
Accounting Officer)
-18-
<PAGE>
INDEX TO EXHIBITS
- -----------------
3.1 Restated Certificate of Incorporation of the Registrant - Exhibit 3.1
to the Registrant's Form 10-K Annual Report for the year ended July
31, 1987 ("1987 Form 10-K") is incorporated by reference.
3.2 Bylaws of the Registrant as amended to date - Exhibit 3.2 to the 1987
Form 10-K is incorporated by reference.
4.1 Form of Rights Certificate - Exhibit 1 to the Registrant's Form 8-A
filed June 30, 1989 is hereby incorporated by reference.
4.2 Form of Rights Agreement between the Registrant and First Interstate
Bank, the Rights Agent - Exhibit 4.2 to the Registrant's Form 10-K
Annual Report for the year ended July 31, 1990 ("1990 Form 10-K") is
incorporated by reference.
10.1 Maxwell Laboratories, Inc. Director Stock Option Plan - Exhibit 10.24
to the Registrant's Form 10-K Annual Report for the year ended July
31, 1989 ("1989 Form 10-K") is incorporated by reference.
10.2 Maxwell Laboratories, Inc. 1985 Stock Option Plan as amended to date -
Exhibit 10.3 to the Registrant's Form 10-K Annual Report for the year
ended July 31, 1991 ("1991 Form 10-K") is incorporated by reference.
10.3 Maxwell Laboratories, Inc. 1995 Stock Option Plan.
10.4 Maxwell Laboratories, Inc. 1994 Employee Stock Purchase Plan.
10.5 Maxwell Laboratories, Inc. 1994 Director Stock Purchase Plan.
10.6 Lease dated December 1, 1988 between Philip MacDonald, as Lessor, and
the Registrant, as Lessee - Exhibit 10.4 to the 1989 Form 10-K is
incorporated by reference.
10.7 Lease dated March 8, 1978 between S-Cubed (formerly known as Systems,
Science and Software), as lessee, and Cal-Sorrento, Ltd. (formerly
known as Industrial Developers, Ltd.), as lessor -- assumed by
Registrant pursuant to the Merger - Exhibit 10.8 to the 1984 Form 10-K
is incorporated by reference.
10.8 Lease dated February 28, 1986 between the Registrant, as lessee, and
Elkhorn Ranch, Inc., as lessor - Exhibit 10.11 to the Registrant's
Form 10-K Annual Report for the year ended July 31, 1986 ("1986 Form
10-K") is incorporated by reference.
10.9 Maxwell Laboratories, Inc. Executive Deferred Compensation Plan -
Exhibit 10.18 to the Registrant's Form 10-K Annual Report for the year
ended July 31, 1983 is incorporated by reference.
10.10 Office Lease Agreement dated August 28, 1987 by and between Airport
Property Company, a N.M. Limited Partnership, as lessor, and the
Registrant, as lessee - Exhibit 10.16 to the Registrant's 1988 Form
10-K is incorporated by reference.
10.11 Agreement of May, 1994 between the Registrant and Compagnie Europeene
de Composants Electroniques - LCC under which the Registrant licenses,
manufactures and distributes certain capacitors.
-19-
<PAGE>
10.12 Lease dated April 17, 1995, by and between Cody Three, Inc., as
lessor, and the Registrant, as lessee.
10.13 Maxwell Laboratories, Inc. Special Severance Pay Plan - Exhibit 10.22
to the 1989 Form 10-K is incorporated by reference.
10.14 Employment Agreement dated June 20, 1989 between the Registrant and
Alan C. Kolb - Exhibit 10.26 to the 1989 Form 10-K is incorporated by
reference.
10.15 Employment Agreement dated June 20, 1989 between the Registrant and
Kedar D. Pyatt, Jr. - Exhibit 10.28 to the 1989 Form 10-K is
incorporated by reference.
10.16 Letter Agreement dated December 21, 1989 between the Registrant and
Alan C. Kolb - Exhibit 10.17 to the Registrant's Form 10-K Annual
Report for the year ended July 31, 1994 ("1994 Form 10-K") is
incorporated by reference.
10.17 Letter Agreement dated December 21, 1989 between the Registrant and
Kedar D. Pyatt, Jr. - Exhibit 10.18 to the 1994 Form 10-K is
incorporated by reference.
10.18 Lease dated October 12, 1994 by and between Madison Square
Partnership, as Lessor, and PurePulse Technologies, Inc. (formerly
Foodco Corporation) as Lessee.
10.19 Office Lease dated July 24, 1990 by and between King Street I
Associates, as Lessor, and the Registrant, as Lessee - Exhibit 10.27
to the 1990 Form 10-K is incorporated by reference.
10.20 Line of Credit Agreement dated February 4, 1994, between the
Registrant and Sanwa Bank of California - Exhibit 10.21 to 1994 Form
10-K is incorporated by reference.
10.21 License Agreement dated effective March 13, 1991 between the
Registrant and Auburn University - Exhibit 10.26 to the 1991 Form 10-K
is incorporated by reference.
10.22 Lease dated February 13, 1994 by and between Terilee Enterprises,
Inc., as Lessor, and the Registrant, as Lessee - Exhibit 10.23 to 1994
Form 10-K is incorporated by reference.
10.23 Agreement of Purchase and Sale of Assets dated February 13, 1992
between Registrant, Sierra Aerospace Technology, Inc., Donald Pruett,
Dick Ni and Annie Ni. Exhibit 10.32 to the 1992 Form 10-K is
incorporated by reference.
13 Proxy Statement for 1995 Annual Meeting of Shareholders, with
Appendix.
23 Consent of Independent Auditors.
27 Financial Data Schedule
-20-
<PAGE>
EXHIBIT 10.3
MAXWELL LABORATORIES, INC.
1995 STOCK OPTION PLAN
1. Purpose. The 1995 Stock Option Plan (the "Plan") is intended to
advance the interests of Maxwell Laboratories, Inc. (the "Company"), its
shareholders and its subsidiaries by encouraging and enabling selected key
employees (including officers and directors) upon whose judgment, initiative and
effort the Company is largely dependent for the successful conduct of its
business to acquire and retain a proprietary interest in the Company by
ownership of its stock. It is intended that the Plan provide the flexibility
for the issuance of options which qualify as incentive stock options ("incentive
stock options") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code") and options which do not so qualify ("non-
qualified stock Options").
2. Definitions.
(a) "Agreement" means the agreement between the Company and the
optionee under which an option is granted, and setting forth the terms and
conditions of the option and the optionee's rights thereunder.
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means, if there shall then be a Stock Option Committee
(the members of which shall be appointed by the Board from among the
directors of the Company) to which the Board has delegated the authority to
administer the Plan, said Stock Option Committee; or if there shall not
then be a Stock Option Committee of the Board having such delegated
authority, "Committee" means the Board.
(d) "Common Stock" means the Company's common stock.
(e) "Date of Grant" means the date on which an option under the Plan
is approved by the Committee.
(f) "Option" means an option granted under the Plan.
(g) "Optionee" means a person to whom an option, which has not
expired, has been granted under the Plan.
(h) "Subsidiary" or "Subsidiaries" means a subsidiary corporation or
corporations of the Company as defined in Section 424 of the Code.
(i) "Successor" means the legal representative of the estate of the
deceased Optionee or the person or persons who acquire the right to
exercise an Option by bequest or inheritance or by reason of the death of
any Optionee.
3. Administration of the Plan. The Plan shall be administered by the
Committee. No Option may be granted to a person who is then a member of the
Committee. The Committee shall have full and final authority in its discretion,
subject to the provisions of the Plan, to determine the number of shares and
purchase price of Common Stock covered by each Option, the individuals to whom
and the time or times at which Options shall be granted and the nature of each
Option granted under the Plan, i.e., whether the Option will be an incentive
stock option or a non-qualified stock option; to construe and interpret the
Plan; to determine the terms and provisions of the respective Agreements, which
need not be identical, including, but without limitation, terms covering the
payment of the option price, and to make all other determinations and take all
other actions deemed necessary or advisable for the proper administration of the
Plan. All such actions and determinations of the Committee shall be
conclusively binding for all purposes and upon all persons.
<PAGE>
4. Common Stock Subject to Options. Unless amended in accordance with
the provisions of Paragraph 11, and subject to adjustment under the provisions
of Paragraph 7, the aggregate number of shares of the Company's Common Stock
which may be issued upon the exercise of Options granted under the Plan shall
not exceed 250,000. The shares of Common Stock to be issued upon the exercise
of Options may be authorized but unissued shares, shares issued and reacquired
by the Company or shares bought on the market for the purposes of the Plan. In
the event any Option shall, for any reason, terminate or expire or be
surrendered without having been exercised in full, the shares subject to such
Option but not purchased thereunder shall again be available for Options to be
granted under the Plan.
5. Participants. Options may be granted under the Plan to any person
who, in the opinion of the Committee, is a key employee of the Company or any
Subsidiary.
6. Terms and Conditions of Options. Any Option granted under the Plan
shall be evidenced by an Agreement executed by the Company and the Optionee and
shall contain such terms and be in such form as the Committee may from time to
time approve, subject to the following limitations and conditions:
(a) Option Price. The option price per share with respect to each
Option shall be determined by the Committee but shall in no instance be
less than 100% of the fair market value of a share of the Common Stock on
the Date of Grant; provided that with respect to an Optionee who owns, at
the time of grant of an Option which is an incentive stock option, more
than ten percent of the total combined voting power of all classes of stock
of the Company, the option price per share of such Option shall be at least
110% of the fair market value of the underlying shares. For the purposes
hereof, fair market value shall be as determined by the Committee and such
determination shall be binding upon the Company and upon the Optionee. The
Committee may make such determination (i) in case the Common Stock shall
not then be listed and traded upon a recognized securities exchange, upon
the basis of the mean between the closing bid and asked quotations for such
stock (or the closing selling price for such stock, if applicable) on the
Date of Grant (as reported by a newspaper of general circulation or a
recognized stock quotation service) or, in the event that there shall be no
bid or asked quotations (or reported closing selling price) on the Date of
Grant, then upon the basis of the mean between the closing bid and asked
quotations (or the closing selling price, as the case may be,) on the date
nearest preceding the Date of Grant or (ii) in case the Common Stock shall
then be listed and traded upon a recognized securities exchange upon the
basis of the closing selling price at which shares of the Common Stock were
traded on such recognized securities exchange on the Date of Grant or, if
the Common Stock was not traded on said date, upon the basis of the closing
selling price on the date nearest preceding the Date of Grant, and (iii)
upon any other factors which the Committee shall deem appropriate.
(b) Period of Option. Except for earlier termination as provided in
Subparagraphs (g) and (h) of this Paragraph 6, and in Subparagraph (b) of
Paragraph 7, the expiration date of each Option shall be fixed by the
Committee, but, notwithstanding any provision of the Plan to the contrary,
(i) with respect to an incentive stock Option, such expiration date shall
not be more than ten years from the Date of Grant or, with respect to
incentive stock options granted to an employee who owns more than ten
percent of the outstanding stock of the Company, not more than five years
from the Date of Grant, and (ii) with respect to a non-qualified stock
Option, such expiration date shall not be more than eleven years from the
Date of Grant.
(c) Vesting of Shareholder Rights. Neither an Optionee nor any
successor shall have any of the rights of a shareholder of the Company
until the Option with respect to the applicable shares shall have been duly
exercised and the certificate evidencing such shares delivered to such
Optionee or any successor.
(d) Exercise of Option. Each Option shall be exercisable in such
amounts and at such respective dates prior to the expiration of the Option
as provided in the Agreement.
<PAGE>
(e) Payment of Option Price. Upon exercise of an Option, Optionee or
Successor shall pay the option price by delivering to the Company:
(i) cash or a check payable to the Company in an amount equal
to the option price;
(ii) a stock certificate or certificates, duly endorsed for
transfer to the Company, representing shares of Common Stock of the
Company owned by the Optionee or Successor which have a fair market
value on the date of exercise equal to the option price; or
(iii) cash or a check payable to the Company and a stock
certificate or certificates, duly endorsed for transfer to the
Company, representing shares of Common Stock owned by the Optionee or
Successor, which, when added to the amount of the cash or check, have
a fair market value on the date of exercise equal to the Option price.
For the purposes hereof, fair market value shall be determined by the
Committee and such determination shall be binding upon the Company and upon
the Optionee or Successor. The Committee may make such determination in
accordance with Paragraphs 6(a)(i) and 6(a)(ii) hereof by substituting
"date of exercise" for "Date of Grant" each time the latter appears therein
and upon any other factors which the Committee shall deem appropriate.
(f) Non-Transferability of Option. No Option shall be transferable or
assignable by an Optionee, otherwise than by will or the laws of descent
and distribution and each Option shall be exercisable during the Optionee's
lifetime only by the Optionee. No Option shall be pledged or hypothecated
in any way and no Option shall be subject to execution, attachment or
similar process.
(g) Termination of Employment. Upon termination of an Optionee's
employment with the Company and its Subsidiaries other than by reason of
the death of the Optionee, the Option privileges of such Optionee shall be
limited to the shares which were immediately purchasable by him at the date
of such termination and such Option privilege shall expire unless exercised
by him within sixty (60) days after the date of such termination. The
granting of an Option to any person shall not alter in any way the
Company's or the Subsidiary's right to terminate such person's employment
at any time for any reason, nor shall it confer upon the Optionee any
rights or privileges except as specifically provided for in the Plan.
(h) Death of Optionee. If an Optionee dies while in the employ of the
Company or any Subsidiary, the option privileges of said Optionee shall be
limited to the shares which were immediately purchasable by such Optionee
at the date of death and such option privileges shall expire unless
exercised by said Optionee's successor within one (1) year after the date
of death.
7. Adjustments.
(a) In the event that the outstanding shares of Common Stock of the
Company are hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company
or of another corporation, by reason of a recapitalization,
reclassification, stock split-up, combination of shares, dividend or other
distribution payable in capital stock, appropriate adjustment shall be made
by the Board in the number, kind and exercise price of shares for the
purchase of which Options have theretofore been or may thereafter be
granted under the Plan.
<PAGE>
(b) In the event that the Company shall determine to merge,
consolidate or enter into any other reorganization with or into any other
corporation, or in the event of any dissolution or liquidation of the
Company, then in any such event, at the election of the Board, (i)
appropriate adjustment shall be made by the Board in the number, kind and
exercise price of shares for the purchase of which Options have theretofore
been and/or may thereafter be granted under the Plan, or (ii) the Plan and
any Options theretofore granted under the Plan shall terminate as of the
date of such merger, consolidation, reorganization, dissolution or
liquidation, provided that written notice of such event shall have been
given to each Optionee not less than 30 days prior to the date of such
event. Upon any election by the Board pursuant to the provisions of clause
(ii) of this Subparagraph (b), each Optionee shall have the right during
the period commencing on the date the notice referred to in said clause
(ii) is given and concluding on the date of such merger, consolidation,
reorganization, dissolution or liquidation, as the case may be, to exercise
such Optionee's outstanding and unexercised stock Options, including shares
as to which such Options would not otherwise have been exercisable by
reason of an insufficient lapse of time.
(c) All adjustments and determinations under this Paragraph 7 shall be
made by the Board, whose decisions as to what adjustments or determinations
shall be made, and the extent thereof, shall be final, binding and
conclusive.
8. Dollar Limitation on Incentive Stock Options. To the extent that the
aggregate fair market value (determined as of the Date of Grant) of Common Stock
with respect to which Options intended to be incentive stock options first
become exercisable by an Optionee during any calendar year (under the Plan and
all other stock option plans of the Company or any subsidiary) exceeds $100,000,
such Options shall not be considered incentive stock options. Such $100,000
limit shall be applied by taking Options into account in the order in which they
were granted.
9. Restrictions on Issuing Shares. The exercise of each Option shall be
subject to the condition that if at any time the Company shall determine in is
discretion that (i) the satisfaction of withholding tax or other withholding
liabilities, or (ii) the listing, registration or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange or under
any state or federal law, or (iii) the consent or approval of any regulatory
body, or (iv) the perfection of any exemption from any such withholding,
listing, registration, qualification, consent or approval is necessary or
desirable as a condition of, or in connection with, such exercise or the
issuance, delivery or purchase of shares thereunder, then in any such event,
such exercise shall not be effective unless such withholding, listing
registration, qualification, consent, approval or exemption shall have been
effected, obtained or perfected free of any conditions not acceptable to the
Company.
10. Use of Proceeds. The proceeds received by the Company from the sale
of its Common Stock pursuant to the exercise of Options granted under the Plan
shall be added to the Company's general funds and used for general corporate
purposes.
11. Amendment, Suspension and Termination of the Plan. The Board may at
any time suspend or terminate the Plan or may amend it from time to time in such
respects as the Board may deem advisable in order that the Options granted
thereunder may conform to any changes in the law or in any other respect which
the Board may deem to be in the best interests of the Company; provided,
however, that without approval by the shareholders of the Company representing a
majority of the voting power, no such amendment shall (a) except pursuant to
Paragraph 7, increase the maximum number of shares for which Options may be
granted under the Plan, (b) change the provisions of Subparagraph (a) of
Paragraph 6 relating to the establishment of the Option price, (c) change the
provisions of Subparagraph (b) of Paragraph 6 relating to the expiration date of
each option or (d) change the provisions of the second sentence of this
Paragraph 11 relating to the term of this Plan. Unless the Plan shall
theretofore have been terminated by the Board or as provided in Paragraph 12,
the Plan shall terminate ten (10) years after the effective date of the Plan.
No Option may be granted during any suspension or after the termination of the
Plan. Except as otherwise provided in the Plan, no
<PAGE>
amendment, suspension or termination of the Plan shall, without an Optionee's
consent, alter or impair any of the rights or obligations under any Option
theretofore granted to such Optionee under the Plan.
12. Effective Date of the Plan and Shareholder Approval. The effective
date of the Plan shall be the date of its approval by the Board of Directors of
the Company; provided, however, that in the event that shareholder approval of
the Plan is not secured on or before October 24, 1996, the Plan shall thereupon
terminate. Any Options granted prior to the aforesaid shareholder approval
being secured shall be subject to such approval being secured.
<PAGE>
EXHIBIT 10.4
MAXWELL LABORATORIES, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT OF PLAN. Maxwell Laboratories, Inc. (the "Company") proposes
to grant options for purchase of the Company's Common Stock to eligible
employees of the Company and Subsidiaries (as hereinafter defined) pursuant
to this Employee Stock Purchase Plan (the "Plan"). The adoption and
implementation of this Plan are subject to Section 21 hereof. For purposes
of this Plan, "parent corporation" and "Subsidiary" (when used in the plural,
"Subsidiaries") shall have the same meanings as "parent corporation" and
"subsidiary corporation" in Sections 425(e) and 425(I), respectively, of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company intends
that the Plan shall qualify as an "employee stock purchase plan" under
Section 423 of the Code (including any amendments or replacements of such
section), and the Plan shall be so construed. Any term not expressly defined
in the Plan but defined for purposes of Section 423 of the Code shall have
the same definition herein. Subject to adjustment as provided in Section 14
of the Plan, the aggregate number of shares of Common Stock which may be
purchased under this Plan shall not exceed 200,000 shares of Common Stock of
the Company, which may be treasury shares reacquired by the Company or
authorized and unissued shares, or a combination of both.
2. PURPOSE. The purpose of the Plan is to provide employees of the Company and
Subsidiaries designated by the Board of Directors as eligible to participate
in the Plan with a convenient means to acquire an equity interest in the
Company through payroll deductions, to enhance such employees' sense of
participation in the affairs of the Company and Subsidiaries, and to provide
an incentive for continued employment.
3. ADMINISTRATION. The Plan is administered by the Board of Directors of the
Company or by a committee designated by the Board of Directors of the Company
(in which event all references herein to the Board of Directors shall be to
the committee). Subject to the provisions of the Plan and the limitations of
Section 423 of the Code or any successor provision in the Code, all questions
of interpretation or application of the Plan shall be determined by the Board
and its decisions shall be final and binding upon all participants. Members
of the Board shall receive no compensation for their services in connection
with the administration of the Plan, other than standard fees as established
from time to time by the Board of Directors of the Company for services
rendered by Board members serving on Board committees. All expenses incurred
in connection with the administration of the Plan shall be paid by the
Company.
4. ELIGIBILITY. Any employee of the Company or the Subsidiaries is eligible to
participate in an Offering Period (as hereinafter defined) under the Plan
except the following:
(a) employees who have not been continuously employed by the Company or
Subsidiaries for the six-month period immediately preceding the
beginning of such Offering Period; and
(b) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 425(d) of the Code, own
stock or hold options to purchase stock or who, as a result of being
granted an option under the Plan with respect to such Offering Period,
would own stock or hold options to purchase stock possessing 5 percent or
more of the total combined voting power or value of all classes of stock
of the Company or any of its Subsidiaries.
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5. OFFERING DATES. The Offering Periods of the Plan (the "Offering Period")
shall be of approximately six (6) months duration commencing on January 2 and
July 1 of each year and ending on the last day prior to the beginning of the
next Offering Period. Payroll deductions of participants are accumulated
under this Plan during Offering Periods, and such deductions commence, for
any given participant, on the first payroll period of such participant ending
during such Offering Period. The first Offering Period shall commence on
January 2, 1995. The first day of each Offering Period is referred to as the
"Offering Date." The last day of each Offering Period is hereinafter
referred to as the "Purchase Date." The Board of Directors of the Company
shall have the power to change the duration of Offering Periods with respect
to future offerings without shareholder approval if such change is announced
at least fifteen (15) days prior to the scheduled beginning of the first
Offering Period to be affected.
6. PARTICIPATION IN THE PLAN. Eligible employees may become participants in an
Offering Period under the Plan on the first Offering Date after satisfying
the eligibility requirements by delivering to the Company's or Subsidiary's
(whichever employs such employee) Human Resources department not later than
December 15, 1994 for the first Offering Period under this Plan or, for
subsequent Offering Periods, not later than the 15th day of the month before
the Offering Date of such Offering Period, unless a later time for filing the
subscription agreement is set by the Board for all eligible Employees with
respect to a given Offering Period, a subscription agreement authorizing
payroll deductions. An eligible employee who does not deliver a subscription
agreement to the HR department by such date after becoming eligible to
participate in such Offering Period under the Plan shall not participate in
that Offering Period or any subsequent Offering Period unless such employee
enrolls in the Plan by filing the subscription agreement with the HR
department not later than the 15th day of the month preceding a subsequent
Offering Date. Once an employee becomes a participant in an Offering Period,
such employee will automatically participate in the Offering Period
commencing immediately following the last day of the prior Offering Period
unless the employee withdraws from the Plan or terminates further
participation in the Offering Period as set forth in Section 11 below. Such
participant is not required to file any additional subscription agreements in
order to continue participation in the Plan. Any participant who has not
withdrawn from the Plan pursuant to Section 11 below by the end of an
Offering Period will automatically be re-enrolled in the Plan and granted a
new option on the Offering Date of the next Offering Period.
7. GRANT OF OPTION ON ENROLLMENT. An eligible employee who enrolls in the Plan
with respect to an Offering Period pursuant to Section 6 hereof, will receive
a grant of an option (as of the Offering Date) to purchase on the Purchase
Date up to that whole number of shares of Common Stock of the Company
determined by dividing the amount accumulated in such employee's payroll
deduction account during such Offering Period by the Purchase Price, as
defined in Section 8 below; provided, however, that the number of shares of
the Company's Common Stock subject to any option granted pursuant to this
Plan shall not exceed the lesser of (a) the maximum number of shares, if any,
set by the Board pursuant to Section 10(c) below with respect to the
applicable Offering Period, or (b) 200% of the number of shares purchasable
by using 85% of the Entry Price (as defined in Section 8(a) below) as the
purchse prices.
8. PURCHASE PRICE. The price per share at which a share of Common Stock will be
purchased in any Offering Period shall be 85 percent of the lesser of:
(a) the fair market value at the close of trading on the last day
immediately preceding the Offering Date on which trading occurs in the
public securities markets (the "Entry Price"); or
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(b) the fair market value at the close of trading on the Purchase Date
or, if no trading occurs in the Company's Common Stock in the public
securities markets on such Purchase Date, then on the immediately
preceding day on which such trading did occur.
For purposes of the Plan, the term "fair market value" on a given date
shall mean the closing price in U.S. dollars of a share of the Company's
Common Stock on that date as reported on the NASDAQ National Market System.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Offering Period. The deductions are made as
a percentage of the employee's compensation in one percent increments not
less than 1 percent nor greater than 10 percent. Compensation shall be
limited to base salary or wages, bonuses, overtime and commissions, if
any, paid; provided, however, that for purposes of determining a
participant's compensation, any election by such participant to reduce
his or her regular cash remuneration under Sections 125 or 401(k) of the
Code shall be treated as if the participant did not make such election.
Payroll deductions shall continue until altered or terminated as provided
in the Plan.
(b) A participant may lower (but not increase) the rate of payroll deductions
during an Offering Period by filing with the HR department a new
authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than 15 days
after the HR department's receipt of the authorization and shall continue
for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any
time during an Offering Period, but not more than one such change may be
made effective during any Offering Period. A participant may increase or
lower the rate of payroll deductions for any subsequent Offering Period
by filing with the HR department a new authorization for payroll
deductions not later than the 15th day of the month before the beginning
of such Offering Period.
(c) All payroll deductions made for a participant are recorded in his or her
account under the Plan; the funds are not segregated within general funds
of the Company; and no interest accrues to the employee on the payroll
deductions. All payroll deductions received or held by the Company may
be used by the Company for any corporate purpose, and the Company shall
not be obligated to segregate such payroll deductions.
(d) On each Purchase Date, so long as the Plan remains in effect and provided
that the participant has not submitted a signed and completed withdrawal
form as provided in Section 11 below which notifies the Company that the
participant wishes to withdraw from that Offering Period under the Plan
and have all payroll deductions accumulated in the account maintained on
behalf of the participant as of that date returned to the participant,
the Company shall apply the funds then in the participant's account to
the purchase of whole shares of Common Stock reserved under the option
granted to such participant with respect to the Offering Period to the
extent that such option is exercisable on the Purchase Date. The
purchase price per share shall be as specified in Section 8 of the Plan.
Any cash remaining in a participant's account after such purchase of
shares by reason of any limitation on the number of shares that may be
purchased under the Plan as set forth in Section 10 hereof, shall be
refunded to such participant in cash. Any amount remaining in such
participant's account on a Purchase Date which is less than the amount
necessary to purchase a full share of Common Stock
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<PAGE>
of the Company shall be carried forward, into the next Offering Period;
provided that the Company may, in its discretion, refund any such amounts
to participants rather than carrying such amounts forward to the next
Offering Period. In the event that the Plan has been oversubscribed, all
funds not used to purchase shares on the Purchase Date shall be returned
to the participant. No Common Stock shall be purchased on a Purchase Date
on behalf of any employee whose participation in the Plan has terminated
prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the Company shall
arrange the delivery to each participant, as appropriate, of a
certificate representing the shares purchased upon exercise of his or her
option.
(f) During a participant's lifetime, such participant's option to purchase
shares hereunder is exercisable only by him or her. The participant will
have no interest or voting right in shares covered by his or her option
until such option has been exercised. Shares to be delivered to a
participant under the Plan will be registered in the name of the
participant.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No employee shall be entitled to purchase stock under the Plan at a rate
which exceeds $25,000 in fair market value, determined as of the Offering
Date (or such other limit as may be imposed by the Code), for each
calendar year in which the employee participates in the Plan.
(b) No more than 200% of the number of shares which would have been purchased
if the price were 85% of the Entry Price for an Offering Period may be
purchased by a participant on the Purchase Date for such Offering Period.
(c) No employee shall be entitled to purchase more than the Maximum Share
Amount (as defined below) on any single Purchase Date. Not less than
thirty days prior to the commencement of any Offering Period, the Board
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the
"Maximum Share Amount"). In no event shall the Maximum Share Amount
exceed the amounts permitted under Sections 10(a) and 10(b) above. If a
new Maximum Share Amount is set, then all participants must be notified
of such Maximum Share Amount not less than fifteen days prior to the
commencement of the next Offering Period. Once the Maximum Share Amount
is set, it shall continue to apply in respect of all succeeding Purchase
Dates and Offering Periods unless revised by the Board as set forth
above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in the Plan exceeds the number of shares then
available for issuance under the Plan, the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
practicable and as the Board shall determine to be equitable. In such
event, the Company shall give written notice of such reduction of the
number of shares to be purchased under a participant's option to each
employee affected thereby.
(e) Any payroll deductions accumulated in a participant's account which are
not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end
of the Offering Period.
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<PAGE>
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under the Plan by
signing and delivering to the HR department a notice on a form provided
for such purpose. Such withdrawal may be elected at any time on or
before the 15th day of the month prior to the end of an Offering Period.
(b) Upon withdrawal from the Plan, the accumulated payroll deductions shall
be returned to the withdrawn employee and his or her interest in the Plan
shall terminate. In the event an employee voluntarily elects to withdraw
from the Plan, he or she may not resume his or her participation in the
Plan during the same Offering Period, but he or she may, except as
provided in the following sentence, participate in any Offering Period
under the Plan which commences on a date subsequent to such withdrawal by
filing a new authorization for payroll deductions in the same manner set
forth above for initial participation in the Plan. Any participant who
is a corporate officer of the Company and who elects to withdraw from the
Plan during an Offering Period may not again participate in the Plan
until one full Offering Period has elapsed since the Offering Period
during which such participant elected to withdraw.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment for
any reason, including retirement or death, terminates his or her
participation in the Plan immediately. In such event, the payroll
deductions credited to the participant's account will be returned to him or
her or, in the case of his or her death, to his or her legal representative.
For this purpose, an employee will not be deemed to have terminated
employment or failed to remain in the continuous employ of the Company in
the case of sick leave, military leave, or any other leave of absence
approved by the Board of Directors of the Company; provided that such leave
is for a period of not more than ninety (90) days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event an employee's interest in the
Plan is terminated by withdrawal, termination of employment or otherwise,
the Company shall promptly deliver to the employee all payroll deductions
previously withheld. No interest shall accrue to the employee on the
payroll deductions of a participant in the Plan.
14. CAPITAL CHANGES. Subject to any required action by the shareholders of the
Company, the number of shares of Common Stock covered by each option under
the Plan which has not yet been exercised and the number of shares of Common
Stock which have been authorized for issuance under the Plan but have not
yet been placed under option (collectively, the "Reserves"), as well as the
price per share of Common Stock covered by each option under the Plan which
has not yet been exercised shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock
resulting from a stock split or the payment of a stock dividend (but only on
the Common Stock) or any other increase or decrease in the number of shares
of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issue by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an
option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in
the exercise of its sole discretion in
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<PAGE>
such instances, declare that the options under the Plan shall terminate as
of a date fixed by the Board and give each participant the right to exercise
his or her option as to all of the optioned stock, including shares which
would not otherwise be exercisable. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each option under the Plan shall
be assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless
the Board determines, in the exercise of its sole discretion and in lieu of
such assumption or substitution, that the participant shall have the right
to exercise the option as to all of the optioned stock. If the Board makes
an option exercisable in lieu of assumption or substitution in the event of
a merger or sale of assets, the Board shall notify the participant that the
option shall be fully exercisable for a period of twenty (20) days from the
date of such notice, and the option will terminate upon the expiration of
such period.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per
share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding
Common Stock, and in the event of the Company being consolidated with or
merged into any other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to
receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent
and distribution or as provided in Section 22 hereof) by the participant.
Any such attempt at assignment, transfer, pledge or other disposition shall
be without effect.
16. REPORTS. Individual records will be maintained for each participant in the
Plan. Each participant shall receive promptly after the end of each
Offering Period a report of his account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Offering Period.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company if the
participant disposes of any of the shares purchased in any Offering Period
pursuant to this Plan if such disposition occurs within two (2) years from
the Offering Date or within twelve months from the Purchase Date on which
such shares were purchased (the "Notice Period"). Unless such participant
is disposing of any of such shares during the Notice Period, such
participant shall keep the certificates representing such shares in his or
her name (and not in the name of a nominee) during the Notice Period. The
Company may, at any time during the Notice Period, place a legend or legends
on any certificate representing shares acquired pursuant to the Plan
requesting the Company's transfer agent to notify the Company of any
transfer of the shares. The obligation of the participant to provide such
notice shall continue notwithstanding the placement of any such legend on
certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of any
option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Subsidiary or restrict the right of the Company
or any Subsidiary to terminate such employee's employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal rights
and privileges with respect to the Plan so that the Plan qualifies as an
"employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision
of the Plan which is inconsistent with Section 423 or any
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<PAGE>
successor provision of the Code shall without further act or amendment by
the Company or the Board be reformed to comply with the requirements of
Section 423. This Section 19 shall take precedence over all other provisions
in the Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt
thereof.
21. SHAREHOLDER APPROVAL. Any required approval of the shareholders of the
Company shall be solicited substantially in accordance with Section 14(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations promulgated thereunder. Approval of the adoption
of this Plan shall be solicited at the first annual meeting of shareholders
held subsequent to August 30, 1994, the date of adoption of this Plan by the
Board. Shareholder approval of amendments to this Plan shall be obtained at
a duly held meeting or by written consent only to the extent required by,
and by a vote that satisfies the requirements of, Section 423 of the Code
and Rule 16b-3 as promulgated under the Exchange Act ("Rule 16b-3").
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is to
receive shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary
who is to receive any cash from the participant's account under the Plan
in the event of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant at any
time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is
living at the time of such participant's death, the Company shall deliver
such shares or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may
deliver such shares or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the
Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES. Shares
shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
If the purchase of shares on a Purchase Date is exempt from the operation of
Section 16(b) of the Exchange Act by the operation of Rule 16b-6 promulgated
under the Exchange Act, to the extent required by the Exchange Act, shares
purchased by a person subject to the requirements of Section 16(b) of the
Exchange Act may not be sold prior to the expiration of six (6) months from
the Purchase Date on which such shares were purchased (or on such other date
as may be required by Rule 16b-3 or any successor rule).
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<PAGE>
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THE PLAN. This Plan shall be effective January
2, 1995 and shall continue until the earlier to occur of termination by the
Board, issuance of all the shares of Common Stock reserved for issuance
under the Plan, or ten (10) years from the adoption of the Plan by the
Board. The Board of Directors of the Company may at any time amend or
terminate the Plan, except that any such termination cannot affect options
previously granted under the Plan, nor may any amendment make any change in
an option previously granted which would adversely affect the right of any
participant, nor may any amendment be made without approval of the
shareholders of the Company obtained in accordance with Section 21 hereof
within 12 months of the adoption of such amendment (or earlier if required
by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under the Plan;
(b) change the designation of the employees (or class of employees) eligible
for participation in the Plan; or
(c) constitute an amendment for which shareholder approval is required in
order to comply with Rule 16b-3 (or any successor rule) of the Exchange
Act.
-8-
<PAGE>
EXHIBIT 10.5
MAXWELL LABORATORIES, INC.
DIRECTOR STOCK PURCHASE PLAN
1. PURPOSE
The purpose of this Director Stock Purchase Plan (the "Plan") of Maxwell
Laboratories, Inc. (the "Company"), is to encourage ownership in the Company by
its outside directors whose services are considered essential to the Company's
continued progress and thus to provide them with a further incentive to continue
to serve as directors of the Company. The Plan is also intended to assist the
Company through utilization of the incentives provided by the Plan to attract
and retain experienced and qualified candidates to fill vacancies in the Board
which may occur in the future.
2. ADMINISTRATION
The Plan will be administered by the Board of Directors (the "Board") of the
Company.
Subject to the express provisions of the Plan, including the following
paragraph 3, the Board will have authority to interpret the Plan; to prescribe,
amend, and rescind rules and regulations relating to it; and to make all other
determinations necessary or advisable for the administration of the plan.
3. AMENDMENT OF THE PLAN
Without approval of the shareholders, no revision or amendment of the Plan
shall increase the number of shares subject to the Plan (except as provided in
Paragraph 10), change the designation of the class of directors eligible to
purchase shares, or otherwise materially increase the benefits accruing to
participants under the Plan. Subject to the preceding sentence, the Board shall
have the authority to suspend or discontinue the Plan or amend it in any respect
whatsoever.
4. PARTICIPATION IN THE PLAN
Persons who are now or shall become incumbent directors of the Company who
are not full-time employees of the Company or any subsidiary of the Company
shall be eligible to participate in the Plan. A director of the Company shall
not be deemed to be an employee of the Company solely by reason of the existence
of a consulting contract between such director and the Company or any subsidiary
thereof pursuant to which the director agrees to provide consulting services as
an independent consultant to the Company or its subsidiaries on a regular or
occasional basis for a stated consideration. The term "director" as used in
this Plan shall include a "director emeritus".
5. STOCK SUBJECT TO THE PLAN
The stock subject to the Plan shall consist of 50,000 shares of the $.10 par
value Common Stock of the Company ("Common Stock"). Such shares may, as the
Board shall from time to time determine, be either authorized and unissued
shares of Common Stock or issued shares of Common Stock which have been
reacquired by the Company.
<PAGE>
6. PURCHASE OPPORTUNITIES AND PRICE
Eligible directors will be given the opportunity, from time to time following
the effective date of the Plan, to purchase shares of Common Stock directly from
the Company out of the pool of shares subject to the Plan. At the beginning of
each calendar quarter commencing on or after the effective date of this Plan,
the Company will notify the eligible directors of their opportunity to purchase
shares and the total number of shares then remaining available for purchase
hereunder. Any eligible director interested in purchasing shares shall notify
the Vice President-Finance of the Company, in writing by mail or telefax, of the
number of shares he desires to purchase. The purchase price for said shares
shall be the fair market value of the shares. "Fair market value" for purposes
hereof shall be defined as the closing price of the Common Stock as reported by
NASDAQ on the day the director's notice is received by the Company, or if such
day is not a trading day, on the trading day immediately preceding such receipt.
The Company will confirm the director's price by return mail or fax and will
issue certificates representing the shares purchased as soon as possible
following receipt of payment from the director. If purchase requests are
received from the directors for more shares than are then available to be
purchased hereunder, the Company will reduce the number of shares to be
purchased by the directors in proportion to the number originally requested.
7. ASSIGNMENT; TRANSFERABILITY
The rights and benefits under this Plan may not be assigned or transferred
and any attempted assignment or transfer of such rights and benefits shall be
null and void. Rights to purchase stock under this Plan may be exercised only
by eligible directors, and such rights terminate immediately with respect to an
individual who ceases to be an eligible director for any reason.
8. LIMITATION OF RIGHTS
Neither the Plan, nor any action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Company will retain a director for any period of time, or at any particular rate
of compensation.
A director shall have no rights as a stockholder with respect to the shares
he may seek to purchase hereunder until the date of the issuance to him or his
representative of a stock certificate therefor.
9. ADJUSTMENTS
(i) In the event that the outstanding shares of Common Stock of the Company
are hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation, by reason of a recapitalization, reclassification, stock
split-up, combination of shares, dividend or other distribution payable in
capital stock, appropriate adjustment shall be made by the Board in the number
and kind of shares which may be purchased under the Plan.
(ii) In the event that the Company shall determine to merge, consolidate or
enter into any other reorganization with or into any other corporation, or in
the event of any dissolution or liquidation of the Company, then in any such
event, at the election of the Board, (a) appropriate adjustment shall be made by
the Board in the number and kind of shares which may be purchased under the
Plan, or (b) the Plan shall terminate as of the date of such merger,
consolidation, reorganization, dissolution or liquidation. Upon any election by
the Board to terminate the Plan pursuant to the provisions of clause (b) of this
subparagraph (ii), no further shares may be purchased from and after the date of
termination.
<PAGE>
(iii) All adjustments and determinations under this Paragraph 9 shall be made
by the Board, whose decisions as to what adjustments or determinations shall be
made, and the extent thereof, shall be final, binding and conclusive.
10. EFFECTIVE DATE AND DURATION OF THE PLAN
The effective date of the Plan shall be January 1, 1995; provided, however,
that in the event that shareholder approval of the Plan is not secured on or
before such date, the Plan shall thereupon terminate. The Plan shall terminate
ten (10) years after the effective date of the Plan (the "Automatic Termination
Date") unless earlier terminated due to a lack of shareholder approval or
discontinuance by the Board.
11. USE OF PROCEEDS
The proceeds received by the Company from the sale of its Common Stock
pursuant to the Plan shall be added to the Company's general funds and used for
general corporate purposes.
12. COMPLIANCE WITH LAW, ETC.
Notwithstanding any other provision of this Plan or agreements made pursuant
hereto, the Company shall not be required to issue or deliver any certificate or
certificates for shares of Common Stock under this Plan prior to fulfillment of
the following conditions:
(i) Any registration or other qualification of such shares of the Company
under any state or federal law or regulation, or the maintaining in effect of
any such registration or other qualification which the Board shall, in its
absolute discretion upon the advice of counsel, deem necessary or advisable; and
(ii) The obtaining of any other consent, approval, or permit from any state
or federal governmental agency which the Board shall, in its absolute discretion
after receiving the advice of counsel, determine to be necessary or advisable.
13. NOTICE
Any written notice to the Company required by any of the provisions of this
Plan shall be addressed to the Vice President-Finance of the Company and shall
become effective when it is received.
14. GOVERNING LAW
This Plan and all determinations made and actions taken pursuant hereto shall
be governed by the law of the State of Delaware and construed accordingly.
<PAGE>
EXHIBIT 10.11
AGREEMENT
The present agreement is entered into by and between :
COMPAGNIE EUROPEENNE DE COMPOSANTS ELECTRONIQUES - LCC a French Corporation
having its registered office at 50, rue Jean-Pierre Timbaud 92400 COURBEVOIE,
FRANCE, Represented by Mr Louis AGNERAY, Chairman of the Board, hereinafter
referred to as "LCC",
AND
MAXWELL LABORATORIES INC. An US corporation having its registered office at 8888
BALBOA Avenue, SAN DIEGO, CALIFORNIA, USA, Represented by Mr Alan C. KOLB,
Chairman and CEO, hereinafter referred to as "MAXWELL",
LCC and MAXWELL being hereinafter referred to individually as "Party" and
collectively as "Parties".
<PAGE>
SUMMARY
ARTICLE 1 DEFINITIONS
ARTICLE 2 PURPOSE
ARTICLE 3 TECHNICAL DOCUMENTATION - TECHNICAL KNOW-HOW
SERVICES
ARTICLE 4 IMPROVEMENTS
ARTICLE 5 PRICE
ARTICLE 6 MAXWELL UNDERTAKINGS
ARTICLE 7 SUPPLY OF THE LICENSED PRODUCT
ARTICLE 8 QUALITY OF THE LICENSED PRODUCT MANUFACTURED BY
MAXWELL
ARTICLE 9 WARRANTY OF THE LICENSED PRODUCT MANUFACTURED BY
MAXWELL
ARTICLE 10 STEERING COMMITTEE
ARTICLE 11 FORCE MAJEURE
ARTICLE 12 WARRANTY ON THE KNOW HOW AND ON THE PATENT
ARTICLE 13 INFRINGEMENT
ARTICLE 14 CONFIDENTIALITY
ARTICLE 15 COMING INTO FORCE - DURATION
ARTICLE 16 TERMINATION.
ARTICLE 17 EFFECTS OF TERM AND TERMINATION
ARTICLE 18 AUTHORIZATIONS - TAXES, LEVIES AND DUTIES
ARTICLE 19 REPRESENTATION
ARTICLE 20 APPLICABLE LAW - SETTLEMENT OF DISPUTES
ARTICLE 21 PUBLICITY - ANNOUNCEMENT
ARTICLE 22 MISCELLANEOUS
APPENDIX 1 LICENSED PRODUCT
APPENDIX 2 KNOW-HOW PATENT
APPENDIX 3 EXCLUSIVE SUPPLY AGREEMENT
APPENDIX 4 COST PRICE FORECASTS - SALE PRICE OF THE LICENSED
PRODUCT
APPENDIX 5 DELIVERY LEAD TIME
APPENDIX 6 QUALITY REQUIREMENTS
APPENDIX 7 TEST PROCEDURE FOR QUALIFICATION OF THE LICENSED
PRODUCT
2
<PAGE>
PREAMBLE
WHEREAS LCC is a company which conceives, develops, manufactures and sells
throughout the entire world passive components,
WHEREAS LCC has in particular conceived and developed capacitors for medium DC
voltage filtering applications and LCC owns technologies, technical information
and patent rights in relation to such capacitors ;
WHEREAS MAXWELL is a company with great capacity and experience in the field of
passive components which MAXWELL manufactures in its US premises together with
power supply and auxiliary equipment for various applications, such equipment
integrating components and in particular passive ones ;
WHEREAS MAXWELL is willing to manufacture in its plant in California the above
referred LCC's capacitors and for such purpose to obtain a license of use of
related technology ;
WHEREAS LCC is interested in having its above referred capacitors manufactured
in the USA for distributing the same through its US affiliated company in the
territory of North America, thereby allowing customers to benefit from
attractive conditions, in particular in terms of price ;
WHEREAS MAXWELL is willing to act as manufacturer of LCC's capacitors to supply
LCC's US affiliated company which possesses experience and expertise in the
distribution of components ;
WHEREAS the Parties executed on September 14, 1993 a non disclosure agreement -
to protect proprietary information exchanged by and between themselves during
their preliminary discussions on their possible cooperation as described above ;
WHEREAS the Parties are both today convinced that their respective experience,
skill and competence allow them to cooperate to their mutual benefit as well as
to the benefit of all concerned potential customers ;
WHEREAS the Parties have decided to conclude the present agreement in order to
define the terms and conditions under which LCC is willing to grant license on
its technology on LCC's capacitors, as specifically hereinafter defined, to
MAXWELL for manufacture of the same by MAXWELL for supply to LCC's affiliated
company in the USA and distribution by this latter and also possible supply by
MAXWELL to LCC.
3
<PAGE>
NOW THEREFORE IT IS AGREED AS FOLLOWS :
ARTICLE 1 - DEFINITIONS
The following terms shall mean :
"Agreement" : the present text including its preamble and its appendices 1
to 7 which form an integral part thereof.
"Licensed Product" : the biologic oil impregrated, selfhealing, metallized
polypropylene dielectric capacitor for medium DC voltage and resonance filtering
applications.
The detailed description and range of the Licensed Product is given in
Appendix 1 hereto.
"Know-How" : shall mean any technical process or data, including
engineering, developing, designing and assembly information, drawings,
performance specifications, material specifications, tests specifications
belonging to LCC which are necessary for the manufacture, repair and maintenance
of the Licensed Product as defined in the Technical Documentation and Technical
KnowHow Services.
"Technical Documentation" : shall mean the written support of the Know-how
as defined in this Agreement.
"Technical Know-How Services" : shall mean collectively the training and
technical assistance to be provided by LCC to MAXWELL as per Article 3 hereof.
"Patent" : the patent ref. 9008227 issued on June 29, 1990 a copy of which
is attached hereto as Appendix 2, applied by LCC in the territories defined in
same Appendix to protect the Licensed Product.
"Affiliate" : any legal entity in which LCC or LCC's mother company holds
directly or indirectly fifty per cent or more of the voting stock or of the
rights entitling to elect a majority of the members of the board of such entity,
it being understood that LCC's mother company designates the company which
itself holds directly or indirectly fifty per cent or more of LCC's voting
stock.
<PAGE>
"US Affiliate" : the Affiliate located in the USA, i.e. THOMSON PASSIVE
COMPONENTS CORPORATION having its registered office at 9350, Eton Avenue,
Chatsworth, CA - 91311 CHATSWORTH, USA.
"NDA" : the non disclosure agreement referred to in the preamble hereof.
"Territory" : collectively the territories of the USA, Canada and Mexico.
The above definitions are without prejudice to other definitions given in
this Agreement herebelow.
ARTICLE 2 - PURPOSE
2.1. The purpose of this Agreement is to define the terms and conditions under
which :
- MAXWELL agrees to be the exclusive supplier of the US Affiliate (or of any
other Affiliate in the Territory upon demand of LCC) for the Licensed Product
in the Territory and to supply LCC, on an exclusive basis, with the Licensed
Product manufactured by it with the Know-How and the Patent according to
orders which may be placed under this Agreement by LCC for purchase of
Licensed Product for resale in any country in the world with the exclusion of
the Territory.
- LCC grants for the abovementioned purpose to MAXWELL which accepts :
- a non transferable license of the Know-How for the purpose of manufacturing
the Licensed Product in the USA and selling, repairing and maintaining the
Licensed Product in the Territory ;
- a non transferable right and license under the Patent to manufacture, sell,
repair and maintain the Licensed Product in the USA ;
The above right and licenses are exclusive as such exclusivity is defined in
Articles 2.2. and 2.3. below.
The above right and licenses are granted without the right to sublicense.
5
<PAGE>
2.2. No right is hereby given to MAXWELL with respect to the manufacture of the
Licensed Product outside the USA.
Furthermore, it is expressly understood that such right and licenses granted to
MAXWELL extend only to MAXWELL's plant in California and do not include any
right in MAXWELL to utilize the Know-How and Patent for additional manufacturing
facilities or other plants.
As a consequence of the exclusive right of manufacture of the Licensed Product
granted to MAXWELL, LCC shall not during the term of this Agreement grant any
right of manufacture under the Know-How and the Patent to any third party in the
Territory.
2.3. The right and licenses on the Know-How and under the Patent for sale,
repair and maintenance of the Licensed Product in the Territory are
exclusive, it being understood that :
- - MAXWELL has no right to sell, repair and maintain the Licensed Product outside
the Territory save upon express demand of LCC through appropriate orders as
set forth in Article 2.1. above, LCC having the right to grant any such right
and licenses to any third party outside the Territory and more generally to
dispose of the Licensed Product outside the Territory for its sale, repair and
maintenance, directly or indirectly ; furthermore right and licenses on the
Know-How and under the Patent for sale, repair and maintenance of the Licensed
Product in the Territory granted by LCC to any third party before coming into
force of this Agreement shall not be considered as a breach of the exclusivity
granted to MAXWELL hereunder;
- - LCC agrees not to sell, repair and maintain the Licensed Product directly in
the Territory save in cases where (i) any customer in the Territory requests
from LCC the Licensed Product manufactured by LCC before qualification of the
Licensed Product or (ii) any customer in the Territory requests the Licensed
Product manufactured by LCC due to LCC being certified ISO and then before
MAXWELL is certified ISO or (iii) LCC sells, repairs and/or maintains Licensed
Products supplied to any customer in the Territory under orders placed before
qualification of the Licensed Product or MAXWELL being certified ISO or (iv)
MAXWELL is in default in the supply of the Licensed Product to the US
Affiliate or any other Affiliate in the Territory.
6
<PAGE>
- - the US Affiliate (as well as any other Affiliate in the Territory which could
be designated by LCC to distribute the Licensed Product) shall freely
distribute the Licensed Product and as a consequence sell, repair and maintain
it in the Territory, provided it procures the Licensed Product from MAXWELL
save in the (iv) case as set forth in the above paragraph.
2.4. As a consequence of the exclusivity granted to MAXWELL, MAXWELL agrees
during the term of this Agreement not to manufacture in the USA and not to
market in the Territory products similar to the Licensed Product (as
defined in 17.3).
ARTICLE 3 - TECHNICAL DOCUMENTATION - TECHNICAL KNOW-HOW SERVICES
The transfer of the Know-How by LCC to MAXWELL shall be performed through :
- - the sending of the Technical Documentation,
- - the performance of the Technical Know-How Services.
3.1. TECHNICAL DOCUMENTATION
LCC shall establish a full set of the Technical Documentation in the English
language and deliver it, together with a copy of the French original version, in
two (2) copies to MAXWELL within two (2) months of the date of coming into force
of this Agreement.
It is understood that the Technical Documentation shall be in the form used by
LCC, i.e. in metric system and in accordance with French industrial standards.
It is furthermore understood that the translation of the Technical Documentation
from French to English is not a certified translation and that it shall be the
responsibility of MAXWELL to have such translation certified if it so desires.
The delivery shall take place in accordance with the CIP Incoterm (according to
the international commercial terms ("Incoterms(s)") of the International Chamber
of Commerce, 1990 edition).
The Technical Documentation shall be considered as confidential information and
treated as such by MAXWELL in accordance with the provisions of Article 14
hereof.
7
<PAGE>
3.2. TECHNICAL RNOW-HOW SERVICES
A. TRAINING AT MAXWELL
(i) After expiry of a four month period of time from the date of coming into
force of this Agreement, and at a date mutually agreed upon by the Parties
and taking into account French and US legal holidays, LCC shall provide
MAXWELL with training in MAXWELL's plant at the address of its registered
office.
The training shall consist of one session by two employees of LCC to train
MAXWELL's personnel (up to five people) to the use of the Know-How and
understanding of the Technical Documentation for an agreed period of time, it
being understood that the training shall in no case exceed twenty man/day.
(ii) The training is conditional upon having all manufacturing equipment for
the Licensed Product in place and good working order as set forth in
Article 6 below.
(iii) MAXWELL shall provide free and complete access to its plant to the LCC
personnel assigned to the training and shall also provide all reasonable
assistance to them regarding any authorization required under any US law,
rule and/or regulation for their coming and stay in the USA.
Furthermore MAXWELL shal1 make available free of charge to LCC's training
personnel telex and phone facilities as well as one office.
(iv) LCC shall bear all expenses and costs incurred by its personnel in
connection with the training.
(v) LCC's personnel assigned to the training will have to comply with the
security regulations in force in MAXWELL's plant.
B. TRAINING AT LCC
(i) After expiry of a two month period from the coming into force of this
Agreement and delivery of the Technical Documentation, and at a date
mutually agreed upon by the Parties, LCC SHALL PROVIDE MAXWELL with
training in LCC's plant in Dijon to show LCC's production line of the
Licensed Product.
The training shall consist of one session for one person and not exceed one week
in duration and shall include explanation of the Technical Documentation.
8
<PAGE>
(ii) MAXWELL shall bear all expenses and costs incurred by its personnel in
connection with the training.
(iii) MAXWELL's employee assigned to the training will have to comply with
the security regulations in force in LCC's plant.
C. TECHNICAL ASSISTANCE
UPON written request of MAXWELL, LCC agrees to provide it with technical
assistance.
All conditions pertaining to the technical assistance SHALL be mutually agreed
upon by the Parties, it being already agreed and understood that :
- the technical assistance shall take place in MAXWELL's plant and the
provisions of Article 3.2a subparagraphs (ii), (iii), (iv) and (v) shall
apply to it,
- accommodation and living expenses of LCC's personnel assigned to the
technical assistance shall be borne by MAXWELL.
The price of the first level of technical assistance, i.e. limited to the
assistance of one LCC's technician, once a calendar year and for a duration of
five days in a row, SHALL be deemed included in the price mentioned in Article
5.1.. For other levels of assistance, the price shall be mutually determined by
the Parties.
ARTICLE 4 - IMPROVEMENTS
4.1. Should improvements to the Know-How and/or to the Patent be realized
by LCC during the term of this Agreement, LCC shall inform accordingly
MAXWELL.
In such case, the right and license granted to MAXWELL hereunder shall extend to
such improvements and the Parties shall meet to examine any modifications to
this Agreement which could be necessary in relation thereto.
Nothing herein shall be construed as compelling LCC to realize any such
improvements.
9
<PAGE>
4.2. Should improvements to the Know-How and/or the Patent be realized by
MAXWELL during the term of this Agreement, MAXWELL expressly agrees to
irrevocably tranfer to LCC any and all information relating thereto and to grant
to LCC, should LCC ask for it, an irrevocable, non exclusive, royalty free right
and license to use such improvements, with right to sublicense the Affiliates.
However, both Parties acknowledge that MAXWELL is currently working on
development of new materials and has initiated such work before coming into
force of this Agreement. Such material development if applied to the Licensed
Product shall remain the sole property of MAXWELL and the above referred license
not apply to it, provided MAXWELL proves by all appropriate means that related
development works have been done without any use of the Know-How and of the
Patent.
ARTICLE 5 - PRICE
5.1. In consideration for the right and licenses granted to it hereunder,
MAXWELL agrees to pay to LCC :
- a license fee amounting to the lump sum of 1 600 000 (one million six hundred
thousand) French Francs ;
- a royalty amounting to four (4) per cent of the turnover realized by MAXWELL
for its activities of sale of the Licensed Product.
The above amounts exclude any amount which may be due to LCC in the future for
technical assistance above the first level as defined in Article 3.
5.2. The license fee shall be paid as follows :
(i) fourteen per cent (14 %), i.e. 224 000 (two hundred twenty four thousand)
French Francs upon execution of this Agreement ;
(ii) fourteen per cent (14 %), i.e. 224 000 (two hundred twenty four thousand)
French Francs upon sending of the Technical Documentation and completion
of training ;
(iii) twenty per cent (20 %), i.e. 320 000 (three hundred twenty thousand)
French Francs upon expiry of a one year period of time from the date of
first order of the Licensed Product being placed with MAXWELL and provided
that during such one year period the total amount of orders of the
Licensed Product placed by LCC and the US Affiliate with MAXWELL reaches
four hundred thousand (400 000) US dollars.
10
<PAGE>
Should such amount of booking orders be not reached, the 20 % instalment shall
be reduced in proportion to the amount of booking orders actually reached and
payment the remaining part of it be postponed at the date of payment of the last
instalment of 52 % as mentioned below.
(iv) fifty two (52) per cent, i.e. 832 000 (eight hundred thirty two thousand)
French Francs (plus, as the case may be, payment of the remaining part of
the 20 % instalment as set forth above) at the end of a two year period of
time from the date of first order of the Licensed Product being placed with
MAXWELL and provided that during the second year of this two year
period,the total amount of orders of the Licensed Product placed by LCC and
the US Affiliate with MAXWELL reaches one (1) million US Dollars.
In case that the amount of booking orders for the two year period of time is
between 50 % and 80 % of the 1,4 million US dollars booking orders target, then
the two year period of time shall be increased by six months, the target
remaining unchanged and payment of the 52 % instalment postponed accordingly. At
the end of this additional period, payment of the 52 % instalment shall be
apportioned to the amount of booking orders actually made during the second year
and a half of the two year and a half period of time.
In case that the amount of booking orders for the two year period of time is
above 80 % of the 1,4 million US dollars booking orders target, then payment of
the 52 % instalment shall be apportioned to the amount of booking orders
actually made during the second year of this two year period of time.
In case that the amount of booking orders for the two year period of time is
less than 50 % of the 1,4 million US dollars booking orders target, the 52 %
instalment shall become a 26 % instalment of the sum mentioned in the first
paragraph of (iv). Furthermore the Parties agree that for an additional three
year period, the average booking order per year shall amount to 500 000 US
dollars. If at the end of this three year additional period, the average amount
per year is not reached, then the Parties agree that their relationships under
this Agreement shall turn into that of non exclusive ones and consequently :
- the right and licenses granted to MAXWELL on the KnowHow and the Patent shall
be non exclusive, LCC having the right to grant any third party any right of
manufacture of the Licensed Product under the Know-How and the Patent in the
Territory and to sell, maintain, repair and more generally dispose of the
Licensed Product in the Territory, directly or indirectly ;
11
<PAGE>
- MAXWELL shall no more be the exclusive supplier of the US Affiliate and shall
have the right to commercialize directly the Licensed Product to any customer
in the Territory.
In such case MAXWELL and the US Affiliate will modify accordingly their
exclusive supply agreement so that it becomes non exclusive and that the US
Affiliate be free to purchase the Licensed Product from any third party and
MAXWELL be free to sell the same to any third party.
- however MAXWELL shall remain the supplier of LCC, on a non exclusive basis,
MAXWELL having no right to dispose of the Licensed Product outside the
Territory save for sale to LCC.
- the amount of the royalty shall become 2 (two) per cent of the turnover
realized by MAXWELL for its activities of sale of the Licensed Product.
- the commitment of MAXWELL under Article 2.4. shall no more be applicable.
(v) The license fee shall not be refundable even in case of termination
under Article 16(b).
5.3.
a. The royalty shall be paid as follows within forty five (45) days of each
semester, and for the first time for the first semester of year 1995 and
MAXWELL shall send to LCC a report indicating for the concerned semester :
- the number of manufactured Licensed Products sold, the name of the concerned
customers (including LCC and the US Affiliate) and the selling prices
identifying clearly the price of the Licensed Product when the latter is
integrated in a power supply or auxiliary equipment manufactured and sold by
MAXWELL in case that the relationships between the Parties turn into non
exclusive ones as set forth in 5.2 (iv) above ;
- - the amount of royalties due for such semester.
MAXWELL shall keep relevant records with sufficient details relating to the
manufacture, sale, maintenance and repair of the Licensed Product in order to
enable LCC to verify the payments o' royalties due by MAXWELL.
LCC shall have the right to examine or have examined such records by an expert
or to delegate such right to the US Affiliate, at least once a year with a
thirty (30) day prior written notice to MAXWELL.
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<PAGE>
b. The royalties shall be paid in US dollars and calculated by applying the
percentage of royalty to the sales prices.
For such purpose and for sales which would be made in the Territory outside the
USA, the sales price in Canadian dollars or in Mexican currency shall be
converted in US currency using exchange rate between Canadian dollars (or
Mexican currency) quoted at NEW YORK Foreign Exchange Market at the date of
placing of the concerned order(s).
5.4. Each payment from MAXWELL shall be made by wire transfer to LCC's
account number 31489 00010 00038620356 47, Receiving Bank : INDOSUEZ BANK,
44 rue de Courcelles, 75008 Paris, FRANCE.
ARTICLE 6 - MAXWELL UNDERTAKINGS
In addition to any of its obligations hereunder, MAXWELL shall :
- carry out in its plant all necessary investments to enable it to manufacture
the Licensed Product at a competitive price ;
- having great expertise in the field of components, put in place a production
line of the Licensed Products at least four (4) months from the date of
coming into force of this Agreement and immediatly start the manufacture of
twelve samples of the Licensed Product to be sent free of charge to LCC for
test by this latter which shall keep six of them and send free of charge the
remaining six to MAXWELL if the test procedure as described in Appendix 7 is
positive and consequently the Licensed Product is qualified ;
- not sell and/or permit the sales of the Licensed Product outside the
Territory save as provided for in Article 7.2. below,
- put in place and maintain a production line of the Licensed Product so that
the production capacity for the Licensed Product reaches 2 000 (two
thousand) units of Licensed Products at least per calendar year, such
production capacity being reviewed each year by the Parties through the
Steering Committee ;
- put into practice the Know-How and the Patent as well as any improvements
thereto as set forth in Article 4.1. ; with respect to improvements made by
MAXWELL as per Article 4.2., MAXWELL shall receive LCC's approval before
putting the same into practice ;
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- conclude with the US Affiliate the exclusive supply agreement in the form
attached hereto as Appendix 3 ;
- maintain a competitive cost price of the Licensed Product in accordance with
the forecasts which form Appendix 4 hereof,
- comply with the delivery lead time of the Licensed Product per quantity
ordered as described in Appendix 5 hereof.
ARTICLE 7 - SUPPLY OF THE LICENSED PRODUCT
7.1. As set forth in Articles 2 and 6 hereof, with respect to the sale of
the Licensed Product, in the Territory, MAXWELL shall be the exclusive
supplier of the US Affiliate through the execution of the exclusive supply
agreement attached hereto and LCC shall cause its US Affiliate to enter
into such agreement at the date of qualification of the Licensed Product.
In case that LCC elects to designate another Affiliate in the Territory to
distribute the Licensed Product, it shall inform MAXWELL accordingly and MAXWELL
shall enter with such Affiliate into a supply agreement using the same form as
the one attached hereto in Appendix 3.
The exclusive supply agreement between MAXWELL and the US Affiliate would be
modified to take into account any such new supply agreement.
7.2. As set forth in Article 2, LCC may order from MAXWELL the Licensed
Product.
In such case, the following ordering procedure shall apply.
(a) Request for quotation shall be issued by LCC, referencing this Agreement
and sent to MAXWELL.
Each request for quotation shall indicate the quantities of Licensed Product to
be ordered, the delivery place, the requested delivery date, the specifications
asked by the customer, the means of transportation, the special packing methods
if any, drop shipment if required.
MAXWELL shall send its quotation at least fifteen days from receipt of the
request of quotation, indicating in particular the price of the Licensed Product
calculated in accordance with the rules set forth in Appendix 4.
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However in the event of a specific sale which cannot be supported by the normal
price list as defined in the above referred Appendix 4, LCC shall identify such
sale in its request for quotation and MAXWELL shall do its best efforts to
propose a sale price allowing to maintain the competitivity of the Licensed
Product for such specific sale.
If the quotation is acceptable, LCC shall then issue a firm purchase order
stating all conditions accepted by the Parties.
It is agreed and understood that all purchase orders shall be governed by the
terms and conditions of this Agreement and that neither the general conditions
of sale of MAXWELL nor the general conditions of purchase of LCC shall apply to
them.
(b) All Licensed Products ordered shall be delivered Free Carrier ("FCA") San
Diego according to the Incoterms.
Unless LCC gives specific instructions in its purchase order for transportation,
MAXWELL will select the most economical and secured method and route of shipment
and forward shipment collect or ship the Licensed Products prepaid and invoice
LCC for transportation charges depending upon the best method for each shipment.
Transfer of risks and title to the Licensed Products shall vest in LCC upon
their delivery as defined in the FCA Incoterm by MAXWELL into the custody of the
carrier named by LCC or chosen by MAXWELL as set forth above.
However MAXWELL agrees to provide assistance to LCC, upon this latter's demand,
in case of damage, breakage or delay due to the carrier.
(c) All Licensed Products ordered shall be packed in accordance with LCC's
requirements.
Prices include the cost of standard packing.
Additional packing expenses for special packing for meeting LCC's requirements
will be invoiced to LCC.
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(d) Marking
All Licensed Products shall be marked with LCC brand name and logos as such will
be communicated by LCC to MAXWELL.
The origin of manufacture of the Licensed Product shall also be indicated on it
in a form mutually agreeable to the Parties.
(e) Payment
Payment of the Licensed Products ordered and delivered shall be made by LCC
within forty five days of delivery and upon receipt of appropriate invoice to
MAXWELL by wire transfer to:
Receiving Bank: Sanwa bank of California 1280 Fourth Avenue San Diego, CA 92101,
USA
Bank ABA 122003516
Beneficiary name MAXWELL Laboratories, Inc.
Beneficiary Acct 271101191
(d) Termination of a purchase order
In case of delay in delivery superior to thirty days LCC shall have the right to
terminate by operation of law and without demand the concerned purchase order.
Such termination shall not affect the validity of other orders or of this
Agreement nor shall it affect the right of LCC for remedies and/or termination
of this Agreement itself.
ARTICLE 8 - QUALITY OF THE LICENSED PRODUCT MANUFACTURED BY MAXWELL
8.1. MAXWELL having great expertise and capacities in the field of components,
MAXWELL shall manufacture the Licensed Product so that in all respects it
meets the technical specifications and the quality requirements as laid
down in Appendix 6 attached hereto.
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MAXWELL shall implement the compatibility test as defined in the Technical
Documentation in order to verify the compatibility of the impregnated,
dielectric and metallization elements of the Licensed Product.
MAXWELL's supply sources for these elements shall in any case comply with the
raw materials specifications as defined in the Technical Documentation.
A quality control of the Licensed Product shall be performed by MAXWELL during
the manufacturing process and a lot acceptance sheet in the form attached in the
above referred Appendix t"Lot Acceptance Sheet") shall be supplied by MAXWELL
with each Licensed Product delivered evidencing that the Licensed Product MEETS
THE ABOVE referred requirements.
MAXWELL hereby guarantees LCC that all Licensed Products will always be
controlled as set forth above and that they always can be used without the need
of any further control by the purchasing party.
MAXWELL shall ensure a complete traceability of any item of Licensed Product
mentioned in each Lot Acceptance Sheet and relevant Licensed Product packing.
MAXWELL undertakes towards LCC not to alter or modify the quality of the
Licensed Product without prior written consent of LCC.
8.2. MAXWELL shall apply for being certified according to the ISO 9002
rules and more generally do all that is necessary to obtain such
certification no later than three years after coming into force of this
Agreement.
ARTICLE 9 - WARRANTY OF THE LICENSED PRODUCT MANUFACTURED BY MAXWELL
FOR EACH Licensed Product it will manufacture and supply to LCC or to the US
Affiliate, MAXWELL warrants that such Licensed Product shall be of new
manufacture, free from defect in material and/or workmanship and strictly
compliant with the technical specifications and quality conditions as set forth
in Article 3 above.
The above warranty shall be given for a 36 (thirty six) month period of time
starting from delivery of the concerned Licensed Product to its end user.
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<PAGE>
The above warranty shall not apply in case that the concerned Licensed Product
has been stored, installed, protected and maintained contrary to the
instructions given in writing by MAXWELL to its purchaser or in case that the
Licensed Product is not used under normal operating conditions as specified in
writing by MAXWELL to its purchaser.
Should a proper claim be made against LCC or the US Affiliate by any third party
in connection with any delivered Licensed Product, MAXWELL shall free of charge
replace the concerned defective Licensed Product.
The latter shall be returned by LCC or the US Affiliate to MAXWELL, carriage
prepaid by MAXWELL.
The above is without prejudice to any reimbursement by MAXWELL to LCC and to the
US Affiliate of costs, damages or the like suffered or incurred by LCC and the
US Affiliate by reason of the claim of any third party in connection with the
use of any defective Licensed Product.
LCC and the US Affiliate will endeavour to obtain from customers purchasing the
Licensed Product that warranty of the Licensed Product be limited to its
replacement and that liability for indirect and consequential damages be
excluded. Any such provisions will be included in the general conditions of sale
of the Licensed Product proposed by LCC and the US Affiliate to their customers.
ARTICLE 10 - STEERING COMMITTEE
10.1. MAXWELL and LCC hereby agree to constitute a steering committee (the
"Steering Committee") composed of two (2) representatives for each of
them.
The names of such representatives shall be communicated by each Party to the
other within thirty (30) days of execution of this Agreement.
Each Party shall have the right to redesignate any of its representative and
shall inform accordingly the other at least ten days before the meeting where
such change occurs.
10.2. The Steering Committee shall meet during the first year of validity
of this Agreement on a three-month basis and thereafter on a semestrial
basis and at any time upon request of either Party with a thirty day prior
written notice to the other Party.
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The Steering Committee shall meet in January 1995 in order for the Parties to
review Appendix 4 to adapt, as far as necessary, the sales price scale for the
Licensed Product and to complete the Licensed Product cost price forecasts.
10.3. The location of ,the Steering Committee shall be alternatively
MAXWELL and LCC premises, unless otherwise mutually agreed.
For each meeting, the hosting Party shall prepare minutes within fifteen days of
the meeting date and send them to the other Party for its approval.
In case of remarks, they shall be sent in writing by the receiving Party within
fifteen days of receipt of the minutes.
Such remarks shall be examined during the next meeting of the Steering
Committee.
10.4. Through the Steering Committee, the Parties shall examine and discuss
all questions relating to their cooperation hereunder.
ARTICLE 11 - FORCE MAJEURE
11.1. Neither Party shall be liable for any delay in, or failure or
diminution of performance hereunder due to any cause which is reasonably
beyond its control.
The following shall be, without limitation, deemed as events of force majeure :
- - wars (whether declared or not) ;
- - natural disasters ;
- - acts of God ;
- - fires ;
- - riots ;
- - floods ;
- - embargoes ;
- - strikes and lock out ;
- - labour disputes ;
- - acts of civil or military authorities.
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11.2. The Party suffering the cause of force majeure shall advise the other
Party within fifteen (15) days of the occurrence of the cause of force
majeure and shall use its reasonable best efforts to avoid, remove or
mitigate the effects of such causes of delay and continue the full
performance of this agreement as soon as such causes are removed.
11.3. Delays resulting from force majeure will be deemed excusable delays
and the delayed Party shall be granted an equitable extension period at
least equal to the period of delay caused by the force majeure.
11.4. However, should the delay caused by force majeure reasonably be
expected to last longer than four (4) months, the Parties shall without
delay meet to consult each other and try to find an appropriate remedy to
the situation and to reach an agreement thereon.
ARTICLE 12 - WARRANTY ON THE KNOW HOW AND ON THE PATENT
12.1. LCC declares that the use of the Know-How and the Patent should
enable MAXWELL, which furthermore is an expert in the field of components,
to manufacture the Licensed Product in the same way as LCC does in its own
factories, in particular in terms of quality and performance of the
Licensed Product.
12.2. Notwithstanding the above, LCC shall not be liable in any case whatsoever
for any loss and/or damage of any kind, including but not limited to
consequential damages, indirect damages, loss of production, loss of
revenue, incurred or suffered by MAXWELL in connection with the use of the
Know-How and/or of the Patent.
ARTICLE 13 - INFRINGEMENT
13.1. LCC hereby certifies that, to the best of its knowledge at the date of
execution of this Agreement, neither the Know-How nor the Patent are
subject of a claim by a third party for infringement of any intellectual
and/or industrial property rights and that, to the best of its knowledge
at the date of execution of this Agreement, there is no such pending
claim.
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13.2. In case that any claim, suit or proceeding is brought against MAXWELL on
the issue of infringement of any valid patent, copyright or other
proprietary rights by the Know-How in the Territory or by the Patent in
the USA then MAXWELL shall immediatly notify in writing LCC of such action
and provide it with all available information thereupon.
MAXWELL expressly agrees to give LCC full authority to
- - defend or settle the action, to fully cooperate with LCC in such defense or
settlement and not to incur any costs, expenses or fees in defending such
action without having received prior written approval of LCC.
LCC shall reimburse MAXWELL all direct costs incurred by MAXWELL in connection
with the claim, with the exclusion of costs which would not have been previously
agreed upon by LCC as set forth above and with the exclusion of any indirect
and/or consequential damages, costs, expenses or the like incurred or suffered
by MAXWELL in connection with the claim.
13.3. LCC shall have no liability for any claim, suit or proceeding of
infringement based on (i) the use of the Know-How and/or of the Patent in
combination with any other intellectual and/or industrial property right,
(ii) the use of the Know-How and/or the Patent after Maxwell having
received notice of the alleged infringement, (iii) manufacture of the
Licensed Product not conform to the Know-How and the Patent.
13.4. LCC agrees that, during the term of this Agreement, it shall protect
the Patent against infringement by any third party in the USA which would
come to LCC's knowledge.
ARTICLE 14 - CONFIDENTIALITY
14.1. As used in this Agreement the term "Proprietary Information" shall
mean any information or data disclosed by either Party to the other Party,
pursuant to this Agreement, either in writing or orally, subject to the
conditions set forth hereafter, and including without limitation any
written or printed documents, samples, models, or any means of disclosing
such Proprietary Information that LCC and MAXWELL may elect to use during
the term of this Agreement.
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<PAGE>
14.2. Nothing in this Agreement may be construed as compelling either Party
hereto to disclose any Proprietary Information to the other Party.
14.3. Each Party, to the extent of its right to do so, shall disclose to
the other Party only such Proprietary Information which the disclosing
Party deems appropriate to fulfill the purpose of this Agreement.
The Parties hereby represent that the disclosure of Proprietary Information by
and between themselves is not contrary to the laws and regulations of their
respective countries.
14.4. Any information or data in whatever form disclosed by either Party to the
other Party and which is designated as Proprietary Information by the
disclosing Party by an appropriate stamp, legend or any other notice in
writing, or when disclosed orally, has been identified as Proprietary
Information at the time of disclosure and has been promptly (thirty (30)
days at the latest) confirmed and designated in writing as Proprietary
Information of the disclosing Party, shall be subject to the relevant
terms and conditions of this Article.
14.5. The receiving Party hereby covenants that, for the term of this
Agreement as well as for a period of ten (lO) years from its expiry or
termination, the Proprietary Information received from the disclosing
Party shall :
(a) be protected and kept in strict confidence by the receiving Party which
must use the same degree of precaution and safeguards as it uses to protect
its own Proprietary Information of like importance, but in no case any less
than reasonable care ;
(b) be only disclosed to and used by those persons within the receiving
Party's organization who have a need to know and solely for the purpose
specified in this Agreement, it being understood that LCC shall have the
right to disclose to the US Affiliate (and any other Affiliate in the
Territory which would be appointed to distribute the Licensed Product) any
Proprietary Information received from MAXWELL ;
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<PAGE>
(c) not be used in whole or in part for any purpose other than the purpose of
this Agreement without the prior written consent of the disclosing Party ;
(d) neither be disclosed nor caused to be disclosed whether directly or
indirectly to any third party or persons other than those mentioned in
subparagraph (b) above ;
(e) neither be copied, nor otherwise reproduced nor duplicated in whole or
in part where such copying, reproduction or duplication have not been
specifically authorized in writing by the disclosing Party.
14.6. Any Proprietary Information and copies thereof disclosed by either
Party to the other Party shall remain the property of the disclosing Party
and shall be returned by the receiving Party immediately upon request and
in any case upon term or termination of this Agreement.
14.7. Except as aforementioned, the receiving Party shall have no
obligations or restrictions with respect to any Proprietary Information
which the receiving Party can prove :
(a) has come into the public domain prior to, or after the disclosure
thereof and in such case through no wrongful act of the receiving Party ;
or
(b) is already known to the receiving Party, as evidenced by written
documentation in the files of the receiving Party ; or
(c) has been lawfully received from a third party without restrictions or
breach of this Agreement ; or
(d) has been or is published without violation of this Agreement ; or
(e) is independently developed in good faith by employees of the receiving
Party who did not have access to the Proprietary Information ; or
(f) is approved for release or use by written authorization of the disclosing
Party ; or
(g) is not properly designated or confirmed as proprietary.
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14.8. With respect to any exchange of Proprietary Information which may occur as
a result of this Agreement, it is expressly understood and agreed that the
below listed employees shall, on behalf of the respective Parties, be the
exclusive individuals authorized to receive and/or transmit Proprietary
Information under this Agreement :
FOR LCC FOR MAXWELL
A. JEANGUILLAUME E. BLANK
C. VERON S. MALOY
As regards the individuals identified above, each Party shall have the right and
power to redesignate such persons within their organizations as are authorized
to receive and/or transmit Proprietary Information exchanged under this
Agreement. Any such redesignations which are made by either Party shall be
effected by rendering written notice of such change to the other Party.
14.9. Any Proprietary Information disclosed by the Parties under this
Agreement which is Classified Information shall be identified by the
disclosing Party as Classified Information at the time of disclosure and
the disclosure, protection, use and handling of such information shall be
in accordance with the security procedures prescribed by the appropriate
Government.
14.10 It is expressly understood and agreed by the Parties hereto that the
disclosure and provision of Proprietary Information under this Agreement
by either Party to the other Party shall not be construed as granting to
the receiving Party any rights whether expressed or implied by licence or
otherwise on the matters, inventions or discoveries to which such
Proprietary Information pertains or any copyright, trademark or trade
secret rights.
The property in all information and/or data disclosed by either Party to the
other Party pursuant to this Agreement and which is precisely designated as
proprietary shall, subject to any right of any other owner, rest with the
disclosing Party.
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ARTICLE 15 - COMING INTO FORCE - DURATION
15.1. This Agreement shall come into force upon its execution by both
Parties hereto.
15.2. Unless earlier terminated as set forth in Article 16 below, this
Agreement shall stay in force for a ten (10) year period of time.
ARTICLE 16 - TERMINATION
This Agreement may be terminated by operation of law and without demand in the
following cases :
(a) by either Party in case that the other Party is in breach of any of its
obligations hereunder and does not remedy such breach within sixty days of
receipt of the notice from the non defaulting Party to remedy the same ;
(b) by LCC in case that the test procedure as defined in Appendix 7 is not
positive ;
(c) by LCC in case that MAXWELL becomes controlled by a competitor of LOUT,
the term control being understood as the direct or indirect owership of at
least fifty per cent of the voting stocks of MAXWELL or of any rights
entitling to elect the majority of the board of MAXWELL.
(d) subject to applicable laws, by either Party upon the other Party's
cessation of business, election to dissolve, dissolution, insolvency,
bankruptcy or filing of any petition therein or for relief.
In all cases, termination shall be effective upon receipt by the non terminating
Party of a termination notice from the other Party.
ARTICLE 17 - EFFECTS OF TERM AND TERMINATION
17.1. In case of term or termination, MAXWELL shall keep temporary right and
license to manufacture and sell the Licensed Product for the sole purpose
of performing its obligations under any order placed by any client (in the
case provided in Article 5.2. (iv) last paragraph) or under any order
placed under the exclusive supply agreement with the US Affiliate and
under any order of the Licensed Product placed by LCC, subject to the
payment of the royalties due to LCC as set forth in Article 5.
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After the fulfilment of all the above referred commitments, MAXWELL shall cease
using the Know-How and the Patent and shall immediatly return to LCC or, at its
option, destroy the Technical Documentation given by LCC (in such case MAXWELL
shall provide LCC without delay with a notice signed by a duly authorized
representative that such destruction has been made).
17.2. In case of termination by LCC of this Agreement for cases under Article 16
(a), (c) or (d), LCC may elect to terminate automatically any order placed
with MAXWELL which shall be informed accordingly within fifteen days of
termination of this Agreement.
In such case, LCC shall pay for the Licensed Products completed at the price
agreed in the concerned order(s) and for the Licensed Products in process at a
price calculated in proportion with the state of manufacture of the concerned
Licensed Products.
17.3. In case of termination by LCC due to MAXWELL's default, in addition to the
provisions of paragraph 17.2., it is agreed and understood that MAXWELL
shall not for a period of three years from the date of termination of this
Agreement manufacture in the USA and/or market in the Territory products
similar to the Licensed Product, i.e. DC Filter capacitor using metallized
polypropylene.
17.4. Term or termination of this Agreement shall not affect the provisions of
Articles 14 and 17.3 above which shall survive for the period set forth in
each such Article.
ARTICLE 18 - AUTHORIZATIONS - TAXES, LEVIES AND DUTIES
18.1. AUTHORIZATIONS
LCC shall file at its own expenses all request in order to obtain, if necessary,
from French competent authorities any export licence and/or other governmental
authorization(s) necessary for the grant of the right and licenses under the
Know-How and the Patent, delivery of the Technical Documentation and performance
of the Technical Know-How Services.
MAXWELL shall file at its own expenses all request in order to obtain, if
necessary, from any governmental authorities in the Territory any import licence
and/or other governmental authorization(s) necessary for the grant of the right
and licenses under the Know-How and the Patent, delivery of the Technical
Documentation and performance of the Technical Know-How Services.
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18.2. TAXES, LEVIES AND DUTIES REGARDING SALE OF THE LICENSED PRODUCT TO LCC
(a) All taxes, levies, duties, charges and the like with respect to the grant of
the right and licenses under the Know-How and the Patent, delivery of the
Technical Documentation and performance of the Technical Know-How Services
or assessed against LCC by any authority in the Territory shall be borne
exclusively by MAXWELL, save income taxes which may be due by LCC.
(b) Sale of the Licensed Product.
MAXWELL shall pay the costs of US customs formalities as well as all duties,
taxes and other official charges payable upon exportation of the Licensed
Product.
LCC shall pay all duties, taxes and other official changes as well as the cost
of carrying out custom formalities payable upon importation of the Licensed
Products.
ARTICLE 19 - REPRESENTATION
LCC recognizes that in the manner and to the extent expressly provided for
herein, it is committing the US Affiliate and declares that it is authorized to
do so.
As a consequence, the US Affiliate shall benefit by the terms and provisions of
this Agreement to the extent above stated as if it were original signatory of
this Agreement.
AS WELL, any other Affiliate which would be designated by LCC to distribute the
Licensed Product in the Territory would benefit by the terms and provisions to
the same extent as the US Affiliate.
ARTICLE 20 - APPLICABLE LAW - SETTLEMENT OF DISPUTES
20.1. This Agreement shall be construed and governed in accordance with the laws
of France.
20.2. Any and all disputes between the Parties in connection with the existence,
validity, interpretation, execution or termination of this Agreement shall
be finally settled by arbitration in accordance with the Rules of
Arbitration and Conciliation of the International Chamber of Commerce by
one or more arbitrators appointed in accordance with the said Rules.
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The proceedings shall take place in NEW-YORK (USA).
The proceedings shall be held in English.
ARTICLE 21 - PUBLICITY - ANNOUNCEMENT
No advertisement, publicity or public announcement regarding the execution,
contents and implementation of this Agreement SHALL be made by either Party
without prior written consent of the other, such consent shall not be
unreasonably withheld.
Notwithstanding the above, LCC shall have the right to issue press release
mentioning the execution of this Agreement and mentioning MAXWELL as its
exclusive manufacturer for the Licensed Product in the USA.
ARTICLE 22 - MISCELLANEOUS
22.1. ASSIGNMENT
No Party may assign or transfer any of its rights and obligations under this
Agreement without the prior written consent of the other which shall not be
unreasonably withheld.
Notwithstanding the above, LCC shall have the right to assign or transfer any of
its rights and obligations to any of the Affiliates as well as to its mother
company as defined in Article 1.
22.2. ENTIRE AGREEMENT
This Agreement supersedes and cancels all prior representations, negotiations,
commitments, undertakings, communications oral or written, acceptance,
understandings and agreements between the Parties with respect to its purpose
and in particular the NDA.
22.3. DISCREPANCY
In case of discrepancy between this text and any of its Appendices, the present
text shall prevail.
22.4. SEVERABILITY
If any of the provisions of this Agreement is found by an arbitrator, court or
other competent authority to be void or unenforceable, such provision shall be
deemed deleted from this Agreement and the remaining provisions of this Agrement
shall continue in full force and effect.
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Should the deleted provision be a substantial one, the Parties shall meet in
order to mutually agree upon the terms of a mutually satisfactory provision to
be substituted to the deleted one.
22.5. AMENDMENT
This Agreement shall not be modified or supplemented except by way of an
amendment executed by the Parties.
22.6. ENFORCEMENT OF PROVISIONS
The failure of either Party to enforce at any time any of the provisions of this
Agreement or to exercise any option herein provided or to require at any time
performance by the other Party of any provision hereof shall in no way be
construed to be a waiver of such provision nor in no way affect the validity of
this Agreement or any part thereof or the right of such Party to enforce each
and every provision of this Agreement.
22.7. HEADINGS
The headings used in this Agreement are for convenience only and shall not
affect the interpretation of the provisions which they introduce.
22.8. NOTICES
A notice to be given under this Agreement shall be in writing and in English and
served :
. personnally, the notice shall be deemed to have been served at the time of
delivery ; or
. by posting the same by registered or certified air mail to the Party to which
the notice is directed at the relevant address appearing in this Agreement or
at any other address of which prior notification in writing shall have been
given by the addressee prior to the dispatch of said notice and any notice
given by post shall be deemed to have been received by the Party to which it
is addressed at the expiration of fifteen (1S) days after the same has been
properly posted ; or
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. by facsimile :
if to LCC : Fax number 33.1.49.05.39.01. if to MAXWELL : Fax number (619) 277 -
6754
Or any other facsimile number of which prior notification in writing as set
forth above shall have been given to the sender prior to the transmission of the
facsimile and any facsimile transmission shall be deemed to have been served on
the date of transmission by the sender provided that the sender shall receive
confirmation of receipt from the recipient in writing as set forth above.
Done in two original copies
FOR LCC FOR MAXWELL
- ---------------------------- --------------------------------
(Signature) (Signature)
Louis AGNERAY Alan C. KOLB
Chairman of the Board Chairman and C.E.0
- ---------------------------- --------------------------------
(Date) (Date)
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EXHIBIT 10.12
INDUSTRIAL REAL ESTATE LEASE
(MULTI-TENANT FACILITY)
CB COMMERCIAL REAL ESTATE GROUP INC.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the Landlord and
Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article One explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.01. DATE OF LEASE: April 17, 1995
Section 1.02 Landlord (include legal entity) Cody Three, Inc., a Wyoming
Corporation
Address of Landlord: 1800 Grant Street, Denver, CO 80203
Section 1.03 Tenant (include legal entity) Maxwell Laboratories, Inc., a
Delaware corporation, I-Bus Division
Address of Tenant: 8888 Balboa Avenue, San Diego, CA 92123
Section 1.04. PROPERTY: The Property is part of Landlord's multi-tenant real
property development known as
Sky Park Centre
and described or depicted in Exhibit 'D' (the "Project"), The Project includes
the land, the buildings and all other improvements located on the land, and the
common areas described in Paragraph 4.05(a). The Property is (include street
address, approximate square footage and description) 9174 Sky Park Court, San
Diego, CA, approximately 35,417 SQUARE FEET AS further described in Exhibits "B"
& "D"
Section 1.05. Lease Term: Five (5) years 'Two (2) months beginning on(October 1,
1995 (see "First Lease Rider" Item 7) or such other date as is specified in
this Lease, and ENDING on November 30, 2000.
Section 1.06. Permitted Uses: (See Article Five) Engineering Research &
----------------------
DEVELOPMENT, LIGHT Manufacturing Assembly Distribution and Administrative
- -------------------------------------------------------------------------
Offices.
- --------
Section 1.07. TENANT'S GUARANTOR: (If none, so state) none
Section 1.08 Brokers: (See Article fourteen) (If none, so state)
Landlord's Broker CB Commercial Real Estate Group
Tenant's Broker: CB Commercial Real Estate Group
Section 1.09 COMMISSION PAYABLE TO LANDLORD'S BROKER (See Article Fourteen) $
per separate agreement
- ----------------------
Section 1.10. Initial Security Deposit: (See Section 3.03) $
Section 1.11. VEHICLE PARKING SPACES ALLOCATED to Tenant: (See Section 4.05 See
"First Lease Rider" Item 8
Section 1.12. RENT AND OTHER CHARGES PAYABLE by Tenant:
(a) BASE RENT : Twenty four thousand eighty four and no/100 Dollars($ 24,084.00)
per month for the first 12 months. as provided in Section 3.01, and shall be
increased on the first day of the 13th, 25th, 37th & 49th month(s) after the
------------------------
Commencement Date, either (i) as provided in Section 3.02, or
SECTION 1.13 COSTS AND CHARGES PAYABLE BY LANDLORD: (a) Base Real Property Taxes
(See Section 4.02); (b) Base
Insurance Premiums (See Section 4.04(c)); (c) Maintenance and Repair (See
Article Six).
Section 1.14. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE: (See Section
9.05) zero percent ( 0 00 %) of the Profit (the "Landlord's Share").
<PAGE>
Section 1.15. RIDERS: THE following Riders are attached to and made a part of
this Lease (if none, so state)
FIRST LEASE RIDER, EXHIBIT "A" - SPECIFICATIONS, EXHIBIT 'B" - FLOOR PLANS,
Exhibit "C" - Expansion Area, Exhibit "D" - Project site Plan, Exhibit "E" -
Building
Rules & Regulations, Exhibit "F" - work Letter Agreement, Exhibit "G" - Tenant's
Use of
Hazardous Materials
ARTICLE TWO: LEASE TERM
Section 2.01. Lease of Property For Lease Term. Landlord leases the Property to
Tenant and Tenant leases the Property from Landlord for the Lease Term. The
Lease Term is for the period stated in Section 1 .0S above and shall begin and
end on the dates specified in Section 1.05 above, unless the beginning or end of
the Lease Term is changed under any provision of this Lease. The "Commencement
Date" shall be the dale specified in Section 1.05 above for the beginning of the
Lease Term, unless advanced or delayed under any provision of this Lease.
Section 2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable to Tenant it
Landlord does not deliver possession of the Property to Tenant on the
Commencement Date. Landlord's non-delivery of the Property to Tenant on that
date shall not affect this Lease or the obligations of Tenant under this Lease
except that the Commencement Date shall be delayed until Landlord delivers
possession of the Property to Tenant and the Lease Term shall be extended for a
period equal to the delay in delivery of possession of the Property to Tenants,
plus the number of days necessary to end the Lease Term on the last day of a
month. If Landlord does not deliver possession of the Property to Tenant within
sixty (60) days after the Commencement Date, Tenant may elect to cancel this
Lease by giving written notice to Landlord within ten (10) days after the sixty
(60) -day period ends. It Tenant gives such notice, the Lease shall be canceled
and neither Landlord nor Tenant shall have any further obligations to the other.
It Tenant does not give such notice, Tenant's right to cancel the Lease shall
expire and the Lease Term shall commence upon the delivery of possession of the
Property to Tenant. If delivery of possession of the Property to Tenant is
delayed. Landlord and Tenant shall, upon such delivery, execute an amendment to
this Lease setting forth the actual Commencement Date and expiration date of the
Lease. Failure to execute such amendment shall not affect the actual
Commencement Date and expiration date of the Lease. see "First Lease Rider"
Item 7,
Section 2.03. EARLY OCCUPANCY. If Tenant occupies the Property prior to the
Commencement Date, Tenant's occupancy of the Property shall be subject to all of
the provisions of this Lease. Early occupancy of the Property shall not advance
the expiration date of this Lease. AS DESCRIBED IN "FIRST LEASE RIDER" ITEM 7.
Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon the expiration
or earlier termination of this Lease. Tenant shall reimburse Landlord for and
indemnify Landlord against all damages which Landlord incurs from Tenant's delay
in vacating the Property. It Tenant does not vacate the Property upon the
expiration or earlier termination of the Lease and Landlord thereafter accepts
rent from Tenant, Tenant's occupancy of the Property shall be a "month-to-month"
tenancy, subject to all of the terms of this Lease applicable to a month-to-
month tenancy, except that the Base Rent then in effect shaft be increased by
twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. Time and Manner of Payment. Upon execution of this Lease, Tenant
shall pay Landlord the Base Rent in the amount stated in Paragraph 1.12(a) above
for the first month of the Lease Term. On the first day of the second month of
the Lease Term and each month thereafter, Tenant shall pay Landlord the Base
Rent, in advance, without offset. deduction or prior demand. The Base Rent shall
be payable at Landlord's address or at such other place as Landlord may
designate in writing., except as provided for in "First Lease Rider" Item 7.
Section 3.02. COST OF LIVING INCREASES. The Base Rent shall be increased on each
date (the "Rental Adjustment Date") stated in Paragraph 1.1 2(a) above in
accordance with the increase in the United States Department of Labor. Bureau of
Labor Statistics, Consumer Price Index for Alt Urban Consumers (all items for
the geographical Statistical Area in which the Property is located on the basis
of 1982-1984 = 100) (the "Index") as follows:
<PAGE>
(a) The Base Rent (the "Comparison Base Rent'') in effect immediately before
each Rental Adjustment Date shall be increased by the percentage that the Index
has increased from the date (the ''Comparison Date") on which payment of the
Comparison Base Rent began through the month in which the applicable Rental
Adjustment Date occurs. The Base Rent shall not be reduced by reason of such
computation. Landlord shall notify Tenant of each increase by a written
statement which shall include the Index for the applicable Comparison Date. the
Index for the applicable Rental Adjustment Date. the percentage increase between
those two indices, and the new Base Rent. Any increase in the Base Rent provided
for in this Section 3.02 shall be subject to any minimum or maximum increase.
as described in "First Lease Rider" Item 5
(D) Tenant shall pay the new Base Rent from the applicable Rental Adjustment
Date until the next Rental Adjustment Date. Landlord's notice may be given after
the applicable Rental Adjustment Date of the increase, and Tenant shall pay
Landlord the accrued rental adjustment for the months elapsed between the
effective date of the increase and Landlord's notice of such increase within ten
(10) days after Landlord's notice. It the format or components of the Index are
materially changed after the Commencement Date, Landlord shall substitute an
index which is published by the Bureau of Labor Statistics or similar agency and
which is most needy equivalent to the Index in effect on the Commencement Date.
The substitute index shall be used to calculate the increase in the Base Rent
unless Tenant objects to such index in writing within fifteen (15) days after
receipt of Landlord's notice. If Tenant objects, landlord and Tenant shall
submit the selection of the substitute index for binding arbitration in
accordance with the ruses and regulations of the American Arbitration
Association at its office closest to the Property. The costs of arbitration
shall be borne equally by Landlord and Tenant.
Section 3.04. TERMINATION; ADVANCE PAYMENTS. Upon termination of this Lease
under Article Seven (Damage or Destruction), Article Eight (Condemnation) or any
other termination not resulting from Tenant's default. and after Tenant has
vacated the Property in the manner required by this Lease. Landlord shall refund
or credit to Tenant (or Tenant's successor), any advance rent or other advance
payments made by Tenant to Landlord.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. Additional Rent. All charges payable by Tenant other than Base
Rent are called "Additional Rent. " Unless this Lease provides otherwise, Tenant
shall pay all Additional Rent then due with the next monthly installment of Base
Rent. The term "rent" shall mean Base Rent and Additional Rent. As of the date
of this Lease, there are no charges
Section 4.02. PROPERTY TAXES. THAT CONSTITUTE ADDITIONAL RENT.
(b) DEFINITION OF " REAL PROPERTY TAX. " " Real property tax" means: (i) any
fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalks,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or tee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(d) PERSONAL PROPERTY TAXES.
(i) Tenant shall pay all taxes charged against trade fixtures, furnishings,
equipment or any other personal property belonging to Tenant. Tenant shall try
to have personal property taxed separately from the Property.
(ii) If any of Tenant's personal property is taxed with the Property, Tenant
shall pay Landlord the taxes for the personal property within fifteen (15) days
after Tenant receives a written statement from Landlord for such personal
property taxes.
<PAGE>
Section 4.03. UTILITIES. Tenant shall pay, directly to the appropriate supplier,
the cost of all natural gas, heat, light, power, sewer service, telephone,
water, refuse disposal and other utilities and services supplied to the
Property.
Section 4.04. INSURANCE POLICIES.
(a) LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain a policy
of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability for
bodily injury, property damage (including loss of use of property) and personal
injury arising out of the operation, use or occupancy of the Property. Tenant
shaft name Landlord as an additional insured under such policy. The initial
amount of such insurance shall be One Million Dollars (S1,000,000) per
occurrence.
The liability insurance obtained by tenant under this Paragraph 4.04(a) shall
(i) be primary and (iii) insure Landlord against Tenant's performance under
Section 5.05, if the matters giving rise to the indemnity under Section 5.05
result from the negligence of Tenant. The amount and coverage of such insurance
shall not limit Tenant's liability nor relieve Tenant of any other obligation
under this Lease. Landlord may also obtain comprehensive public liability
insurance in an amount and with coverage determined by Landlord insuring
Landlord against liability arising out of ownership, operation, use or occupancy
of the Property. The policy obtained by Landlord shall not be contributory and
shall not provide primary insurance.
(b) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term, Landlord shall
maintain policies of insurance covering loss of or damage to the Property in the
full amount of its replacement value. Such policy shall contain an Initiation
Guard Endorsement and shall provide protection against all perils included
within the classification of fire, extended coverage, vandalism, malicious
mischief, special extended perils (all risk), sprinkler leakage and any other
perils which Landlord deems reasonably necessary. Landlord shall have the right
to obtain flood and earthquake insurance if required by any lender holding a
security interest in the Property. Landlord shall not obtain insurance for
Tenant's fixtures or equipment or building improvements installed by Tenant on
the Property. During the Lease Term, Landlord shall also maintain a rental
income insurance policy, with loss payable to Landlord, in an amount equal to
one year's Base Rent, plus estimated real property taxes and insurance premiums.
Tenant shall not do or permit anything to be done which invalidates any such
insurance policies.
(C) Payment. of Premiums.
(i) Landlord shall pay the "Premiums" for the insurance policies maintained by
Landlord under
Paragraph 4.04(b )
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under this Lease shall
include a provision which requires the insurance carrier to give Landlord not
less than thirty (30) days' written notice prior to any cancellation or
modification of such coverage, theft materially affects insurance required under
this Lease.
(ii) If Tenant fails to deliver any policy, certificate or renewal to Landlord
required under this Lease within the prescribed time period or if any such
policy is canceled or modified in a way that materially affects insurance
required under this Lease during the Lease Term without Landlord's consent,
Landlord may:
obtain such insurance, in which case Tenant shall reimburse Landlord for the
cost of such insurance within fifteen (15) days after receipt of a statement
that indicates the cost of such insurance.
(iii) Tenant shall maintain all insurance required under this Lease with
companies holding a "General Policy Rating" of A-12 or better, as set forth in
the most current issue of "Best Key Rating Guide". Landlord and Tenant
acknowledge the insurance markets are rapidly changing and that insurance in the
form and amounts described in this Section 4.04 may not be available in the
future. Tenant acknowledges that the insurance described in this Section 4.04 is
for the primary
<PAGE>
benefit of Landlord. If at any time during the Lease Term, Tenant is unable to
maintain the insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially reasonable in
the insurance industry for Tenant's type of business, as that coverage may
change from time to time. Landlord makes no representation as to the adequacy of
such insurance to protect Landlord's or Tenant's interests. Therefore, Tenant
shall obtain any such additional property or liability insurance which Tenant
deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies maintained,
Landlord and Tenant each hereby waive any and all rights of recovery against the
other, or against the officers, employees, agents or representatives of the
other, for loss of or damage to its property or the property of others under its
control, if such loss or damage is covered by any insurance policy in force
(whether or not described in this Lease) at the time of such loss or damage.
Upon obtaining the required policies of insurance, Landlord and Tenant shall
give notice to the insurance carriers of this mutual waiver of- subrogation.
Section 4.05. Common Areas; Use, Maintenance and Costs.
(a) Common Areas. As used in this Lease, "Common Areas" shall mean all areas
within the Project which are available for the common use of tenants of the
Project and which are not leased or held for the exclusive use of Tenant or
other tenants, including, but not limited to, parking areas, driveways,
sidewalks, loading areas, access roads, corridors, landscaping and planted
areas. Landlord, from time to time, may change the size, location, nature and
use of any of the Common Areas, convert Common Areas into leaseable areas,
construct additional parking facilities (including parking structures) in the
Common Areas, and increase or decrease Common Area land and/or facilities.
Tenant acknowledges that such activities may result in inconvenience to Tenant.
Such activities and changes are permitted it they do not materially affect
Tenant's use of the Property.
(b) Use of Common Areas. Tenant shall have the nonexclusive right (in common
with other tenants and all others to whom Landlord has granted or may grant such
rights) to use the Common Areas for the purposes intended, subject to such
reasonable rules and regulations as Landlord may establish from time to time.
Tenant shall abide by such rules and regulations and shall use its best effort
to cause others who use the Common Areas with Tenant's express or implied
permission to abide by Landlord's rules and regulations. At any time, Landlord
may close any Common Areas to perform any acts in the Common Areas as, in
Landlord's judgment. are desirable to improve the Project. Tenant shall not
interfere with the rights of Landlord. other tenants or any other person
entitled to use the Common Areas.
(c) Specific Provision re: Vehicle Parking. Tenant shall be entitled to use the
number of vehicle parking spaces in the Project allocated to Tenant in Section
1.11 of the Lease without paying any additional rent. Tenant's parking shall not
be reserved (except as described in "First Lease Rider" Item 8) and shall be
limited to vehicles no larger than standard size automobiles or pickup utility
vehicles. Tenant shall not cause large trucks or other large vehicles to be
parked within the Project or on the adjacent public streets. Temporary parking
of large delivery vehicles in the Project may be permitted by the rules and
regulations established by Landlord. Vehicles shall be parked only in striped
parking spaces and not in driveways, loading areas or other locations not
specifically designated for parking. Handicapped spaces shall only be used by
those legally permitted to use them. If Tenant habitually parks more vehicles in
the parking area than the number set forth in Section 1.11 of this Lease and
fails to cure after written notice from Landlord such conduct shall be a
material breach of this Lease. In addition to Landlord's other remedies under
the Lease, Tenant shall pay a daily charge determined by Landlord for each such
additional vehicle.
(d) MAINTENANCE O T COMMON AREAS. Landlord shall maintain the Common Areas in
good order, condition and repair and shall operate the Project, in Landlord's
sole discretion, as a first-class industrial/commercial real property
development.
Section 4.06. LATE CHARGES. Tenant's failure to pay rent promptly may cause
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment within ten (
10) days after it becomes due, Tenant shall pay Landlord a late charge equal to,
five percent (5%) of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of such late payment.
<PAGE>
Section 4.07. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by Tenant to
-----------------------------------------
Landlord which is not Paid when due shall bear interest at the rate of twelve
- ------------------------------------
percent (12%) per annum from the due date of such amount. However, interest
shall not be payable on late charges to be paid by Tenant under this Lease. The
payment of interest on such amounts shall not excuse or cure any default by
Tenant under this Lease. If the interest rate specified in this Lease is higher
than the rate permitted by law, the interest rate is hereby decreased to the
maximum legal interest rate permitted by law.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. Permitted Uses. Tenant may use the Property only for the Permitted
Uses set forth in Section 1.06 above.
Section 5.02. MANNER OF USE. Tenant shall not cause or permit the Property to be
used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
tenants of the Project, or which constitutes a nuisance or waste. Tenant shall
promptly take all actions necessary to comply with all applicable statutes,
ordinances, rules, regulations, orders and requirements regulating the use by
Tenant of the Property including the Occupational Safety and Health Act.
Section 5.03. HAZARDOUS MATERIALS. As used in this Lease. the term "Hazardous
Material" means any flammable items, explosives, radioactive materials,
hazardous or toxic substances, material. or waste or related materials,
including any substances defined as or included in the definition of "hazardous
substances, "hazardous wastes", "hazardous materials" or "toxic substances" now
or subsequently regulated under any applicable federal, state or local laws or
regulations, including without limitation petroleum-based products, paints.
solvents, lead, cyanide, DOT, printing inks, acids, pesticides, ammonia
compounds and other chemical products, asbestos, PCBs and similar compounds, and
including any different products and materials which are subsequently found to
hays adverse effects on the environment or the health and safety of persons.
TENANT ' n shall not cause or permit any Hazardous Material to be generated,
produced, brought upon, used, stored, treated or disposed of in or about the
Property by Tenant, its agents, employees, contractors, sublessees or invitees
without the prior written consent of Landlord. Landlord shall be entitled to
take into account such other factors or facts as Landlord may reasonably
determine to be relevant in determining whether to grant or withhold consent to
Tenant's proposed activity with respect to Hazardous Material. In no event,
however, shall Landlord be required to consent to the installation or use of any
storage tanks on the Property. see "First Lease Rider' Item 13.
Section 5.04. SIGNS AND AUCTIONS. Tenant shall not place any signs on the
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property. ...
Section 5.05. INDEMNITY. Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or ,5 permitted by Tenant to be done in or about the Property,
including any contamination of the Property or any other property resulting
from the presence or use of Hazardous Material caused or permitted by Tenant:
(c) any breach or default in the performance of Tenant's obligations under this
Lease; (d) any misrepresentation or breach of warranty by Tenant under this
Lease; or (e) other acts or omissions of Tenant constituting gross negligence,
Tenant shall defend Landlord against any such cost. claim or liability at
Tenant's expense with counsel reasonably acceptable to Landlord or, at
Landlord's election, Tenant shall reimburse Landlord for any legal fees or costs
incurred by Landlord in connection with any such claim. As a material part of
the consideration to Landlord, Tenant assumes all risk of damage to property or
injury to persons in or about the Property arising from any cause, and Tenant
hereby waives all claims in respect thereof against Landlord, except for any
claim arising out of Landlord's gross negligence , or willful misconduct. As
used in this Section, the term "Tenant" shall include Tenant's employees,
agents. contractors and invitees, if applicable.
Section 5.06. LANDLORD'S ACCESS. Landlord or its agents may enter the Property
at all reasonable times (with at least 24 hours notice) to show the Property to
potential buyers, investors or tenants or other parties to do any other act or
to inspect and conduct tests in order `: to monitor Tenant's compliance with all
applicable environmental laws and all laws governing the presence and use of
Hazardous Material; or for any other
<PAGE>
purpose Landlord deems necessary. Landlord shall give Tenant reasonable prior
notice of such entry, except in the case of an emergency. Landlord may place
customary "For Lease" signs on the Property provided, upon notice of vacation of
premises by Tenant, such signage shall prominently display "Tenant Relocating"
Section 5.07. QUIET POSSESSION. If Tenant pays the rent and complies with all
other terms of this Lease, Tenant may occupy and enjoy the Property for the full
Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its condition
as of the execution of the Lease, subject ~1 to all recorded matters, laws,
ordinances, and governmental regulations and orders. Except as provided herein,
Tenant !!3, acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property ,3, or the
suitability of the Property for Tenant's intended use. Tenant represents and
warrants that Tenant has made its own inspection of and inquiry regarding the
condition of the Property and is not relying on any representations of Landlord
or any Broker with respect thereto. If Landlord or Landlord's Broker has
provided a Property Information Sheet or other Disclosure Statement regarding
the Property, a copy is attached as an exhibit to the Lease.
Section 6.05. EXEMPTION OF THE LANDLORD FROM LIABILITY. Landlord shall not be
liable for any damage or injury to the person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from: (a) fire, steam,
electricity, water, gas or rain (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause; (c) conditions arising in or about the
Property or upon other portions of the Project, or from other sources or places;
or (d) any act or omission of any other tenant of the Project. Landlord shall
not be liable for any such damage or injury even though the cause of or the
means of repairing such damage or injury are not accessible to Tenant, The
provisions of this Section 6.02 shall not, however, exempt Landlord from
liability for Landlord's gross negligence or willful misconduct.
Section 6.03 LANDLORD'S OBLIGATIONS. Subject to the provisions of Article Seven
(Damage or Destruction) and Article Eight (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on the Property in good Order,
condition and repair. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the surfaces of walls. Landlord shall not
be obligated to make any repairs under this Section 6.03 until a reasonable time
after receipt of a written notice from Tenant of the need for such repairs.
Section 6.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Section 6.03, Article Seven (Damage or Destruction)
and Article Eight (Condemnation), Tenant shall keep all portions of the Property
-------------------
(including nonstructural, interior, systems and equipment, except heating,
ventilation & air conditioning) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the Property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless of whether
the benefit of such replacement extends beyond the Lease Term but if the benefit
or useful life of such replacement extends beyond the Lease Term (as such term
may be extended by exercise of any options), the useful life of such replacement
shall be prorated over the remaining portion of the Lease Term (as extended),
and Tenant shall be liable only for that portion of the cost which is applicable
to the Lease Term (as extended). Landlord shall undertake the responsibility for
preventive maintenance of the heating and air conditioning system. In addition,
Tenant shall, at Tenant's expense, repair any damage to the roof, foundation or
structural portions of walls caused by Tenant's acts or omissions. It is the
intention of Landlord and Tenant that, at all times during the Lease Term,
Tenant shall maintain the Property in an attractive, first-class and fully
operative condition.
(b) Tenant Shall fulfill all of Tenant's obligations under this Section 6.04 at
Tenant's sole expense. It Tenant fails to maintain, repair or replace the
Property as required by this Section 6.04, Landlord may, upon ten (10) days'
prior notice to Tenant (except that no notice shall be required in the case of
an emergency), enter the Property and perform such maintenance or repair
(including replacement, as needed) on behalf of Tenant. In
<PAGE>
such case, Tenant shall reimburse Landlord for all costs incurred in performing
such maintenance or repair immediately upon demand.
Section 6.05. Alterations, Additions, and improvements.
(a) Tenant shall not make any alterations, additions, or improvements to the
Property without Landlord's prior written consent, except for non-structural
alterations which do not exceed Ten Thousand Dollars (510,000) in cost
cumulatively over the Lease Term and which are not visible from the outside of
any building of which the Property is part. Landlord may require Tenant to
provide demolition and/or lien and completion bonds in form and amount
satisfactory to Landlord. Tenant shall l promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 6.05(a)
upon Landlord's; written request. All alterations, additions, and improvements
shall be done in a good and workmanlike manner, in conformity c with all
applicable laws and regulations, and by a contractor approved by Landlord. Upon
completion of any such work, Tenant shall provide Landlord with "as built"
plans, copies of all construction contracts, and proof of payment for all labor
and materials.
(b) Tenant shall pay when due all claims for labor and material furnished to the
Property. Tenant shall give Landlord at least twenty (20) days' prior written
notice of the commencement of any work on the Property, regardless of whether
Landlord's consent to such work is required. Landlord may elect to record and
post notices of non-responsibility on the Property.
Section 6.06. Condition upon Termination. Upon the termination of the Lease,
Tenant shall surrender the Property to Landlord, broom clean and in the same
condition as received except for ordinary wear and tear which Tenant was not
otherwise obligated to remedy under any provision of this Lease. However, Tenant
shall not be obligated to repair any damage which Landlord is required to repair
under Article Seven (Damage or Destruction). In addition, Landlord may require
Tenant to remove any alterations, additions or improvements (whether or not made
with Landlord's consent) prior to the expiration of the Lease and to restore the
Property to its prior condition, all at Tenant's expense. All alterations,
additions and improvements which Landlord has not required Tenant to remove
shall become Landlord's property and shall be surrendered to Landlord upon the
expiration or earlier termination of the Lease, except that Tenant may remove
any of Tenant's machinery or equipment which , can be removed without material
damage to the Property. Tenant shall repair, at Tenant's expense, any damage to
the Property caused by the removal of any such machinery or equipment. In no
event, however, shall Tenant remove any of the following materials or equipment
(which shall be deemed Landlord's property) without Landlord's prior written
consent: any power wiring or power panels; lighting or lighting fixtures; wall
coverings; drapes, blinds or other window coverings; carpets or other floor
coverings; heaters, air conditioners or any other heating or air conditioning
equipment; fencing or security gates or other similar building operating
equipment and decorations.
ARTICLE SEVEN DAMAGE OR DESTRUCTION
Section 701. Partial Damage to Property.
(a) Tenant shall notify Landlord in writing immediately upon the occurrence of
any damage to the Property. If the Property is only partially damaged (i.e.,
less than fifty percent (50%) of the Property is untenantable as a result of
such damage or less than fifty percent (50%) of Tenant's operations are
materially impaired) and if the proceeds received by Landlord from the insurance
policies described in Paragraph 4.04(b)) are sufficient to pay for the necessary
repairs, this Lease shall remain in effect and Landlord shall repair the damage
as soon as reasonably possible. Landlord may elect (but is not required) to
repair any damage to Tenant's fixtures, equipment, or improvements.
(b) It the insurance proceeds received by Landlord are not sufficient to pay the
entire cost of repair, or it the cause of the damage is not covered by the
insurance policies which Landlord maintains under Paragraph 4.04(b), Landlord
may elect either to (i) repair the damage as soon as reasonably possible, in
which case this Lease shall remain in full force and effect, or (ii) terminate
this Lease as of the date the damage occurred. Landlord shall notify Tenant
within thirty (30) days after receipt of notice of the occurrence of the damage
whether Landlord elects to repair the damage or terminate the Lease. If Landlord
elects to repair the damage,
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Tenant shall pay Landlord the "deductible amount" (if any) under Landlord's
insurance policies if the damage was due to an act or omission of Tenant, or
Tenant's employees, agents, contractors or invitees, the difference between the
actual cost of repair and any insurance proceeds received by Landlord provided
that repairs are to return the Property to the original and/of like condition.
Landlord elects to terminate the Lease, Tenant may elect to continue this Lease
in full force and effect, in which case Tenant shall repair any damage to the
Property and any building in which the Property is located. Tenant shall pay the
cost of such repairs, except that upon satisfactory completion of such repairs,
Landlord shall deliver to Tenant any insurance proceeds received by Landlord for
the damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) It the damage to the Property occurs during the last six (6) months of the
Lease Term and such damage will require more than thirty (30) days to repair,
either Landlord or Tenant may elect to terminate this Lease as of the date the
damage occurred. regardless of the sufficiency of any insurance proceeds. The
party electing to terminate this Lease shall give written notification to the
other party of such election within thirty (30) days after Tenant's notice to
Landlord of the occurrence of the damage.
Section 7.02. Substantial or Total Destruction. If the Property is substantially
or totally destroyed in such a way that Tenant is prevented from operating its
business by any cause whatsoever (i.e., the damage to the Property is greater
than partial damage as described in Section 701), and regardless of whether
Landlord receives any insurance proceeds, this Lease shall terminate as of the
date the destruction occurred. Notwithstanding the preceding sentence, it the
Property can be rebuilt within six (6) months after the date of destruction,
Landlord may elect to rebuild the Property at Landlord's own expense, in which
case this Lease shall remain in full force and effect. Landlord shall notify
Tenant of such election within thirty (30) days after Tenant's notice of the
occurrence of total or substantial destruction. If Landlord so elects, Landlord
shall rebuild the Property at Landlord's sole expense. Should Landlord so
elect, Landlord would bear the reasonable costs of providing temporary
replacement facilities, including costs of moving to and from said temporary
replacement facilities.
Section 7.03. Temporary Reduction of Rent. If the Property is destroyed or
damaged and Landlord or Tenant repairs or restores Property pursuant to the
provisions of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. Except for such
possible reduction in Base Rent, Tenant shall not be entitled to any
compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.
Section 704. WAIVER. Tenant waives the protection of any statute, code or
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 702 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT CONDEMNATION
If all or any portion of the Property is taken under the power of eminent domain
or sold under the threat of that power (all of which are called "Condemnation"),
this Lease shall terminate as to the part taken or sold on the date the
condemning authority takes title or possession, whichever occurs first. If more
than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
takes title or possession). If neither Landlord nor Tenant terminates this
Lease, this Lease shall remain in effect as to the portion of the Property not
taken, except that the Base Rent and Additional Rent shall be reduced in
proportion to the reduction in the floor area of the Property, Any Condemnation
award or payment shall be distributed in the following order (a) first, to any
ground lessor, mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its interest in the Property; (b) second, to Tenant,
only the amount of any award specifically designated for loss of or damage to
Tenant's trade fixtures or removable personal property and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the fee, or otherwise. If this Lease
is not terminated, Landlord shall repair any damage to the Property caused by
the Condemnation, except that Landlord shall not be obligated to repair any
damage for which
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Tenant has been reimbursed by the condemning authority. If the severance damages
received by Landlord are not sufficient to pay for such repair, Landlord shall
have the right to either terminate this Lease or make such repair at Landlord's
expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. LANDLORD'S CONSENT REQUIRED. see "First Lease Rider" item t1.
Section 9.02. TENANT AFFILIATE. see "First Lease Rider" Item 12.
Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this Article Nine,
whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
is not a consent to any subsequent transfer. If Tenant's transferee defaults
under this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability under
this Lease.
Section 9.04. OFFER TO TERMINATE. If Tenant desires to assign the Lease or
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.05 with respect to any proposed transfer shall
continue to apply.
Section 9.05. LANDLORD'S CONSENT.
(a) Tenant's request for consent to any transfer described in Section 9.01 shall
set forth in writing the details of the proposed transfer, including the name,
business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g., the term of and the rent and security
deposit payable under any proposed assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right to withhold
consent, if reasonable, or to grant consent, based on the following factors: (i)
the business of the proposed assignee or subtenant and the proposed use of the
Property; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed assignment solely because of the net worth and/or
financial reputation of the proposed assignee Tenant may nonetheless sublease
(but not assign), all or a portion of the Property to the proposed transferee,
but only or, the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the Lease the
Landlord's Share (stated in Section 1.14) of the Profit (defined below) on such
transaction as and when received by Tenant, unless Landlord gives written notice
to Tenant and the assignee or subtenant that Landlord's Share shall be paid by
the assignee or subtenant to Landlord directly.
The "Profit" means (A) all amounts paid to Tenant for such assignment or
sublease, including "key money, monthly rent in excess of the monthly rent
payable under the Lease, and all fees and other consideration paid for the
assignment or sublease, including fees under any collateral agreements, less (8)
costs and expenses directly incurred by Tenant in connection with the execution
and performance of such assignment or sublease for real estate broker's
commissions and costs of renovation or construction of tenant improvements
required under such assignment or sublease. Tenant is entitled to recover such
costs and expenses before Tenant is obligated to pay the Landlord's Share to
Landlord. The Profit in the case of a sublease of less than all the Property is
the rent allocable to the subleased space as a percentage on a square footage
basis.
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(ii) Tenant shall provide Landlord a written statement certifying all amounts to
be paid from any assignment or sublease of the Property within shiny (30) days
after the transaction documentation ~s signed, and Landlord may inspect Tenant's
books and records to verify the accuracy of such statement. On written request,
Tenant shall promptly furnish to Landlord copies of all the transaction
documentation, all of which shall be certified by Tenant to be complete, true
and correct. Landlord's receipt of Landlord's Share shall not be a consent to
any further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.05(b) shall be a material default of the Lease.
Section 9.06. NO MERGER. No merger shall result from Tenant's sublease of the
Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. Covenants and Conditions. Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to Continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 10.02. DEFAULTS. TENANT shall be in material default under this Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the Property
results in the cancellation of any insurance described in Section 4.04;
(b) If Tenant fails to pay rent or any other charge when due;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations under
this Lease for a period of thirty (30) days after written notice from Landlord:
provided that if more than thirty (30) days are required to complete such
performance, Tenant shall not be in default if Tenant commences such performance
within the thirty (30) -day period and thereafter diligently pursues its
completion. However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this Lease. The
notice required by this Paragraph is intended to satisfy any and all notice
requirements imposed by law on Landlord and is not in addition to any such
requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for the
benefit of creditors; (ii) if a petition for adjudication of bankruptcy or for
reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially alt of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
shiny (30) days. If a court of competent jurisdiction determines that any of the
acts described in this subparagraph (d) is not a default under this Lease, and a
trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess. if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
Section 10.03. Remedies. On the occurrence of any material default by Tenant,
Landlord may, at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have:
(a) Terminate Tenant's right to possession of the Property by any lawful means,
in which case this Lease shall terminate and Tenant shall immediately surrender
possession of the Property to Landlord. In such event. Landlord shall be
entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which Landlord had earned at the
time of the termination; (ii) the worth at the time of
<PAGE>
the award of the amount by which the unpaid Base Rent, Additional Rent and other
charges which Landlord would have earned after termination until the time of the
award exceeds the amount of such rental loss that Tenant proves Landlord could
have reasonably avoided (iii) the worth at the time of the award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which Tenant
would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to. any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default.
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (1%), If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant the
amount specified in this Paragraph 1 0.03(a), or (ii) proceeding under Paragraph
1 0.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant has abandoned the Property. In such
event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord under the
laws or judicial decisions of the state in which the Property is located.
Section 10.04. REPAYMENT OF "FREE" RENT. If this Lease provides for a
postponement of any monthly rental payments, a period of "free" rent or other
rent concession, such postponed rent or "free" rent is carted the "Abated
Rent". Tenant shall be credited with having paid all of the Abated Rent on the
expiration of the Lease Term only if Tenant has fully, faithfully, and
punctually performed all of Tenant's obligations hereunder, including the
payment of all rent (other than the Abated Rent) and the surrender of the
Property in the physical condition required by this Lease. Tenant acknowledges
that its right to receive credit for the Abated Rent is absolutely conditioned
upon Tenant's full, faithful and punctual performance of its obligations under
this Lease. If Tenant defaults and does not cure within any applicable grace
period, the Abated Rent shall immediately become due and payable in full and
this Lease shall be enforced as if there were no such rent abatement or other
rent concession. In such case Abated Rent shall be calculated based on the full
initial rent payable under this Lease.
Section 10.05. AUTOMATIC TERMINATION. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default shaft
include all costs and fees, including reasonable attorneys' fees that Landlord
incurs in connection with the filing, commencement, pursuing and/or defending of
any action in any bankruptcy court or other court with respect to the Lease: the
obtaining of relief from any stay in bankruptcy restraining any action to evict
Tenant: or the pursuing of any action with respect to Landlord's right to
possession of the Property. All such damages suffered (apart from Base Rent and
other rent payable hereunder) shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or remedy
shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN' PROTECTION OF LENDERS
Section 11.01. Subordination. Landlord shall have the right to subordinate this
Lease to any ground lease, deed of trust or mortgage encumbering the Property,
any advances made on the security thereof and any
<PAGE>
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. Tenant shall cooperate with Landlord and any lender
which is acquiring a security interest in the Property or the Lease. Tenant
shall execute such funkier documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property during the Lease Term shall
not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default.
Section 11.02. ATTORNMENT. If Landlord's interest in the Property is acquired by
any ground lessor, beneficiary under a deed of trust, mortgagee, or purchaser at
a foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Property and recognize such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the Property upon the transfer of Landlord's
interest.
Section 11.03. Signing of Documents. Tenant shelf sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord, the attorney-in-
fact of Tenant to execute and deliver any such instrument or document. See
"First Lease Rider" Item 6."
Section 11.04. Estoppel Certificates.
(a) Upon Landlord's written request, Tenant shall execute. acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been canceled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why); and (v) such other representations or information with respect to Tenant
or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Property may require. Tenant shall deliver such
statement to Landlord within ten (10) days after Landlord's request. Landlord
may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such ten (10) -
day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated except as
otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that Landlord is not
in default under the Lease. In such event, Tenant shall be estopped from denying
the truth of such facts.
Section 11.05. Tenant's Financial Condition. Within ten (10) days after written
request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in breach or
default under this Lease, such party (the "Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand for any costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered.
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Such costs shall include legal fees and costs incurred for the negotiation of a
settlement, enforcement of rights or otherwise. Furthermore, if any action for
breach of or to enforce the provisions of this Lease is commenced, the court in
such action shall award to the party in whose favor a judgment is entered, a
reasonable sum as attorneys' fees and costs. The losing party in such action
shall pay such attorneys' fees and costs. Tenant shall also indemnify Landlord
against And hold Landlord harmless from all costs, expenses, demands and
liability Landlord may incur if Landlord becomes or is made a party to any claim
or action (a) instituted by Tenant against any third party, or by any third
party against Tenant, or by or against any person holding any interest under or
using the Property by license of or agreement with Tenant: (b) for foreclosure
of any lien for labor or material furnished to or for Tenant or such other
person; (C) otherwise arising OUT OF or resulting from any act or transaction of
Tenant or such other person or (d) necessary to protect Landlord's interest
under this Lease in a bankruptcy proceeding, or other proceeding under Title 11
of the United States Code. as amended. Tenant shall defend Landlord against any
such claim or action at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs Landlord incurs in any such claim or action.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. Non-Discrimination. Tenant promises, and it is a condition to the
continuance of this Lease, that there will be no discrimination against, or
segregation of, any person or group of persons on the basis of race, color, sex,
creed, national origin or ancestry in the leasing, subleasing, transferring,
occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) As used in this Lease, the term "Landlord" means only the current owner or
owners of the fee title to the Property or Project or the leasehold estate under
a ground lease of the Property or Project at the time in question. Each Landlord
is obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of ail liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However, each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to perform any
of its obligations under this Lease to Landlord and to any ground lessor,
mortgagee or beneficiary under any deed of trust encumbering the Property whose
name and address have been furnished to Tenant in writing. Landlord shall not be
in default under this Lease unless Landlord (or such ground lessor, mortgagee or
beneficiary) fails to cure such non-performance within shiny (30) days after
receipt of Tenant's notice. However, if such non-performance reasonably requires
more than thirty (30) days to cure, Landlord shall not be in default if such
cure is commenced within such shiny (30) -day period and thereafter diligently
pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the liability
of Landlord for the performance of its duties and obligations under this Lease
is limited to Landlord's interest in the Property and the Project, and neither
the Landlord nor its partners, shareholders.-, officers or other principals
shall have any personal liability under this Lease.
Section 13.03. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any pan thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.04. INTERPRETATION. The captions of the Articles or Sections of this
Lease are to assist the panics in reading this Lease and are not a pan of the
terms or provisions of this Lease. Whenever required by the context of this
Lease. the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shelf each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents. employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
<PAGE>
Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This Lease is
the only agreement between the parties pertaining to the lease of the Property
and no other agreements are effective. All amendments to this Lease shall be in
writing and signed by all parties. Any other attempted amendment shall be void.
Section 13.06. NOTICES. All notices required or permitted under this Lease shall
be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.03 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.02 above. Alt notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.07. Waivers. All waivers must be in writing and signed by the waiving
party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.08. NO RECORDATION. Tenant shall not record this Lease without prior
written consent from Landlord. However, either Landlord or Tenant may require
that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any party who
legally acquires any rights or interest in this Lease from Landlord or Tenant.
However, Landlord shall have no obligation to Tenant's successor unless the
rights or interests of Tenant's successor are acquired in accordance with the
terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10, CORPORATE AUTHORITY. PARTNERSHIP AUTHORITY. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord.
Section 13.11. JOINT AND SEVERAL LIABILITY. All panics signing this Lease as
Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13. 12. FORCE MAJEURE. if Landlord cannot perform any of its obligations
due to events beyond Landlord's control, the time provided for performing such
obligations shall be extended by a period of time equal to the duration of such
events. Events beyond Landlord's control include, but are not limited to, acts
of God, war, civil commotion. Labor disputes, strikes, fire, flood or other
casualty, shortages of labor or material, government regulation or restriction
and weather conditions.
Section t 3. 13. EXECUTION OF LEASE. This Lease may be executed in counterparts
and, when all counterpart documents are executed, the counterparts shall
constitute a single binding instrument. Landlord's delivery of this Lease to
Tenant shall not be deemed to be an offer to lease and shall not be binding upon
either party until executed and delivered by both parties.
Section t3.14. SURVIVAL. All representations and warranties of Landlord and
Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
Section 14.01. Broker's Fee. When this Lease is signed by and delivered to both
Landlord and Tenant, Landlord shall pay a real estate commission to Landlord's
Broker named in Section 1.08 above, if any, as provided in the written agreement
between Landlord and Landlord's Broker, or the sum stated in Section
<PAGE>
1.09 above for services rendered to Landlord by Landlord's Broker in this
transaction. Landlord shall pay Landlord's Broker a commission if Tenant
exercises any option to extend the Lease Term or to buy the Property, or any
similar option or right which Landlord may grant to Tenant, or if Landlord's
Broker is the procuring cause of any other lease or sale entered into between
Landlord and Tenant covering the Property, Such commission shall be the amount
set forth in Landlord's Broker's commission schedule in effect as of the
execution of this Lease. If a Tenant's Broker is named in Section 1.08 above,
Landlord's Broker shall pay an appropriate portion of its commission to Tenant's
Broker if so provided in any agreement between Landlord's Broker and Tenant's
Broker. Nothing contained in this Lease shall impose any obligation on Landlord
to pay a commission or fee to any party other than Landlord's Broker.
Section 14.02. PROTECTION O1 BROKERS. If Landlord sells the Property, or assigns
Landlord's interest in this Lease, the buyer or assignee shall, by accepting
such conveyance of the Property or assignment of the Lease, be conclusively
deemed to have agreed to make all payments to Landlord's Broker thereafter
required of Landlord under this Article Fourteen. Landlord's Broker shall have
the right to bring a legal action to enforce or declare rights under this
provision. The prevailing party in such action shall be entitled to reasonable
attorneys' fees to be paid by the losing party. Such attorneys' fees shall be
fixed by the court in such action. This Paragraph is included in this Lease for
the benefit of Landlord's Broker,
Section 1 4.03, AGENCY DISCLOSURE; NO OTHER BROKERS. Landlord and Tenant each
warrant that they have dealt with no other real estate brokers) in connection
with this transaction except: CB Commercial Real Estate Group, Inc., who
represents
LANDLORD AND TENANT
In the event that CB Commercial represents both Landlord and Tenant, Landlord
and Tenant hereby confirm that they were timely advised of the dual
representation and that they consent to the same, and that they do not expect
said broker to disclose to either of them the confidential information of the
other party.
<PAGE>
ARTICLE FIFTEEN: COMPLIANCE
The panics hereto agree to comply with all applicable federal, state and local
laws, regulations, codes. ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments
thereto, the Foreign investment In Real Property Tax Act, the Comprehensive
Environmental Response Compensation and Liability Act, and The Americans With
Disabilities Act.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO OR
IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE DRAW
A LINE THROUGH THE SPACE BELOW. "First Lease Rider"
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below
and have initialled all Riders which are attached to or incorporated by
reference in this Lease.
"LANDLORD"
Signed on April 20, 1995 Cody Three, Inc., a Wyoming corporation
at Denver, Colorado
By: Raymond D. Fink
Its. Vice-President
By:
Its:
"TENANT"
Signed on April 17,1995 Maxwell Laboratories, Inc., a Delaware
at San Diego, California Corporation, I-Bus Division
By: Sean M. Maloy
Its: Executive Vice-President & Chief Operating
Officer
By:
Its:
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION OF
THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS. INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN
CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS, INC.. ITS
LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES OR
AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD RETAIN LEGAL COUNSEL TO
ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL
COUNSEL.
<PAGE>
FIRST LEASE RIDER
CODY THREE. INC. AS LANDLORD
AND MAXWELL LABORATORIES. INC. AS TENANT
This First Lease Rider to industrial Real Estate Lease ("Rider") is entered into
concurrently with and made a part of the Industrial Real Estate Lease between
CODY THREE. INC. , (.Landlord") and MAXWELL LABORATORIES. INC, ("Tenant"), dated
---------------------------
APRIL 11.1995 for the premises located at 9174 Sky Park Court, San Diego,
California as more particularly described therein (the "Lease"). Except as
otherwise defined herein, all capitalized terms have the same defined meanings
as in the Lease.
1. Article 16 Signage: Tenant shall have the right to place a sign, which must
--------
be approved by the Landlord, on the premises, in conformity with all CC8R's and
City of San Diego codes and regulations. All costs relating to the design,
installation and removal of said signage will be the responsibility of the
Tenant. Landlord's approval shall not be unreasonably withheld or delayed.
2. Article 17 Tenant Improvements: Landlord agrees to improve the premises as
--------------------
shown and described on Exhibits A. and B. attached hereto and made a part
hereof. Any additional improvements to the premises not specifically addressed
therein shall be the sole responsibility of the Tenant. Should Tenant request
that additional improvements not contained therein be provided by Landlord, such
request must be in writing from a duly authorized representative of Tenant and
agreed to by Landlord. Landlord shall then advise Tenant in writing of the cost
associated with said additional improvements and shall not proceed to provide
said additional improvements until authorized to do so in writing by the duly
authorized representative of Tenant. Within thirty(30) days of completion of the
Tenant Improvements in their entirety, Tenant shall pay to Landlord the costs of
all such additional improvements. The Tenant Improvements shall be deemed
complete upon issuance of a "Certificate of Occupancy" (or its local equivalent)
by the appropriate local governmental agency or agencies.
Landlord shall represent, warrant and provide evidence that the air handling
systems within the building are of a satisfactory air quality. Such air quality
testing shall include analyzing the building air handling system to ensure that
any toxin-containing materials or fibers are not circulated or vented into the
premises.
Landlord will be responsible for payment for tests of the system upon completion
of tenant improvements and will be responsible for the repairs and/or
replacement of equipment and/or ducting and/or venting as necessary to
accomplish the foregoing.
Landlord shall warrant that all tenant improvement work performed in the
premises, the roof, the existing HVAC system, windows and seals, and electrical
and plumbing systems and equipment are in good working order as of the date of
lease commencement. In addition, Landlord shall deliver the premises in a
condition that meets all codes and regulations, the Americans With Disabilities
Act (ADA), and any Title 24 requirements as the aforementioned exist as of the
date of the lease.
Tenant will be responsible for costs associated with compliance with the ADA
only for those interior items that may become required subsequent to the date of
the lease. Landlord will be responsible for any such costs associated with
compliance with the ADA on the grounds outside of the premises. Landlord will
not assume responsibility for making the mezzanine level wheelchair accessible.
To the best of Landlord's knowledge, the building does not contain, nor has ever
contained, asbestos containing materials; and there is no current use, storage
or disposal of significant quantities of hazardous materials on the site.
3. Article 18 : Option to Renew: If Tenant is not in default on any of the
----------------
terms, conditions or covenants of this Lease, both on the date Tenant gives
Landlord the renewal notice required below and at the end of the primary term of
this Lease, Tenant shall have the right to renew this Lease for one (1)
additional five (5) year term upon the same terms and conditions contained in
this Lease except: (a) the renewal term will contain one (1) further renewal
option for one (1) additional five (5) year term; (b) no tenant finish or tenant
improvement allowance will be provided to Tenant during the renewal term unless
expressly granted by Landlord in writing; and (c) the Base Rent shall be at the
then prevailing fair market rate and increased annually according to Article
Three of this Lease. If Tenant desires to renew this Lease, Tenant will notify
Landlord of its intention to renew not less than four (4) months prior to the
expiration date of the primary term of this Lease. If Tenant is not in default
on any of the terms, conditions or covenants of this Lease, both on the date
Tenant gives Landlord the renewal notice required below and at the end of the
first option term of this Lease, Tenant shall have the right to renew this Lease
for (1) additional five (5) year term upon the same terms and conditions
contained in this Lease except: (a) the renewal term will not contain any
further renewal option; (b) no tenant finish or tenant improvement allowance
will be provided to Tenant during the renewal term unless expressly granted by
Landlord in writing; and (c) the Base Rent shall be at 90% of the then
prevailing fair market rate increased according to Article Three of this Lease.
If Tenant desires to renew this Lease, Tenant will notify Landlord of its
intention to renew not less than four (4) months prior to the expiration date of
the first option term of this Lease.
4. Article 19 Expansion: Tenant shall be granted a continuous first right of
----------
refusal to lease the remaining portion of the mezzanine level (estimated at
7,200 square feet to be field verified by Landlord's Architect) of the building
at 9174 Sky Park Court throughout the lease term. The terms and conditions for
that expansion space shall be the same as those in effect under the existing
Lease, except as amended by both parties, and at the then prevailing Base Rent
for the premises under this Lease. Tenant Improvements for the expansion area
shall be provided by Landlord and are as shown and described in Exhibits "A,
C and F to this Lease. Any improvements to be made by the Landlord in the
expansion space shall be, at the most, in accordance, and in the same general
nature, quality and type, as is in the Premises covered by this Lease at the
time of commencement of the Lease. If Tenant desires any other nature, quality,
type or other deviation from the primary Tenant Improvements, any additional
costs shall be paid by Tenant. Tenant shall also have a first right of refusal
to lease the premises currently occupied by Konica and located at 9173 Sky Park
Court should Konica vacate the premises. Said right must be exercised within
thirty (30) days of receipt of written notification of the impending lease of
the premises, under the same terms and conditions offered by the prospective
lessee, or this right is invalidated. Tenant shall also have the first right of
opportunity to lease any portion of the remainder of the building at 9173 Sky
Park Court that becomes available for lease under terms and conditions to be
mutually agreed upon by both Tenant and Landlord.
5. Article 20 Dock Well Usage: The dock well between 9173 and 9174 Sky Park
----------------
Court is an open dock and there will be no exclusivity of use by either Tenant
or any tenant in possession of the premises at 9173 Sky Park Court.
6. Article 21 Non-Disturbance: Should the Property be financed or sold during
----------------
the Lease Term, Landlord shall provide, upon written request by Tenant, a duly
executed Non-Disturbance Agreement for the benefit of Tenant from Landlord's
mortgagee or Landlord's successor in interest.
<PAGE>
7. Sections 1.05, 2.03 & 3.01
Lease Commencement. Occupancy and Rental Abatement: Tenant shall be granted
- ---------------------------------------------------
approximately one(1) month of early occupancy for fixturization beginning on or
about September 1, 1995 (upon receipt of certificate of occupancy) and the lease
shall commence October 1,1995 with two months of rental abatement during months
2 and 3 (November and December, 1995) of the primary lease term.
8. Sections 1.11 8 4.05(c)
Parking: Tenant will have 131 parking spaces AVAILABLE OF WHICH FOUR (4) WILL BE
- ---------
reserved immediately in front of the premises, the exact location of which to be
mutually agreed upon by Landlord and Tenant, and the remaining 127 will be
unreserved. The entire project has a total of 400 parking spaces with a ratio of
3.7/1000 square feet of net rentable area. Any future expansion will add
unreserved parking to the Tenant's total at that ratio.
9. Section 3.02(a) Base Rent: The minimum increase will be two percent (2%) per
---------
year and the maximum increase will be five per cent (5%) per year.
10. Section 4.04(a) Insurance; Both parties intend for the Landlord's insurance
----------
to provide primary or contributing insurance, as appropriate, in situations in
which the Landlord is responsible for the insurable event.
11. Section 9.01 Assignment and Subletting: Tenant may assign this Lease or
-------------------------
sublease any portion of the Property to any unaffiliated subtenant with the
Landlord's written consent, which shall not be unreasonably withheld or delayed,
as provided in Section 9.05 of this Lease. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
Section 9.02 Assignment and Subletting: Tenant may assign this Lease or sublease
-------------------------
any portion of the Property to any parent corporation. subsidiary or affiliated
entity without Landlord's consent provided the entity shares at least fifty
percent (50%) common ownership with Tenant ("Tenant's Affiliate"). In such case,
any Tenant's Affiliate shall assume in writing all of Tenant's obligations under
this Lease.
13. Section 5.03 Hazardous Materials: Tenant has set forth on Exhibit G a list
of Hazardous Materials currently used, stored and/or disposed of in the course
of Tenants business as presently conducted, and Landlord hereby consents to such
use, storage and/or disposal. Except as provided in the following sentence,
Tenant may use, store and/or dispose of Hazardous Material, in addition to that
listed on Exhibit G, required in the normal course of its business as presently
conducted, after giving Landlord prior written notice thereof and supplementing
Exhibit G. In the event that Tenant shall propose to introduce, use, store
and/or dispose of additional Hazardous Material on the Property of such kind or
in such quantities that Tenant would be subjected to reporting obligations under
applicable federal, state or local law or regulation, or in the event that
Tenant shall propose to increase its use, storage and/or disposal of the
materials on Exhibit G such that said reporting obligations would apply thereto,
then Tenant shall be required to obtain the prior written consent of Landlord
for such action. Landlord shall exercise this consent right on a reasonable
basis, taking into account the level of environmental risk posed, the importance
of the material to Tenant's business, and the adequacy of Tenant's environmental
compliance procedures. The provisions of this item 13 shall apply to Tenant but
not any assignee or subtenant of Tenant.
Nothing in this agreement concerning Landlord's agreement to Tenant's use of
Hazardous Materials, or to the notice provisions, shall be construed to shift to
Landlord. or to eliminate, any liability, payment or other responsibility owed
by Tenant in connection with the use, storage and/or disposal of Hazardous
Materials. These provisions have been included solely for the purpose of
providing Landlord with information about the operations of Tenant on the
Property, for the purpose of assuring Landlord that Tenant is taking all
possible care in connection with its use, storage and/or disposal of Hazardous
Materials at the Property and for the purpose of establishing an understanding
regarding the parameters of the necessity of Landlord's prior written consent
under certain conditions. Tenant also acknowledges and agrees that its
responsibility for such payments or liabilities extends to Tenant directly in
the event insurance does not cover these payments or liabilities.
Landlord's Initials Tenants Initials
Date: 4/20/95 Date 4/17/95
<PAGE>
EXHIBIT "A"
SPECIFICATIONS FOR 9174 SKY PARK COURT, SAN DIEGO
L-BUS TENANT IMPROVEMENTS
DESCRIPTION OF ITEMS ON THE DRAWINGS AT EXHIBIT 'B- TO BE COMPLETED AS PART OF
THE TENANT IMPROVEMENTS AT THE ABOVE ADDRESS. THE STATED WORK TO BE PERFORMED IS
BASED UPON PLANS BY ARCHITECTURE ONE. ALL MATERIALS AND WORKMANSHIP SHAWL BE IN
ACCORDANCE WITH THE LATEST UNIFORM BUILDING CODE EDITION. WITH AMENDMENTS AND
ALL APPLICABLE LOCAL STANDARDS. ALL WORK SHALL BE PERFORMED AS PER ACCEPTABLE
INDUSTRY STANDARDS.
01. DEMOLITION:
A. REMOVAL OF ALL WALLS, CEILING GRID. FLOOR COVERINGS, ETC. IN ORDER TO BUILD
SAID PLANS.
B. SAVE FOR POSSIBLE RE-USE: 1. ALL LIGHTING AND CEILING TILES: 2. DOORS. LOCKS
AND FRAMES: 3. HVAC DUCTWORK, THERMOSTATS AND GRILLS; 4. SPEAKERS, FIRE SYSTEM
PARTS AND EQUIPMENT: S. CABINETS (2 SINK COUNTERS, 1 FRONT RECEPTION COUNTER).
C. REMOVAL OF EXISTING UNISEX RESTROOM IN THE WAREHOUSE SPACE. THE REMAINING
FOUR EXISTING MEN'S AND WOMEN'S RESTROOMS TO REMAIN AS IS (TO BE CLEANED AS PART
OF CONSTRUCTION CLEAN-UP).
02. EXISTING AREAS TO BE RETAINED AND PROTECTED FROM DAMAGE DURING CONSTRUCTION:
A. EXISTING FIRE CORRIDOR T0 REMAIN AND BE MODIFIED PER PLANS AND CODE
REQUIREMENTS.
B. EXISTING ELECTRIC ROOMS, ELECTRIC PANELS, PHONE ROOMS AND PHONE PANELS TO
REMAIN FOR POSSIBLE REUSE AS PER PLANS AND CODE.
C. EXISTING STAIRCASES TO REMAIN. MODIFICATION AS PER PLANS AND CODE.
D. NO DEMOLITION OR MODIFICATIONS SHALL BE PROVIDED FOR THE EXTERIOR OF THE
BUILDING, THE SAN DIEGO GAS & ELECTRIC ROOM. THE OUTSIDE GROUNDS OR THE PARKING
LOT AS PART OF THESE TENANT IMPROVEMENTS UNLESS STATED HEREIN OR AS PART OF
ADDITIONAL WORK ELECTED TO 3E PERFORMED AND PAID FOR BY TENANT AS AN OPTION AS
OUTLINED IN ITEM 18.
03. VENTILATION:
A. POWERED EXHAUST FAN(S), THERMOSTATICALLY CONTROLLED. FOR STOCK AREA #76 AND
RECEIVING AREA #75 AS PER PLANS AND CODES.
9. EXHAUST VENTING FOR ROOMS #43 AND #51 (750-1000 CFM).
C. THERMOSTATICALLY CONTROLLED EXHAUST VENTING FOR ROOMS #68 AND #71.
D. FORCED DRAFT VENTILATION FOR UPPER LEVEL RESTROOMS (AIR CHANGE EVERY 5
MINUTES).
E EXISTING ROOF EXHAUST FAN ON UPPER LEVEL TO REMAIN, TO BE THERMOSTATICALLY
CONTROLLED (LOCATION TO BE DETERMINED BY BUILDING OWNER).
<PAGE>
F. HOOK UP OF TENANT'S ESS CHAMBER VENTING (ROOM #70) TO ROOF VENT.
04. AIR CONDITIONING AND HEATING, TO BE INSTALLED IN ACCORDANCE WITH THE LOCAL
HVAC CODE REQUIREMENTS AND S.M.A.C.N.A.:
A. EXISTING HEAT PUMP UNITS TO BE REDUCED AS PER PLANS AND CODES.
B. EXISTING SUPPLY AND RETURN GRILLS TO BE CLEANED AND REPAINTED AS NECESSARY,
THEN REUSED WHERE POSSIBLE ON FIRST LEVEL ONLY.
C. EXISTING THERMOSTATS TO BE RELOCATED WHERE POSSIBLE ON FIRST LEVEL.
D. ROOFTOP GAS HEAT PUMP UNIT(S) FOR NEW OCCUPIED AREAS, THERMOSTATICALLY
CONTROLLED. SYSTEM(S) SHALL BE DESIGNED FOR LOADS AND IN ACCORDANCE WITH ASHRAE
AND TITLE 24 STANDARDS WITH INSULATED SUPPLY AND RETURN DUCT WORK AND ALL
NECESSARY GRILLS AND REGISTERS AS PER PLANS AND CODES.
E. GAS HEAT UNIT(S) FOR RECEIVING AREA #75 AND STOCK AREA #76 AS PER PLANS AND
CODES.
F. GAS HEAT UNIT(S) FOR BURN IN ROOMS #68 AND #71 AS PER PLANS AND CODES.
G. DEDICATED UNIT(S) OR ZONES FOR QA LAB ROOM #36. ENGINEERING LAB ROOM #40.
CAFETERIA #39 AND NETWORK ROOM #21 (ONE SUPPLY DUCT TO ROOM #67 FROM ROOM #21)
AS PER PLANS AND CODES.
H. GAS PIPING TO NEEDED LOCATIONS AS PER PLANS AND CODES.
I. NO SUPPLY OR RETURN DUCTING TO HALLWAYS.
J. NO AIR CONDITIONING TO STOCK AREA #76 OR RECEIVING AREA #75.
K. STANDARD HUMIDITY CONTROL FOR AREAS #72, #73 AND #74.
05. INSULATION:
A R19 INSULATION UNDER THE ROOF FOR STOCK AREA 476 AND RECEIVING AREA #75.
B. R11 INSULATION ABOVE CEILING TILES IN AREAS #73 AND #74.
C. R11 INSULATION FOR NEW AREA SEPARATION WALLS.
D. R11 INSULATION IN NEW WALLS FOR ROOMS #21, t36, 440, #6B, #70 AND #71.
E. R11 INSULATION IN NEW WALLS FOR WINDOW OFFICES. CONFERENCE ROOM, RESTROOMS
AND WALLS SEPARATING
UNOCCUPIED AREA ON THE UPPER LEVEL
F. R19 INSULATION UNDER THE ROOF ABOVE THE UPPER LEVEL OCCUPIED SPACE.
G. R11 INSULATION ABOVE THE CEILING TILES IN ANY OTHER OFFICE AREAS OPEN TO THE
ROOF.
H. INSULATION PLACED AROUND THE DRAIN PIPING WITHIN THE WALLS IN ORDER TO REDUCE
THE NOISE IN CONFERENCE ROOMS #28 AND #104.
06. FIRE SPRINKLERS:
A RE-PIPE UPPER AND LOWER LEVELS AS PER PLANS AND CODE REQUIREMENTS.
B. HONEYWELL PROTECTION SERVICES I HONEYWELL, INC. (OR APPROVED COMPANY) TO TEST
AND MONITOR FIRE SPRINKLING SYSTEM UPON COMPLETION AND ON A REGULAR BASIS (TO BE
PAID FOR BY BUILDING OWNER). THIS DOES NOT INCLUDE TENANT'S SECURITY OR FIRE
SYSTEM(S).
07. SUSPENDED CEILINGS:
A APPROXIMATELY 24,000 SQUARE FEET OF NEW CEILING GRID.
B. ALL NEW TILES IN UPPER FLOOR AREAS (#769 CORTEGA TILES BY ARMSTRONG). REUSE
OF EXISTING CEILING TILES AND
REMAINING NEW TILES ON LOWER LEVEL
C. TEN (10) FOOT CEILING GRID HEIGHT IN AREAS #73 AND 74 AS PER PLANS AND
CODES.
D. AREA #72 TO BE LEFT OPEN TO THE FLOOR ABOVE. CEILING GRID DROP DOWN TO AREA
t73 (TEN (10) FOOT) TO BE MADE AT LOCATION OF THE END OF THE MEZZANINE LEVEL
ABOVE.
<PAGE>
EXHIBIT A
PAGE 2
E. ALL OTHER LOWER LEVEL AREAS TO REMAIN AT EXISTING HEIGHT AS PER PLANS AND
CODES.
F CEILING GRID TO BE AT AN EIGHT(a) FOOT HEIGHT (OR AS CLOSE AS POSSIBLE) ON THE
UPPER LEVEL. BOXING IN ANY
BEAMS OR DRAINS FALLING BELOW THE GRID.
G. CEILING GRID TO BE CONTINUOUS WITH WALLS CONSTRUCTED UNDER THE GRID EXCEPT IN
FIRE CORRIDORS OR AS
PLANS OR CODES DIRECT.
H. LOBBY AREA #66 AND UPPER FLOOR HALLWAYS TO BE AN UPGRADED 2X4 CEILING TILE AS
AGREED UPON BY BOTH PARTIES.
oat WALLS:
A PART OF EXISTING FIRE CORRIDOR TO REMAIN AS PER PLANS AND CITY CODE
REQUIREMENTS.
B. FLOOR TO ROOF WALLS THAT DIVIDE AREAS TO REMAIN AS PER PLANS AND CODES.
C. WALLS AROUND RESTROOMS AND STAIRCASES TO REMAIN AS PER PLANS AND CODES.
D. EXISTING WALLS TO REMAIN SHALL BE PATCHED AND PAINTED AS PER PLANS.
E. WALLS TO BE BUILT UNDER CEILING GRID EXCEPT IN FIRE CORRIDORS, OR AS PLANS
AND CODES DIRECT.
F. WALLS TO BE OF STANDARD BUILDING CONSTRUCTION AS PER PLANS AND CODES.
09. PLUMBING:
A. EXISTING RESTROOM PLUMBING TO REMAIN AS IS.
B. SUPPLY WATER AND WASTE LINES TO BE PIPED TO CAR-TERM ROOM #39. EXISTING SINK
COUNTER TO BE INSTALLED AND CONNECTED WITH A GARBAGE DISPOSAL AS PER PLANS AND
CODES.
C. SUPPLY WATER AND WASTE LINES TO BE PIPED TO BREAK AREA ROOM #109. EXISTING
SINK COUNTER TO BE INSTALLED AND CONNECTED WITH A GARBAGE DISPOSAL AS PER PLANS
AND CODES.
D. SUPPLY WATER AND WASTE LINES TO BE PIPED TO UPPER LEVEL RESTROOMS AS PER
PLANS AND CODES.
E. SUPPLY AND INSTALL IN UPPER LEVEL RESTROOMS: 5 - WATER CLOSETS. 1 - URINAL 2
- - FLOOR DRAINS. 2 - SINKS / COUNTERS (UPGRADED FIXTURES).
F SUPPLY AND INSTALL WATER LINES, WASTE LINES AND DRINKING FOUNTAIN TO ONE
LOCATION ON THE LOWER LEVEL AND TO ONE LOCATION ON THE UPPER LEVEL AS PER PLANS
AND CODES.
G. PLUMBING, PIPING, BACKFLOW PREVENTION, INDUSTRIAL WASTE DEVICES, EQUIPMENT.
KITCHEN APPLIANCES. INSTALLATION AND CONNECTIONS FOR ANY MECHANICAL EQUIPMENT
ARE NOT INCLUDED IN THIS AGREEMENT UNLESS SHOWN ON EXHIBIT 'B' OR SPECIFIED
HEREIN.
10. ELECTRICAL
A. EXISTING ELECTRIC ROOM, SUB PANELS AND SAN DIEGO GAS & ELECTRIC AREAS TO
REMAIN AND BE USED AS PER PLANS
AND CODE REQUIREMENTS.
B. EXISTING ELECTRICAL OUTLETS IN UTILIZED WALLS TO REMAIN AND BE USED AS PER
PLANS AND CODES.
C. SUPPLY AND INSTALL BUILDING STANDARD SWITCHES AS NEEDED AND CONVENIENCE
OUTLETS WITH A MINIMUM OF 3 OUTLETS PER STANDARD SIZE OFFICE AS INDICATED ON
PLANS. SUPPLY AND INSTALL ALL REQUIRED CIRCUITS. WIRING. CONDUIT AND PANELS IN
STRICT ACCORDANCE WITH APPLICABLE CODES AND REGULATORY AGENCIES.
D. WIRING AND HOOK UP TO NEW HEAT PUMPS AND EXHAUST FANS PER PLANS AND CODES.
E. WIRING AND HOOK UP TO EXISTING AND NEW LIGHT FIXTURES AS PER PLANS AND CODES.
F. SUPPLY 110V HOOK UP FOR TENANT'S U.P.S. SYSTEM AS PER PLANS AND CODES.
G. DISCONNECT AND HOOK UP TENANTS 480 TRANSFORMER TO ESS CHAMBER AS PER PLANS
AND CODES.
H. SUPPLY AND HOOK UP ONE (1) -112 KVA- 208 TO 230 TRANSFORMER WITH ONE (1) 200
AMP 3 PHASE 4 WIRE 120VTO 230V PANEL TO SUPPLY POWER TO THE OA LAB #36, BURN IN
ROOM #68. AT&T BURN IN ROOM #71, SHIPPING IN AREA #72, HIPOT TEST & TEST RACKS
IN AREA #73. SUB-ASSEMBLY IN AREA #74, RMA IN AREA # 75.
1. DISCONNECT AND HOOK UP TENANTS AIR COMPRESSOR TO 208V AS PER PLANS AND CODES.
J. SUPPLY 208V HOOK UP TO TENANTS FORKLIFT CHARGERS (THREE (3) MAXIMUM) AS PER
PLANS AND CODES. K. SUPPLY AND INSTALL ONE (1) DUPLEX AT EACH DRINKING FOUNTAIN
LOCATION (2).
L SUPPLY ONE (1 ) DEDICATED 15 AMP CIRCUIT AND ONE (1 ) 20 AMP CIRCUIT WITH
STANDARD OUTLET FOR COPY MACHINES AT LOCATIONS PER PLANS.
M. SUPPLY A MINIMUM OF ONE 1/2- RIGID CONDUIT DROP FOR EACH OFFICE AND EACH AREA
IN LOCATIONS SPECIFIED ON PLANS FOR TELEPHONE AND NETWORK CABLING, NOT TO EXCEED
200 DROPS.
N. ELECTRICAL / TELEPHONE CHASEWAY FOR THE UPPER LEVEL TO BE LOCATED NEAR LOBBY
STAIRWELL NEW ELECTRICAL SUB PANEL TO BE SIZED FOR FUTURE OFFICE OCCUPATION OF
UPPER LEVEL
O. MECHANICAL EQUIPMENT. APPLIANCES, INSTALLATION AND CONNECTIONS FOR ANY
MECHANICAL EQUIPMENT OR APPLIANCES ARE NOT INCLUDED IN THIS AGREEMENT UNLESS
SHOWN ON DRAWINGS OR SPECIFIED HEREIN
P UPON COMPLETION OF CONSTRUCTION, ALL CIRCUIT BREAKERS ARE TO BE LABELED.
a. ADDITIONAL ELECTRICAL SPECIAL HOOK UPS SUPPLIED AS FOLLOWS:
1. NETWORK ROOM #21
7-110V QUAD BOXES MOUNTED 4 FEET OFF THE FLOOR, 7 CIRCUITS, 20 AMP BREAKERS OR
AS PLANS OR CODES REQUIRE
Z. QA LAB #36
20 110V QUAD BOXES MOUNTED 4 FEET OFF THE FLOOR. 20 CIRCUITS, 20 AMP BREAKERS
OR AS PLANS OR CODES REQUIRE.
2 - 230V QUAD BOXES MOUNTED 4 FEET OFF THE FLOOR, 2 CIRCUITS, 20 AMP BREAKERS OR
AS PLANS OR CODES REQUIRE
3. ENGINEERING LAB #40
9 - 110V 1OV QUAD BOXES MOUNTED 4 FEET OFF THE FLOOR, 6 CIRCUITS, 20 AMP
BREAKERS OR AS PLANS OR CODES REQUIRE.
1 - 110V DEDICATED CIRCUIT WITH A DUPLEX BOX MOUNTED 4 FEET OFF THE FLOOR, 1
CIRCUIT, 30 AMP BREAKER OR AS PLANS OR CODES REQUIRE.
4, PRINTER PLOTTER ROOM #51
4 - 110V QUAD BOXES MOUNTED 4 FEET OFF THE FLOOR, 4 CIRCUITS. 15 AMP BREAKERS OR
AS PLANS OR CODES REQUIRE.
POWER AS NEEDED FOR EXHAUST FANS AS PER PLANS AND CODES.
S. PHONE ROOM #67
4 - 110V QUAD BOXES MOUNTED 4 FEET OFF THE FLOOR, 4 CIRCUITS, 15 AMP BREAKERS OR
AS PLANS OR CODES REQUIRE.
<PAGE>
EXHIBIT A PAGE 3
6. BURN IN AT&T ROOM #71
20 - 110V DUPLEX BOXES MOUNTED UNDER CONVEYOR LINE, 20 CIRCUITS, 20 AMP BREAKERS
OR AS PLANS OR CODES REQUIRE.
1 - 230V QUAD BOX 1 CIRCUIT. 40 AMP BREAKER AS PLANS OR CODES REQUIRE.
POWER AS NEEDED FOR EXHAUST FAN AND HEATING AS PER PLANS AND CODES.
7. BURN IN ROOM #68
15 - 11 0V QUAD BOXES MOUNTED 4 FEET OFF THE FLOOR. 15 CIRCUITS, 20 AMP BREAKERS
OR AS PLANS OR CODES REQUIRE
2 - 230V QUAD BOXES MOUNTED 4 FEET OFF THE FLOOR, 2 CIRCUITS, 20 AMP BREAKERS OR
AS PLANS OR CODES REQUIRE POWER AS NEEDED FOR EXHAUST FAN AND HEATING AS PER
PLANS AND CODES.
a. ADDITIONAL 230V CIRCUITS WITH LOCATIONS TO BE DETERMINED ON PLANS
1 - 15 AMP IN SHIPPING AREA #72
2 - 20 AMP IN AREA #73 FOR HIPOT TEST AND TEST RACKS
1 -15 AMP IN SUB-ASSEMBLY AREA #74
1 - 15 AMP IN RMA AREA #75
11. LIGHTING:
A. SUPPLY AND INSTALL LIGHT FIXTURES (UP TO A MAXIMUM OF 435) ON THE UPPER AND
LOWER LEVELS, REUSING EXISTING
LIGHT FIXTURES WHERE POSSIBLE, PER PLANS, CODES AND TITLE 24 REQUIREMENTS.
B. PROVIDE DUAL SWITCHING (A B) WHERE REQUIRED BY CODE,
C. EMERGENCY LIGHTING AS PER PLANS, CODES AND TITLE 24 REQUIREMENTS.
D. NIGHT LIGHTING AS PER PLANS AND CODES.
E. EGG CRATE STYLE LENS FOR LOBBY ENTRY AREA, UPPER LEVEL HALLS AND UPPER LEVEL
WINDOW OFFICES AS PER PLANS AND CODES.
F. LOWER LEVEL FIXTURES TO BE ARRANGED TO PROVIDE ABOVE AVERAGE LIGHTING WITHIN
TITLE 24.
12. INSIDE FENCING:
A. RECEIVING AREA #75 AND STOCK AREA #76 FULL HEIGHT AS POSSIBLE PER PLANS.
B. FENCING IN AREAS #73 AND #74 10 FOOT HEIGHT UNDER CEILING GRID AS PER PLANS.
C. REUSE TENANT'S EXISTING FENCING AS POSSIBLE.
13. WALL COVERINGS:
A. PAINT WALLS WITH 2 COATS FRAZEE FLAT (COLOR TO BE DETERMINED).
B. EXISTING AND NEW RESTROOMS, CAFETERIA #39 AND BREAK ROOM #109 PAINTED WITH 2
COATS OF FRAZEE SEMI-GLOSS
(COLOR TO BE DETERMINED).
C. WALLPAPER - 50 ROLLS AT 540.00 PER ROLL (LOCATIONS TO BE DETERMINED).
14. DOORS AND FRAMES:
A. REUSE EXISTING DOORS AND FRAMES, HARDWARE AND HANDLES ON LOWER LEVEL AS
POSSIBLE PER PLANS AND FIRE CODE REQUIREMENTS.
B. NEW DOORS AND FRAMES ON UPPER LEVEL TO MATCH STYLE OF LOWER LEVEL AS PER
PLANS AND FIRE CODE REQUIREMENTS.
C. NEW SCHLAGE LEVER 'D' DOOR HANDLES TO MATCH EXISTING PER PLANS AND ADA
REQUIREMENTS.
D. 2-FIRE HOLD OPEN DOORS WITH 6'0- X 8' 0" FRAMES OR AS PLANS OR FIRE CODES
REQUIRE TO BE USED AS PASSAGE THROUGH FIRE CORRIDOR BETWEEN AREAS #73 AND #74.
E. RELOCATE THE ONE DOUBLE ENTRY DOORS TO STAIRCASE ENTRY AS PER PLANS AND
CODES.
15. FLOOR COVERINGS:
A. FURNISH AND INSTALL ATLAS BROOKSTONE OR EQUIVALENT GLUE DOWN, APPROXIMATELY
1,800 SQUARE YARDS AT APPROXIMATELY 518.00 PER YARD.
B. FURNISH AND INSTALL ARMSTRONG VCT TILES IN CAFETERIA #39, BREAK ROOM #109,
AREAS #72, #73 AND #74, APPROXIMATELY 10.000 SQUARE FEET AT $1.00 PER SQUARE
FOOT.
C. FURNISH AND INSTALL 4 INCH VINYL BASE. APPROXIMATELY 4500 LINEAR FEET.
D. FURNISH AND INSTALL CERAMIC TILE UPGRADE TO UPPER LEVEL RESTROOM WITH
APPROXIMATELY 342 SQUARE FEET OF FLOORING AND APPROXIMATELY 420 SQUARE FEET OF
WAINSCOT WALLS AT APPROXIMATELY S18.00 PER SQUARE FOOT.
E. PREPARE, CLEAN AND CLEAR SEAL AREAS #75 AND #76 NOT TO EXCEED S0.55 PER
SQUARE FOOT.
F. CARPET THE NETWORK ROOM #21, OA LAB #36 AND ENGINEERING LAB #40 WITH AN ESD
MATERIAL AS PER PLANS NOT TO EXCEED $4.00 PER SQUARE FOOT INSTALL ED.
16. AIR COMPRESSOR:
A. DISCONNECT AND HOOK UP TENANT'S AIR COMPRESSOR AS PER PLANS AND CODE.
B. HANG APPROXIMATELY 450 LINEAR FEET OF 3/4 INCH GALVANIZED PIPE ABOVE THE
CEILING GRID.
C. 20 - CAPPED TEE LOCATIONS TO BE DETERMINED BY TENANT FOR 1/2 INCH OR LESS
DROPS AND FUTURE USE.
D. 10 - DROPS WIRE 1/2 INCH OR LESS LINES WITH A SHUT OFF VALVE AND 1 QUICK
DISCONNECT FITTING AT EACH LOCATION.
E. 2 - DIRECT HOOK UPS TO ESS CHAMBER ROOM #70 AND AT&T ASSEMBLY LINE IN AREA
#73 AS PER PLANS AND CODES.
17. MISCELLANEOUS ITEMS:
A. FURNISH AND INSTALL 1 10' X 10' ROLLING STEEL OVERHEAD DOOR, CHAIN OPERATION,
TO MATCH EXISTING AT AREA #72 LOADING DOCK LOCATION (REMOVAL OF GLASS AND
FRAMING).
B. FURNISH AND INSTALL 32 BLINDS FOR THE WINDOWS ON THE UPPER LEVEL WITH AN
ALLOWANCE OF S3,000.00.
C. MODIFY EXISTING ENTRY COUNTER FOR NEW ENTRY AREA LOBBY #66.
D. SUPPLY AND INSTALL 2X4 METAL FRAMED WALL WITH 1/2 INCH PLYWOOD ON THE OUTSIDE
AND DRYWALL ON THE INSIDE TO BE INSTALLED IN FRONT OF AND INSIDE OF ALL WINDOWS
IN THE RECEIVING AREA #75 AND STOCK AREA #76.
E. MODIFY EXISTING STAIRCASE BY REMOVING TWO LOWER STAIRS IN FRONT OF THE ENTRY
DOORS TO MAKE A LARGER ENTRY HALL BUILD MATCHING HALL WALL IN REMOVED STAIR
LOCATION.
F. SUPPLY AIR QUALITY TEST UPON COMPLETION OF CONSTRUCTION.
H. FRAMING SUPPORT ON TOP OF THE ROOF FOR ESS CHAMBER CONDENSER UNIT (CONSISTING
OF 2 - 6X5 BEAMS. IF CODE REQUIRES ADDITIONAL SUPPORT. TENANT TO PAY FOR
ADDITIONAL COST.
1. ONE MIRROR (MINIMUM) TO BE INSTALLED IN EACH UPPER LEVEL RESTROOM WITH
MINIMUM FOUR (4) FOOT WIDTH.
J. SUPPLY AND INSTALL 1 - 4'X 9' 1/2' PLYWOOD BACKBOARD IN ROOM #21 FOR PHONE
EQUIPMENT.
<PAGE>
EXHIBIT A
PAGE 4
K. UPON COMPLETION OF CONSTRUCTION, CLEAN UP AND WAX WITH A STANDARD COMMERCIAL
JANITORIAL FLOORWAX
ROOMS #39 & #109 AND AREAS #72, #73 & #74.
L PROVIDE ALL SIGNS, RAMPS AND STRIPPING FOR DISABLED PARKING AND BUILDING
ACCESS.
M. OWNER TO PROVIDE ANY SCRAP CARPETING MATERIAL AND 80 TO 100 SQUARE FEET OF
VCT TILE FOR FUTURE MAINTENANCE
18. OPTIONS (SUPPLIED UPON SIGNED CHANGE ORDER FOR ADDITIONAL COSTS AND TIME):
A STEELCASE FURNITURE FOR OPEN SPACE.
B ANY OVERTIME PAY FOR COMPLETION EARLIER THAN STATED WITHIN THE LEASE. ANY
OVERTIME PAY TO COMPLETE ADDITIONAL WORK NOT INCLUDED HEREIN.
C. CONCRETE RU ED REMOVABLE POSTS.
D. MEN'S AND WOMEN'S SHOWERS.
E. PLANTERS.
F. ANY UPGRADES OTHER THAN THOSE STATED HEREIN.
G. SECURITY SYSTEM FOR TENANT S USE.
H. ANY SEPARATE FIRE SYSTEM IN ADDITION TO EXISTING.
I. SIGNAGE.
J. TELEPHONES AND SYSTEMS.
K NETWORK AND SYSTEMS.
L MOVING OF TENANT'S EQUIPMENT OR FURNITURE.
M. MOVING OF TENANT'S ESS CHAMBER OR CONDENSER.
N. INSTALL AN ELEVATED PLATFORM ON THE ROOF TO SUPPORT THE ESS CHAMBER CONDENSER
UNIT TO MATCH EXISTING AIR CONDITIONING UNITS.
O. PROVIDE ELECTRICAL OUTLET OR SERVICE FOR I-BUS SIGN ABOVE ROOM #28.
<PAGE>
EXHIBIT "E"
BUILDING RULES AND REGULATIONS
SKY PARK CENTRE
1. Tenant shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Landlord reserves the right to refuse access to any persons Landlord in good
faith judges to be a threat to the safety, reputation or property of the Project
and its occupants.
3. Subject to Section 1.06 of the lease (the use clause), Tenant shall not make
or permit any unreasonable noise or odors that annoy or interfere with other
tenants or persons having business within the Project.
4. Tenant shall not keep animals or birds within the Project, and shall not
bring bicycles, motorcycles or other vehicles into areas not designated as
authorized for same.
5. Tenant shall not make, suffer or permit litter except in appropriate
receptacles for the purpose.
6. Tenant shall be responsible for the inappropriate use of any toilet rooms,
plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
7. Tenant shall not deface the walls, partitions or other surfaces of the
premises or Project.
8. Tenant shall not suffer or permit anything in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Project.
9. Tenant shall not employ any service or contractor for construction services
or work to be performed to the Premises, except as approved by Landlord.
10. Tenant shall return all keys at the termination of its tenancy and shall be
responsible for the cost of replacing any keys that are lost.
11. Tenant shall be responsible for securely locking any doors that it may have
opened for entry,.
12. No exterior window coverings, shades or awnings shall be installed by
Tenant.
13. No Tenant, employee or invitee shall go upon the roof of the Premises.
14. Tenant shall not suffer or permit smoking or carrying of lighted cigars or
cigarettes in areas reasonably designated by Landlord or by applicable
governmental agencies as non-smoking areas.
15. Tenant shall not use any method of heating or air conditioning other than as
provided by Landlord.
16. The Premises shall not be used for lodging.
17. Tenant shall comply with all safety, fire protection and evacuation
regulations established by Landlord or any applicable governmental agency.
18. Landlord reserves the right to waive any one of these rules and regulations
and/or as to any particular tenant, and any such waiver shall not constitute a
waiver of any other rule or regulation or any subsequent application thereof to
such tenant.
19. Tenant assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
<PAGE>
20. Landlord reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary, for the appropriate
operation and safety of the Project and its occupants. Tenant agrees to abide by
those and such rules and regulations.
PARKING RULES
1. Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenants employees, suppliers, shippers, customers or
invitees to be loaded, unloaded or parked in areas other than those designated
by Landlord for such activities.
2. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
3. Unless otherwise instructed, every, person using the parking area is required
to park and lock their own vehicle. Landlord will not be responsible for any
damage to vehicles, injuries, to persons or loss of property, all of which risks
are assumed by the party using the parking area.
4. The maintenance, washing, waxing or cleaning of vehicles in the parking area
is prohibited.
5. Tenant shall be responsible for seeing that all of its employees, agents and
invitees comply with the applicable parking rules, regulations, laws and
agreements.
6. Landlord reserves the right to modify these rules and/or adopt such other
reasonable and nondiscriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area.
7. Such parking use as is herein provided is intended merely as a license only
and no bailment is intended or shall be created hereby.
2
<PAGE>
EXHIBIT F
WORK LETTER AGREEMENT
Landlord and Tenant are executing, simultaneously with this Work Letter
Agreement, an
Industrial Real Estate Lease ("Lease") covering certain premises in a building
located at 9174 Sky Park Court, San Diego, CA ("Premises"). This Work Letter
Agreement is a part of the lease and shall be subject to all of its terms and
conditions, including all definitions contained in the Lease and shall apply to
all expansion space becoming a part of the Premises by Tenant's exercise of
expansion options under the Lease.
1. REPRESENTATIVES:
Landlord appoints Landlord's Representative to act for Landlord and Tenant
appoints Tenant's Representative to act for Tenant in all makers covered by this
Work Letter Agreement. All inquires, requests, instructions, authorizations and
other communications with respect to the makers covered by this Work Letter
Agreement will be made to Landlord's Representative or Tenant's Representative,
as the case may be. Either party may change its respective Representative under
this Work Letter Agreement at any time with prior written notice to the other
party.
Tenant's Representative: John Selby, Maxwell Labs
Tenant Contact: Dick Dysktra, Maxwell Labs
Landlord's Representative: David Kirchner, Cody Three
Landlord's Contact: Jay Sheppard, Pomona Management Group
Landlord's Architect: Robert Laird, Architecture One
2. TENANT IMPROVEMENTS
2.1 Plans & Specifications: The Tenant Improvements shall be constructed
------------------------
pursuant to plans and specifications prepared in accordance with Paragraph 3.1
of this Work Letter Agreement by Landlord's Architect("Architect"). The scope of
the work to be included in the plans and specifications will be consistent with
the space plans that are attached to the Lease as Exhibits "B" and "C" and the
specifications that are attached to the Lease as Exhibit "A".
Landlord shall furnish, through the Architect, at its sole cost and expense,
complete plans and specifications required for the construction and installation
of the Tenant Improvements . Such plans shall include, but not be limited to,
partition layout, reflective ceiling plans, electrical outlets, switches and
telephone outlets and locations. Architect will furnish plans to the Landlord's
mechanical, electrical and plumbing engineers ("Engineers"), if applicable, to
enable the Engineers to complete design build drawings which will, when
incorporated with the other plans provided by Architect (in total, "the
Construction Documents"), enable the selected general contractor to secure the
permits necessary for the construction of the Tenant Improvements. All fees
incurred by the Landlord in the preparation of working and permit drawings of
the agreed plans and specifications contained in Exhibits "A", "B" and "C" shall
be the sole expense of Landlord. All costs of any subsequent plan changes
initiated by Tenant ("Additional Work") shall be the sole expense of Tenant.
Upon delivery of plans and specifications, Tenant may provide a list of
potential contractors and subcontractors to be included in the bidding process.
Landlord shall not be bound to use any contractor or subcontractor so described.
2.2 Cost of Tenant Improvement Work: Landlord shall pay all costs associated
---------------------------------
with the design, construction and installation of the Tenant Improvements,
including, but not limited to, costs of preparation of Construction Documents,
all costs of construction labor and materials under the construction contract
with the selected general contractor, fees for permits and licenses paid by the
general contractor to governmental agencies in connection with the Tenant
Improvements, costs of any necessary structural engineering
<PAGE>
EXHIBIT F
Page -2
2.3 Tenant Improvement Construction: Landlord shall cause the Tenant
---------------------------------
Improvements to be constructed by a qualified general contractor selected by
Landlord at Landlord's sole expense. The selected general contractor shall
provide a one (1 ) year warranty for all materials and workmanship on the
Premises.
Construction shall commence as soon as possible following the selection of the
general contractor and the obtaining of the required building permits. Landlord
shall be responsible for overseeing the contractor and assuring that the Tenant
Improvements are constructed in accordance with the permitted Construction
Documents.
All Tenant Improvements and the equipment and materials incorporated into the
Tenant Improvements shall materially comply with the Construction Documents and
shall be constructed in a good and workmanlike manner, free from all material
defect in design, materials and workmanship. in compliance with all governmental
and quasi-governmental rules, regulations, laws and building codes.
3. SCHEDULE OF TENANT IMPROVEMENT ACTIVITIES
3.1 Construction Document Preparation: As soon as practicable following lease
-----------------------------------
execution, Architect together with the Engineers will prepare and deliver to
Landlord and Tenant one reproducible copy of the Construction Documents for the
Premises apiece.
3.2 Tenant Comments: Upon receipt of the Construction Documents, Tenant shall
-----------------
review for errors and omissions from the plans and specifications as detailed in
Exhibits "A", "B" and/or "C" of the Lease and forward all comments to Landlord
within five (5) business days of receipt. Failure to notify Landlord of any
comments within the proscribed period shall be deemed approval of such plans.
Landlord and Architect will then have five (5) business days to address and/or
correct any deficiencies and deliver one corrected reproducible copy of the
Construction Documents to Tenant.
3.3 As-Built Documentation: Landlord shall furnish to Tenant, at Landlord's
------------------------
expense, one set of reproducible "as built" plans for ail completed Tenant
Improvements and Additional Work within thirty (30) days after Lease
Commencement.
3.4 Completion and Punch List: Landlord shall be responsible for the
---------------------------
construction of the Tenant Improvements in accordance with the Construction
Documents. Upon Substantial Completion, as defined in Section 6 below, of the
Tenant Improvements, Landlord shall, upon not less than three (3) days' prior
notice, provide Tenant an opportunity to inspect the Premises and the Tenant
Improvements and Additional Work. Tenant will, within three (3) days following
such inspection, develop a "punch list" identifying all corrective work
discovered during such inspection. Such corrective work shall be limited to
those items specified in the Construction Documents or duly authorized Change
Orders. Within ten (10) days after receipt of said punch list, Landlord shall
undertake to correct all punch list items to the reasonable satisfaction of
Tenant. If Landlord fails to take corrective action within such ten (10) day
period, Tenant shall have the right to complete such work and deduct the cost
from the first rent to become due under the Lease.
Within thirty (30) days after Lease Commencement, Tenant can provide to Landlord
a list of latent defects in the Tenant Improvements and Additional Work not
reasonably discoverable during the punch list inspection.
4. TENANT WORK:
All finish work and other work desired by Tenant and not included within the
scope of the Tenant Improvements as set forth in the Construction Documents or
in the Additional Work authorized by a duly executed Change Order, including,
but not limited to, computer systems, telephone systems, telecommunications
systems and other items (the "Tenant Work") shall be furnished installed and
paid for by Tenant. A delay in the installation of any Tenant Work will not
result in any extension of the Lease Commencement Date. Commencement of any
Tenant Work by Tenant shall not constitute acceptance by Tenant of any work by
Landlord or Contractor or a waiver of any rights Tenant may have against
Landlord, Contractor or others with respect to the Tenant Improvements or
Additional Work.
<PAGE>
EXHIBIT F
Page -3
4.1 Access and Entry At a time designated by Landlord and Contractor, Landlord
-----------------
agrees to provide reasonable access to the Premises to Tenant and its agents for
the purpose of installing and completing Tenant's cabling related to Tenant's
telephone and telecommunications systems. so long as such access does not
interfere with the conduct of Landlord's construction or affect Landlord's
ability to bring the Premises to Substantial Completion. All other Tenant Work
shall occur during the thirty (30) day period provided to Tenant for
fixturization.
With respect to the Tenant Work, Tenant shall adopt a schedule in conformance
with the schedule of Landlord's Contractor and conduct its work in such a manner
as to maintain harmonious labor relations so as not to interfere with or delay
the work of Landlord's Contractor. Landlord will endeavor to provide Tenant. at
no cost, space in or about the Premises, if available, for the storage and
staging of Tenant's materials. provided that such storage and staging does not
interfere with or delay the work of Landlord's Contractor.
Tenant shall be responsible for providing all insurance and for providing any
necessary security and shall use said space at its sole risk. Tenant agrees to
hold Landlord harmless and indemnify Landlord from and against any and all loss,
liability or cost arising out of or in connection with the use of this storage
space by Tenant. Tenant shall be obligated to remove any of the stored materials
from the storage space prior to the Lease Commencement Date and shall be
responsible to repair any damage or clean up any debris resulting from Tenant's
use of the space.
4.2 Risk of Loss: All materials, work, installations and decorations of any
--------------
nature brought upon or installed in the Premises before Lease Commencement Date
shall be at the risk of the party who brought such materials or items onto the
Premises. Notwithstanding the foregoing, any damage to the Tenant Improvements
and/or the Additional Work caused by Tenant or any party acting on Tenant's
behalf during the thirty (30) day fixturization period shall be at the risk of
Tenant.
Neither Landlord nor any party acting on Landlord's behalf shall be responsible
for any damage or loss or destruction of such items brought to or installed in
the Premises by Tenant prior to Lease Commencement Date, except in the event of
gross negligence or willful misconduct of Landlord, Contractor, or any employee,
agent, subcontractor or other party acting on behalf of Landlord or Contractor.
5. CHANGE ORDERS
Tenant may authorize Additional Work during construction only by written
instructions from Tenant's Representative to Landlord's Representative on a form
to be designated by Landlord ("Request for Information Form"). Within a
reasonable period after receipt of a Request for Information, Landlord will
direct Contractor to prepare and deliver, for Tenant's approval, a not-to exceed
cost estimate setting forth the total cost of such proposed change and the
revised estimated completion date (if such Additional Work will alter the
estimated date for Substantial Completion of Tenant Improvements). Such requests
shall be reasonable in number and nature so as not to interfere with or delay
the work of Landlord's Contractor. Tenant shall assume responsibility for any
Architect's or Engineers' fees related to such a Request for Information, if
their services are needed.
If Tenant's Representative approves such Additional Work in writing, Landlord
will provide a Final Change Order to Tenant for the Additional Work covered by
the Request for Information, provided such work is consistent with the overall
Tenant Improvements and is in compliance with all governmental or quasi-
governmental rules, regulations, laws or building codes. Tenant's Representative
shall sign and date the Final Change Order before Landlord will commence such
Additional Work. If Tenant's Representative fails to approve such Additional
Work in writing within a reasonable time after delivery of the cost estimate,
Tenant will be deemed to have withdrawn the proposed Request for Information and
Landlord will not proceed to perform the Additional Work.
Tenant will pay to Landlord, within thirty (30) days of the Lease Commencement
Date, the total cost of work associated with such Tenant approved Additional
Work.
<PAGE>
EXHIBIT F
Page 4
6. SUBSTANTIAL COMPLETION AND LEASE COMMENCEMENT DATE
Substantial Completion or substantially complete shall mean that the Premises
have been approved for occupancy by the City of San Diego Building Inspection
Department and completion of construction of the Tenant Improvements in
accordance with the Construction Documents, with the exception of minor details
of construction, installation, decoration or mechanical adjustments commonly
found on an architectural punch list, none of which materially interfere with
Tenant's use or occupancy of the Premises. Substantial Completion of the Tenant
Improvements shall be deemed to have occurred notwithstanding the requirement to
complete the punch list items or similar corrective work. Landlord agrees that
Tenant's obligation for the payment of rent under the Lease and the Lease
Commencement Date shall not occur until Landlord has substantially completed the
Tenant Improvements and the Premises are suitable for occupancy and delivery in
accordance with Article 17 as described in the First Lease Rider.
Notwithstanding the foregoing, Tenant agrees that if Landlord shall be delayed
in causing such work to be substantially completed as a result of any of the
events below as a ''Tenant Delay", such delay shall be the responsibility of
Tenant and will result in the Lease Commencement Date being the earlier of
either
(i) thirty (30) days after the date of Substantial Completion, or
(ii) thirty (30) days after the date when Substantial Completion would have
occurred if there had been no
Tenant Delay.
The aforementioned thirty (30) days provided to Tenant for fixturization.
For the purposes of this Work Letter Agreement, a Tenant Delay is defined as
follows:
(a) Tenant's failure to furnish any documents or approve any item or cost
estimates as required herein; or
(b) Tenant's request for material, finishes or installations which are not
available on a commercially practicable basis, but only if Landlord has notified
Tenant of such unavailability and Tenant has not approved substitute material
within a reasonable time period; or
(c) Tenant's changes to the Construction Documents; or
(d) Tenant's interference with Landlord's Contractor in such a manner as to
delay the work of Landlord's Contractor, or
(e) Tenant's failure to perform any act or obligation imposed on Tenant by the
Lease or this Work Letter Agreement as and when required, provided, however,
that any of the matters described in subparagraphs (a) through (e), inclusive,
actually cause a delay in completion of construction and Landlord provided
notice to Tenant of such fact and the resulting delay at the time such matters
occurred.
7. MISCELLANEOUS
In the event of any conflict between the terms of this Work Letter Agreement and
the Lease, the terms of this Work Letter Agreement shall control.
Landlord shall indemnify, defend and hold Tenant harmless from and against any
loss or damage which Tenant may incur as the result of any mechanics' liens,
resulting from the Tenant Improvements or Additional Work, attaching to or
encumbering Tenant's leasehold estate under this Lease.
Tenant shall indemnify, defend and hold Landlord harmless from and against any
loss or damage which Landlord may incur as the result of any mechanics' liens,
resulting from the Tenant Work, attaching to or encumbering Landlord's tingle in
the Premises under this Lease.
<PAGE>
EXHIBIT F-1
Estimated Schedule of Construction
The following timetable is an estimate of the time necessary to complete
construction of the Tenant Improvements as defined in Exhibits A and B. These
estimates are subject to change due to the provisions of Exhibit F as well as
circumstances beyond the control of Tenant and Landlord (including but not
limited to strikes, acts of God, national emergencies, collectively known as
force majeur). The estimated schedule is as follows from date of lease execution
by both parties:
Electrical Engineering Mechanical Engineering, & Final
Architectural: 4 weeks
Contractor Bidding & Plan Check: 2 weeks
Plan Check Revision: 2 weeks
Construction: 10 weeks
Punch List Corrections: 1 week
Contingency: 1 week
Substantial Completion: Total of Above
Occupancy: Upon Substantial Completion
<PAGE>
EXHIBIT "G "
TENANT'S USE OF HAZARDOUS MATERIALS
HAZARDOUS MATERIALS ON PREMISES
Alcohol based solvent Fluxoff, MFG. Chemtronics USAGE: 2 gallons per year
Water based oil residue, caused by draining air compressor., USAGE: 15 gallons
per year.
EXHIBIT "B" - Drawing of Layout for Ground Floor
EXHIBIT "B" - Drawing of Layout for Mezzanine Area
EXHIBIT "C" - Drawing of Layout for Expansion Area - Mezzanine
EXHIBIT "D" - Drawing of Layout for Sky Park Centre
<PAGE>
EXHIBIT 10.18
PONDEROSA PINES--BUSINESS PARK
LEASE AGREEMENT
---------------
THIS LEASE is executed at San Diego, California, on October 12 , 1994 by and
between MADISON SQUARE PARTNERSHIP, a general partnership (the "Lessor") and,
FOODCO CORPORATION a Delaware corporation (the "Lessee").
1. DESCRIPTION OF PREMISES AND IMPROVEMENTS
1.1 Lessor hereby leases to Lessee and Lessee hereby hires from
Lessor, pursuant to the terms and conditions set forth herein, those certain
premises described and outlined in green on the site plan attached hereto
designated Exhibit "A", consisting of a portion of one building, and certain
improvements to be constructed therein, located at 4241 Ponderosa Avenue, San
Diego, California (the Premises"), together with areas, including landscaped
areas, for use in common with others for parking, access and egress. The
Premises contain in the aggregate approximately 19,674 square feet (the "gross
floor area") and are situated with other buildings on certain real property
described as follows: Portion of Lot 22 City of San Diego Industrial Park No. 4
of Map No. 5714 as such portion is indicated as a legal lot division by division
plot No. 323, Parcel No. 369-170-20. The Premises is part of a group of
buildings which together form what is commonly known as Ponderosa Pines Business
Park. Said group of buildings and all contiguous real property, as outlined in
red on Exhibit A, is hereinafter referred to as the "Business Park". The
aforementioned areas to be used by Lessee in common with others (except as
indicated in Section 4.6) as an incident to Lessee's leasing of the Premises
shall consist of the common areas of the Business Park, as defined in Section
12.1.
1.2 The Premises shall be accepted in "AS IS" condition.
1.3 The cost of any Improvements, including design, permits,
construction and other reasonable expenses related thereto shall be paid by the
Lessee.
2. TERM
----
2.1 The term of this Lease shall be for sixty (60) months, commencing
on the "Commencement Date," which is hereby defined as November 20, 1994. The
period beginning on the Commencement Date and ending sixty (60) months
thereafter is hereby defined as the "Original Term".
2.2 Lessee is hereby granted and shall have two options, exercisable
separately, to extend the term of this Lease for an additional period of five
(5) years (i.e, a total of ten (10) years), each on the same terms and
conditions of this Lease except that the base monthly rental for the first
option period shall be adjusted as provided in Section 3.2. The base monthly
rent for the first year of the second option period shall be adjusted, upwards
only, to market; and such monthly rent adjusted to market shall become the new
Base Monthly Rental for purposes of inflation adjustment, provided in Section
3.2, thereafter, the rent shall be adjusted annually as provided in Section 3.2.
Each option shall be exercised only by Lessee delivering to Lessor in person or
by United States mail within one hundred twenty (120) days before expiration of
the Original Term or the extended term, as the case may be, its written notice
to extend the term thereof.
<PAGE>
3. RENT
----
3.1 Lessee shall pay to Lessor at the address set forth at the end of
this Lease, or such other address as Lessor may advise Lessee in writing,
without deduction, offset, prior notice or demand, as monthly rent for the
Premises the amount indicated in the table immediately below:
During the first 12 months following the Commencement Date $9,837.00 per month
------
NNN.
During the second 12 months following the Commencement Date $10,722.00 per month
-------
NNN.
During the third 12 months following the Commencement Date $11,608.00 per month
------
NNN.
During the forth 12 months following the Commencement Date $12,493.00 per month
------
NNN.
During the fifth 12 months following the Commencement Date $13.378.00 per month
------
NNN.
Such payments shall be made in lawful money of the United States payable in
advance on the first day of each month of the term of this Lease.
3.2 During the Original Term there shall be no adjustments of the
monthly rent, other than as provided in Section 3.1. For the first 12 month
period of the first renewal period, and for each 12 month period thereafter, the
monthly rental shall be the monthly rent applicable during the last 12 month
period of the Original Term ("Base Monthly Rental"), adjusted for inflation as
set forth below:
3.2.1 The adjustments, if any, shall be based upon any increase that
may have occurred in the Bureau of Labor Statistics Consumer Price Index, for
all Urban Consumers for all items based on the period 1982 - 1984 = 100 (the
"Index") as published by the United States Department of Labor. The adjustments
shall be computed by multiplying the Base Monthly Rental payable during the
twelve-month period to be adjusted by a factor equal to the percentage increase
in the Index between the "Base Month" (defined as the first month of the term of
any renewal period hereof) and the Index last published preceding the date of
adjustment. Lessor shall give written notice to Lessee indicating the amount of
the adjustment and manner of computation as soon as the information becomes
available to Lessor. Delay in notification of the amount of adjustment shall not
affect Lessee's obligation to pay the monthly rent or the amount of any increase
immediately upon receipt of notification of same.
3.2.2 In no event shall the monthly rent for a subsequent twelve-month
period be reduced below the monthly rent for the twelve-month period immediately
preceding the date of adjustment.
3.2.3 In the event that the Index does not exist in the same format
described in Paragraph 3.2.1, the parties shall substitute any official index
published by the Bureau of Labor Statistics, or successor or similar
governmental agency, as may then be in existence and shall be not nearly
equivalent thereto. If the parties are unable to agree upon a substitute index,
the parties shall refer to the choice of successor index to binding arbitration
in accordance with the rules of the American Arbitration Association.
3.3 Any amount due to Lessor that is not paid when due shall bear
interest at ten percent (10%) per annum from the date due. Payment of interest
shall not excuse or cure any default by Lessee under this Lease. In addition,
Lessee hereby acknowledges
2
<PAGE>
that late payment by Lessee to Lessor of rent and other sums due hereunder will
cause Lessor to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are not
limited to, processing and accounting charges, and late charges which may be
imposed on Lessor by the terms of any mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10) days
after such amount shall be due, Lessee shall pay to Lessor a late charge equal
to five percent (5%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's default with respect to
such overdue amount, nor prevent Lessor from exercising any of the other rights
and remedies granted hereunder.
3.4 Upon execution of this Lease, Lessee shall deposit with Lessor
$7,500.00 as a security deposit for the performance by Lessee of the provisions
of this Lease, the receipt of which is acknowledged by Lessor. If Lessee is in
default, as defined in Section 16 hereof, Lessor can use the security deposit,
or any portion of it, to cure the default or to compensate Lessor for all
damages sustained by Lessor resulting from Lessee's default. Lessee shall
immediately on demand pay to Lessor a sum equal to the portion of the security
deposit expended or applied by Lessor as provided in this paragraph so as to
maintain the security deposit in the sum initially deposited with Lessor. At the
expiration or termination of this Lease, Lessor shall return the security
deposit to Lessee, less any amount necessary to cure any default. Lessor's
obligations with respect to the security deposit are those of a debtor and not a
trustee. Lessor can maintain the security deposit separate and apart from
Lessor's general fund or can commingle the security deposit with Lessor's
general and other funds. Lessor shall not be required to pay Lessee interest on
the security deposit.
4. USE
---
4.1 The Premises shall be used and occupied by Lessee for the
following purposes and for no other purpose, without first obtaining the written
consent of Lessor: general office, research and development, manufacturing and
assembly of Lessee's products and related purposes.
4.2 Lessee, at Lessee's expense, shall promptly comply with all laws,
ordinances, zoning restriction, rules, regulations, orders and requirements of
any duly constituted public authorities now or hereafter affecting the use,
safety, cleanliness or occupation of the Premises.
4.3 Lessee shall not allow supplies, materials or other objects to be
stored or remain outside the exterior of the Premises.
4.4 Lessee shall not permit any use to be made or act to be done in or
about the Premises which would increase the existing rate of insurance upon the
Premises or cause the cancellation of any insurance policy covering the
Premises. In the event that Lessee's use increases said rate or causes the
cancellation of a policy of insurance, Lessee shall be liable for, as additional
rent, the additional cost of insurance.
4.5 Lessee shall comply with all rules and regulations (the "Rules and
Regulations") from time to time reasonably adopted by Lessor which are uniformly
applied to all lessees of the Business Park. Lessor shall not be liable for the
failure of any person to comply with the Rules and Regulations, but agrees to
take reasonable steps to enforce such Rules and Regulations on a uniform,
nondiscriminatory basis.
4.6 Lessee understands that the Business Park has available for use
approximately three and three-tenths (3.3) parking spaces per one thousand
(1,000) square feet of building area. Lessee shall not overburden the parking in
the business Park by exceeding its pro rata share of parking in the Business
Park. Lessee shall be entitled to designate the 4 spaces marked with an "X" on
Exhibit "A" for Lessee's exclusive use in accordance with regulations adopted by
Lessor.
3
<PAGE>
5. ALTERATIONS AND ADDITIONS
-------------------------
5.1 Lessee shall not, without Lessor's prior written consent (which
shall not be unreasonably withheld), make any alterations, additions,
improvements or utility installations in, on or about the Premises, except for
non-structural alterations not exceeding twenty thousand dollars ($20,000.00) in
cost in the case of each such alteration. As used in this section, the term
"utility installations" shall include ducting, power panels, fluorescent
fixtures, space heaters, conduit and wiring. As a condition to giving such
consent, Lessor may require that (a) Lessee agree to remove any such
alterations, additions, improvements or utility installations at the expiration
of the term and to restore the Premises to their prior condition; and/or (b)
Lessee provide Lessor at Lessee's sole cost and expense a payment and completion
bond in an amount equal to one and one-half (1-1/2) times the estimated cost of
such improvements, to insure Lessor against any liability for mechanics' and
materialmens' liens and to insure completion of the work.
5.2 Unless Lessor requires the removal pursuant hereto, all
alterations, additions, improvements and utility installations on the Premises
(whether or not such utility installations constitute trade fixtures of Lessee)
shall at the expiration or earlier termination of the Lease become the property
of Lessor and remain upon and be surrendered with the Premises. Notwithstanding
the foregoing, personal property, business and trade fixtures, cabinetwork,
furniture, moveable partitions, machinery and equipment shall remain the
property of Lessee and may be removed by Lessee at any time during the term of
this Lease when Lessee is not in default, provided that any damage which may be
caused by any removals by Lessee which are permitted hereunder shall be promptly
repaired by Lessee at Lessee's expense. Lessee shall not be required to restore
the Premises to their condition existing prior to the effectuation of the
Improvements.
6. LIENS
-----
6.1 Lessee shall keep the Premises and any building of which the
Premises are a part free from any liens arising out of work performed, materials
furnished, or obligations incurred by Lessee and shall indemnify, hold harmless
and defend Lessor from any liens and encumbrances arising out of any work
performed or materials furnished by or at the direction of Lessee. In the event
that Lessee shall not, within twenty (20) days following the imposition of any
such lien, cause such lien to be released of record by payment or posting of a
proper bond, Lessor shall have, in addition to all other remedies provided
herein and by law, the right, but not obligation, to cause the same to be
released by such means as it shall deem proper, including payment of the claim
giving rise to such lien. All such sums paid by Lessor and all expenses incurred
by it in connection therewith including attorney's fees and costs shall be
payable to Lessor by Lessee on demand with interest at the rate of ten percent
(10%) per annum.
6.2 Lessor shall have the right at all times to post and keep posted
on the Premises any notices permitted or required by law, or which Lessor shall
deem proper, for the protection of
4
<PAGE>
Lessor and the Premises, and any other party having an interests therein from
mechanics' and materialmens' lien, and Lessee shall give to Lessor at least ten
(10) business days prior written notice of the expected date of commencement of
any work relating to alterations or additions to the Premises.
7. UTILITIES AND SERVICES
----------------------
7.1 Lessee shall pay for all water, gas, heat, light, power, telephone
service, sewage, air conditioning, and any other service or utility provided to
the Premises.
7.2 Except as a result of Lessor's negligence, Lessor shall not be
liable for any failure or interruption of any utilities or services being
furnished to the Premises.
8. INDEMNITY
---------
8.1 Lessee shall indemnify and hold Lessor harmless from and against
any and all claims of liability for any injury or damage to any person or
property arising from Lessee's use of the Premises, or from the conduct of
Lessee's business, or from any activity, work or thing done, permitted or
suffered by Lessee in or about the Premises or elsewhere, on or after the
Commencement Date excepting any loss or injury resulting from the negligence or
willful misconduct of Lessor. Lessee shall further indemnify and hold Lessor
harmless from and against any and all claims arising from any breach or default
in the performance of any obligation on Lessee's part to be performed under this
Lease, or arising from any negligence of Lessee or Lessee's agents, contractors
or employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding is brought against Lessor by reason of any such claim, Lessee upon
notice from Lessor shall defend same at Lessee's expense by counsel reasonably
satisfactory to Lessor.
8.2 Lessor shall not be liable for injury to Lessee's business or loss
of income therefrom or for damage which may be sustained by the person, goods,
wares, merchandise or property of Lessee, its employees, invitees, customers,
agents or contractors or any other person in, upon or about the premises caused
by or resulting from fire, steam, electricity, gas, water or rain, which may
leak or flow from or into any part of the Premises, or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures of the same, whether
the said damage or injury results from conditions arising upon the Premises or
upon other portions of the Business Park of which the Premises are a part of,
from other sources or places and regardless of whether the cause of such damage
or injury or the means of repairing the same is inaccessible to Lessee,
excepting any loss or injury resulting from the negligence or willful misconduct
of Lessor. Lessor shall not be liable for any damages arising from any act or
neglect of any other Lessee of the Business Park in which the Premises are
located.
5
<PAGE>
9. INSURANCE
---------
9.1 Lessor shall, at Lessee's expense, procure and maintain, at all
times during the term of this Lease, policies of insurance protecting against
the following:
9.1.1 Loss or damage to the Premises in the amount of the full
replacement value thereof (exclusive of Lessee's trade fixtures, personal
property and equipment), providing protections against all perils included
within the classification of fire, extended coverage, vandalism, malicious
mischief, sprinkler leakage, and special extended peril (all-risk). Such
insurance shall provide for payment of loss thereunder to Lessor and the holder
of any first mortgage or deed of trust on the Premises.
9.1.2 Public liability and property damage insurance with respect to common
areas in amounts (i) not less than one million dollars ($1,000,000.00) for
injury or death to one or more persons in any one accident or occurrence, and
(ii) not less than two hundred fifty thousand dollars ($250,000.00) per
occurrence for damage to property. Lessor shall cause Lessee to be named as an
additional insured under the liability coverage described in this Paragraph
9.1.2.
9.1.3 Lessor shall provide Lessee with written notice of the amount of
the premiums for the coverage described in Paragraphs 9.1.1 and 9.1.2 at least
twenty (20) days before any such premiums are due. If Lessee can obtain policies
of insurance providing substantially the same coverage as the set forth in
Paragraphs 9.1.1 and 9.1.2 at a cost cheaper than the amount set forth in
Lessor's written notice, Lessee shall have the right to procure and maintain
such policies of insurance with insurance companies reasonably satisfactory to
Lessor in lieu of Lessor obtaining such policies of insurance.
9.1.4 It is understood that the Premises are a part of multi-building
complex and Lessor will acquire a master policy complying with the requirements
of Section 9 for the Business Park. Lessee shall, unless Lessee has obtained
policies of insurance pursuant to Paragraph 9.1.3, pay its pro rata share of the
cost thereof in accordance with Paragraphs 12.2 and 12.3.
9.1.5 The foregoing limits may be increased from time to time as
required by the holder of any first deed of trust.
9.2 Lessee shall at all times during the term hereof and at its own
cost and expense procure and continue in force Workman's Compensation Insurance
and Bodily Injury Liability and Property Damage Liability Insurance adequate to
protect Lessor and naming Lessor as an additional insured in the liability
contract against liability, injury or death of any person in connection with the
area, operation or condition of the premises. Such insurance shall be in an
amount of not less than five hundred thousand dollars ($500,000.00) combined
single limit for bodily injury and property damage. The limits of such insurance
shall not limit the liability of Lessee. All insurance required hereunder shall
be with companies satisfactory to Lessor. Prior to occupancy, Lessee shall
deliver to Lessor certificates of insurance evidencing the existence and amounts
of such insurance with loss payable clauses satisfactory to Lessor; provided
that in the event Lessee fails to procure and maintain such insurance, Lessor
may (but shall not be required to) procure same at Lessee's expense after ten
(10) days prior written notice. No such policy shall be cancellable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor by the insurer. Lessee shall, within twenty (20)
days prior to the expiration of such policies, furnish Lessor with renewals or
binders, failing which Lessor may order such insurance and charge the cost to
Lessee, which amount shall be payable by Lessee upon demand. All such policies
shall be written as primary policies, not contributing with and not in excess of
coverage which Lessor may carry. Lessee shall have the right to provide such
insurance coverage pursuant to blanket policies obtained by Lessee, provided
such blanket policies expressly afford coverage to the Premises and to Lessee as
required by this Lease.
9.3 Lessee shall maintain in force a policy or policies of fire and
extended coverage insurance with respect to its fixtures and equipment located
in the Premises to the extent of at least ninety percent (90%) of their
insurable value and plate glass coverage with respect to the Premises.
9.4 Lessee at its cost shall maintain business interruption insurance
providing for payments thereunder to Lessee for a period of up to twelve (12)
months if the Premises are destroyed or rendered inaccessible by a risk insured
against by a
6
<PAGE>
policy of standard fire and extended coverage insurance, with vandalism and
malicious mischief endorsements.
9.5 Lessor and Lessee hereby mutually release each other from
liability and waive all right to recover against each other for any loss from
perils insured against under their respective fire insurance policies, including
any extended coverage and special form endorsements to said policies; provided,
however, this paragraph shall be inapplicable if it would have the effect, but
only to the extent that it would have the effect, of invalidating any insurance
coverage of Lessor or Lessee.
10. MAINTAIN AND REPAIR OF THE PREMISES
10.1 Throughout the term of this Lease, Lessee shall keep in good
order, condition and repair the Premises and every part thereof, structural and
non-structural. Effective on the Commencement Date, Lessor shall assign, and
does hereby assign, to Lessee Lessor's rights under any warranties, express or
implied, and construction contracts respecting the quality of the Premises, and
Lessor agrees to cooperate reasonably with Lessee in the enforcement of any
rights under any such warranties and contracts. To the extent such warranties or
contracts are not assignable, Lessor shall enforce such warranties and contracts
for the benefit of Lessee. Lessor shall incur no expense nor have any obligation
of any kind whatsoever in connection with maintenance of the Premises and Lessee
expressly waives the benefits of any statute now or hereafter in effect which
would otherwise afford Lessee the right to make repairs at Lessor's expense or
to terminate this Lease because of Lessor's failure to keep the Premises in good
order. Lessee shall do all acts required to comply with all applicable laws,
ordinances, regulations and rules of any public authority relating to its
maintenance obligations as set forth herein.
10.2 Upon the expiration or earlier termination of this Lease, Lessee
shall surrender the Premises in the same condition as received, broom clean,
ordinary wear and tear excepted. Lessee at its sole cost and expense agrees to
repair any damage to the Premises caused by or in connection with the removal of
any articles of personal property, business or trade fixtures, machinery,
equipment, cabinetwork, furniture, movable partitions or permanent improvements
or additions, including without limitation thereto, repairing the floor and
patching and painting the walls where required by Lessor to Lessor's reasonable
satisfaction. Lessee shall indemnify the Lessor against any loss or liability
resulting from delay by Lessee in so surrendering the Premises, including
without limitation thereto, any claims made by any succeeding lessees founded on
such delay.
10.3 In the event Lessee fails to perform Lessee's obligations under
this section, Lessor shall give Lessee notice to do such acts as are reasonably
required to so maintain the Premises. If Lessee fails to do the work and
diligently prosecute it to completion, then Lessor shall have the right (but not
the obligation) to do such acts and expend such funds at the expense of Lessee
as are reasonably required to perform such work. Any amount so expended by
Lessor shall be paid by Lessee promptly after demand with interest at ten
percent (10%) per annum from the date of such work. Lessor shall have no
liability to Lessee for any damage, inconvenience or interference with the use
of the Premises by Lessee as a result of performing any such work.
10.4 Lessee shall, at its sole cost, keep and maintain all utilities,
fixtures, mechanical equipment and heating and air conditioning units used by
Lessee in the Premises in good order, condition and repair.
10.5 Lessee shall not commit or permit any nuisance, act or other
thing which may disturb the quite enjoyment of the other lessees in the Business
Park.
7
<PAGE>
11. TAXES
-----
11.1 Lessee shall pay prior to delinquency all taxes, assessments,
license fees and other public charges levied, assessed or imposed or which
become payable during the term of this Lease upon any trade fixtures,
furnishings, equipment and all other personal property of Lessee installed or
located in the Premises. Whenever possible, Lessee shall cause said trade
fixtures, furnishings, equipment and personal property to be separately
assessed. If, however, any or all of said items shall be assessed and taxed with
the real property comprising the Premises, Lessor shall send to Lessee an
invoice advising Lessee of the taxes applicable to Lessee's property, and Lessee
shall pay to Lessor such taxes as are attributable to Lessee's trade fixtures,
furnishings, equipment and personal property no less than ten (10) days prior to
the time such taxes would become delinquent.
11.2 Lessee shall also pay any and all real property taxes and
assessments assessed or imposed, or which become a lien upon or become
chargeable against or payable in connection with the Premises, and Lessee's pro
rata share of such charges which are attributable to common areas.
11.2.1 Lessee's share of such taxes and assessments with respect to
the Premises shall be determined by Lessor from the ratio of the gross floor
area of the Premises to the total gross floor area in the Business Park;
provided, however, that in lieu thereof Lessee may, at Lessee's option, pay such
taxes and assessments with respect to the Premises as shall be determined from
the valuation assigned to the premises in the county tax assessor's worksheets.
Lessor shall, at Lessee's cost, provide Lessee with a copy of such worksheets.
11.2.2 Lessee's share of such taxes with respect to the common areas
shall be determined by Lessor from the ratio of the gross floor area of the
Premises to the total gross floor area in the Business Park.
11.2.3 Lessee shall pay its share of the taxes with respect to the
Premises and the common areas in the manner set forth in paragraph 12.3.
11.3 In the event any real property taxes and assessments paid by
Lessee cover any period of time prior to the Commencement Date or after the
expiration of the term of this Lease, Lessee's share of such taxes shall be pro
rated to cover only the period of time within the fiscal tax year during which
this Lease is in effect. With respect to any assessments which may be levied
against or upon the Premises, or which under the laws then in force may be
evidenced by improvement or other bonds or may be paid in annual installments,
only the amount of such annual installment (with appropriate proration for any
partial year) and interest due thereon shall be included within the computation
of the annual taxes and assessments levied against the Premises.
11.4 As used in this Lease, the term "real property tax" shall include
any form of assessment, levy, penalty or tax (other than estate, gift,
inheritance, net income, capital levy, transfer or excess profits or franchise
taxes), imposed by any authority having the direct or indirect power to tax,
including without limitation, any city, county, state or federal government, or
any improvement or other district thereof, whether such tax is determined by the
area of the Premises or the rent or other sums payable hereunder, including
without limitation, any gross income or excise tax levied by any of the
foregoing authorities with respect to receipt of such rent or other sums.
8
<PAGE>
12. COMMON AREAS
------------
12.1 Common areas shall include all areas within the Business Park
outside the exterior boundaries of the buildings situated hereon, as designed at
Exhibit A, including, but not limited to, streets, driveways, parking areas,
truckways, delivery passages, sidewalks, landscaped and planted areas, exterior
stairways, retaining and decorative walls, planters and other areas provided by
Lessor for the common use (except as provided in Sections 4.6) of Lessor and the
lessees of the Business Park, their employees and invitees.
12.2 Lessor shall maintain said common areas (including the parking
areas assigned to Lessee under Section 4.6) in a neat, clean and orderly
condition, properly lighted and landscaped as Lessor, in its sole discretion,
shall determine. Lessee shall pay to Lessor, in the manner set forth in
Paragraph 12.3, its pro rata share of the expenses in connection with the
maintenance of common areas, plus any additional costs caused by extraordinary
maintenance requirements created by Lessee's use of the Premise. Lessee's pro
rata share of expenses in connection with the maintenance of common areas shall
be the ratio of the gross floor area of the Premises to the gross floor area of
the Business Park. It is understood and agreed that the phrase expense in
connection with the maintenance of common areas" shall include, but shall not be
limited to, all sums (other than capital expenditures) expended in connection
with said common areas for all general maintenance, repairs, pest control, trash
removal, resurfacing, repainting, restriping, cleaning, sweeping and janitorial
services; maintenance and repair of sidewalks, streets, curbs and Business Park
signs; sprinkler systems, lighting and other utilities (other than capital costs
of initially installing any of same in connection with the construction or
completion of the Business Park); directional signs; and other markers and
bumpers (other than capital costs of initially installing any of same in
connection with the construction or completion of the Business Park);
maintenance and repair of any fire protection systems, automatic sprinkler
systems, lighting systems, storm drainage systems and any other utility systems;
personnel to implement such service and to police the common areas; police and
fire protection services; straight-line depreciation and maintenance on
machinery and equipment (if owned) and rental paid for such machinery and
equipment (if rented); any parking charges, surcharges or any other costs levied
or assessed by local, state or federal governmental agencies in connection with
the use of parking facilities; maintenance of planting and landscaping; the cost
of parking lot sweeping; maintenance of common area improvements; and property
management costs. Such costs and expenses shall not include any allowance for
depreciation of common area improvements. Lessor may cause any or all of said
services to be provided by an independent contractor or contractors; provided,
however that the fees charged by such contractor or contractors shall not be in
excess of those charged by Coldwell Banker Property Management Company or other
comparable property management companies in the San Diego area.
12.3 On a monthly basis, Lessor shall provide Lessee a written
statement of Lessee's share of the cost of insurance provided by Lessor as
provided for herein, repairs, taxes and expenses in connection with the
maintenance of common areas and the Premises paid or incurred by Lessor during
the prior month. Lessee shall pay such amount to Lessor as additional rent on
the first of the month following the month in which such statement is received.
Lessor shall keep full, accurate and separate books of account, receipts, bills
and other supporting documentation covering Lessor's operating costs, and the
statements to Lessee shall accurately reflect the total operating costs and
Lessee's share. The books of account shall be retained by Lessor for a period of
at least eighteen (18) months after the expiration of each calendar year. Lessee
shall have the right at all reasonable times during
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the term to inspect the books of account, receipts, bills and other supporting
documentation.
12.4 Lessee shall have for its use and benefit the nonexclusive right
in common with Lessor and future owners, other lessees, and their agents,
employees, customers, licensees and sublessees, to use said common areas during
the entire term of this Lease, or any extension thereof, for ingress and egress,
roadway and automobile parking, except therefrom such reasonable number of
parking spaces which may have been designated for a specific lessee.
13. SIGNS AND ADVERTISING
---------------------
13.1 Lessee shall not conduct or permit any sale by auction of the
Premises.
13.2 Lessee shall comply with such reasonable sign regulations as are
from time to time adopted by Lessor and applied to all lessees of the Business
Park on a non-discriminatory basis. All exterior signs must have the approval of
Lessor prior to installation, which approval shall not be unreasonably withheld.
Lessor hereby grants approval to Lessee for Lessee's sign affixed to the
building exterior on the Commencement Date. If Lessee, after five (5) days
written notice, shall fail to properly maintain or repair any exterior sign,
Lessor may do so and the cost thereof shall be payable by Lessee to Lessor upon
demand as additional rent.
13.3 Lessee shall not display, store or sell any merchandise outside
the defined exterior walls and permanent doorways of the Premises, without
Lessor's prior written consent. Lessee shall not, without Lessor's consent,
install any exterior lighting, amplifiers, or similar devices or use in or about
the Premises any advertising media which may be heard or seen outside the
Premises.
13.4 Lessee shall not, without Lessor's consent, solicit business nor
distribute any handbills or other advertising matter in the common areas of the
Business Park.
14. ENTRY BY LESSOR
---------------
14.1 Lessee shall permit Lessor and Lessor's agents to enter the
Premises at all reasonable times for the purpose of inspecting the same, for the
purpose of maintenance, repairs, alterations or additions to any portion of the
Business Park, including the erection and maintenance of such scaffolding,
canopies, fences and props as may be required, or for the purpose of posting
notices of non-responsibility for alterations, additions or repairs, subject to
security regulations reasonably adopted by Lessee or otherwise required by
governmental agencies.
14.2 Lessor may, during reasonable business hours within one hundred
twenty (120) days prior to the expiration of this Lease, enter the Premises for
the purpose of allowing prospective lessees to view the Premises and to place
any usual or ordinary "For Lease" signs, subject to security regulations as
aforesaid.
14.3 Lessor shall be permitted to enter upon the premises for any of
the purposes and in the manner stated herein without any liability to Lessee for
any loss of occupation or quiet enjoyment of the Premises resulting therefrom.
15. ASSIGNMENT AND SUBLETTING
-------------------------
15.1 Lessee shall not either voluntarily or by operation of law assign
(provided that such limitation shall not apply to any assignment effected by any
merger, consolidation, sale of assets or other corporate reorganization in which
Lessee is involved), sell,
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encumber, pledge or otherwise transfer all or any part of Lessee's leasehold
estate hereunder, or permit the Premises to be occupied by anyone other than
Lessee or Lessee's employees, or employees of Lessee's subsidiaries, or
companies under common control with Lessee, or sublet the Premises or any
portion thereof, without Lessor's prior written consent in each instance, which
consent shall not be unreasonably withheld. Lessor's consent shall be based upon
a determination that the same quality of business and financial soundness of
ownership shall exist after such assignment or subletting and, provided further,
that none of the covenants, conditions and obligations imposed upon Lessee by
this Lease or of the rights, remedies or benefits afforded Lessor by this Lease
is thereby impaired or diminished.
15.2 If Lessee desires at any time to assign this Lease or to sublet
the Premises or any portion thereof, Lessee shall notify Lessor of its desire to
do so and shall submit in writing to Lessor (i) the name of the proposed
sublessee or assignee; (ii) the nature of the proposed sublessee's or assignee's
business to be carried on in the Premises; (iii) the principal terms and
provision of the proposed sublease or assignment; and (iv) such reasonable
financial information as Lessor may request concerning the proposed sublessee or
assignee, such request to be made within five (5) days after Lessee shall submit
the information specified in the preceding clauses (i) through (iii). Lessee may
also, at Lessee's option, offer to Lessor the option of terminating this Lease
as to the portion (including all) of the Premises so proposed to be subleased or
assigned with a proportionate (based upon the ratio of the gross floor area of
the portion surrendered to the gross floor area of the entire Premises prior to
the surrender) abatement in the rent and other charges payable hereunder.
15.3 Within seven (7) days after Lessor's receipt of the information
specified in Paragraph 15.2 above, Lessor shall notify Lessee in writing whether
Lessor (a) consents to the sublease or assignment proposed by Lessee or, (b) if
Lessee has offered Lessor the option of terminating this Lease as to the portion
of the Premises (including all) so proposed to be subleased or assigned, elects
to terminate this Lease as to the portion (including all) of the Premises so
proposed to be subleased or assigned, in which event Lessor's notice to Lessee
shall set forth the proportionate abated rental payable thereafter hereunder. If
Lessor consents to the sublease or assignment proposed by Lessee, Lessee may
thereafter within ninety (90) days after receipt of written notice from Lessor
of such consent, enter into a valid sublease or assignment of the Premises or
portion thereof, upon the terms and conditions described in the information
furnished by Lessee to Lessor pursuant to Paragraph 15.2 above.
15.4 No consent by Lessor to any subletting or assignment by Lessee
shall relieve Lessee of any obligation to be performed by Lessee under this
Lease, whether occurring before or after such consent, subletting or assignment.
The consent by Lessor to any subletting or assignment shall not relieve Lessee
from the obligation to obtain Lessor's express written consent to any other
subletting or assignment. The acceptance of rent by Lessor from any other person
shall not be deemed to be a waiver by Lessor of any provisions of this Lease or
to be a consent to any subletting, assignment or other transfer. Consent to one
subletting, assignment or other transfer shall not be deemed to constitute
consent to any subsequent subletting, assignment or other transfer.
15.S In the event that Lessee subleases or assigns all or any part of
the Premises, the limitation on cost of living increases in the Base Monthly
Rental contained in Section 3.3.2 shall, as of the date of such assignment or
sublease terminate with respect to that fraction of the Base Monthly Rental of
which the numerator is gross floor area of the portion assigned or subleased and
the denominator is the gross floor area of the entire Premises prior to the
assignment or sublease (the "Base Monthly Rental
11
<PAGE>
fraction"). The Base Monthly Rental fraction shall be adjusted as of the date of
such assignment or sublease in the manner set forth in Section 3.3, provided
that the limitation on increases set forth in Section 3.3.2 shall not be
applicable.
16 BREACH OF LESSEE
----------------
16.1 The occurrence of any of the following shall constitute a
material default and breach of this Lease by Lessee:
16.1.1 The failure of Lessee to pay or cause to be paid when due any
rent, monies or charges required by this Lease to be paid by Lessee when such
failure continues for a period of ten (10) days after written notice thereof
from Lessor to Lessee;
16.1.2 The abandonment of vacation of the Premises by Lessee;
16.1.3 A failure by Lessee to observe and perform any other provision
of this Lease to be observed or performed by Lessee, where such failure
continues for twenty (20) days after written notice thereof by Lessor to Lessee;
provided, however, that if the nature of said default is such that it cannot
reasonably be cured within such twenty-day period, Lessee shall not be deemed to
be in default if Lessee shall within such period commence such cure and
thereafter diligently prosecute the same to completion;
16.1.4 The making by Lessee of any general assignment or general
arrangement for the benefit of creditors; the filing by or against Lessee of a
petition to have Lessee adjudged a bankrupt or of a petition for reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Lessee, the same is dismissed within ninety (90) days);
the appointment of a trustee or receiver to take possession of substantially all
of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where possession is not restored to Lessee within sixty (60) days; or the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within forty-five (45) days.
16.2 In the event that Lessor issues notices or comparable documents
by reason of Lessee's breach, and Lessee cures such default, Lessee agrees to
pay to Lessor, as additional rent, the reasonable cost of preparation and
delivery of same.
16.3 The acceptance by Lessor of rent due hereunder after breach by
Lessee shall not constitute a waiver of such breach, unless a writing to the
effect has been delivered to Lessee.
17. REMEDIES UPON BREACH
--------------------
17.1 In the event of any default by Lessee, Lessor shall, at its
option, in addition to all other rights and remedies it may have hereunder or as
provided by law have the following rights and remedies:
17.1.1 Lessor can continue this Lease in full force and effect, and
the Lease will continue in effect as long as Lessor does not terminate Lessee's
right to possession, and Lessor shall have the right to collect rent when due.
During the period Lessee is in default, Lessor can enter the Premises and relet
them, or any part of them, to third parties for Lessee's account. Lessee shall
be liable immediately to Lessor for all costs Lessor incurs in reletting the
Premises including, without limitation, brokers' commissions, attorneys' fees,
expenses of remodeling the Premises required by the reletting, and like costs.
Reletting can be for a period shorter or longer than the remaining term of this
Lease. Lessee shall pay to Lessor the rent due under this Lease on the
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<PAGE>
dates the rent is due, less the rent Lessor receives from any reletting. No act
by Lessor allowed by this section shall terminate this Lease unless Lessor
notifies Lessee that Lessor elects to terminate this Lease. After Lessee's
default and for as long as Lessor does not terminate Lessee's right to
possession of the Premises, if Lessee obtains Lessor's consent Lessee shall have
the right to assign or sublet its interest in this Lease, but Lessee shall not
be released from liability. Lessor's consent to a proposed assignment or
subletting shall not be unreasonably withheld.
17.1.2 Lessor can terminate Lessee's right to possession of the
Premises at any time. No act by Lessor other than giving notice to Lessee shall
terminate this Lease. Acts of maintenance or efforts to relet the Premises shall
not constitute a termination of Lessee's right to possession. Lessor may re-
enter the Premises, remove Lessee's property therefrom and store it for Lessee's
account and at Lessee's expense and risk subject to damage or loss caused by the
deliberate or negligent act of Lessor, and recover damages from Lessee as
hereafter provided. Any such reentry shall be permitted by Lessee without
hindrance.
17.1.3 In the event Lessor elects to terminate this Lease and Lessee's
right to possession in accordance with the foregoing Paragraph 17.1.2, or the
same are terminated by operation of law, Lessor may recover as damages from
Lessee the following:
17.1.3.1 The worth at the time of award by a court competent
jurisdiction of the unpaid rent which had been earned at the time of termination
of the Lease;
17.1.3.2 The worth at the time of award of the amount by which the
unpaid rent which would have been earned after the date of termination of this
Lease until the time of award exceeds the amount of such loss of rent that
Lessee proves could have been reasonably avoided;
17.1.3.3 The worth at the time of the award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of the loss of such rent that Lessee proves could be reasonably avoided;
and,
17.1.3.4 Any other amount, including attorneys' fees and court costs,
necessary to compensate Lessor for all detriment proximately caused by Lessee's
failure to perform its obligations under the Lease, or which in the ordinary
course of things would be likely to result therefrom.
17.2 The "worth at the time of award" of the amounts referred to in
Paragraphs 17.1.3.1 and 17.1.3.2 is to be computed by allowing interest at ten
percent (10%) per annum. The "worth at the time of award" of the amount referred
to in Paragraph 17.1.3.3 above is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%).
17.3 Efforts by Lessor to mitigate the damages caused by Lessee's
breach of this Lease shall not waive Lessor's right to recover damages under the
foregoing provisions.
17.4 Nothing in this Section 17 shall affect the right of Lessor to
indemnification against liability arising prior to the termination of this Lease
for personal injuries or property damage, or against mechanic's liens or other
loss, claims or expenses as may be provided elsewhere in this Lease.
17.5 The foregoing remedies of Lessor shall not be exclusive, but
shall be cumulative and in addition to all rights and remedies now or thereafter
provided or allowed by law.
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18. DAMAGE OR DESTRUCTION
---------------------
18.1 If, during the term of this Lease, or any extensions thereof, the
Premises are totally or partially destroyed from a risk covered by insurance
rendering the Premises totally or partially inaccessible or unusable, Lessor
shall restore the Premises to substantially the same conditions they were in
immediately before destruction. Such destruction shall not terminate this Lease.
If then existing law does not permit restoration, either party may terminate
this Lease by giving notice to the other party within sixty (60) days of such
destruction. If the cost of the restoration (determined by fixed price
construction bids reasonably approved by Lessee and Lessor) exceeds the amount
of proceeds received from the insurance carrier, Lessor can elect to terminate
this Lease by giving notice to Lessee within thirty days after determining that
the restoration cost will exceed the insurance proceeds. If Lessor elects to
terminate this Lease, Lessee, within thirty (30) days after receiving Lessor's
notice to terminate, can elect to pay one-half the difference between the amount
of insurance proceeds and the cost of restoration, in which case Lessor shall
restore the Premises. Any amounts so payable by Lessee shall be deposited by
Lessee in a fund control or bank disbursement account at such times as may be
requested by Lessor's construction lender. If there be no construction lender,
Lessee shall make monthly installment payments of one-half of the expenses of
restoration incurred for the preceding month. Lessor shall give Lessee
satisfactory evidence that all sums contributed by Lessee as provided in this
section have been expended in paying the cost of restoration. If Lessor elects
to terminate this Lease and Lessee does not elect to contribute toward the cost
of restoration as provided in this section, this Lease shall terminate.
18.2 If during the term of this Lease the Premises are totally or
partially destroyed from a risk not covered by the insurance, rendering the
Premises totally or partially inaccessible or unusable, Lessor shall promptly
restore the Premises to substantially the same condition as they were in
immediately before destruction. Such destruction shall not terminate this Lease.
If the existing laws do not permit the restoration, either party can terminate
this Lease by giving notice to the other party within sixty (60) days of such
destruction. If the cost of restoration (determined by fixed price construction
bids reasonably approved by Lessee and Lessor) exceeds ten percent (10%) of the
then replacement value of the Premises, (reasonably determined by Lessee and
Lessor) Lessor can elect to terminate this Lease by giving notice to Lessee
within thirty (30) days after determining the restoration cost and replacement
value. If Lessor elects to terminate this Lease, Lessee, within thirty (30) days
after receiving Lessor's notice to terminate, can notify Lessor of its election
to pay the difference between ten percent (10%) of the replacement value of the
Premises and the actual cost of restoration, in which case Lessor shall restore
the Premises. Any amounts so payable by Lessee shall be deposited by Lessee in a
fund control or bank disbursement account at such times as may be requested by
Lessor's construction lender. If there be no construction lender, Lessee shall
make monthly installment payments of the expenses of restoration incurred during
the previous month. Lessor shall give Lessee satisfactory evidence that all sums
contributed by Lessee as provided in this section have been expended in paying
the cost of restoration. If Lessor elects to terminate this Lease and Lessee
does not elect to contribute toward the cost of restoration as provided in this
section, this Lease shall terminate. In the event the Premises or the real
property of which the Premises constitute a part is foreclosed upon and sold at
a sheriff's sale, or sold pursuant to a trustee's power of sale or conveyed
pursuant to a deed in lieu of foreclosure or sale, the foregoing obligation of
the Lessor contained in this Section 18.2 to pay up to 10% E.G. of the
replacement value of the Premises shall be ineffective and shall not be binding
upon any purchaser or transferee acquiring the Premises as a result of such
foreclosure,
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trustee's sale or deed in lieu thereof. In such event, upon the occurrence of
total or partial destruction from a risk not covered by insurance, the purchaser
or transferee can elect to terminate this Lease unless Lessee, within thirty
(30) days after receiving notice to terminate, gives written notice of its
election to pay the entire cost of restoration.
18.3 If Lessor is required or elects to restore the Premises, Lessor
shall not be required to restore alterations, made by Lessee, Lessee's
improvements (other than the Improvements provided for in Section 1.2) Lessee's
trade fixtures, and Lessee's personal property, such excluded items being the
sole responsibility of Lessee to restore.
18.4 In case of destruction there shall be an abatement or reduction
of rent, between the date of destruction and the date of completion of
restoration, based on the extent to which the destruction interferes with
Lessee's use of the Premises.
18.5 If destruction to the Premises occurs during the last two years
of the term, Lessor can terminate this Lease by giving notice to Lessee not more
than thirty (30) days after the destruction; provided that, if the destruction
occurs during the last two years of the term and if within thirty (30) days
after the destruction Lessee exercises the option to extend the term as provided
in Section 2.5 (if the time within which the option can be exercised has not
expired), Lessor shall restore the premises as provided in this Section 18.
19. CONDEMNATION
------------
19.1 If the Premises or any portion thereof are taken under the power
of eminent domain, or sold by Lessor under the threat of the exercise of such
power, this Lease shall terminate as to the part so taken as of the date that
the condemning authority takes possession of the Premises. If more than thirty
percent (30%) of the Premises or more than thirty percent (30%) of the parking
area of the Business Park are taken or sold under such threat, either Lessor or
Lessee may terminate this Lease as of the date that the condemning authority
takes possession by delivery of written notice of such election within twenty
(20) days after the condemning authority shall have taken possession.
19.2 If this Lease is not terminated by Lessor or Lessee, it shall
remain in full force and effect as to the portion of the Premises remaining;
provided that, the rent shall be reduced by that portion which the floor area of
the Premises taken bears to the total floor area of the Premises prior to the
taking. In such event, Lessor shall, at Lessor's expense, restore the Premises
to a complete unit of like quality and character, except as to size, as existed
prior to the date of which the condemning authority took possession. All awards
for the taking of any part of the Premises or proceeds from the sale made under
the threat of the exercise of the power of eminent domain shall be the property
of Lessor, whether made as compensation for diminution of value of the leasehold
estate, for the taking of the fee, or as severance damages; provided, however,
that Lessee shall be entitled to any award for loss of or damage to Lessee's
trade fixtures and removable personal property.
20. SURRENDER OF LEASE
------------------
20.1 The voluntary or other surrender of its interest in this Lease by
Lessee or a mutual cancellation of this Lease shall not work a merger, and
shall, at the election of Lessor, either terminate all or any existing subleases
or sublessees or operate as an assignment to Lessor of any or all of such
subleases or sublessees.
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21. COST OF SUIT
------------
21.1 If Lessee or Lessor shall bring any action for any relief against
the other, declaratory or otherwise, arising out of this Lease, including any
suit by Lessor for the recovery of rent or possession of the Premises, the
losing party shall pay the successful party a reasonable sum for attorney's fees
which shall be deemed to have occurred on the commencement of such action and
shall be paid whether or not such action is prosecuted to judgment. Should
Lessor, without fault on Lessor's part, be made a party to any litigation
instituted by Lessee or by any third party against Lessee, or by or against any
person holding under or using the Premises by License of Lessee, or for the
foreclosure of any lien for labor or materials furnished to or for Lessee or any
such other person or otherwise arising out of or resulting from any act or
transaction of Lessee or of any such other person, Lessee covenants to save and
hold Lessor harmless from any judgment rendered against Lessor or the Premises
or any part thereof, and all costs and expenses, including reasonable attorney's
fees, incurred by Lessor in or in connection with such litigation.
22. TRANSFER OF LESSOR'S INTEREST
-----------------------------
22.1 In the event of a sale or conveyance by Lessor of Lessor's
interest in the Premises other than a transfer for security purposes only,
Lessor shall, upon giving notice of such transfer to Lessee, be relieved from
and after the date specified in such notice of transfer of all obligations and
liabilities accruing thereafter on the part of Lessor, provided that any funds
in the hands of Lessor at the time of transfer in which Lessee has an interest,
shall be delivered to the successor of Lessor. This Lease shall not be affected
by any such sale and Lessee agrees to attorn to the purchaser or assignee
provided all Lessor's obligations hereunder are assumed in writing by the
transferee.
23. ESTOPPEL CERTIFICATES
---------------------
23.1 Lessee shall within ten (10) days after receipt of a request
therefore from Lessor execute, acknowledge and deliver to Lessor a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by a prospective purchaser or
encumbrancer of the Premises. Lessee's failure to deliver such statement within
such time shall be conclusive upon Lessee (i) that this Lease is in full force
and effect without modification except as may be presented by Lessor, (ii) that
there are no uncured defaults in Lessor's performance, and (iii) that not more
than one month's rent has been paid in advance. If Lessor desires to finance or
refinance the Premises or any part thereof, Lessee hereby agrees to deliver to
any lender designated by Lessor such audited financial statements as Lessee may
have prepared in the ordinary course of its business; provided that all such
financial statements shall be received by Lessor in confidence and shall be used
by Lessor only for the purposes herein set forth.
24. SUBORDINATION AND ATTORNMENT
----------------------------
24.1 Except as otherwise provided herein, this Lease is hereby made
subordinate to the lien of any mortgages or deeds of trust now or hereafter in
force against the real property of which the Premises constitute a part, and to
all advances made or hereafter made upon the security thereof. Lessee agrees to
subordinate this Lease to the lien of any mortgage or deed of trust
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hereafter placed against the Premises, and to all advances made or hereafter
made upon the security thereof.
24.2 In the event any proceedings are brought for foreclosure, or in
the event of the exercise of the power of sale under any mortgage or deed of
trust covering the Premises, Lessee shall attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as Lessor under this Lease.
24.3 Lessee, upon request of any party in interest, shall execute
promptly such instruments and certificates to carry out the provisions of
Paragraphs 24.1 and 24.2.
24.4 Notwithstanding any subordination or foreclosure, or sale under
power of sale, Lessee's right to quiet enjoyment of the Premises shall not be
disturbed so long as Lessee is not in default under the terms of this Lease.
25. HOLDING OVER
------------
25.1 If Lessee remains in possession of all or any part of the
Premises after the expiration of the term hereof, with or without the express or
implied consent of Lessor, such tenancy shall be from month to month only, and
not a renewal thereof or an extension for any further term and in such case rent
and other monetary sums due hereunder shall be payable in the amount and at the
time specified in this Lease and such month to month tenancy shall be subject to
every other term, covenant and agreement contained herein.
26. INTERPRETATION
--------------
26.1 Whenever the singular number is used in this Lease, the same
shall include the plural, and the masculine gender shall include the feminine
and neuter genders, and the word "person" shall include corporation, firm, or
association, when required by the context.
26.2 The headings or titles to the Sections of this Lease are for
convenience only and do not in any way define, limit or construe the contents of
such Sections.
26.3 This instrument contains all of the agreements and conditions
made between the parties with respect to the hiring of the premises and may not
be modified orally or in any other manner other than by a written instrument
signed by all the parties to this Lease.
26.4 The laws of the State of California shall govern the validity,
performance and enforcement of this Lease.
26.5 If any provision of this Lease is determined to be void by any
court of competent jurisdiction, such determination shall not affect any other
provision of this Lease and such other provisions shall remain in full force and
effect. If any provision of this Lease is capable of two constructions, one
which would render the provision void and one which would render the provision
valid, the provision shall be interpreted in the manner which would render it
valid.
27. TIME: JOINT AND SEVERAL LIABILITY
---------------------------------
27.1 Time is of the essence of this Lease and each and every provision
hereof. All the terms, covenants and conditions contained in this Lease to be
performed by either party, if such party shall consist of more than one person
or organization, shall be deemed to be joint and several, and all rights an
remedies of the parties shall be cumulative and non-exclusive of any other
remedy at law or in equity.
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28. FORCE MAJEURE
-------------
28.1 Any prevention, delay or stoppage due to strikes, lockouts, labor
disputes, acts of God, inability to obtain labor or materials or reasonable
substitutes therefor, governmental restrictions, regulations, or controls, enemy
or hostile governmental action, civil commotion, fire or other casualty, and
other cause beyond the reasonable control of the party obligated to perform,
shall, except as expressly provided in this Lease to the contrary, excuse the
performance by such party for a period equal to that resulting from such
prevention, delay or stoppage, except those obligations of Lessee to make
payment for rental or other charges pursuant to the terms of this Lease.
29. NOTICES
-------
29.1 All notices or demands of any kind required or desired to be
given by Lessor or Lessee hereunder shall be in writing and shall be deemed
delivered forty-eight (48) hours after depositing the notice or demand in the
United States mail, certified or registered, return receipt requested, postage
and fees prepaid, addressed to the Lessor or Lessee respectively at the
addresses set forth after their signatures at the end of this Lease.
30. MEMORANDUM OF LEASE
-------------------
30.1 Lessee shall not record this Lease without Lessor's prior written
consent. Either party shall, upon request of the other, execute, acknowledge and
deliver to the other a short form memorandum of this Lease for recording
purposes.
31. BROKERS
-------
31.1 Lessee warrants that it has had no dealings with any real estate
broker or agents in connection with the negotiation of this Lease and it known
of no other real estate broker or agent who is entitled to commission with this
Lease. Any commission to be paid in connection with this Lease shall be the sole
concern and responsibility of Lessor, and Lessor shall indemnify Lessee against
any claims in connection therewith.
32. OPTION TO LEASE EXPANSION SPACE
-------------------------------
32.1 At any time that Lessor determines to lease the portion not
occupied by Lessee of the Building in which the Premises are located (the
"Expansion Space"), Lessor shall notify Lessee of the rent, net of any tenant
improvement credit or allowances (except to the extent such allowances and
credits are made available to Lessee) for which Lessor is willing on the open
market to lease the Expansion Space, or part of the Expansion Space. If Lessee,
within thirty (30) days after receipt of Lessor's notice, states in writing its
agreement to lease the Expansion Space or part of it, the Expansion Space or
part of it shall be included in the Premises and leased to Lessee pursuant to
the provisions of this Lease, including, without limitation, the provisions
relating the rights and obligations of the parties with respect to alterations.
However, the rent payable under this Lease shall be increased by the amount of
rent attributable to the Expansion Space or part of it that is leased by Lessee.
The parties shall immediately execute an amendment to this Lease stating the
addition of the Expansion Space or part of it to the Premises. If Lessee does
not indicate within thirty (30) days its agreement to lease the Expansion Space
or part of it, Lessor thereafter shall have the right to lease or extend the
Lease covering the Expansion Space or part of it to a third party.
32.2 The provisions of this Section shall be operative during the term
of this Lease, including option periods, each time Lessor determines to lease
all or part of the Expansion Space to a
18
<PAGE>
third person (including any Expansion Space which Lessee previously elected not
to lease under this Section).
33. INTEREST ON PAST-DUE OBLIGATIONS
--------------------------------
33.1 Except as expressly herein provided, any amount due to Lessor not
paid when due shall bear interest at ten percent (10%) per annum from the date
due. Payment of interest shall not excuse or cure any default by Lessee under
this Lease.
34. HAZARDOUS MATERIALS
-------------------
Lessee agrees to comply with all applicable federal, state and local
laws, rules and regulations relating to the presence of Hazardous Materials on
the Premises during the term of this Lease, and in connection with any permit
requirements under such laws, to seek written approval of Lessor to the
introduction of Hazardous Materials onto the Premise requiring a permit, which
approval will not be unreasonably withheld.
34.1 Remediation Action. If the presence, release, or placement on or
in the Premises by Lessee during the term of this Lease, or the generation,
transportation, storage, treatment, or disposal at the Premises during the Term
of this Lease, of any Hazardous Material (a) gives rise to a claim (including,
but not limited to, a claim for response action, remedial action, or removal
action ) under any environmental law or any common law theory based on nuisance
or strict liability, or (b) causes or threatens to adversely affect public
health or the environment, Lessee shall promptly take any and all remedial
response or removal action necessary to clean up the Premises and any
contaminated soil, surface water, or groundwater and to mitigate exposure to
liability arising from the Hazardous Material, whether or not required by law.
34.2 Testing and Indemnity. At any time prior to the expiration of the
Lease Term, Lessor shall have the right to conduct appropriate tests of water
and soil and to deliver to Lessee the results of such tests to demonstrate that
contamination in excess of permissible level has occurred as a result of
Lessee's use of the Premises. Lessee shall further be solely responsible for and
shall defend, indemnify and hold the Lessor, its agents and contractors harmless
from and against all claims, costs and liabilities, including actual attorney's
fees and costs, arising out of or in connection with any removal, clean-up,
restoration and materials required hereunder to return the Premises and any
other property of whatever nature to their condition existing prior to the
appearance of the hazardous Materials as long as Lessee (including Lessee's
agents and employees, contractors or invitees) are responsible for the discharge
of Hazardous Materials on the premises.
34.3 Underground Tanks. If underground or other storage tanks storing
Hazardous Materials are located on the Premises or are hereafter placed on the
Premises by any party, Lessee shall monitor the storage tanks, maintain
appropriate records, implement reporting procedures, properly close any
underground storage tanks, and take or cause to be taken all other steps
necessary or required under the California Administrative Code, Title 23,
Chapter 3, Subchapter 16, "Underground Storage Tank Regulations" and Division
20, Chapter 6.7 of the California Health & Safety Code, "Underground Storage of
Hazardous Substances", as they now exist or may hereafter be adopted or amended.
34.4 Lease Termination. Upon termination of this Lease, Lessee shall
remove from the Premises all hazardous Materials brought onto the Premises by
Lessee which required a permit under applicable environmental law and which are
required to be so removed, and in such event Lessee shall obtain a Phase I
19
<PAGE>
environment assessment of the Premises and provide a copy to Lessor.
34.5 Lessee's Obligation. Lessee's obligations under this Paragraph 34
shall survive the termination of the Lease. 34.6 Definition of "Hazardous
Material". As used herein, the term "hazardous material" means any hazardous or
toxic substance, material or waste which is or becomes regulated by any local
governmental authority, the State of California or the United States Government.
The term "hazardous material" includes, without limitation, any material or
substance which is (1) defined as a "hazardous waste" under Sections 25515,
25117 or 25122.7 or listed pursuant to Section 25140 of the California Health &
Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law); (ii)
defined as a "hazardous substance" under Section 25316 of the California Health
& Safety Code, Division 2, chapter 6.8(Carpenter-Presly-Tanner Hazardous
Substance Account Act); (iii)defined as a "hazardous material", "hazardous
substance" or "hazardous waste" under Section 25501 of the California Health &
Safety Code, Division 20, Chapter 6.95 (Hazardous Substances); (iv)petroleum;
(v) asbestos; (vi) listed under Article 9 and defined as hazardous or extremely
hazardous pursuant to Article 11 of Title 22 of the California Administrative
Code, Division 4, Chapter 20; (vii) designated as a "hazardous substance"
pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C.
Section 1317); (viii) defined as a "hazardous waste" pursuant to Section 1004 of
the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq. (42 U.S.C. Section 6903); or (ix)defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental Response Compensation
and Liability Act, 42, U.S.C. Section 9601, et seq. (42 U.S.C. Section 9601).
35. Effect on Prior Lease. This lease agreement supersedes entirely
the old lease agreement dated March 3, 1989 between the parties hereto, together
with all modification and extensions thereto, such prior lease is hereby
declared void and of no further force or effect.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of
the day and year first above written.
LESSOR: LESSEE:
MADISON SQUARE PARTNERSHIP FOODCO CORPORATION
By: By:
------------------------------- -------------------------------
Gerald W. Bosstick Joseph C. Stumpf
Its: General Partner Its: Vice President
5414 Oberlin Drive. #140 8888 Balboa Avenue
San Dieqo. CA 92121 San Dieqo. CA 92123
(619) 597-6888 (619) 496-4100
20
<PAGE>
EXHIBIT "A" - PONDEROSA PINES SITE PLAN
<PAGE>
MAXWELL LABORATORIES, INC.
8888 BALBOA AVENUE
SAN DIEGO, CA 92123
-----------------
NOTICE OF THE 1995 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 12, 1995
-----------------
To the Shareholders of
Maxwell Laboratories, Inc.
The 1995 Annual Meeting of Shareholders of Maxwell Laboratories, Inc., a
Delaware corporation (the "Company"), will be held on December 12, 1995 at 10:00
A.M., local time, at the La Jolla Marriott, 4240 La Jolla Village Drive, La
Jolla, California, for the following purposes, all as more fully set forth in
the accompanying Proxy Statement:
1. To elect 3 directors of the Company of Class III, to serve until the
annual meeting of shareholders in 1998 and until their successors shall
have been duly elected and qualified.
2. To consider and approve the Company's 1995 Stock Option Plan.
3. To transact such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on October 16, 1995 as
the record date for determining shareholders entitled to notice of and to vote
at the meeting and any adjournment or adjournments thereof.
By Order of the Board of Directors,
Karl M. Samuelian
Secretary
Dated: October 31, 1995
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. IF YOU DO NOT EXPECT TO
ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN
IT IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE.
<PAGE>
MAXWELL LABORATORIES, INC.
8888 BALBOA AVENUE
SAN DIEGO, CALIFORNIA 92123
_________________
PROXY STATEMENT FOR THE 1995 ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD ON DECEMBER 12, 1995
_________________
GENERAL INFORMATION
This Proxy Statement is being mailed on or about November 1, 1995 to the
shareholders of Maxwell Laboratories, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation of proxies on behalf of the
Board of Directors of the Company to be used at the 1995 Annual Meeting of the
Shareholders of the Company to be held on December 12, 1995 (the "Meeting") and
any adjournment or adjournments thereof. Any proxy given may be revoked at any
time prior to the exercise of the powers conferred by it by filing with the
Secretary of the Company a written notice signed by the shareholder revoking
such proxy or a duly executed proxy bearing a later date. In addition, the
powers conferred by such proxy may be suspended if the person executing the
proxy is present at the meeting and elects to vote in person. All shares
represented by each properly executed and unrevoked proxy received in time for
the Meeting will be voted (unless otherwise indicated thereon) in the manner
specified therein at the Meeting and any adjournment or adjournments thereof.
The Company will pay the expenses of soliciting proxies, including the
charges and expenses of brokerage firms and others for forwarding solicitation
material to beneficial owners of shares. In addition to the use of the mails,
some of the Company's directors, officers and regular employees, without extra
compensation, may solicit proxies by telegram, telephone and personal interview.
A Summary Annual Report of the Company for the fiscal year ended July 31,
1995 ("fiscal 1995") is being mailed to shareholders concurrently with the
mailing of this Notice of Annual Meeting and Proxy Statement. The Summary
Annual Report contains, among other things, summary financial information
regarding the Company and a discussion of developments in the Company's business
during fiscal 1995. In addition, there is included as an Appendix to this Proxy
Statement complete financial statements of the Company together with the report
of the Company's independent auditors thereon. The Appendix also contains
certain additional financial and related information regarding the Company.
VOTING RIGHTS
The close of business on October 16, 1995 (the "Record Date") has been fixed
by the Board of Directors as the record date for determining shareholders
entitled to notice of and to vote at the Meeting and any adjournment or
adjournments thereof. On the Record Date, there were outstanding 2,694,974
shares of the Company's Common Stock, $.10 par value ("Common Stock"), all of
one class and all of which are entitled to be voted at the Meeting. Holders of
such issued and outstanding shares of Common Stock are entitled to one vote for
each share held by them.
A majority of the outstanding shares will constitute a quorum at the meeting.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions
are counted in the tabulation of the votes cast on proposals presented to
stockholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS
The following table sets forth, as of August 31, 1995, certain information
concerning the beneficial ownership of the Company's equity securities of each
person known by the Company to own beneficially five percent or more of the
Company's Common Stock, the Company's only outstanding class of securities
presently entitled to vote. A person is deemed to be the beneficial owner of
securities, whether or not he has any economic interest therein, if he directly
or indirectly has (or shares with others) voting or investment power with
respect to the securities or has the right to acquire such beneficial ownership
within sixty days.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF OF COMMON STOCK PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED (1) OF CLASS
---------------- ---------------------- ---------
<S> <C> <C>
The TCW Group, Inc....................... 185,888 6.9%
865 South Figueroa Street
Los Angeles, California 90017
Dimensional Fund Advisors, Inc. (2)...... 167,491 6.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
The Robertson Stephens Orphan Fund (3)... 160,896 6.0%
555 California Street
Suite 2600
San Francisco, Ca. 94104
</TABLE>
- --------------------
(1) Information with respect to beneficial ownership is based on information
furnished to the Company by each shareholder included in the table or
included in filings with the Securities and Exchange Commission.
(2) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 167,491 shares of the
Company's Common Stock as of June 30, 1995, all of which shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in a series of the DFA Investment Trust Company, a
Delaware Business Trust, or the DFA Group Trust and the DFA Participating
Group Trust, investment vehicles for qualified employee benefit plans, for
all of which Dimensional serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares. Dimensional has sole
dispositive power over all of such 167,491 shares and sole voting power
over 127,769 of such shares. Persons who are officers of Dimensional serve
as officers of open-end investment companies mentioned above and in such
capacity vote the balance of 39,722 shares.
(3) The Robertson Stephens Orphan Fund (the "Fund") beneficially owns 160,896
shares of the Company's Common Stock and has shared voting and dispositive
power over all of such 160,896 shares. Bayview Investors, Ltd., a general
partner of the Fund, Robertson, Stephens & Company Investment Management,
L.P., a general partner of the Fund and Paul H. Stephens, the Investment
Manager of the Fund are also all beneficial owners of such 160,896 shares
with shared voting and dispositive power over the shares.
2
<PAGE>
BENEFICIAL OWNERSHIP OF DIRECTORS, NOMINEES FOR DIRECTOR AND EXECUTIVE OFFICERS
The following table sets forth, as of August 31, 1995, certain information
concerning the beneficial ownership of the equity securities of the Company of
(i) each director and nominee for director of the Company, (ii) the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company who earned in excess of $100,000 during fiscal 1995 and (iii)
all directors and executive officers of the Company as a group.
The percentages set forth in the following table as to each person's
ownership of the Company's Common Stock are based on the 2,689,185 shares
outstanding on August 31, 1995, plus any shares which may be acquired upon
exercise of stock options held by such person which are exercisable on or within
sixty days after August 31, 1995. Accordingly, the percentages are based upon
different denominators.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF OF COMMON STOCK PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED (1) OF CLASS
------------------- ------------------------ -----------
<S> <C> <C>
Lewis J. Colby, Jr................................ 14,915 (2) *
Adolphe G. Gueymard............................... 17,667 (2)(3) *
Thomas B. Hayward................................. 8,824 (2) *
Henry F. Owsley................................... 10,461 (2) *
Karl M. Samuelian................................. 4,920 (4) *
Donn A. Starry.................................... 7,667 (2) *
John W. Weil...................................... 14,612 (2) *
Alan C. Kolb...................................... 77,295 (2) 2.8%
Kedar D. Pyatt, Jr................................ 45,444 (2) 1.7%
Sean M. Maloy..................................... 22,409 (2) *
Donald M. Roberts................................. 2,292 (2) *
Eduardo M. Waisman................................ 7,650 (2) *
All Directors and Executive Officers as a group
(15 persons).................................. 253,274 (2) 8.9%
</TABLE>
- ------------------
* Less than 1% ownership.
(1) Information with respect to beneficial ownership is based on information
furnished to the Company by each shareholder included in the table. Except
as indicated in the notes to the table, each shareholder included in the
table has sole voting and dispositive power with respect to the shares shown
to be beneficially owned by such shareholder. The table may not reflect
limitations on voting power and investment power arising under community
property and similar laws.
(2) Includes the following numbers of shares acquirable under options which were
exercisable on or within sixty days after August 31, 1995: Alan C. Kolb,
35,452; Kedar D. Pyatt, Jr., 14,336; Sean M. Maloy, 21,988; Donald M.
Roberts, 1,500; Eduardo M. Waisman, 7,650; Messrs. Gueymard, Starry, Hayward
and Drs. Weil and Colby, 7,667 each; Mr. Owsley, 5,461; and all directors
and executive officers as a group, 142,322.
(3) Does not include 1,157 shares held of record by Mr. Gueymard's wife. Mr.
Gueymard disclaims beneficial ownership of such shares.
(4) Does not include 8,667 shares subject to options granted on October 24,
1995, under the Company's 1995 Stock Option Plan. These options are fully
exercisable and are subject to shareholder approval of the 1995 Stock Option
Plan at the Meeting.
3
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three classes, with the
terms of office of each class ending in successive years. The terms of the
three directors currently serving in Class III expire with this Annual Meeting
of Shareholders. The directors in Class I and Class II will continue in office
until their terms expire at the 1996 and 1997 Annual Meeting of Shareholders,
respectively. Each director elected in Class III at the Meeting will hold
office for a term expiring at the 1998 Annual Meeting of Shareholders and until
his successor is duly elected and qualified.
Holders of Common Stock are entitled to cast one vote for each share held for
each of three nominees for director in Class III. The three nominees receiving
the greatest number of votes will be elected directors of the Company in Class
III. It is intended that the shares represented by the enclosed proxy will be
voted, unless otherwise instructed, for the election of the three nominees named
below. While the Company has no reason to believe that any of the nominees will
be unable to stand for election as a director, it is intended that if such an
event should occur, such shares will be voted for the remainder of the nominees
and for such substitute nominee or nominees as may be selected by the Board of
Directors.
Set forth below is certain information regarding the nominees for director
and the other directors of the Company who will continue in office for terms
extending beyond the Meeting.
NOMINEES FOR ELECTION AS DIRECTORS
PERIOD SERVED AS A DIRECTOR,
POSITIONS AND OTHER RELATIONSHIPS
WITH THE COMPANY, AND BUSINESS
NAME AND AGE EXPERIENCE
------------ ---------------------------------
Alan C. Kolb, 66 Dr. Kolb has been a director of the Company
(Class III) since 1970. He also served as a director from
July, 1965 to October, 1967. From 1970 until June,
1980, Dr. Kolb was President and Chief Executive
Officer of the Company. He was elected Chief
Executive Officer of the Company in June, 1980 and
in August, 1992, Dr. Kolb also assumed the duties
of President of the Company. From 1980 to 1995
Dr. Kolb served as Chairman of the Board.
Karl M. Samuelian, 63 Mr. Samuelian has been a director and Secretary
(Class III) of the Company since 1967. From 1978 to June,
1980, he also held the office of Chairman of the
Board of the Company. For more than five years,
Mr. Samuelian has been a shareholder in the law
firm of Parker, Milliken, Clark, O'Hara &
Samuelian, A Professional Corporation, and a
partner in the predecessor law partnership. The
Company retained the firm of Parker, Milliken,
Clark, O'Hara & Samuelian, A Professional
Corporation to provide legal services during
fiscal 1995 and said firm has been retained in the
current fiscal year.
4
<PAGE>
PERIOD SERVED AS A DIRECTOR,
POSITIONS AND OTHER RELATIONSHIPS
WITH THE COMPANY, AND BUSINESS
NAME AND AGE EXPERIENCE
------------ ---------------------------------
Thomas B. Hayward, 71 Thomas B. Hayward, U.S. Navy (Retired), is
(Class III) President of Thomas B. Hayward Associates, Inc.,
an executive consulting firm. Admiral Hayward
served as the Chief of Naval Operations of the
United States Navy from 1978 until his retirement
from active service with the Navy in July, 1982.
He is a director of Litton Industries. He was
appointed a director of the Company in October,
1987.
DIRECTORS CONTINUING IN OFFICE
Adolphe G. Gueymard, 82 Mr. Gueymard has served as a director of the
(Class I) Company since April, 1979. For more than five
years, Mr. Gueymard has been a petroleum and
financial consultant to various business
enterprises. He also is an independent investor in
oil and gas ventures.
John W. Weil, 67 Dr. Weil has been a director of the Company since
(Class I) June, 1981. From 1974 until 1983, he was a Senior
Vice President and Chief Technical Officer of The
Bendix Corporation. For more than the past five
years, Dr. Weil's principal occupation has been as
a consultant through Weil Associates, Inc., a firm
of which he is the President and sole employee.
Dr. Weil is also a director of Access Corporation.
Sean M. Maloy, 37 Mr. Maloy has been a director of the
(Class I) Company since March, 1994. On that same date, he
assumed the duties of Executive Vice President and
Chief Operating Officer. From 1985 to 1994, he was
Vice President - Finance and Administration and
Chief Financial Officer of the Company and from
1982 to 1985, Corporate Controller.
Lewis J. Colby, Jr., 61 Dr. Colby has been a director of the
(Class II) Company since December, 1983. He was a Senior Vice
President-Technology of Allied-Signal, Inc. from
1985 until his retirement on January 1, 1989 and
held the same position with Allied Corporation
from 1981 to 1985.
5
<PAGE>
PERIOD SERVED AS A DIRECTOR,
POSITIONS AND OTHER RELATIONSHIPS
WITH THE COMPANY, AND BUSINESS
NAME AND AGE EXPERIENCE
------------ ---------------------------------
Donn A. Starry, 70 General Starry, U.S. Army, Retired, has been a
(Class II) director of the Company since July, 1988, and was
named Chairman of the Board in October, 1995.
General Starry retired from the Army in 1983 after
forty years of active service, which included
command of the Armor Center and School at Fort
Knox, the Fifth United States Corps in U.S. Army
Europe, the U.S. Army Training and Doctrine
Command, and the United States Readiness Command.
Subsequently, he joined Ford Aerospace Corporation
where he served briefly as Vice President-Mission
Analysis and Technical Affairs and then for three
years as Vice President/General Manager of the
Space Missions Group. From January 1, 1987 until
his retirement from industry in 1990, he served as
an Executive Vice President and Special Assistant
to the Chief Executive Officer of BDM
International. A two term member of the Defense
Science Board, he is presently advisor to industry
and government in the United States and several
foreign countries on matters relating to
armor/anti-armor combat systems and command
control systems for military operations at
tactical and operational levels, and relating to
large scale command control systems at strategic
levels for military and other applications.
Henry F. Owsley, 40 Mr. Owsley is a founding partner of Gordian
(Class II) Group, L.P., a financial advisory and merchant
banking firm formed in 1988. He has served as a
director of the Company since 1991. Mr. Owsley is
also a director of Intelogic Trace, Inc.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five regular and
special meetings during fiscal 1995. All directors except Kedar D. Pyatt, Jr.
attended at least 75% of the aggregate of (a) the total number of meetings of
the Board of Directors and (b) the total number of meetings of all committees of
the Board on which he served.
The Company has an audit committee, the function of which is to assist the
Board of Directors in fulfilling its responsibilities with respect to corporate
accounting, auditing and reporting practices. In performing such function, the
audit committee maintains a direct line of communication with the Company's
independent auditors. The audit committee held three meetings during fiscal
1995. Its current members are Messrs. Gueymard, Hayward, Colby, Starry, Owsley
and Weil.
The Company also has a Compensation Committee which authorizes and reviews
officers' compensation. This committee held one meeting during fiscal 1995, and
its current members are Messrs.
6
<PAGE>
Samuelian, Gueymard, Hayward, Weil, Colby, Starry, and Owsley. The Company has
no nominating committee.
COMPENSATION OF DIRECTORS
Each director of the Company (other than Messrs. Starry, Kolb, Maloy and
Pyatt who receive no compensation other than that received in their capacities
as officers of the Company, and Mr. Samuelian who, in addition to his
compensation as an officer of the Company, receives the meeting fee only)
receives compensation of $2,268 per quarter and $810 per Board and Committee
meeting attended ($405 per Board or Committee telephonic meeting in which such
director participates).
For serving as Chairman of the Board and as head of the committee of the
Board in charge of selecting a new President and CEO-designee, General Starry
receives, beginning October 1, 1995, $15,000 per month and will be entitled to
the sum of $100,000 upon successful completion of the selection process.
Monthly amounts paid to General Starry after six months shall be credited toward
said $100,000 payment.
Director Option Plan. The Company maintains the Maxwell Laboratories, Inc.
Director Stock Option Plan (the "Director Option Plan") which authorizes the
granting of options to purchase a maximum of 132,300 shares of the Company's
Common Stock to non-employee directors of the Company and its subsidiaries
through the tenth anniversary of adoption of the Plan in 1989. Persons who are
non-employee incumbent directors (or directors emeritus) of the Company are the
only persons eligible to participate in the Director Option Plan.
The Director Option Plan is administered by the Board of Directors of the
Company. Under the Plan, each non-employee director automatically receives
annual grants of options to purchase 1,000 shares of the Company's Common Stock
on the first business day following the scheduled organizational meeting of the
Board of Directors of the Company, provided that any eligible director on the
date of any such annual grant who was not a member of the Board of Directors on
the date of the preceding grant of options under the Director Option Plan and
who was not an employee of the Company at any time after the date of such
preceding grant will receive an initial grant of options to purchase 3,000
shares of the Company's Common Stock.
The purchase price of shares covered by an option granted under the Director
Option Plan is the fair market value of the Company's Common Stock on the date
of grant of the option. Each option granted under the Director Option Plan
becomes exercisable in full on the first anniversary of the date on which it was
granted, provided that no such option may be exercised after the expiration of
ten years from the date of grant. Options to purchase an aggregate of 51,463
shares have been granted to the Company's non-employee directors (and director
emeritus) under the Director Option Plan and are outstanding thereunder.
Director Stock Purchase Plan. The Company maintains the Maxwell
Laboratories, Inc., 1994 Director Stock Purchase Plan (the "Director Purchase
Plan"), under which directors, other than those who are full-time employees of
the Company, have the opportunity to purchase directly from the Company shares
of Common Stock at 100% of the public trading price of the shares. A maximum of
50,000 shares have been authorized for purchases by directors under the plan.
The Director Purchase Plan is administered by the Board of Directors and
authorizes purchases by eligible directors, in accordance with the terms and
conditions of the plan, from and after January 1, 1995, the effective date of
the plan, until the earlier of ten years thereafter or the issuance of all
shares authorized for purchase. All incumbent directors who are not employed by
the Company on a full-time basis are eligible to purchase stock under the plan.
7
<PAGE>
The purchase price of shares purchased under the plan is the closing price of
the stock on the public trading market on the day on which the Company receives
the director's request for purchase. In the event that directors seek to
purchase in the aggregate more shares than are then available for purchase under
the plan, the Company will reduce the number of shares to be purchased by the
directors in proportion to the number originally requested. Shares purchased
under the plan will be issued directly by the Company and will be without
restriction as to trading, except such restrictions as are applicable generally
to directors of public companies under the securities laws.
PROPOSAL TO APPROVE THE COMPANY'S
1995 STOCK OPTION PLAN
The Board of Directors has adopted, subject to shareholder approval, the
Maxwell Laboratories, Inc. 1995 Stock Option Plan (the "1995 Plan") which
authorizes the granting of options to purchase a maximum of 250,000 shares of
the Company's Common Stock to key employees of the Company and its subsidiaries,
including officers and directors who are also employees. The principal features
of the 1995 Plan are summarized below.
REASONS FOR THE 1995 PLAN
The Board of Directors of the Company believes that the Company's ability to
grant stock options to key employees assists the Company in attracting and
retaining key employees by affording them an opportunity to acquire a
proprietary interest in the Company. The Company's principal employee stock
incentive program has been the 1985 Stock Option Plan (the "1985 Plan"), under
which, similar to the proposed 1995 Plan, options have been granted to key
employees. The term of the 1985 Plan expired on October 24, 1995, and no
options may be granted under the 1985 Plan after that date. In view of the
above factors, on October 24, 1995, the Board of Directors adopted the 1995
Plan, subject to shareholder approval, authorizing the granting to key employees
of options to purchase a maximum of 250,000 shares of the Company's Common
Stock.
TERMS AND CONDITIONS OF THE PLAN
The 1995 Plan authorizes the granting during the period commencing on October
24, 1995, the date of adoption of the 1995 Plan by the Board of Directors of the
Company, and concluding on the tenth anniversary thereof, of stock options to
purchase in the aggregate 250,000 shares of the Company's Common Stock. As of
the date of this Proxy Statement, options to purchase 8,667 shares have been
granted under the 1995 Plan to Karl Samuelian, Secretary of the Company, and
such options are subject to shareholder approval of the 1995 Plan at the
Meeting. The 1995 Plan provides the flexibility for the grant of options
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") and options which do not
so qualify, referred to as "non-qualified stock options."
The 1995 Plan will be administered by the Board of Directors of the Company
or, at the discretion of the Board, by a Stock Option Committee appointed by the
Board (the "Committee"). The Board of Directors of the Company has delegated
the authority to administer the 1995 Plan to the Committee. Subject to the
provisions of the 1995 Plan, the Committee has the authority to determine the
employees to whom and the times at which options are granted, the price and
terms of and the number of shares covered by each option, and with respect to
each option granted under the 1995 Plan, whether it is intended to be an
incentive stock option or a non-qualified stock option.
There are no limitations as to the minimum or maximum number of shares of
Common Stock that may be optioned to any one eligible individual. However, the
number of shares as to which incentive stock options may become exercisable by
any one individual for any calendar year is limited to a dollar
8
<PAGE>
value of $100,000 (measured by the fair market value of the shares on the date
of grant). Any options becoming exercisable in excess of such limit in any
calendar year will be non-qualified stock options.
The purchase price of shares with respect to which an option is granted under
the 1995 Plan and the terms covering payment of such purchase price are
determined by the Committee in its sole discretion, but such price may not be
less than 100% of the fair market value of the shares on the date the option is
granted, as such fair market value is determined in good faith. In the event,
however, that an incentive stock option is granted to an employee who, at the
time the option is granted, owns stock representing more than ten percent of the
total combined voting power of all classes of stock of the Company or any
subsidiary, the purchase price of shares with respect to which such option is
granted must be at least 110% of the fair market value of the shares on the date
of grant.
Options granted under the 1995 Plan will be exercisable in such increments
and at such times as the Committee shall specify, provided that no incentive
stock option may be exercised after the expiration of ten years from the date of
grant, or five years from the date of grant with respect to options granted to
an employee who owns more than 10% of the outstanding shares of the Company's
stock. No non-qualified stock option may be exercised more than eleven years
after the date of grant. Shares covered by the unexercised portion of any
terminated or expired option may again be subject of further options under the
1995 Plan.
Upon any exercise of an option granted under the 1995 Plan, the purchase
price of the shares purchased upon such exercise shall be paid in full (i) in
cash, (ii) by delivery to the Company of shares of its Common Stock having a
fair market value equal to the purchase price or (iii) by a combination of cash
and stock. The fair market value of shares of the Company's Common Stock
delivered in full or partial payment of the exercise price of an option will be
determined by the Committee as of the date of exercise in the same manner by
which the fair market value of shares of the Company's Common Stock is
determined on the date of grant of an option.
The Company will receive no consideration upon the grant of any option under
the 1995 Plan. Cash proceeds received by the Company from the sale of Common
Stock pursuant to the exercise of options granted under the 1995 Plan will
constitute general funds of the Company which may be used for general corporate
purposes.
Under the 1995 Plan, if an optionee's employment with the Company is
terminated for any reason, the number of shares purchasable under any option
granted thereunder held by such optionee is limited to the number of shares
which are purchasable by him at the date of such termination. If termination of
employment occurs for any reason other than such optionee's death, the option
will expire unless exercised by him within sixty days after the date of such
termination. If termination of employment occurs by reason of death, the option
will expire unless exercised by the optionee's successor within one year after
the date of death.
Options granted under the 1995 Plan are exercisable only by the optionee
during his lifetime and are not transferable except by will or the laws of
descent and distribution.
In the event of any change in the Common Stock by reason of recapitalization,
reclassification, stock split-up, combination of shares, stock dividend, or like
capital adjustment, the 1995 Plan provides that the Board of Directors shall
make appropriate adjustments in the aggregate number, class and kind of shares
available for option grants under the 1995 Plan or subject to outstanding
options thereunder and also make appropriate adjustments in the per share
exercise price of outstanding options.
In the event of the merger, consolidation or other reorganization of the
Company, or in the event of any dissolution or liquidation of the Company, the
1995 Plan provides that the Board of Directors shall elect either to (i)
appropriately adjust the number, class, kind and exercise price of shares
subject
9
<PAGE>
to all outstanding options thereunder and shares which may become subject to
options granted thereafter, or (ii) terminate the 1995 Plan and any options
theretofore granted thereunder, subject to the right of optionees under the 1995
Plan to exercise, in whole or in part (including the portions of options which
may not otherwise have been exercisable due to any insufficient passage of
time), their options during a period of not less than thirty days following
notification by the Company of the event causing such termination.
The 1995 Plan may be amended, suspended or terminated by the Board of
Directors of the Company at any time, except that no amendment, suspension or
termination may affect, without his consent, any right or obligation of an
optionee under an option theretofore granted to him, and except that no
amendment made without shareholder approval shall (i) increase the maximum
number of shares for which options may be granted (except pursuant to
adjustments of the types described above), (ii) change the provisions relating
to the expiration dates of options, (iii) change the provisions relating to the
establishment of the option price (except pursuant to adjustments of the types
described above), or (iv) change the expiration date of Plan. No options may be
granted under the 1995 Plan after its termination on October 24, 2005.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. No federal income tax consequences result from the
grant of an incentive stock option, and generally the exercise of an incentive
stock option will not result in the recognition of income by an optionee. If an
optionee satisfies certain holding period requirements for shares acquired upon
the exercise of an incentive stock option, the full amount of his gain upon the
sale of such shares (measured by the difference between the amount of his
proceeds of sale less the exercise price) will normally be treated as long-term
capital gain. The Company will not be entitled to any deduction under such
circumstances.
Non-Qualified Options. No federal income tax consequences result from the
grant of a non-qualified stock option. Generally, an optionee will recognize
ordinary income upon exercise of a non-qualified stock option in an amount equal
to the difference between the fair market value on the date of exercise of the
shares acquired upon exercise of the option and the aggregate exercise price for
such shares. The Company will be entitled to an income tax deduction equal to
the amount of ordinary income recognized by an optionee as a result of the
exercise of a non-qualified stock option.
The preceding discussion under the heading "Federal Income Tax Consequences"
is based on federal tax laws and regulations as in effect on the date of this
Proxy Statement and does not purport to be a complete description of the federal
income tax aspects of the 1995 Plan.
VOTE REQUIRED FOR APPROVAL
Approval of the 1995 Plan by the shareholders of the Company will require the
affirmative vote of a majority of the shares of Common Stock present and
represented at the Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF THE COMPANY'S 1995 STOCK OPTION PLAN.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth as to the Chief Executive Officer, and each of
the other four most highly compensated executive officers of the Company who
earned more than $100,000 in fiscal 1995, information concerning compensation
for services rendered in all capacities to the Company and its
10
<PAGE>
subsidiaries during each of the fiscal years ended July 31, 1995, 1994 and 1993
in which such individuals served as an executive officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation (1) -------------------------------------
------------------------- Other Annual Restricted Stock Option Grants All Other
Name and Position Year Salary Bonus Compensation(2) (3) Stock Award(s) (Number of Shares) Compensation (4)
- ------------------------- ---- -------- ------- ------------------- -------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alan C. Kolb 1995 $274,806 -0- $49,731 -0- 20,000 $ 4,500
President, Chief 1994 292,015 -0- 13,266 -0- -0- 27,393
Executive Officer 1993 268,800 $25,000 4,071 -0- 10,000 40,893
and Director
Sean M. Maloy 1995 174,602 -0- -0- -0- 20,000 4,409
Executive Vice 1994 183,974 -0- -0- -0- -0- 13,865
President, Chief 1993 157,500 15,000 -0- -0- 7,000 14,756
Operating Officer
and Director
Kedar D. Pyatt 1995 171,602 -0- -0- -0- 5,000 4,182
Sr. Vice 1994 181,746 -0- 5,393 -0- -0- 10,039
President, 1993 168,000 10,000 -0- -0- 2,000 15,024
Chief Technical
Officer, and
Director
Donald M. Roberts(5) 1995 150,010 -0- -0- -0- -0- -0-
General Counsel 1994 46,734 -0- -0- -0- 5,000 -0-
Eduardo M. Waisman (5) 1995 141,400 -0- -0- -0- 15,000 4,242
Vice President 1994 113,175 -0- -0- -0- -0- 5,554
</TABLE>
_______________________
(1) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers under the Company's Savings Plan.
(2) Represents the amounts paid to Dr. Kolb during fiscal years 1995, 1994 and
1993 and to Dr. Pyatt during fiscal year 1994 to defray income taxes payable
by them in connection with the receipt of the supplemental retirement
annuities described below.
(3) Does not include the dollar value of certain perquisites and other personal
benefits, securities or property the recipient received as personal
benefits. Although such amounts cannot be determined precisely, the Company
has concluded that the aggregate amount thereof does not exceed as to any of
the named individuals the lesser of $50,000 and 10% of the total salary and
bonus paid to such individual for fiscal 1995.
(4) The amounts shown in this column for fiscal 1995 consist of matching
contributions made by the Company under its Savings Plan.
(5) Appointed an executive officer during fiscal 1994.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information on grants of stock options pursuant to
the Company's 1985 Stock Option Plan to the four executive officers of the
Company out of the five named in the foregoing Summary Compensation Table who
received such grants in fiscal 1995. Pursuant to the Securities and Exchange
Commission rules, the table also shows the value of the options granted at the
end of the ten-year option terms if the stock price were to appreciate annually
by 5% and 10% respectively. There is no assurance that the stock price will
appreciate at the rates shown in the table.
11
<PAGE>
The table also indicates that if the stock price does not appreciate, there
will be no realizable value of the options granted.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Percentage of Stock Price
Total Options Appreciation for
Granted to Exercise Option Term
Options Employees in Price Expiration ----------------------------
Name Granted (1) FY 1995 (2) (per share) Date 0% 5% 10%
---- ---------- ------------ ---------- ---------- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Alan C. Kolb 20,000 17.86% $7.50 09-11-99 $-0- $41,440 $91,580
Sean M. Maloy 20,000 17.86% $7.50 09-11-99 $-0- $41,440 $91,580
Kedar D. Pyatt, Jr. 5,000 4.46% $7.50 09-11-99 $-0- $10,360 $22,890
Eduardo M. Waisman 15,000 13.39% $7.50 09-11-99 $-0- $31,080 $68,680
</TABLE>
- --------------------
(1) Such options were all granted under the Company's 1985 Stock Option Plan.
The purchase price of shares covered by such stock options may not be less
than the fair market value of the Company's Common Stock at the date of
grant. The term of each such option is ten years and the increments in
which it is exercisable are determined by the committee which administers
the 1985 Plan.
(2) Total options include options covering 7,000 shares granted to directors
under the Company's Director Stock Option Plan.
FISCAL YEAR END OPTION VALUES
Shown below is information with respect to the value of unexercised options
to purchase the Company's Common Stock held by each of the five named executive
officers of the Company and granted to them in fiscal 1995 and prior years
under the Company's 1985 Stock Option Plan, measured in terms of the closing
price of the Company's Common Stock on July 31, 1995, the last day of the
Company's fiscal year 1995. None of the five named executive officers exercised
any stock options during fiscal 1995.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options Held at In-the-Money Options at
Name July 31, 1995 July 31, 1995
- ---- ----------------------------- ----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Alan C. Kolb 29,452 24,200 -0- $10,000
Sean M. Maloy 15,988 22,940 $1,737 $10,000
Kedar D. Pyatt, Jr. 12,836 5,840 -0- $ 2,500
Donald M. Roberts 1,500 3,500 $ 750 $ 1,750
Eduardo M. Waisman 3,150 17,100 -0- $ 7,500
</TABLE>
The following Shareholder Return Performance Graph and the Report of the
Compensation Committee and Stock Option Committee on Executive Compensation
included in this Proxy Statement shall not be deemed to be incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent the Company specifically incorporates
the Performance Graph or the Compensation Committee/Stock Option Committee
Report by reference therein, and shall not be deemed soliciting material or
otherwise deemed filed under either of such Acts.
12
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the five year cumulative total
return to shareholders on the Company's Common Stock with the five year
cumulative total return on the NASDAQ and a peer group of comparable companies
identified therein.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG MAXWELL LABORATORIES, INC., NASDAQ, AND INDUSTRY PEER GROUP
YEAR ENDING JULY 31, 1990-1995
[PERFORMANCE GRAPHIC APPEARS HERE]
<TABLE>
<CAPTION>
MAXWELL
Measurement Period LABORATORIES, INDUSTRY
(Fiscal Year Covered) INC. NASDAQ PEER GROUP
- --------------------- ------------- ------ ----------
<S> <C> <C> <C>
Measurement Pt- 07/31/90 $100 $100 $100
FYE 07/31/91 $128.9 $117.4 $135.7
FYE 07/31/92 $105.4 $137.4 $116.9
FYE 07/31/93 $137.0 $168.1 $161.4
FYE 07/31/94 $ 91.3 $172.7 $171.6
FYE 07/31/95 $ 85.8 $236.3 $286.5
</TABLE>
ASSUMES $100 INVESTED 7/31/90 IN MAXWELL LABORATORIES, INC. COMMON
STOCK, NASDAQ, AND INDUSTRY PEER GROUP (DIVIDENDS REINVESTED)
INDUSTRY PEER GROUP INCLUDES: CALIFORNIA MICROWAVE, COHERENT, INC.,
CUBIC CORPORATION, ILC TECHNOLOGY, INC., KAMAN CORPORATION CLA, TITAN
CORPORATION, AND WATKINS-JOHNSON
REPORT OF THE COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE ON EXECUTIVE
COMPENSATION
As described in more detail below, the Company's executive compensation
consists of three principal components--base salary and annual incentive
compensation as determined by the Compensation Committee of the Board of
Directors and stock option awards as determined by the Stock Option Committee of
the Board of Directors.
A formal Compensation Committee of the Board of Directors of the Company was
established during fiscal year 1993 and is comprised of all directors other than
Drs. Kolb and Pyatt and Mr. Maloy. The compensation policies of the Company are
designed to set its executive compensation, including salary and short-term and
long-term incentive programs, at a level consistent with amounts paid to
executive officers of companies of similar size and marketplace orientation. In
this regard, from time to time over the last approximately ten years, the
Company has retained the services of a nationally recognized consulting firm
specializing in executive compensation issues to perform market
13
<PAGE>
analyses of competitive compensation practices for selected executive officers.
The compensation policies of the Company are also designed to link executive
officer compensation to the Company's performance in the short-term and long-
term, to reward individual achievement and to attract and retain qualified
executives.
The Company's executive compensation consists of three principal components:
(1) Base Salary. Base salary is intended to be set at a level consistent
with amounts paid to executive officers of companies of comparable size
and business areas and generally reflective of the performance of the
Company and the individual. Salaries for executive officers other than the
Chief Executive Officer are reviewed on an annual basis; the base salary
for the Chief Executive Officer is reviewed every eighteen months. In
light of the Company's disappointing loss reported in fiscal 1994, no
salary increases were instituted for the executive officers in fiscal
1995. In addition, during fiscal 1994, in a continuing effort to bring
the Company's costs in line with its business base and as a part of other
restructuring efforts in that fiscal year, the salaries of Messrs. Kolb,
Maloy and Pyatt were reduced by 10% effective in March of 1994 and such
reduction continued throughout fiscal 1995.
(2) Annual Incentive Compensation. For a number of years prior to fiscal
1995, the Company maintained a Management Incentive Bonus Plan under which
annual bonuses to executive officers were based on formulae involving
quantitative factors such as corporate and divisional profitability
compared to target levels of profitability and return on shareholders'
equity thresholds and qualitative factors such as perceived individual job
performance and achievement. In view of the uncertainty regarding
financial targets to establish for fiscal 1995, such a plan was not
established for fiscal 1995 and no bonuses were awarded in fiscal 1995 to
executive officers.
(3) Long Term Incentive Compensation/Stock Options. The Company's long-
term incentive program consists of a stock option program pursuant to
which the Chief Executive Officer and other executive officers (as well as
other key employees) are periodically granted stock options at the then
fair market value of the Company's Common Stock. These options are
designed to reward and retain executive officers over the long-term and to
link the value of the incentive to increases in the Company's stock price
over time benefiting shareholders as a whole. Options granted to the
executive officers identified in the Summary Compensation Table during
fiscal 1995 are set forth in the table above under the caption "Option
Grants in Last Fiscal Year."
Dated: October 31, 1995.
COMPENSATION COMMITTEE
Lewis J. Colby, Jr.
Adolphe G. Gueymard
Thomas B. Hayward
Henry F. Owsley
Karl M. Samuelian
Donn A. Starry
John W. Weil
STOCK OPTION COMMITTEE
Lewis J. Colby, Jr.
Donn A. Starry
John W. Weil
14
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1995, the Compensation Committee of the Board of Directors was
comprised of directors Colby, Gueymard, Hayward, Starry, Samuelian, Weil and
Owsley. The same directors continue to serve on the Compensation Committee at
the present time.
Mr. Samuelian is the Secretary of the Company and is a shareholder in the law
firm of Parker, Milliken, Clark, O'Hara & Samuelian, A Professional Corporation.
The Company retained the firm of Parker, Milliken, Clark, O'Hara & Samuelian, A
Professional Corporation to provide legal services during fiscal 1995 and said
firm has been retained in the current fiscal year.
COMPENSATION PURSUANT TO PLANS
Maxwell Laboratories, Inc. Retirement Plan. The Company maintains the
Maxwell Laboratories, Inc. Retirement Plan (the "Retirement Plan") which is a
tax-qualified plan under the Internal Revenue Code of 1986, as amended (the
"Code"). Substantially all employees of the Company, including all executive
officers of the Company are eligible to participate in the Retirement Plan upon
their date of hire. The annual amount of the Company's contribution is 5% of
the compensation of plan participants, unless the Board of Directors exercises
its discretion in a particular year to set a greater or lesser contribution. As
a part of the cost reduction efforts in fiscal 1994, the Board suspended
contributions to the Retirement Plan in January, 1994, and such suspension
continued throughout fiscal 1995. The Board will examine reinstatement of
contributions when the operations have achieved a minimum level of
profitability. Contributions to the Retirement Plan are allocated among the
participants based upon each participant's compensation, including any bonuses,
commissions, deferred compensation and incentive compensation, but excluding any
compensation earned in any period during which an employee was not a participant
in the Retirement Plan. After completing three years of service, participants
attain a vested right to 50% of the Company's contributions made on their
behalf. Thereafter, participants attain a vested right to contributions at the
rate of 25% for each year of service and become fully vested after five years of
service.
Maxwell Laboratories, Inc. Savings Plan. The Company maintains a savings
plan under Section 401(k) of the Code ("Savings Plan") pursuant to which plan
eligible employees of the Company (including executive officers) may elect, from
time to time, to make contributions of up to 10% of their compensation from the
Company. The Company will make a matching contribution equal to 50% of the
first 6% of compensation contributed by a participant. All employees of the
Company are eligible to participate in the Savings Plan after completing one
year of service. Subject to applicable legal limitations, amounts contributed
to the Savings Plan by a participant will not be subject to federal income tax
until distributed from the Savings Plan (at such times as distributions are
permitted or required), and the Company will be entitled to a deduction for
federal income tax purposes equal to the amount of the participant's
contribution (and Company matching contribution) under the Savings Plan.
Participant contributions to the Savings Plan, and the Company's matching
contributions, are fully vested.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN CONTROL
ARRANGEMENTS
Employment Agreements. In June 1989, the Company entered into Employment
Agreements with Alan C. Kolb and Kedar D. Pyatt, Jr. Each Employment Agreement
was originally for a term ending July 31, 1994 and provides that on February 1,
1991 and each subsequent year during the term thereof, the Board of Directors
shall determine whether to extend the term for one or more additional years.
The term of each of such Employment Agreement is currently scheduled to expire
July 31, 1996. The Employment Agreements each provide that the employee will be
required to perform the duties for the Company he was performing on the date of
the agreement, plus such other and different duties as may be mutually agreed by
the Company and the employee, and that the employee will receive as compensation
the salary and incentive bonus to which he was then entitled, as well as other
fringe
15
<PAGE>
benefits then being provided by the Company. Any future increases in the
employee's compensation, bonus and benefits will be as determined by the Board
of Directors in accordance with its normal practices.
Each Employment Agreement provides that in the event the employee's
employment is terminated by the Company other than for cause (as defined in the
agreement) or by the employee for good reason (as defined in the agreement), the
Company will generally be obligated to pay the employee a lump sum severance
payment in the amount of the present value of the salary and bonus payments
which would have been made to the employee had he continued employment during
the then remaining term of the Employment Agreement, plus the value in cash, or
the actual benefits, of the other fringe benefit programs then covering the
employee for the period of the remaining term of the Employment Agreement. If
such severance payments are determined to be "parachute payments" under Section
280G of the Internal Revenue Code, the Company is not obligated to make that
portion of such payments which, if paid, would result in some or all of such
payments not being deductible to the Company by reason of Section 280G. If the
employee's employment is terminated by the Company for cause, by the employee
for other than good reason, or by reason of disability or death, then the
Company is obligated only to pay the employee what he had accrued through the
date of termination of employment plus, in the case of disability or death, such
further benefits as may be provided under applicable fringe benefit programs of
the Company.
Severance Pay Plan. The Company adopted in June, 1989 the Maxwell
Laboratories, Inc. Special Severance Pay Plan (the "Severance Pay Plan"). Any
key employee of the Company or any subsidiary who does not have an individual
agreement with the Company providing for severance benefits is eligible to
participate in the Severance Pay Plan upon being designated as a participant by
the Board of Directors of the Company. Sean Maloy has been designated as a
participant in the Severance Pay Plan and has been designated an "Executive
Employee" thereunder.
Under the Severance Pay Plan, a participant is entitled to severance benefits
if (i) he is terminated by the Company during the two-year period following a
change in control (as defined in such Plan) of the Company (other than by virtue
of a termination for good cause, as defined in such Plan) or (ii) if he
terminates his employment with the Company during such two-year period under
circumstances constituting a constructive termination (as defined in the
Severance Pay Plan) such as a significant reduction or alteration of his
responsibilities or a reduction in his base salary. Each such terminated or
terminating employee who is not designated as an Executive Employee under the
Severance Pay Plan is entitled to a severance benefit in the amount equal to the
product of (i) his monthly compensation (as defined in the Plan) and (ii) the
number of years (up to 12 years) during which he was employed with the Company;
provided that in no event shall his severance benefit be less than six times his
monthly compensation. Each such terminated or terminating employee who is
designated as an Executive Employee under the Plan is entitled to a severance
benefit in an amount equal to the product of (i) his monthly compensation and
(ii) the number of years (up to 24 years) during which he was employed with the
Company; provided that in no event shall his severance benefit under the Plan be
less than 18 times his monthly compensation. In addition to the severance
benefit described above, upon a termination of employment under such
circumstances, a participant in the Severance Pay Plan will be entitled to
receive with respect to all outstanding stock options then held by him (whether
or not then fully exercisable), other than incentive stock options granted prior
to the effective date of the Severance Pay Plan, a cash payment in an amount
equal to the appreciation of such options, which options shall be canceled in
exchange for such payment. Severance benefits which are payable to a participant
under the Severance Pay Plan are paid to him in a lump sum, in cash, not later
than five days following the date of termination of his employment.
Certain Supplemental Retirement Annuities. The Company has extended to Drs.
Kolb and Pyatt a benefit in the form of a retirement annuity intended to
supplement the retirement benefits available under the Company's regular
retirement programs. In December, 1989, the Company entered into agreements
with each of Drs. Kolb and Pyatt to provide an annuity estimated to pay him a
benefit
16
<PAGE>
equivalent to what he would receive, on an after-tax basis, from a
standard pension plan providing a benefit of 50% (in the case of Dr. Kolb) or
40% (in the case of Dr. Pyatt) of his average compensation during his three
years of highest compensation in his last five years of employment, reduced by
his social security benefits and by the benefits provided by the Company's tax-
qualified employee benefit plans. To receive the full benefit, except in the
event of death, disability or a change in control of the Company, Dr. Kolb must
remain with the Company for 10 years from the date of his annuity agreement, and
Dr. Pyatt for 9 years from the date of his annuity agreement, after which each
may retire and begin receiving his benefit.
Each year the Company will purchase and deliver to each of Drs. Kolb and
Pyatt an annuity contract funding a pro rata portion of his eventual retirement
annuity, and the Company will also pay each of them a cash payment each year in
an amount calculated to defray the federal and state income taxes payable by
each of them as a result of the receipt of the annuity contract. Each of Dr.
Kolb's and Dr. Pyatt's eventual retirement annuity will be equal to the payments
actually made under the annuity contracts purchased for him.
The annual benefit, after taking into account qualified plans and social
security, estimated to be provided to Dr. Kolb upon completion of the funding of
his retirement annuity is $65,000, and the annual benefit estimated to be
provided to Dr. Pyatt on the same basis upon completion of the funding of his
retirement annuity is $5,000.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP, certified public accountants ("E&Y"), were the Company's
auditors in fiscal 1995.
The Company has engaged E&Y as its auditors for the current fiscal year;
provided, however, that if E&Y shall decline to act or otherwise become
incapable of acting, or if its engagement is otherwise terminated by the Board
of Directors (none of which events are currently anticipated), the Board of
Directors will appoint other auditors for the fiscal year.
Representatives of E&Y will be present at the meeting with an opportunity to
make a statement if they desire to do so and such representatives will be
available to respond to appropriate questions from shareholders in attendance.
SHAREHOLDER PROPOSALS
Shareholders may present proposals for inclusion in the proxy statement and
form of proxy to be used in connection with the 1996 Annual Meeting of
Shareholders of the Company, provided such proposals are received by the Company
no later than July 5, 1996 and are otherwise in compliance with applicable laws
and regulations.
17
<PAGE>
OTHER BUSINESS
The Board of Directors does not intend to present any other business at the
meeting and knows of no other matters which will be presented at the meeting.
By Order of the Board of Directors
Karl M. Samuelian
Secretary
Dated: October 31, 1995
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. IF YOU DO NOT EXPECT TO ATTEND
THE MEETING, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE AS SOON AS POSSIBLE.
18
<PAGE>
APPENDIX A
MAXWELL LABORATORIES, INC.
FISCAL YEAR 1995 FINANCIAL INFORMATION
<PAGE>
MAXWELL LABORATORIES, INC.
INDEX TO APPENDIX A
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations.... A-2
Five-Year Selected Financial Data........................................................ A-5
Consolidated Balance Sheet at July 31, 1995 and 1994..................................... A-6
Consolidated Statement of Income for the Years Ended July 31, 1995, 1994 and 1993........ A-7
Consolidated Statement of Shareholders' Equity for the Three Years Ended July 31, 1995... A-8
Consolidated Statement of Cash Flows for the Years Ended July 31, 1995, 1994 and 1993.... A-9
Notes to Consolidated Financial Statements............................................... A-10
Report of Ernst & Young LLP, Independent Auditors........................................ A-20
</TABLE>
A-1
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the last several years, Maxwell has been transitioning from being
primarily engaged in Government R&D activities to being a provider of
technology-based commercial products and services. In 1995, commercial sales
for the first time comprised more than half of the Company's revenues,
accounting for 57% of the total business. This transition is moving forward as
a result of a combination of external events and our internal strategy.
Externally, cutbacks in overall Defense spending are still negatively impacting
the Company and creating significant issues for management. Fiscal 1995 sales
in the primarily Defense-related technology programs and services (TPS) business
segment fell by over $10 million to $32.2 million, as discussed in the TPS
section below. Indications are that overall Defense funding will continue to
decline, and therefore reduced levels of Defense-related sales are likely for
the Company. While we believe we are approaching the level of Defense work
which could remain a stable core, the level of future Defense cutbacks and the
impact on the Company is not predictable and, therefore, previously reported
results are not necessarily indicative of those to be expected in the future.
Internally, we are managing the transition towards specific strategic objectives
and commercial markets through focused investments, primarily in three core
areas: power conversion components and systems; purification technology; and
information technology. Activities in the commercial, industrial and scientific
products (CIS) business segment reflect this focus, as highlighted in the
discussions below. At the same time, we are continually looking at our cost
structure to keep it in line with forecasted revenues. In this regard, it is
important to note that certain costs, such as facilities, have time periods for
adjustment that are longer than the recent pace of shrinkage in Defense sales.
TPS sales declined by $10.2 million, or 24%, from 1994. As mentioned, this is
attributable to reduced sales in the Company's Defense business base, primarily
related to nuclear weapons effects simulation programs. While this includes
reductions in the systems side of this business area at our Balboa division, it
also reflects an even larger reduction in the software simulation side at the S-
Cubed division. In order to offset this decline, S-Cubed is applying its
capabilities developed in Defense work to commercial networking and software
applications, which are reported in the commercial, industrial and scientific
products business segment. Fiscal 1994 TPS sales of $42.5 million decreased
from $48.5 million in 1993. This decrease also resulted primarily from Defense
cutbacks, the majority of which related to S-Cubed and our Albuquerque division,
which was in transition from a previous operations and maintenance contract to
the follow-on which runs through August 1996. Two months after fiscal 1995
year-end, the Government ceased testing at three radiation simulators which have
been operated by the Balboa division for many years. This facility close down
is part of the Government's response to perceived reduced nuclear threats and
smaller Defense budgets. The division expects to provide funded assistance in
the closure of the facilities over a two-year period, and continues to develop
technology for and operate a next generation simulator for the Government.
Overall, CIS sales were virtually flat at $42.8 million in 1995, compared to
$43.0 million in 1994. However, adjusted for the Brobeck division, which was
discontinued in January 1994, and a large, multi-million dollar turnkey
capacitor bank system at the Balboa division, which was substantially completed
in 1994, remaining CIS sales increased $5.5 million, or 15% over prior year
levels. Increased shipments of PC-based controllers for original equipment
manufacturers at the I-Bus division and commercial software sales in new
business areas at the S-Cubed operation account for most of this increase.
Currently, the new software business at S-Cubed consists primarily of two long-
term fixed price contracts, both of which are scheduled for completion next
year. Fiscal 1994 CIS sales increased by $4.6 million over the $38.4 million of
1993, with increases occurring in most operations. The largest
A-2
<PAGE>
single contributor to that increase was the previously mentioned turnkey
capacitor bank system, which has not been replaced with a similar large project
at the Balboa division.
Cost of sales as a percent of sales was 75.3%, 80.2% and 75.7% in fiscal years
1995, 1994 and 1993, respectively. In the TPS business segment, cost of sales
as a percent of sales has been relatively stable, varying approximately 2.5%
over the three-year period. The percentage was slightly higher last year,
primarily due to the impact in 1994 of inventory reserves established for a
Superconducting Super Collider contract which was partially terminated for the
convenience of the government. Compared to both 1995 and 1993, the CIS cost of
sales percentage in 1994 was higher by approximately 8.7% primarily due to a $2
million write-off on an overseas capacitor contract, and the carrying costs
attributable to the Brobeck division prior to its shut down.
Internally funded research and development expenses were $5,038,000 in fiscal
1995, a 5.1% increase over the $4,794,000 of the prior year. The increase is
primarily due to greater expenditures for software development initiatives at
the S-Cubed division and new PC-based products at I-Bus. These commercial
product developments support the Company's information technology focus area,
and more than offset a reduction in research and development costs at the Balboa
operation. As a percent of total Company sales, internal research and
development expenditures for fiscal 1995, 1994 and 1993 were 6.7%, 5.6% and
6.5%, respectively.
Selling, administrative and general expenses in fiscal year 1995 were
$13,636,000, or 18.2% of sales, compared with $14,068,000 and $13,525,000, or
16.5% and 15.6% of sales for fiscal years 1994 and 1993, respectively.
Administrative expenses were $1.1 million less in the current year than in 1994,
primarily as a result of cost cutting measures implemented in the last part of
1994. In addition, one-time costs were incurred in 1994 associated with
reducing the labor force in the third and fourth quarters. Partially offsetting
the reduction in administrative costs is a $650,000 increase in sales and
marketing expenditures, primarily attributable to I-Bus. I-Bus revenues have
grown at a 28% compound rate over the last four years, and the increase in
marketing expenses at that division has been required to support such growth.
Sales and marketing expenses increased in 1994 over 1993, also in support of
commercialization efforts in new product areas, and, in conjunction with the
one-time labor force reduction costs mentioned above, resulted in the increase
in selling, general and administrative expenses in 1994 over 1993.
Interest expense increased to $315,000 in fiscal 1995, from $252,000 and
$244,000 in 1994 and 1993, respectively, due to a full year of expense on a term
bank loan obtained in February 1994 in the original amount of $2.5 million,
primarily to finance building improvements for the chemical analytical services
laboratory in a Company-owned facility. The Company realized interest income,
which is included in other-net, of $358,000, $164,000 and $264,000 in fiscal
years 1995, 1994 and 1993, respectively. The increase in interest income in
1995 is primarily attributable to interest earned on various tax refunds and
receivables. The decrease in 1994 from 1993 was primarily due to a decrease in
invested funds.
Other-net represents income of $848,000 in 1995, compared to $589,000 and
$35,000 in 1994 and 1993, respectively. As described above, interest income is
included in other-net, and the increase in interest income, and to a lesser
extent the final year of expense during 1994 related to the covenant-not-to-
compete provisions of the I-Bus purchase agreement, comprise the majority of the
change in other-net in fiscal 1995. As compared to 1993, the primary reason for
the increase is the amortization into income of amounts contributed by minority
shareholders upon the organization of PurePulse Technologies (formerly Foodco)
over such shareholders' proportionate share of PurePulse's equity. This
amortization began in the fourth quarter of fiscal 1993, and will continue
through April 1996. Thus, fiscal year 1995 and 1994 other-net includes
$508,000 of such income in each year, compared to $127,000 in 1993.
A-3
<PAGE>
Income tax expense was incurred at an effective rate of 3.6% in 1995, and
39.0% in 1993, while recoverable income taxes were recorded at an effective rate
of 39.0% in 1994. The 3.6% rate in the current year primarily reflects the tax-
free status of the amortized PurePulse gain, which had a less significant effect
on the tax rate in the prior two years due to the greater amount of overall
income or loss in those years. The Company has net deferred tax assets in
excess of deferred tax liabilities of $1,285,000 at July 31, 1995, and had a
loss in the prior fiscal year. The 1994 loss was partially attributable to one-
time charges related to restructuring activities and the shut-down of the
Brobeck division, and given current backlog levels at the various operating
divisions, along with possible asset sales, management believes that the
deferred tax assets are realizable.
INFLATION AND CHANGES IN PRICES
A substantial portion of the Company's business with agencies of the United
States Government consists of cost-reimbursement contracts which permit recovery
of inflation costs. Fixed-price contracts with the government and other
customers typically include estimated costs for inflation in the contract price.
Generally, the Company has been able to increase prices to offset its inflation-
related increased costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintained a strong financial position with working capital of
$17.9 million, a current ratio of 2.4:1, and cash and cash equivalents of $4.1
million at July 31, 1995. In addition, the Company has available a $7.5 million
unsecured bank line of credit. Management believes that funds on hand and those
generated by future operations and available through its bank line of credit
will be sufficient to finance working capital requirements for the foreseeable
future.
A-4
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
FIVE-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
--------------------------------------------------
1995 1994 1993 1992 1991
------- -------- ------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS & RATIOS)
<S> <C> <C> <C> <C> <C>
Sales.............................................. $75,004 $85,463 $86,902 $90,159 $86,312
Costs and expenses................................. 74,588 88,098 85,149 96,851 82,444
------- ------- ------- ------- -------
Income (loss) before income taxes and minority
interest......................................... 416 (2,635) 1,753 (6,692) 3,868
Provision for income taxes......................... 15 (1,028) 683 (2,745) 1,137
Minority interest in net income of subsidiary...... 86 80 48 30 72
------- ------- ------- ------- -------
Net income (loss).................................. $ 315 $(1,687) $ 1,022 $(3,977) $ 2,659
======= ======= ======= ======= =======
Earnings (loss) per share:
Primary.......................................... $ .12 $ (.63) $ .38 $ (1.50) $ 1.00
Fully diluted.................................... $ .12 $ (.63) $ .37 $ (1.50) $ .99
Cash dividends per share........................... $ .40 $ .40
Total assets....................................... $52,370 $54,322 $55,086 $59,925 $56,413
Working capital.................................... $17,855 $18,091 $20,142 $18,410 $22,976
Working capital ratio.............................. 2.37:1 2.31:1 2.49:1 2.02:1 3.24:1
Long-term debt..................................... $ 1,928 $ 2,797 $ 1,515 $ 2,538 $ 1,710
Shareholders' equity at year-end................... $35,364 $34,960 $36,645 $35,456 $40,164
Shares outstanding at year-end..................... 2,689 2,675 2,675 2,656 2,636
Book value per share at year-end.................. $ 13.15 $ 13.07 $ 13.70 $ 13.35 $ 15.24
</TABLE>
A-5
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JULY 31
-----------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current Assets
Cash and cash equivalents...................................................... $ 4,053 $ 4,579
Accounts receivable:
Trade and other, less allowance for doubtful accounts of
$545 in 1995 and $530 in 1994............................................... 9,589 9,883
Long-term contracts -- Note 2................................................ 6,441 6,140
------- -------
16,030 16,023
Inventories and inventoried costs relating to long-term contracts -- Note 12... 7,239 7,608
Recoverable income taxes....................................................... 861 64
Prepaid expenses............................................................... 572 512
Deferred income taxes.......................................................... 2,090 3,135
------- -------
Total Current Assets........................................................ 30,845 31,921
Property, Plant and Equipment, net of accumulated depreciation and
amortization -- Note 12........................................................ 20,315 20,981
Deposits and Other.............................................................. 1,210 1,420
------- -------
$52,370 $54,322
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable............................................................... $ 9,400 $ 9,925
Accrued employee compensation.................................................. 2,681 2,936
Current portion of long-term debt.............................................. 909 969
------- -------
Total Current Liabilities................................................... 12,990 13,830
Long-Term Debt -- Note 3........................................................ 1,928 2,797
Deferred Income Taxes........................................................... 805 1,030
Minority Interest and Additional Amounts Contributed............................ 1,283 1,705
Commitments & Contingencies -- Notes 6 & 10
Shareholders' Equity -- Note 4
Common Stock, $.10 par value
Authorized 5,000,000 shares
Issued and outstanding: 1995 -- 2,689,185 shares;
1994 -- 2,674,973 shares................................................... 269 267
Additional paid-in capital.................................................... 18,889 18,802
Retained earnings............................................................. 16,206 15,891
------- -------
35,364 34,960
------- -------
$52,370 $54,322
======= =======
</TABLE>
See accompanying notes.
A-6
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
------------------------------------------
1995 1994 1993
-------- ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Sales...................................................... $75,004 $85,463 $86,902
Costs and expenses:
Cost of sales............................................. 56,447 68,555 65,765
Selling, administrative and general expenses.............. 13,636 14,068 13,525
Research and development expenses......................... 5,038 4,794 5,650
Loss on closing of Brobeck division....................... 1,018
Interest expense........................................... 315 252 244
Other-net -- Note 12....................................... (848) (589) (35)
------- ------- -------
74,588 88,098 85,149
------- ------- -------
Income (loss) before income taxes and minority interest... 416 (2,635) 1,753
Provision for income taxes -- Note 5....................... 15 (1,028) 683
Minority interest in net income of subsidiary.............. 86 80 48
------- ------- -------
Net income (loss)......................................... $ 315 $(1,687) $ 1,022
======= ======= =======
Earnings (loss) per share:
Primary................................................... $ .12 $ (.63) $ .38
======= ======= =======
Fully Diluted............................................. $ .12 $ (.63) $ .37
======= ======= =======
</TABLE>
See accompanying notes.
A-7
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE YEARS ENDED JULY 31, 1995
---------------------------------------
COMMON ADDITIONAL RETAINED
STOCK PAID-IN CAPITAL EARNINGS
-------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at August 1, 1992..................................... $241 $15,902 $19,313
Issuance of 18,580 shares under stock option plan
including related tax benefit.............................. 2 165
Issuance of 126,742 shares due to 5 percent stock dividend... 12 1,376 (1,388)
Net income for the year...................................... 1,022
---- ------- -------
Balance at July 31, 1993...................................... 255 17,443 18,947
Issuance of 580 shares under stock option plan
including related tax benefit.............................. 4
Issuance of 127,185 shares due to 5 percent stock dividend... 12 1,355 (1,369)
Net loss for the year........................................ (1,687)
---- ------- -------
Balance at July 31, 1994...................................... 267 18,802 15,891
Issuance of 14,212 shares under stock purchase plan.......... 2 87
Net income for the year...................................... 315
---- ------- -------
Balance at July 31, 1995...................................... $269 $18,889 $16,206
==== ======= =======
</TABLE>
See accompanying notes.
A-8
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities
Net income (loss)....................................... $ 315 $(1,687) $ 1,022
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization....................... 2,907 3,275 4,173
Provision for losses on accounts receivable......... 45 310 28
Loss on sales of property and equipment............. 122 154 12
Deferred income taxes............................... 820 (970) 1,715
Minority interest in net income of subsidiary....... 86 80 48
Changes in operating assets and liabilities:
Accounts receivable................................ (52) 266 980
Inventories........................................ 369 876 (1,434)
Prepaid expenses and other......................... 150 (225) 124
Accounts payable................................... (525) 1,152 (3,172)
Accrued employee compensation...................... (255) (812) (266)
Income taxes payable/recoverable................... (797) 914 (903)
------- ------- -------
Net Cash Provided by Operating Activities....... 3,185 3,333 2,327
Investing Activities
Purchases of property, plant and equipment.............. (2,951) (4,662) (2,728)
Proceeds from sales of property and equipment........... 80 26 14
------- ------- -------
Net Cash Used in Investing Activities........... (2,871) (4,636) (2,714)
Financing Activities
Proceeds from long-term borrowing........................ 2,500
Principal payments on long-term debt..................... (929) (1,271) (1,370)
Proceeds from issuance of Common Stock................... 89 4 167
Dividends paid........................................... (2)
------- ------- -------
Net Cash Provided by (Used in) Financing
Activities.................................... (840) 1,231 (1,203)
------- ------- -------
Decrease in Cash and Cash Equivalents........... (526) (72) (1,590)
Cash and cash equivalents at beginning of year.. 4,579 4,651 6,241
------- ------- -------
Cash and Cash Equivalents at End of Year................. $ 4,053 $ 4,579 $ 4,651
======= ======= =======
</TABLE>
See accompanying notes.
A-9
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Minority Interest Amounts
The consolidated financial statements include the accounts of Maxwell
Laboratories, Inc., and its majority-owned subsidiary, PurePulse Technologies,
Inc. (formerly Foodco Corporation). All significant intercompany transactions
and account balances are eliminated in consolidation. The amount contributed by
minority shareholders in excess of their proportionate share of the subsidiary's
equity has been included with minority interest. Such amount is being amortized
into income over the three-year period commencing with the commercialization and
license agreement entered into by PurePulse Technologies in the fourth quarter
of fiscal 1993. The formation of PurePulse Technologies and its sale of stock,
which occurred in fiscal 1989, were non-taxable transactions, and therefore no
deferred income taxes have been provided on the recognized gain.
Inventories
Inventories are stated at the lower of cost (principally first-in, first-out
method) or market.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation and
amortization are provided under the straight-line method in amounts sufficient
to amortize the cost of the depreciable assets over their estimated useful
lives. Depreciation and amortization of property, plant and equipment amounted
to $3,415,000 in 1995, $3,783,000 in 1994, and $4,300,000 in 1993.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, effective for fiscal years beginning after December
15, 1995. The new Statement requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Statement 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. When events or
circumstances indicate that an impairment might exist, assets will be reviewed
for impairment at the appropriate asset group level. Any impairment losses
identified will be measured by comparing the fair value of the asset to its
carrying amount. While certain assets held by the company are expected to be
subject to Statement No. 121 consideration, the company has not yet analyzed the
impact of the adoption of the new Statement. Management anticipates adopting
the new Statement in the first quarter of fiscal 1997 in accordance with the
Statement's applicable transition provisions, at which time an assessment of
long-lived asset impairment will be made based upon then current circumstances
and applicable estimated future cash flows.
Revenue Recognition
Sales include costs as incurred and fees as earned on cost-plus-fee contracts,
as well as costs incurred and estimated profits on long-term fixed-price
contracts. Such estimated profits have been computed by applying the various
percentages of completion of the contracts to the estimated ultimate profits.
Revenues from the sale of manufactured products are recorded when the products
are shipped. Provisions are made on a current basis to fully recognize any
anticipated losses on contracts.
A-10
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings (Loss) Per Share
The computation of earnings (loss) per share is based on the weighted average
shares of Common Stock outstanding plus the dilutive effects of Common Stock
equivalents arising from stock options. The average number of Common and Common
equivalent shares outstanding was 2,678,000 in 1995, 2,675,000 in 1994, and
2,684,000 in 1993. The average number of shares used to compute earnings (loss)
per share, assuming full dilution, was 2,683,000 in 1995, 2,675,000 in 1994, and
2,718,000 in 1993.
Cash Equivalents
The company classifies all highly liquid investments with a maturity of three
months or less when purchased as cash equivalents.
NOTE 2 - ACCOUNTS RECEIVABLE
The following tabulation shows the component elements of accounts receivable
from long-term contracts at July 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
------ -------
(In thousands)
<S> <C> <C>
U.S. Government:
Amounts billed............................... $2,331 $3,555
Amounts unbilled............................. 1,005 1,007
Retainage due upon completion of contracts... 434 563
Commercial customers:
Amounts billed............................... 657 570
Amounts unbilled............................. 2,014 445
------ ------
$6,441 $6,140
====== ======
</TABLE>
The balances billed but not paid by customers pursuant to retainage provisions
under long-term contracts will be due upon completion of the contracts and
acceptance by the customers. Substantially all retention balances and unbilled
receivables at July 31, 1995, are expected to become due and payable within the
next year.
NOTE 3 - LONG-TERM DEBT AND CREDIT AGREEMENTS
Long-term debt at July 31 consists of the following:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Variable rate note payable to a bank, due $42,000
monthly plus interest............................................ $1,792 $2,250
7.75% fixed rate note payable to a bank, due $100,000 quarterly
plus interest.................................................... 800 1,200
10.0% fixed rate promissory note, due $3,000 monthly.............. 245 254
Other notes payable............................................... -- 62
------ ------
2,837 3,766
Less current portion.............................................. 909 969
------ ------
$1,928 $2,797
====== ======
</TABLE>
A-11
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - LONG-TERM DEBT AND CREDIT AGREEMENTS (CONTINUED)
The variable rate note bears interest at the bank's prime rate plus 1/2%, and
at July 31, 1995, this rate was 9.25%. Both bank notes are unsecured, and
contain certain restrictive covenants relating to net-worth, net-worth-ratio and
quarterly operating results. The consideration of future cash dividends, if
any, could be limited by certain of these bank covenants.
Maturities of long-term debt for each of the five years ending July 31, 2000
are: 1996 - $909,000; 1997 - $910,000; 1998 - $512,000; 1999 - $305,000; and
2000 - $14,000.
Under an unsecured annual revolving bank line of credit agreement, the company
may borrow up to $7.5 million at the bank's prime rate. At July 31, 1995, there
were no outstanding borrowings under this credit arrangement.
Under certain contracts, the company is required to maintain letters of credit
during the period of contract performance. There were no such outstanding
letters of credit at July 31, 1995. At July 31, 1994, outstanding letters of
credit totaled $271,000.
NOTE 4 - STOCK PLANS
Stock Option Plans
The company's 1985 and 1989 Stock Option Plans provide for granting either
Incentive Stock Options or Non-Qualified Stock Options to employees and non-
employee members of the company's Board of Directors, respectively. The
options granted under these plans are to purchase Common Stock at not less than
fair market value at the date of grant. Employee options are exercisable in
cumulative annual installments of 30 percent or 20 percent, while options in the
Director Option Plan are exercisable in full one year after date of grant. All
options have terms of five to ten years. The following table summarizes stock
option activity for the three years ended July 31, 1995.
<TABLE>
<CAPTION>
NUMBER PRICE
OF SHARES PER SHARE
--------- ---------
<S> <C> <C>
Outstanding at August 1, 1992... 394,415 $ 7.70 to $17.70
Granted........................ 121,643 $10.32 to $10.71
Exercised...................... (18,580) $ 7.70 to $ 7.99
Expired or forfeited........... (89,227) $ 7.70 to $17.70
-------- ------ -- ------
Outstanding at July 31, 1993.... 408,251 $ 7.70 to $13.15
Granted........................ 17,600 $ 7.50 to $10.24
Exercised...................... (580) $ 7.70
Expired or forfeited........... (39,392) $ 7.70 to $12.92
-------- ------ -- ------
Outstanding at July 31, 1994.... 385,879 $ 7.50 to $13.15
Granted....................... 112,000 $ 7.50 to $ 8.00
Exercised..................... --
Expired or forfeited.......... (139,007) $ 7.70 to $12.92
-------- ------ -- ------
Outstanding at July 31, 1995.... 358,872 $ 7.50 to $13.15
======== ====== == ======
</TABLE>
The average price of all options outstanding at July 31, 1995, is $9.66 per
share; the outstanding options expire at various dates through December 2004. At
July 31, 1995, options for 199,000 shares of Common Stock are exercisable at
$7.50 to $13.15 per share and 184,000 shares are available for future grant.
A-12
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - STOCK PLANS (CONTINUED)
Stock Purchase Plans
In December 1994, the company established an Employee Stock Purchase Plan and
a Director Stock Purchase Plan, under which a total of 250,000 shares of Common
Stock were reserved for issuance. The employee plan permits substantially all
employees to purchase Common Stock through payroll deductions at 85% of the
lower of the trading price of the Stock at the beginning or at the end of each
six-month offering period. The director plan permits non-employee directors to
purchase Common Stock at 100% of the trading price of the Stock on the date a
request for purchase is received. In fiscal year 1995, 14,000 shares were
issued under the two plans for an aggregate of $89,000. At July 31, 1995,
236,000 shares are reserved for future purchases.
Stockholder Rights Plan
In 1989, the company adopted a Stockholder Rights Plan, and subsequently
distributed one nonvoting Common Stock purchase right (Right) for each
outstanding share of Common Stock. The Rights are not exercisable and will not
trade separately from the Common Stock unless a person or group acquires, or
makes a tender offer for, 20% or more of the company's Common Stock. Initially,
each Right entitles the registered holder to purchase one-half of a share of
company Common Stock at a price of $32.50 per one-half share, subject to certain
anti-dilution adjustments. The Rights expire on June 20, 1999.
If the Rights become exercisable and certain conditions are met, then each
Right not owned by the acquiring person or group will entitle its holder to
receive, upon exercise, company Common Stock having a market value of four times
the exercise price of the Right. These provisions will not apply if a majority
of the Board of Directors determines that the acquisition or other business
combination is in the best interest of the shareholders. In addition, the
company may redeem the Rights at a price of $.01 per Right, subject to certain
restrictions.
A-13
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INCOME TAXES
Income taxes (credit) are as follows for the years ended July 31, 1995, 1994,
and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current..... $(634) $ 15 $ (912)
Deferred.... 604 (935) 1,420
----- ------- ------
(30) (920) 508
State:
Current..... (171) (73) (120)
Deferred.... 216 (35) 295
----- ------- ------
45 (108) 175
----- ------- ------
$ 15 $(1,028) $ 683
===== ======= ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components
of the company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1995 1994
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Uniform capitalization, contract and
inventory-related reserves............................................................ $ 723 $ 1,578
Accrued vacation........................................................................ 551 619
Environmental and other reserves........................................................ 495 534
Allowance for doubtful accounts......................................................... 217 213
Other................................................................................... 239 337
State NOL carryforward.................................................................. 300 200
Valuation allowance..................................................................... (300) (200)
------ -------
Net deferred tax assets............................................................... $2,225 $ 3,281
====== =======
Deferred tax liabilities:
Tax over book depreciation.............................................................. $ 802 $ 1,023
Deferred contract income recognition.................................................... 134 148
Other................................................................................... 4 5
------ -------
Total deferred tax liabilities........................................................ $ 940 $ 1,176
====== =======
</TABLE>
The effective income tax rate varied from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -----
<S> <C> <C> <C>
Statutory federal income tax rate......................................................... 34.0% (34.0)% 34.0%
State income taxes, net of federal tax benefit............................................ 7.3 (2.7) 6.6
Amortization of minority interest......................................................... (41.5) (6.6) (2.5)
Other items............................................................................... 3.8 4.3 0.9
------ ------- ----
Effective income tax rate................................................................. 3.6% (39.0)% 39.0%
====== ======= ====
</TABLE>
A-14
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - LEASES
Rental expense amounted to $2,110,000, $2,343,000, and $2,140,000 in 1995,
1994, and 1993, respectively, and was incurred primarily for building rental.
Future minimum rental commitments as of July 31, 1995, are as follows (in
thousands):
<TABLE>
<S> <C>
1996......... $1,424
1997......... 1,221
1998......... 1,213
1999......... 1,102
2000......... 940
Thereafter... 3,630
------
$9,530
======
</TABLE>
Certain leases include renewal options for periods ranging from one to twenty-
five years and are subject to rental adjustment based on consumer price indexes.
Substantially all leases provide that the company pay for property taxes,
insurance, and repairs and maintenance.
NOTE 7 - EMPLOYEE BENEFIT PLANS
Retirement Plan
Substantially all employees are covered under the company's defined
contribution retirement plan. Prior to 1994, company contributions under the
plan were based on 5% of defined compensation for covered employees. Effective
January 1, 1994, the company suspended contributions to the plan. There were no
contributions made during the year ended July 31, 1995; however, contributions
are expected to resume at an unspecified future date at the discretion of the
Board of Directors. Contributions aggregated $550,000 and $1,052,000 for the
years ended July 31, 1994 and 1993, respectively.
Savings Plan
Substantially all employees are eligible to elect coverage under a
contributory employee savings plan which provides for company matching
contributions based on one-half of employee contributions up to certain plan
limits. The company's matching contributions under this plan totaled $568,000,
$611,000, and $707,000 for the years ended July 31, 1995, 1994, and 1993,
respectively.
NOTE 8 - RELATED PARTY TRANSACTIONS
Mr. Karl M. Samuelian, a member of the Board of Directors of the company, is a
shareholder in the law firm of Parker, Milliken, Clark, O'Hara & Samuelian, A
Professional Corporation, Outside General Counsel to the company. During the
years ended July 31, 1995, 1994, and 1993, the company incurred legal fees for
services amounting to $66,000, $328,000, and $478,000, respectively, to Parker,
Milliken, Clark, O'Hara & Samuelian.
NOTE 9 - LOSSES, RESTRUCTURING AND OTHER CHARGES
In the second and fourth quarters of fiscal 1994, the company recorded $3
million of pre-tax charges. A $1 million charge in the second quarter resulted
from the closing of the Brobeck division. Approximately $2 million of charges
were provided in the fourth quarter to recognize anticipated losses on contracts
and to provide for inventory and work force reduction costs. The majority of
this amount was related to an overseas contract for customized capacitors which
was terminated shortly after July 31, 1994.
A-15
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - ENVIRONMENTAL MATTER
In January 1991, the California Department of Toxic Substances Control, or
DTSC, notified the company that it had been identified as one of a number of
"potentially responsible parties" with respect to alleged hazardous substances
released into the environment at a recycling facility in San Diego County. As
Maxwell is not in the business of transporting or disposing of waste materials,
the company retained the services of the owners of the recycling facility to
transport certain waste material generated by Maxwell. After properly delivering
the materials to the transporter, Maxwell was not further involved in the
transportation, treatment or disposal of the materials. Under California and
Federal "Superfund" laws, Maxwell is a potentially responsible party even though
it was not involved in the transport or disposal of the substances. Moreover,
it is the company's understanding that alleged hazardous substances from at
least approximately 160 other potentially responsible parties were released at
the facility, and that response costs of approximately $7.9 million have been
incurred at the site by the DTSC.
In 1992, the company and approximately 40 other potentially responsible
parties signed a consent order with the State of California. The parties which
signed the consent order have agreed to reimburse the State for $4 million of
the $7.9 million response costs previously incurred, and to pay for certain
future site investigations and interim response actions outlined in the consent
order. The currently estimated cost of such activities is $9.1 million, and the
company's share of the cost, as allocated by the parties to the consent order,
is currently estimated at approximately 7.0%. The eventual cost of all removal
and remediation activities, for which the company and the other potentially
responsible parties will share in additional reimbursements to the State, and
including the $9.1 million referred to above, is currently estimated to be in
the range of $15 - $20 million. About half of such amount will consist of
maintenance and monitoring costs to be incurred over a 25-30 year period. The
company has accrued its share of such estimated costs; on the basis of amounts
accrued by the company, it is management's opinion that any additional liability
resulting from this situation will not have a material effect on the company's
financial statements.
NOTE 11 - BUSINESS SEGMENTS
The company is engaged in research, development, and manufacturing activities
related to sales of defense, scientific, commercial, and industrial products,
programs, and services. For purposes of analyzing and understanding the
financial statements, the company's operations have been classified into the
following industry segments:
Technology Programs and Services (TPS)
TPS consists of the business associated with scientific research and
development, primarily performed for agencies of the U.S. Government. Included
in this segment are scientific research and studies as well as large hardware
design, development, and manufacture, and the operation of test facilities.
Commercial, Industrial and Scientific Products (CIS)
CIS consists of the manufacture and sale of products, many of which have
evolved from or employ technology developed through the company's technology
programs and internally funded research and development.
A-16
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - BUSINESS SEGMENTS (CONTINUED)
Business segment financial data for the three years ended July 31, is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Sales:
Technology programs and services........................... $32,242 $42,449 $48,483
Commercial, industrial and scientific products............. 42,762 43,014 38,419
------- ------- -------
Consolidated total........................................ $75,004 $85,463 $86,902
======= ======= =======
Operating profit (loss):
Technology programs and services........................... $ 1,154 $ 1,609 $ 2,934
Commercial, industrial and scientific products............. 1,025 (872) 1,572
------- ------- -------
Total operating profit.................................... 2,179 737 4,506
Corporate expenses and revenues............................ (1,448) (3,120) (2,509)
Interest expense........................................... (315) (252) (244)
------- ------- -------
Income (loss) before income taxes and minority interest $ 416 $(2,635) $ 1,753
======= ======= =======
Identifiable assets:
Technology programs and services........................... $16,463 $19,014 $21,589
Commercial, industrial and scientific products............. 22,403 20,796 19,164
Corporate.................................................. 13,504 14,512 14,333
------- ------- -------
Consolidated total........................................ $52,370 $54,322 $55,086
======= ======= =======
Depreciation and amortization:
Technology programs and services........................... $ 2,067 $ 2,311 $ 2,722
Commercial, industrial and scientific products............. 1,269 1,394 1,464
Corporate.................................................. 79 78 114
------- ------- -------
Consolidated total........................................ $ 3,415 $ 3,783 $ 4,300
======= ======= =======
Capital expenditures:
Technology programs and services........................... $ 1,248 $ 3,115 $ 1,770
Commercial, industrial and scientific products............. 1,605 1,424 897
Corporate.................................................. 98 123 61
------- ------- -------
Consolidated total........................................ $ 2,951 $ 4,662 $ 2,728
======= ======= =======
</TABLE>
Intersegment sales are insignificant. Operating profit (loss) is sales less
cost of sales and operating expenses, excluding interest expense and corporate
expenses and revenues. Corporate expenses in 1994 include a $1,018,000 loss on
closing the Brobeck division. Identifiable assets by segment include the assets
directly identified with those segments. Corporate assets consist primarily of
cash and cash equivalents, deferred income taxes and facilities and land.
Sales under U.S. Government contracts and subcontracts are primarily in the
TPS business segment, and aggregated $32,120,000, $45,971,000, and $50,711,000
in 1995, 1994, and 1993, respectively.
Export sales amounted to $7,318,000, $9,784,000, and $7,439,000 in 1995, 1994,
and 1993, respectively, principally to countries in Europe and the Pacific Rim.
A-17
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - SUPPLEMENTARY FINANCIAL INFORMATION
Inventories and inventoried costs relating to long-term contracts are
classified as follows at July 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------- -------
(In thousands)
<S> <C> <C>
Finished goods..................................................................... $ 1,181 $ 1,052
Reimbursable research and development.............................................. 81 453
Work in process.................................................................... 2,211 1,985
Raw materials and purchased parts.................................................. 3,766 4,118
------- -------
$ 7,239 $ 7,608
======= =======
</TABLE>
Property, plant and equipment consist of the following at July 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
------- -------
(In thousands)
<S> <C> <C>
Land and land improvements......................................................... $ 3,780 $ 3,780
Buildings and building improvements................................................ 11,182 10,563
Machinery and equipment............................................................ 30,006 28,122
Office furniture and equipment..................................................... 6,777 6,490
Leasehold improvements............................................................. 3,517 4,503
------- -------
55,262 53,458
Less allowances for depreciation and amortization.................................. 35,633 33,606
------- -------
19,629 19,852
Construction in progress........................................................... 686 1,129
------- -------
$20,315 $20,981
======= =======
</TABLE>
Included in Other-net is the amortization into income over a three-year period
of amounts contributed by minority shareholders upon the organization of
PurePulse Technologies over such shareholders' proportionate share of PurePulse
Technologies' equity. This amortization began in the fourth quarter of fiscal
1993, and amounts to $508,000 each year in 1995 and 1994, and $127,000 in 1993.
Also included in Other-net is interest income of $358,000, $164,000, and
$264,000 during the years ended July 31, 1995, 1994, and 1993, respectively.
Financial instruments which subject the company to potential concentrations of
credit risk consist principally of investments in cash equivalents and accounts
receivable. The company invests its excess cash with major corporate and
financial institutions and in U.S. Government backed securities. The company has
established guidelines relative to diversification and maturities to maintain
safety and liquidity, and has not experienced any losses on these investments.
The company's accounts receivable result from contracts with the U.S.
Government, as well as contract and product sales to non-government customers in
various industries. The company performs on-going credit evaluations of
selected non-government customers and generally requires no collateral.
Supplemental disclosure of cash flow information consists of the following
payments of interest and recovery of income taxes for the three years ended July
31, 1995:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
(In thousands)
<S> <C> <C> <C>
Interest................ $ 315 $ 252 $ 244
Income taxes refunded... $ 11 $ 998 $ 153
</TABLE>
A-18
<PAGE>
MAXWELL LABORATORIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - QUARTERLY RESULTS OF OPERATIONS AND STOCK INFORMATION (UNAUDITED)
The following is a summary of the quarterly results of operations and Common
Stock price ranges for the years ended July 31, 1995 and 1994:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------
OCTOBER 31 JANUARY 31 APRIL 30 JULY 31
---------- ------------- ------------- -------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995
Sales........................ $ 17,918 $ 17,630 $ 17,468 $ 21,988
Gross profit................. 4,972 4,584 3,785 5,216
Net income (loss)............ 323 237 (464) 219
Earnings (loss) per share:
Primary..................... .12 .09 (.17) .08
Fully diluted............... .12 .09 (.17) .08
Common Stock price range:
High........................ 9 8 1/4 9 9
Low......................... 7 6 3/4 6 1/2 6 5/8
1994
Sales........................ $ 20,593 $ 20,142 $ 22,480 $ 22,248
Gross profit................. 4,321 4,325 5,191 3,071
Net income (loss)............ 11 (694) 320 (1,324)
Earnings (loss) per share:
Primary..................... -- (.26) .12 (.49)
Fully diluted............... -- (.26) .12 (.49)
Common Stock price range:
High........................ 14 5/8 13 3/4 10 3/8 10
Low......................... 8 3/4 9 1/4 7 1/2 7
</TABLE>
Note 9 of the financial statements contains a description of items which
occurred in the second and fourth quarters of fiscal year 1994, resulting in
losses in those quarters.
The company's Common Stock is traded in the NASDAQ National Market System
under the symbol MXWL. High and low stock prices reflect closing quotations.
The closing price for the company's stock on October 20, 1995, was $10.50.
As of October 1, 1995, there were 518 record holders of the company's Common
Stock. The company declared no dividends in fiscal 1995, but distributed a 5%
stock dividend during the second quarter of fiscal years 1994 and 1993, and has
on occasion paid cash dividends within the last five fiscal years. The Board of
Directors may consider future year-end cash dividends depending on the company's
cash and other requirements at such time.
A-19
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Maxwell Laboratories, Inc.
We have audited the accompanying consolidated balance sheet of Maxwell
Laboratories, Inc., and subsidiary as of July 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended July 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits 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 Maxwell
Laboratories, Inc., and subsidiary at July 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended July 31, 1995, in conformity with generally
accepted accounting principles.
/s/ERNST & YOUNG LLP
San Diego, California
September 28, 1995
A-20
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Maxwell Laboratories, Inc. of our report dated September 28, 1995, appended
to the Proxy Statement for the 1995 Annual Meeting of Shareholders of Maxwell
Laboratories, Inc.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-91483, 33-88634, 33-88636 and 33-88638) pertaining to the 1985
Stock Option Plan, 1989 Director Stock Option Plan, 1994 Director Stock Purchase
Plan, and the 1994 Employee Stock Purchase Plan of Maxwell Laboratories, Inc. of
our report dated September 28, 1995, with respect to the consolidated financial
statements incorporated herein by reference.
/s/ ERNST & YOUNG LLP
San Diego, California
October 27, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME AS FILED IN
ITEM 8 ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 4,053
<SECURITIES> 0
<RECEIVABLES> 16,030
<ALLOWANCES> 0
<INVENTORY> 7,239
<CURRENT-ASSETS> 30,845
<PP&E> 55,262
<DEPRECIATION> 35,633
<TOTAL-ASSETS> 52,370
<CURRENT-LIABILITIES> 12,990
<BONDS> 1,928
<COMMON> 269
0
0
<OTHER-SE> 35,095
<TOTAL-LIABILITY-AND-EQUITY> 52,370
<SALES> 75,004
<TOTAL-REVENUES> 75,004
<CGS> 56,447
<TOTAL-COSTS> 56,447
<OTHER-EXPENSES> 5,038
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 315
<INCOME-PRETAX> 416
<INCOME-TAX> 15
<INCOME-CONTINUING> 315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 315
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
