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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM
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COMMISSION FILE NUMBER 0-10964
MAXWELL TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-2390133
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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9275 SKY PARK COURT
SAN DIEGO, CALIFORNIA 92123
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 279-5100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK, PAR
VALUE $.10 PER SHARE
NAME OF EACH EXCHANGE ON WHICH REGISTERED: NASDAQ NATIONAL MARKET ("NASDAQ")
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant on September 26, 1997, based on the closing
price at which the Common Stock was sold on Nasdaq as of September 26, 1997, was
$30.50.
The number of shares of the Registrant's Common Stock outstanding as of
September 26, 1997 was 6,163,151 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A (including the Appendix thereto) are incorporated by
reference in Part III of this Report.
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MAXWELL TECHNOLOGIES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JULY 31, 1997
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PART I
Item 1. Business................................................................... 10
Item 2. Properties................................................................. 28
Item 3. Legal Proceedings.......................................................... 28
Item 4. Submission of Matters to a Vote of Security Holders........................ 29
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...... 29
Item 6. Selected Financial Data.................................................... 30
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 31
Item 8. Financial Statements and Supplementary Data................................ 37
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................. 37
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 38
Item 11. Executive Compensation..................................................... 40
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 43
Item 13. Certain Relationships and Related Transactions............................. 44
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... 44
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PART I
As used in this Annual Report on Form 10-K, ("Form 10-K"), unless the
context indicates otherwise, the terms "Company" and "Maxwell" refer to Maxwell
Technologies, Inc., a Delaware corporation, and its consolidated subsidiaries.
The Company has five principal operating subsidiaries, I-Bus, Inc., Maxwell
Federal Division, Inc., Maxwell Information Services, Inc., Maxwell Energy
Products, Inc. and PurePulse Technologies, Inc. Unless otherwise indicated, as
used in this Form 10-K, the term fiscal year shall refer to the 12 month period
ended or ending July 31 of a given year. The information in this Form 10-K for
periods prior to December 17, 1996, is adjusted to reflect a 2 for 1 stock
split. This Form 10-K may contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such forward-looking statements involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in any forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" herein. Discussions containing such forward-looking statements may be
found in the material set forth under. "Item 1. Business--General",
"--Competition", and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "--Liquidity and Capital Resources", as
well as within this Form 10-K generally.
PowerCache(TM), PureBright(R), CoolPure(R), JAMIS(R) and ElectroBlast(TM)
are trademarks of the Company. All other trademarks or tradenames referred to in
this Form 10-K are the property of their respective owners.
RISK FACTORS
Stockholders should consider carefully, in addition to other information
contained in this Annual Report on Form 10-K, the following factors.
DEPENDENCE ON PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE
Many of the Company's products, especially its ultracapacitor and
purification products, are in the development stage and are alternatives to
existing technologies. The Company's success is dependent in part on market
acceptance of its new products and there can be no assurance that any material
commercial market will develop for these products. The Company expects that its
ultracapacitor and purification products will compete with existing products
that are well established in the marketplace and that, in some cases, are less
expensive. The future success of the Company will depend in large part on the
Company's ability to accurately anticipate market demand for its products and
services as well as improve its existing technologies and products. The
Company's ability to demonstrate a technological or economic advantage, or both,
over competitive products in addition to the technical, financial and other
risks involved in introducing new products and technologies are critical to the
Company achieving its goals. There can be no assurance that the Company will be
successful in identifying markets for its technologies or in developing,
manufacturing and marketing new commercial products or enhancements to existing
products that address the needs of these markets, any of which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
CONTINUING TRANSITION TO COMMERCIAL BUSINESS
The Company is continuing its transition from its historical reliance on
funded research and development business for defense and other federal
government agencies to developing, manufacturing and marketing of products and
services for commercial markets. The Company's success in this regard will
depend upon a number of factors, including the Company's ability to gain
customer acceptance for its products and services, to expand its customer base
through sales and marketing efforts, to expand successfully its manufacturing
capacity, to develop extensions of its existing products and services into new
applications and to conceive and develop new products and services. Commencing
in fiscal 1996, the Company changed its senior management and reorganized its
operations along product and service lines. There can be no assurance that the
Company will be able to continue its transition to commercial businesses. The
Company's inability to achieve any of
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these objectives would have a material adverse effect on the Company's business,
results of operations and financial condition.
FLUCTUATIONS IN OPERATING RESULTS; HISTORY OF LOSSES
Although the Company had net income of $4.0 million in fiscal 1997, it has
incurred significant losses in two of the past five years. Net losses for the
Company's 1996 and 1994 fiscal years were approximately $15.2 million and $1.7
million, respectively. Of the fiscal 1996 loss, $14.4 million arose from charges
related to the reorganization of the Company's operations, a change in
accounting principle and other charges more fully described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and in
the Consolidated Financial Statements and Notes thereto contained herein. The
Company may in the future experience significant fluctuations in revenues and
operating results from period to period as a result of a number of factors
including, without limitation, the volume and timing of orders and market
acceptance of the Company's products; the Company's ability to fill orders on a
timely basis; pricing policies of the Company or its competitors; variations in
the mix of product sales; the timing of product introductions by the Company or
its competitors; cancellation, suspension or other action taken by the United
States government or its agencies on its programs and contracts with the
Company; product obsolescence resulting from new product introductions or
changes in customer demand; and expenses associated with the acquisition of
businesses, products or technologies. The Company anticipates that, in order to
obtain market penetration, from time to time it will sell new products at prices
yielding margins below those it ultimately expects to achieve, and significant
aggressive pricing in a particular quarter or quarters could adversely affect
the results of operations for such periods. The impact of the foregoing factors
may cause the Company's operating results to be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock could be materially adversely affected. Quarterly results are not
necessarily indicative of future performance for any particular period, and
there can be no assurance that the Company will attain or sustain growth in
sales and profitability on a quarterly or annual basis. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
EXTENSIVE RELIANCE ON STRATEGIC RELATIONSHIPS; RESTRICTIONS DUE TO EXCLUSIVITY
RIGHTS
The Company has established and will continue to seek to establish
strategic relationships with corporate partners and research relationships with
United States government agencies to support its various development programs,
leverage its expertise and manufacturing resources, obtain an understanding of
and access to markets and validate products. The Company currently collaborates
with a variety of strategic partners, including Tetra Pak, a leading food
packaging machinery and products company, for purification systems, and
PacifiCorp, a leading utility holding company, for ultracapacitors.
The loss of certain of its strategic relationships could have a material
adverse effect on the Company's sales growth. The Company's future success will
depend in part on its continued relationships with various of its strategic
partners, its ability to enter into other similar collaborative arrangements,
the interest of certain of the Company's strategic partners in the potential
products under development, the Company's success in meeting expectations of
strategic partners and, ultimately, their success in marketing or willingness to
purchase any such products. These programs may require the Company to share
control over its development, manufacturing and marketing programs, limit its
ability to license its technology to others, relinquish certain rights to its
technology or restrict its ability to engage in certain areas of product
development, production and marketing. Some of the Company's existing
collaborative arrangements permit, and future arrangements also may permit, the
Company's strategic partners to use or disclose the technology developed in the
program without any royalty obligation, to the extent that the technology is
jointly developed. Furthermore, the Company often grants an exclusivity right to
its strategic partner as an inducement to the partner to participate in the
development of a product or application. Any exclusivity rights granted to
strategic partners may inhibit the Company's ability to find a wider market for
certain of its commercial products and thus may materially reduce revenues
during the exclusivity period. There can be no assurance that the Company will
be able to enter into strategic arrangements on commercially reasonable terms or
that these arrangements, if established, will result in successful programs to
develop, manufacture or market pulsed power and other products or that
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the Company's strategic partners will not seek to manufacture jointly developed
products themselves or obtain them from alternative sources. See
"Business -- Strategic Partnerships."
LIMITED VOLUME MANUFACTURING EXPERIENCE
The Company has limited experience with volume manufacturing of commercial
products. To date, the Company has not manufactured in volume its
ultracapacitors or purification systems. The Company may face challenges in
scaling up production of its new products, especially those products that
contain newly developed technologies, including problems involving production
yields, quality control and assurance, component supply and shortages of
qualified management and other personnel. In addition, the Company will need to
expand its current facilities or obtain additional facilities in order to
manufacture a substantial quantity of its ultracapacitor, purification and EMI
filter products. There can be no assurance that the Company will be successful
in expanding its facilities or obtaining additional facilities, or that it will
be able to overcome the management, technological, engineering and other
challenges associated with the production of significant quantities of products
at acceptable cost on a timely basis. The Company may elect to outsource
manufacturing of certain of its products, if such opportunities are available.
Outsourcing of manufacturing involves risks with respect to quality assurance,
cost and the absence of close engineering support. In addition, part of the
Company's ultracapacitor development strategy is the implementation of a process
that could allow customization of products while retaining the benefits of
volume manufacturing and materials procurement. There can be no assurance that
such a process can be developed and implemented in time to meet the Company's
needs in this regard. Difficulties in manufacturing or in obtaining appropriate
facilities or locating and qualifying outsourcing for manufacturing could have a
material adverse effect on the Company's business, financial condition and
results of operations.
LIMITED SALES AND MARKETING EXPERIENCE
The Company has limited experience marketing and selling ultracapacitors
and purification systems. To market these products, the Company will be required
to develop a marketing and sales force that will be able to effectively
demonstrate the advantages of these products over competing products and other
traditional solutions. Furthermore, the highly technical nature of the Company's
products limits the pool of potential sales personnel. The Company also enters
into agreements with distributors or sales representatives regarding the
marketing of its products. By entering into such agreements, the Company may be
substantially dependent upon the efforts of others in deriving commercial
benefits from its products. There can be no assurance that the Company will be
successful in marketing and selling its products, that it will be able to
establish adequate sales and distribution capabilities, that it will be able to
enter into marketing agreements with third parties on financially acceptable
terms or that any third parties with whom it enters into such arrangements will
be successful in marketing the Company's products. The Company's inability to
achieve any of these objectives would have a material adverse effect on the
Company's business, results of operations and financial condition.
DEPENDENCE ON OEM CUSTOMERS; LENGTHY SALES CYCLES
A substantial portion of the Company's sales are derived from sales to a
relatively small number of OEM customers. The timing and amount of sales to
these customers ultimately depend on sales levels and shipping schedules for the
OEM products into which the Company's products are incorporated. The Company has
no control over the shipping date or volumes of products shipped by its OEM
customers, and there can be no assurance that any OEM will continue to ship
products that incorporate the Company's products at current levels or at all.
Failure of these OEMs to achieve significant sales of products incorporating the
Company's products and fluctuations in the timing and volume of such sales could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The decision process leading to the selection of the Company's products and
services is typically lengthy, with significant additional time required for
design, engineering and product approval before commercial shipments can begin.
Moreover, although customers sometimes substitute a new and better product into
an existing product, market opportunities with respect to any particular
customer typically occur at the time the customer is engaged in the design of a
new product or a substantial enhancement of an existing product, which
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typically occur at infrequent intervals. Any failure of the Company to maintain
continuing awareness of its customers' product development schedules, or its
inability to provide the optimum solution at the time of such development can
cause the Company to miss a market opportunity that may not reappear for a
substantial period of time.
Lucent Technologies ("Lucent"), an OEM customer of the Company, accounted
for approximately 11.9% of the Company's total sales in fiscal 1997 and is a
significant customer of the Company's Industrial Computers and Subsystems
business segment. A substantial portion of the Company's existing sales to
Lucent involves products that have not been designed into Lucent's next
generation products and the Company therefore expects that its business with
Lucent will decline substantially in the second half of fiscal 1998 and
subsequent periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Customers."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success is heavily dependent upon the establishment and
maintenance of proprietary technologies. Although the Company attempts to
protect its intellectual property rights through patents, copyrights, trade
secrets and other measures, there can be no assurance that the steps taken by
the Company to protect its proprietary technologies will be adequate to prevent
misappropriation by third parties or will be adequate under the laws of some
foreign countries, which may not protect the Company's proprietary rights to the
same extent as do the laws of the United States. In addition, others could
"reverse engineer" the Company's products in order to determine their method of
operation and introduce competing products or develop competing technology
independently. Any such adverse circumstances could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company uses employee and third-party confidentiality and
non-disclosure agreements to protect its trade secrets and unpatented know-how.
The Company requires each of its employees to enter into a proprietary rights
and non-disclosure agreement in which the employee agrees to maintain the
confidentiality of all proprietary information of the Company and, subject to
certain exceptions, to assign to the Company all rights in any proprietary
information or technology made or contributed by the employee during his or her
employment. In addition, the Company regularly enters into non-disclosure
agreements with third parties, such as consultants, potential joint venture
partners and customers. No assurance can be given that these methods will enable
the Company to maintain its trade secrets or unpatented know-how or that third
parties will not independently develop and/or patent substantially equivalent
proprietary information or copy, develop or otherwise obtain and use the
Company's proprietary technology without authorization.
The Company has historically relied primarily on its technological and
engineering abilities and on its design and production capabilities, rather than
on patents, for the development and maintenance of its business. However, the
Company does file patent applications on concepts and processes developed by the
Company's personnel and, as its commercial businesses expand, the Company has
placed increased emphasis on patents to provide protection for certain of its
technologies and products. The Company believes that its future success will
depend in part on its ability to maintain its patents, add to them where
appropriate, and to develop new products and applications without infringing the
patent and other proprietary rights of third parties and without breaching or
otherwise losing rights in technology licenses obtained by the Company for other
products. There can be no assurance that any patent owned by the Company will
not be circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to the Company or that any of the Company's
pending or future patent applications will be issued with claims of the scope
sought by the Company, if at all. If challenged, there can be no assurance that
the Company's patents (or patents under which it licenses technology) will be
held valid or enforceable. In addition, there can be no assurance that others
will not claim rights in the technology covered by the patents and other
proprietary technology owned or licensed by the Company or that others have not
developed or will not develop similar products or technology without violating
the Company's proprietary rights. The invalidity of a patent or determination
that the Company (or its licensor) does not hold sole rights to the technology
covered thereby could have a material adverse effect on the Company,
particularly if the Company is unable to design around others' proprietary
rights.
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Competing research and patent activity in many of the Company's
technologies is substantial and the markets are large enough that conflicting
patent and other proprietary rights claims may result in disputes or litigation.
Although the Company does not believe any of its products or proprietary rights
infringe the rights of third parties, there can be no assurance that
infringement claims will not be asserted against the Company in the future. Any
such claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, or at all. If
infringement were established, the Company could be required to pay damages or
be enjoined from making, using or selling the infringing product. Likewise,
there can be no assurance that a third party's product, if infringing on the
Company's proprietary rights, may be prevented from doing so without litigation.
Any of the foregoing could have a material adverse effect upon the Company's
business, financial condition and results of operations.
A number of the patents and patent applications owned or licensed by the
Company are subject to "march-in" rights and non-exclusive, royalty-free,
confirmatory licenses held by various governmental agencies or other entities.
March-in rights refer to the right of the United States government or a United
States government agency to cancel agreements and require a contractor to grant
licenses to third parties if the contractor fails to continue to develop the
technology related to the agreements. Confirmatory licenses permit the United
States government agencies or other governmental entities to select vendors
other than the Company to produce products for the United States government
which would otherwise infringe the Company's patent rights which are subject to
the royalty-free licenses. In addition, the United States government has the
right to require the Company to grant licenses (including exclusive licenses)
under such patents and patent applications or other inventions to a third party
if the United States government determines that adequate steps have not been
taken to commercialize such inventions, such action is necessary to meet public
health or safety needs, such action is necessary to meet requirements for public
use under federal regulations or such action is necessary because the Company
has not exercised reasonable efforts to ensure products manufactured pursuant to
such invention are manufactured in the United States. See "Business -- Patents,
Licenses and Trademarks."
COMPETITION
The markets in which the Company sells commercial products is highly
competitive, rapidly changing and significantly affected by new product
introductions and other market activities of industry participants. The
Company's primary competitors in ultracapacitors include Panasonic and SAFT, a
part of the Alcatel-Alsthom Group; in government-funded research and system
development include the Physics International unit of Primex Corporation and in
the passive backplane segment for industrial computers, include Texas
Microsystems, Diversified Technology, Advantech, Industrial Computer Source,
Teknor and Trenton. The Company's emerging products also compete with
established technologies in many markets, including batteries in ultracapacitor
products and a number of established methods of treating water and
decontaminating food packaging and medical products.
Many of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
greater name recognition, and a larger installed base of customers than the
Company. In addition, certain competitors have well-established relationships
with customers and potential customers of the Company. Furthermore, as the
Company's new products gain acceptance, companies with significantly greater
resources than the Company could attempt to increase their presence in these
markets. In order to be successful in the future, the Company must continue to
respond promptly and effectively to the challenges of technological change and
its competitors' innovations by continually enhancing its own product offerings.
There can be no assurance, however, that the Company's products will continue to
compete favorably or that the Company will be successful in the face of
increasing competition from new products and enhancements introduced by existing
competitors or new companies entering its market. See "Business -- Competition."
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RISKS ASSOCIATED WITH GOVERNMENT BUSINESS
A substantial portion of the Company's sales (approximately 33% in fiscal
1997, 40% in fiscal 1996 and 43% in fiscal 1995) is derived from contracts with
the United States government, principally agencies of the United States
Department of Defense, and subcontracts with government suppliers. The
reductions in defense budgets over the past several years have adversely
affected the Company's business, particularly in the area of system
survivability products and services, such as weapons effects simulation and
testing. The Company has experienced significant reductions in this business as
the Department of Defense has responded to reduced global threats and shrinking
defense budgets. The Company has also experienced increased competition in
bidding for new defense programs from contractors seeking to replace their lost
government business. There can be no assurance that defense spending in general
or that contract awards to the Company specifically will not be reduced in the
future. A significant loss of United States government funding would have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company's United States government business is also subject to other
various risks, including: unilateral termination for the convenience of the
government; reduction or modification in the event of changes in the
government's requirements or budgetary constraints; increased or unexpected
costs causing losses or reduced profits under fixed-price contracts or
unallowable costs under cost plus contracts; risks of potential disclosure of
the Company's confidential information to third parties; the failure or
inability of a contractor to perform its obligations under a contract in
circumstances where the Company is a partner contractor or subcontractor; the
failure of the government to exercise options provided for in the contracts and
the exercise of march-in rights or confirmatory licenses by the government.
There can be no assurance that the Company's contracts with the Department of
Defense and other government agencies will not be terminated, reduced or
modified or that the grant of such licenses and rights will not result in a loss
of potential revenues, any of which could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company participates in government funded programs which may extend for
several years, but are normally funded on an annual basis and shorter periods in
some cases. There can be no assurance that funding will continue for programs
covering the Company's development projects or that the Company can compete
successfully in obtaining contracts for such programs. A significant reduction
in, or discontinuation of, such funding or of the Company's participation in
such programs would have a material adverse effect on the Company's business,
results of operations and financial condition.
SUBSTANTIAL FUTURE CAPITAL NEEDS
The Company believes that, in order to achieve its long-term strategic
objectives and maintain and enhance its competitive position, it will need
significant additional financial resources over the next several years. To meet
anticipated volume production requirements for several of the Company's product
lines, in particular ultracapacitors and purification systems, the Company will
need expanded manufacturing capabilities and facilities or viable production
alternatives. The Company anticipates that it will require additional capital in
the future to fund its continuing expansion into commercial markets, to
construct and equip additional facilities, or to acquire new or complementary
businesses, product lines and technologies. Currently the Company has a $10
million line of credit, but there can be no assurance that any necessary
additional financing will be available to the Company on acceptable terms or at
all. If adequate funds are not available, the Company may be required to change,
delay, reduce or eliminate its planned product commercialization strategy or its
anticipated facilities expansion plans and expenditures, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends in significant part upon the
continued service of its key technical and senior management personnel. The
Company is dependent on its ability to identify, hire, train, retain and
motivate high quality personnel, especially key manufacturing executives and
highly skilled engineers and scientists involved in the ongoing development,
introduction and enhancement of the Com-
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pany's products and technologies. The industries in which the Company competes
are characterized by a high level of employee mobility and aggressive recruiting
of skilled personnel. The Company's employees may terminate their employment
with the Company at any time. Accordingly, there can be no assurance that any of
the Company's current key employees will continue to work for the Company. Loss
of services of key employees could have a material adverse effect on the
Company's business, financial condition and results of operations.
RELIANCE ON THIRD PARTY SUPPLIERS
The Company's success is dependent in part on its ability to secure
qualified and adequate sources for supplies of materials, components and
sub-assemblies. The Company manufactures most of its products using a large
number of components or sub-assemblies, many of which are of commercially
available industrial parts and the remainder of which are custom-made to the
Company's specifications (by the Company and certain qualified outside
manufacturers). The Company endeavors to maintain more than one source of supply
for each of its major components or subassemblies, to the extent possible,
although certain suppliers are currently the sole source of one or more items
upon which the Company is dependent in the manufacture of its EMI filters and
industrial computing products. In the past, the Company has on occasion
experienced difficulty in obtaining timely delivery of power supplies for
industrial computers from outside suppliers which has adversely impacted the
Company's delivery time to its customers and in one circumstance the Company
believes such delivery problems were a contributing factor to the loss of
certain business from a major customer. There can be no assurance that these and
other similar supply problems will not recur. In addition, the Company currently
has only one qualified supplier for a certain component of its ultracapacitors
and is contractually obligated to qualify at least one additional supplier. No
assurance can be given that such qualification will be completed in a timely
manner. Moreover, the current sole domestic source of a component of the
Company's EMI filter has indicated its plans to design, build and sell a
competing filter in the future. The Company believes this supplier will continue
to sell to the Company but that, if necessary, the Company could replace this
supplier. Although the Company seeks to reduce its dependence on sole and
limited source suppliers, the partial or complete loss of these sources could
have at least a temporary material adverse effect on the Company's results of
operations and damage customer relationships due to the complexity of the
products supplied and the significant amount of time required to qualify new
suppliers.
PRODUCT LIABILITY RISKS
Certain of the Company's products may expose it to product liability risks.
The Company's EMI filters are components of implantable medical devices and, due
to the litigious environment surrounding the medical device industry, subject
the Company to an increased risk of product liability claims that may involve
significant defense costs. Other of the Company's products, such as
ultracapacitors and purification systems, may also be used in functions
involving significant product liability risks. There can be no assurance that
product liability claims will not be asserted against the Company in the future.
Although the Company maintains product liability insurance with coverage limits
it believes to be adequate, there can be no assurance that this coverage will in
fact be adequate to protect the Company against future product liability claims.
In addition, product liability insurance is expensive and there can be no
assurance that, in the future, product liability insurance will be available to
the Company in amounts or on terms satisfactory to the Company, if at all. A
successful product liability claim or series of claims brought against the
Company could have a material adverse effect on the Company's business,
financial condition and results of operations.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling, emission, generation, manufacture and
disposal of toxic or other hazardous substances. The failure to comply with
current or future regulations could result in substantial fines being imposed on
the Company, suspension of production, alteration of its manufacturing process
or cessation of operations. Such regulations could require the Company to
acquire expensive remediation or abatement equipment or to incur substantial
expenses to comply with environmental regulations. Any failure by the Company to
control the use, disposal or
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storage of, or adequately restrict the discharge of, hazardous or toxic
substances could subject the Company to significant liabilities.
POTENTIAL DILUTIVE IMPACT OF EMPLOYEE STOCK OPTION PROGRAMS AT SUBSIDIARIES
The Company has adopted stock option plans at each of its five principal
operating subsidiaries providing for the issuance of incentive and nonqualified
stock options to purchase common stock of these companies. Any of these
subsidiary stock options that have an exercise price per share less than the
fair market value per share of the common stock of a subsidiary ("in-the-money")
will have a negative impact on the Company's earnings per share. The Company
expects that its reported diluted earnings per share will be reduced in future
quarters due to the increased fair market value of certain of the Company's
subsidiaries. Such options, when and if exercised, will dilute the Company's
actual ownership interests in its subsidiaries, thus reducing the Company's
share of the net income, potential dividends or distributions and proceeds of
any sale or other disposition of such subsidiary. The equity interests upon
exercise of stock options in the subsidiaries would be accounted for as a
minority interest. Based on current programs, the dilutive impact attributable
to these option plans could be up to 13% at each of the Company's principal
operating subsidiaries (17.% at one subsidiary). In addition, certain key
employees of one of the Company's Information Products and Services
subsidiaries, Maxwell Business Systems, Inc., currently own an aggregate of 20%
and have the right to purchase up to an additional 29% of that subsidiary.
Currently, no established trading market exists for the common stock underlying
any of the subsidiary options and such options are not exchangeable for Common
Stock of the Company. The Company has no plan to offer an exchangeability
feature for options to purchase Company Common Stock or otherwise provide
liquidity for these subsidiary options, but the Company could consider such
alternatives in the future.
ECONOMIC IMPACT OF POTENTIAL PUBLIC OFFERINGS OF SUBSIDIARY STOCK
By conducting its operations through separate subsidiaries, the Company
promotes clearer market definition and product identity. This business unit
focus also allows the Company to more actively monitor opportunities for growth
or cost savings and to promote entrepreneurism with each subsidiary. While this
corporate structure also affords the Company a high level of flexibility to
implement various strategic alternatives, including future public offerings of
subsidiary stock, sales of subsidiaries or strategic acquisitions, certain of
these alternatives may have negative effects upon the Company's consolidated
sales, gross profit, net income and earnings per share. For example, any public
offering or other sale of a minority portion of a subsidiary's stock would
reduce that subsidiary's contribution to the Company's net income and earnings
per share. While any transaction would be preceded by a determination that such
transaction is in the best interests of the Company and its stockholders, such
transaction could, nonetheless, have a material adverse effect on the Company's
results of operations.
GOVERNMENT REGULATION
The testing, manufacture and sale of certain of the Company's products are
subject to regulation by numerous governmental authorities. Pursuant to the
Federal Food, Drug, and Cosmetic Act, and the regulations promulgated
thereunder, the United States Food and Drug Administration (the "FDA") regulates
the preclinical and clinical testing, manufacture, labeling, storage,
distribution and promotion of food and medical products and processes. The
Company has obtained clearance from the FDA of its CoolPure technology for
preservation of liquid foods. In addition, the Company has obtained clearance
from the FDA of PureBright for food use and is applying for similar approvals in
Canada and Europe, as well as supporting customers in obtaining clearance of
PureBright for medical applications. Implantable defibrillators and pacemakers
that incorporate the Company's EMI filter have been approved by the FDA. Delays
in receipt of or failure to receive anticipated approvals or clearances, the
loss of previously received approvals or clearances, limitations on intended use
imposed as a condition of such approvals or clearances, or failure to comply
with existing or future regulatory requirements would have a material adverse
effect on the Company's business, financial condition and results of operations.
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The testing, preparation of necessary marketing applications and processing
of those applications with the FDA is expensive and time consuming, can vary
based on the type of product and may take several years to complete. There is no
assurance that the FDA will act favorably or quickly in making such reviews, and
significant difficulties or costs may be encountered by the Company or others in
its efforts to obtain FDA approvals that could delay or preclude the Company
from marketing any products it may develop. The FDA may also require
postmarketing testing and surveillance to monitor the effects of approved
products or place conditions on any approval that could restrict the commercial
applications of such products. Product approvals may be withdrawn if compliance
with regulatory standards is not maintained or if problems occur following
initial marketing. Noncompliance with applicable requirements can result in,
among other things, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the United
States government to grant pre-market clearance or pre-market approval for
products, withdrawal of marketing clearances or approvals and criminal
prosecution.
RISKS ASSOCIATED WITH ACQUISITIONS
As part of its business strategy, the Company regularly reviews possible
acquisitions of complementary companies, technologies or products, and
periodically engages in discussions regarding such possible acquisitions.
Acquisitions involve numerous risks, including evaluating new technologies;
difficulties in the assimilation of the operations, products, personnel and
cultures of the acquired companies; the ability to manage effectively
geographically remote units; the diversion of management's attention from other
day-to-day business concerns; risks of entering markets in which the Company has
limited or no direct experience and the potential loss of key employees of the
acquired companies. In addition, acquisitions may result in dilutive issuances
of equity securities; the incurrence of debt; reduction of any then-existing
cash balances; amortization expenses related to goodwill and other intangible
assets and other charges to operating results that may materially adversely
affect the Company's results of operations. Moreover, there can be no assurance
that any equity or debt financings proposed in connection with any acquisition
would be available to the Company on acceptable terms or at all, when, and if,
suitable strategic acquisition opportunities arise. Although management expects
to carefully analyze any opportunity before committing the Company's resources,
there can be no assurance that any acquisition that is completed will result in
long-term benefits to the Company or its stockholders or that the Company's
management will be able to manage effectively the resulting business.
LONG-TERM FIXED-PRICE CONTRACTS
A portion of Maxwell's software business consists of work under a small
number of large, multi-year fixed-price contracts with state and local
government agencies involving sophisticated integration and networking tasks and
a certain amount of application software development. In addition, certain of
the Company's other businesses, primarily those conducted in its government
funded research and systems development business, may also enter into long-term
fixed-price contracts for large hardware systems or components. Events and
developments such as unanticipated delays in program schedule, failure to
anticipate costs accurately over a two- or three-year period or performance
problems with important vendors can adversely affect the profitability of such
contracts. See "Business -- Government Business."
ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors is divided into three classes, each of
which is elected and serve overlapping three-year terms. In addition, the
Company has adopted a rights plan that, among other things, grants rights to
purchase Common Stock to all stockholders at a price significantly below market
value, at $32.50 per share, upon a business combination in the event a single
person or group has previously acquired more than 20% of the outstanding Common
Stock without the Board of Directors having elected to redeem such rights.
Furthermore, the Company's certificate of incorporation contains a "fair price
provision" intended to require an acquiror to obtain the consent of the Board of
Directors to any business combination involving the Company. The Company's
certificate of incorporation and bylaws also contain provisions barring
stockholders action by written consent and the calling by stockholders of a
special meeting. Amendment of
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such provisions requires a super majority vote by the stockholders, except with
the consent of the Board of Directors. The rights plan and provisions of the
Company's certificate of incorporation and bylaws could delay, deter or prevent
a merger, tender offer, or other business combination or change in control
involving the Company that some, or a majority of, stockholders might consider
to be in their best interests, including offers or attempted takeovers that
might otherwise result in such stockholders receiving a premium over the market
price of the Common Stock. See "Description of Capital Stock -- Common Stock
Rights" and "-- Additional Anti-Takeover Provisions."
LIMITED TRADING VOLUME; VOLATILITY OF STOCK PRICE
The Company's Common Stock is traded on the Nasdaq National Market. Trading
volume in the twenty trading days ended September 29, 1997 averaged 16,555
shares traded per day. Trading of relatively small blocks of stock can have a
significant impact on the price at which the stock is traded. The Company
believes factors such as quarterly fluctuations in financial results,
announcements of new technologies impacting the Company's products,
announcements by competitors or changes in securities analysts' recommendations
may cause the market price to fluctuate, perhaps substantially. These
fluctuations, as well as general economic conditions, such as recessions or high
interest rates, may adversely affect the market price of the Common Stock. See
"Item 5 -- Market for the Registrant's Common Equity and Related Stockholder
Matters."
ITEM 1. BUSINESS
GENERAL
Maxwell Technologies, Inc. ("Maxwell" or the "Company") is a worldwide
leader in pulsed power technologies, the storage of electrical energy and
delivery of power in brief controlled bursts. The Company has leveraged its
technical expertise, gained from over 30 years of experience performing research
and development primarily for the United States Department of Defense, to
develop a portfolio of pulsed power based commercial products. These products
address a range of markets and applications and include ultracapacitors for
advanced electrical energy storage and power delivery, purification systems for
water treatment and the sterilization of medical and pharmaceutical products and
electromagnetic interference ("EMI") filter capacitors for implantable medical
devices. In addition to pulsed power based products, the Company offers
industrial computers and subsystems which are sold to OEMs in the computer
telephony, medical, manufacturing automation and other markets. Government
funded research and development projects continue to be an important element of
the Company's business, serving as an incubator for technological innovations
and a resource of scientific and engineering expertise.
The Company's PowerCache ultracapacitors offer solutions to electrical
energy storage and power delivery problems in a wide range of commercial
applications including wireless communications devices, reliable power delivery
for industrial processing and computing equipment and automotive electrical
subsystems. The Company's ultracapacitors provide benefits such as extending
battery life and increasing signal strength in wireless communications devices
and protecting against power fluctuations and outages in industrial
applications. The Company also designs and manufactures high voltage capacitors
that are used in applications such as medical and industrial lasers, x-ray
machines and high-speed trains. Pulsed power technology has also enabled the
development of the Company's PureBright purification systems which deliver
pulses of light to kill microorganisms in applications ranging from water
treatment to sterilization of food packaging and medical and pharmaceutical
products. The Company's EMI filters prevent electromagnetic radiation emitted
from devices such as cellular phones and household appliances from disrupting
the functioning of implantable heart defibrillators and pacemakers and other
sensitive electronic equipment. The Company's pulsed power products are sold
primarily to OEMs in target markets and through direct sales channels.
As part of its shift to a commercially-oriented business, in 1996 the
Company completed a restructuring that organized like and synergistic businesses
into subsidiaries, creating focused centers of expertise for product
development, manufacturing, marketing and sales. In addition, the Company added
a new senior
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management team to drive the commercialization of Maxwell's portfolio of core
technologies and market penetration of the resulting products.
INDUSTRY BACKGROUND
Pulsed Power
Pulsed power is the storage of electrical energy and the delivery of brief
controlled bursts of electricity at high power for periods typically ranging
from a microsecond up to 60 seconds. Research and development of pulsed power
technologies have been funded for over 30 years, primarily by the United States
government. The expertise gained through this funded research forms the basis
for the development of commercial products based on pulsed power technologies.
In recent years, pulsed power applications have been developed
which offer solutions to power storage and delivery problems in a wide range of
commercial applications, including wireless communications, automotive
electrical subsystems, water treatment and sterilization of medical and
pharmaceutical products and food packaging. Benefits of pulsed power include
extending battery life, improving system performance, reducing cost and system
size and enabling new system functions.
Ultracapacitors. The proliferation and increasing complexity of electronic
products and the electrical power requirements associated with them are spurring
demand for innovative solutions for power delivery in a wide variety of
applications including portable electronics, power quality and automotive
electrical subsystems. Portable electronic products such as wireless
communications devices, which typically transmit data in a series of short
bursts and personal data assistants, which typically have subsystems that start
up and shut down rapidly, require reliable internal power sources that are
capable of supplying repeated bursts of power and that adhere to exacting size
and weight constraints. In addition, computer-intensive businesses,
manufacturers and other commercial users of high-speed industrial processing
equipment, such as semiconductor manufacturers and high speed printers, demand
power quality (i.e., the uninterrupted supply of power at a constant voltage).
In the absence of power quality protection, small fluctuations in power often
shut down automated production systems, which may damage products on the
assembly line and cause significant delays in business operations. Technology
Insights estimates that the power quality market in the year 2000, including
adjustable speed drives, uninterruptable power systems and engine start and
actuator applications, will amount to over $11 billion. Moreover, automobile
manufacturers are utilizing an increasing number of electrical subsystems that
require sophisticated power management in conventional combustion engine
vehicles. In response to legislation adopted in several U.S. states requiring
zero-emission vehicles, automobile manufacturers are also seeking enabling
technologies for commercially viable electric vehicles and hybrid/combustion
electric vehicles.
Batteries and capacitors have long served as electrical energy storage and
power delivery devices. However, limitations in battery and capacitor
performance are an obstacle to both the continued enhancement of many electronic
devices and the development of new applications. Batteries degrade over time, do
not effectively provide bursts of power and do not function well in extreme
temperatures or allow for practical, accurate measurement of remaining energy
reserves. The capacitor, utilized in situations in which high power output in
short bursts is required, differs from batteries in that it can charge and
discharge stored energy rapidly and does not degrade with each charge and
discharge. However, traditional capacitors are not suitable for energy storage
and power delivery applications which require higher energy storage capability
and longer discharge times.
Advances in pulsed power technology have enabled the development of
ultracapacitors for providing bursts of power when an accelerated injection of
energy is required for an application. Ultracapacitors combine certain
characteristics of batteries and traditional capacitors. Like batteries,
ultracapacitors discharge energy at low voltages. Like traditional capacitors,
ultracapacitors store and discharge electrical energy rapidly, do not degrade
with repeated use and can be quickly recharged. In contrast to traditional
capacitors, ultracapacitors have significantly greater energy storage capability
and longer discharge times, making them suitable for many applications that fall
outside the performance parameters of traditional capacitors.
Purification Systems. Pulsed power technologies can also be utilized for
microbial decontamination by delivering intense bursts of light or pulses of
electricity to kill microorganisms. Conventional techniques for
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controlling microorganisms commonly present in water and other liquids, on
foods, on food packaging and on medical products include filtering, heat
pasteurization and sterilization, ionizing radiation and application of
chemicals. Conventional purification techniques often fail to effectively
fulfill end-user needs for a variety of reasons, including failure to eliminate
certain microorganisms in water supplies (chlorination, ultraviolet light and
similar processes), change in taste and texture of foods (heat and chemicals),
time and cost (many conventional techniques, including autoclave heat
sterilization of medical instruments), environmental concerns (ionizing
radiation and chemicals) and effective monitoring of performance by the user
(most conventional techniques).
The markets for purification technologies where pulsed power purification
systems may be applied are large and growing. According to the Water Quality
Association, the worldwide market for water treatment technologies is expected
to be approximately $13.9 billion in 1997. Pulsed light purification products
are targeted to a specialized portion of this market.
EMI Filtering
The electromagnetic fields and signals generated by electronic devices can
interfere with and disrupt the functioning of other electronic devices. Certain
categories of electronic products, including implantable medical devices such as
pacemakers and defibrillators and aerospace guidance and communications systems,
may fail to perform as required in the presence of EMI. In recent years, the FDA
has publicly expressed concern about the potentially deleterious effect on the
safe operation of implantable medical devices caused by an increasingly large
variety of EMI sources, including household appliances and cellular telephones
and other wireless communication devices that operate in an increasingly large
part of the electromagnetic spectrum. To combat the effects of EMI, some
manufacturers of electronic products incorporate EMI filters into the circuitry
of their products. An alternative approach blocks EMI from entering an
electronic device at the opening used by, for example, power leads or sensors
(the "feedthrough"). These feedthrough filters block EMI from entering an
electronic device without interfering with its functionality. In addition to
feedthrough filtering capabilities, electronic device manufacturers seek EMI
filters that can block a broad range of electromagnetic frequencies and conform
to small form factors.
Industrial Computers and Subsystems
Industrial computers form the backbone and control system for many types of
electronic equipment. Unlike general purpose computers such as PCs, industrial
computers provide a computing platform for a larger system made by an OEM. These
products can be designed to accept specialized additional hardware and software
from a customer or third party vendor and satisfy additional requirements such
as high reliability, non-standard input/output capability and specific form
factors. Industrial computers are incorporated into a broad range of products,
including computer telephony products (voice messaging systems, interactive
voice response servers and telephone switch management systems),
telecommunications products (cellular base stations, two-way paging systems,
advanced intelligent networks, enhanced service systems and video conferencing
servers), Internet/worldwide web servers, electronics and semiconductor testing,
manufacturing and assembly equipment, a range of medical devices and other
commercial applications.
The rapid proliferation of complex electronics applications has created
attractive markets for highly focused industrial computer manufacturers who
possess the engineering know-how and experience to provide design-intensive
solutions. OEMs frequently conclude that their needs for such products can be
better met by specialized outside manufacturers rather than by developing these
capabilities internally. Electronic Trend Publications estimates that the size
of the total industrial computer market will exceed $2.5 billion worldwide in
1997.
OEMs are also continually seeking means to integrate more functionality and
new technologies into smaller enclosures with higher levels of fault tolerance
at lower cost. In industrial computers, a number of architectures are currently
in use. One of the most prevalent architectures, passive backplane, facilitates
compatibility with components designed for PCs, design flexibility, fault
tolerance, customization of input/output ports and cost effectiveness.
CompactPCI, an emerging architecture which certain OEMs are
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beginning to design into their next generation products, will incorporate the
cost effectiveness and design flexibility of passive backplane architecture,
while enhancing ruggedness and fault tolerance in a smaller form factor.
According to Electronic Trend Publications, annual sales of industrial computers
and subsystems incorporating CompactPCI architecture are projected to exceed
$400 million in 2000 and grow to $1.0 billion in 2001.
Government Funded Research and Systems Development
The United States government relies on companies with significant
scientific and technical expertise to provide technology-driven research and
development programs supporting a variety of military and space programs. Many
of the United States' strategic defense capabilities are examined and tested
through weapons effects simulation and computer modeling. Additionally, research
and development is required on techniques to harden electronics against weapons
effects and the space environment, devise sensors designed to detect hostile
environments, particularly in space applications, and devise alternate means of
generating nuclear fuel without the potential environmental impact of
traditional methods. Many of these efforts involve the development, design,
construction and operation of major pulsed power systems and the application of
sophisticated computer modeling and analysis of complex physical phenomena.
MAXWELL'S SOLUTIONS
With over 30 years of experience in pulsed power research and development
programs, Maxwell has developed substantial scientific and engineering expertise
in electrical energy storage and power delivery systems. The Company has
leveraged its expertise, particularly in pulsed power, to design and manufacture
a range of products which apply pulsed power technology to commercial
applications and address a number of commercial markets.
Ultracapacitors. The Company is a leader in ultracapacitor development. In
a 1996 study conducted by the Idaho National Energy Laboratory, the Company's
PowerCache ultracapacitor demonstrated a substantial performance advantage in
both the storage of electrical energy and the release of power over all of the
other organizations that participated in the study, including competing
commercial developers of this technology as well as national laboratories. The
flexibility of the Company's PowerCache ultracapacitor technology enables it to
produce ultracapacitors in a wide range of sizes and energy storage capabilities
that address a broad range of applications. The Company has initially targeted
its ultracapacitor products to the wireless communications, power quality and
automotive markets. In the wireless communications market, the Company's
ultracapacitors are being used as battery supplements in two-way pagers,
wireless modems and emergency locator beacons to extend battery life and to
increase signal strength. In the power quality market, banks of PowerCache
ultracapacitors offer solutions for temporary voltage fluctuations and power
interruptions, diesel and electric motor startup and battery load leveling and
enhancements. In the automotive market, the Company is providing ultracapacitors
for evaluation in electrical subsystems in combustion engine vehicles for
applications ranging from catalytic converter preheating, airbag actuators and
seat belt tighteners to power steering and power braking subsystems. The Company
is also collaborating with leading automobile companies to develop PowerCache
ultracapacitors for use as battery supplements or replacements in electric
vehicles and hybrid electric vehicles.
Purification Systems. The Company's pulsed power based purification
products, PureBright and CoolPure, address the limitations of conventional
techniques for microbial decontamination. The PureBright system utilizes pulsed
power to deliver intense light pulses in rapid sequence to kill a wide range of
microorganisms in water and pharmaceutical products, on food and packaging
surfaces and on medical products. The PureBright system is effective against
many microorganisms, including cryptosporidium, which conventional systems fail
to kill, and meets treatment standards as stringent as those for pharmaceutical
products sterilization. PureBright does not pollute the environment and is
readily monitored for performance by end-users. The Company's CoolPure system,
now in prototype development, uses high energy electric pulses, rather than
light pulses, to decontaminate opaque or cloudy liquids and liquid foods.
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Other Pulsed Power Products. Leveraging its experience researching,
designing and operating major pulsed power systems for the United States
government, the Company designs and manufactures traditional high voltage
capacitors, power supplies and other electrical components for applications
requiring reliable sources of high power output. The Company's products are
incorporated in portable heart defibrillators, medical and industrial lasers and
power conditioning equipment for x-ray machines and high speed trains.
EMI Filters. The Company's EMI filter is a feedthrough filter capacitor
that blocks a broad range of frequencies and is available in small form factors.
The Company's patented EMI filter enables it to meet the increasing demand for
smaller filters by mounting the feedthrough filter on the surface of an
implantable device. In the implantable heart defibrillator market, the Company
believes its EMI feedthrough filter is a market leader because of its small size
and effective broadband filtering capabilities. The Company currently supplies
EMI filters to CPI/Guidant for defibrillator and pacemaker applications and has
a contract to supply the Pacesetter division of St. Jude Medical, Inc. with EMI
filters for pacemakers. The Company's EMI filters are also sold for military and
space program applications.
Industrial Computers and Subsystems. The Company's industrial computing
products, incorporating passive backplane architecture, offer the advantages of
high input/output slot capacity, fault tolerance and low cost demanded by OEMs.
The Company is currently developing new products based on CompactPCI
architecture which incorporate the cost effectiveness and design flexibility of
passive backplane architecture and provide increased ruggedness and fault
tolerance in a smaller form factor. The Company believes it is a leading
supplier of passive backplane systems, particularly for the growing computer
telephony and other telecommunications markets.
Government Funded Research and Systems Development. Maxwell continues to
provide high technology research and systems development to the United States
Department of Defense, other government agencies and national laboratories. The
Company is a leader in pulsed power research, weapons effects simulations and
complex computer modeling and analysis of physical phenomena. Additionally, the
Company's expertise addresses the government's needs in power quality and power
conditioning for large, high energy systems, electric and electrothermal gun
research, advanced pulsed power development, high-power microwave source
development and technology oversight for space-based sensor development.
STRATEGY
Having expanded its business beyond funded research and development
activities to a focus on commercial opportunities, Maxwell intends to continue
to execute its commercialization strategy, develop products incorporating core
technologies and identify and penetrate key markets for its products. The
Company's strategy encompasses the following elements:
Capitalize on Technical Expertise. Through its long history of research and
development in pulsed power, the Company has become a leader in the development
of commercial products based on pulsed power technologies and intends to
continue to capitalize on its technical expertise in this area. In the wireless
communications market, the Company has developed ultracapacitor products that
extend battery life and increase functionality in devices such as two-way
pagers. In the purification systems market, the Company has leveraged its
expertise in pulsed power to create systems which are designed to offer rapid,
"in-line" decontamination for food packaging and medical product manufacturing,
enabling customers to achieve increased production efficiency. The Company
intends to continue pursuing research and development programs, principally
those funded by strategic partners and the government, that enhance its
technical expertise and enable improvement of existing products and development
of additional products.
Focus on Selected Large and Growing Commercial Markets. In recent years,
the Company has chosen to enter selected large and growing commercial markets in
which the Company believes it has enabling technology or in which the Company's
technical expertise offers a competitive advantage. For its ultracapacitor
products, the Company has targeted the wireless communications, power quality
and automotive markets in which battery performance is a critical issue.
Similarly, the Company's EMI filter business is focusing on medical applications
in which manufacturers are increasingly concerned about the effects of EMI on
implantable devices. The Company intends to increase penetration of its current
target markets and to
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continue pursuing clearly defined commercial market opportunities that enable it
to leverage its core technologies.
Leverage Strategic Partnerships. The Company has established a number of
strategic partnerships with industry leaders for product development, marketing
and sales. Through these strategic partnerships, Maxwell seeks to obtain
specific market knowledge and enhanced understanding of market demands and
needs, access to funding for continued product development, product and customer
validation and a channel for market penetration. In recent years the Company has
formed or expanded strategic partnerships with, among others, Tetra Pak, a
worldwide leader in food packaging equipment, to develop sterilization systems
for incorporation into food packaging machinery, PacifiCorp, a diversified
utility holding company, to develop and market ultracapacitor products for the
power quality marketplace, a leading automobile manufacturer to develop
ultracapacitors as battery supplements in electric and hybrid electric vehicles
and an international restaurant chain to develop a PureBright system for water
treatment. The Company intends to leverage its existing strategic partnerships
and seek new strategic partners in promising markets.
Expand International Presence. The Company intends to pursue international
markets as key avenues for growth and increase the percentage of sales generated
in international markets. In fiscal 1997, the Company's international sales were
12.4% of total sales, compared to 9.3% of total sales in fiscal 1996. In
furtherance of its strategy, the Company has concluded key strategic
partnerships with international companies such as an international wireless
communications company, a leading automobile manufacturer and Tetra Pak. In
1997, the Company opened a sales office in London focused on purification
systems and industrial computers.
Create Focused Centers of Expertise. As part of its shift to a
commercially-oriented business, in 1996 the Company completed a reorganization
that combined like and synergistic businesses into business units, creating
focused centers of expertise. The Company intends to continue operating in
business units focused on clearly defined markets. The Company believes that
this structure facilitates the management and commercialization of its diverse
technology base. The Company has provided and will continue to provide
incentives to encourage entrepreneurism from its employees and senior managers.
PRODUCTS
Ultracapacitors
Maxwell's PowerCache ultracapacitor represents a significant improvement in
ultracapacitors. The Company's ultracapacitors are distinguished by the large
amount of energy they can store in a given physical volume. The Company's
ultracapacitor is scalable in that it can be manufactured in a broad range of
shapes and sizes. Currently, the Company is producing ultracapacitors from
matchbook size to cells measuring 2" x 2" x 6", while maintaining the same high
energy storage per unit volume. The Company's ultracapacitors can be linked to
supply higher power for applications such as automotive and power quality
systems. The Company's ultracapacitors range in price from a few dollars to over
$1,000 per cell. The Company is initially targeting the wireless communications,
power quality and automotive markets for its ultracapacitors.
Wireless Communications. In wireless communications devices, PowerCache
ultracapacitors increase signal strength and significantly extend battery life
for devices that transmit in sequences of bursts. The Company's ultracapacitors
have been incorporated into portable devices dependent on battery power
including two-way pagers, wireless modems and emergency locator beacons. The
Company has developed, under a strategic partnership with a telecommunications
OEM, a matchbook size ultracapacitor that has been designed into the OEM's next
generation wireless modems and two-way pagers. The Company is constructing a
facility for volume production to meet anticipated demands of that OEM. The same
ultracapacitor is being designed into an emergency locator beacon made by
another OEM. The Company is also engaged in research and development for an
ultracapacitor for cellular telephones, which require shorter discharge times
(0.01 to 0.1 seconds) than many other wireless devices (0.1 to 3.0 seconds).
However, because substantial technical challenges must be overcome, no assurance
can be given as to whether the Company will be able to develop an ultracapacitor
suitable for use in cellular phones.
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Power Quality. The Company's ultracapacitors can function as a standby
reserve of power to be supplied in the event of an electrical interruption or
voltage fluctuation in an external power source. Maintaining power quality is
important to a variety of end users, such as manufacturers using automated
production equipment, for whom power interruptions can cause substantial product
losses and restart delays, and computer-intensive businesses to which data
losses can cause substantial expense. Maxwell's strategic partner in the power
quality market is PacifiCorp, a leading utility company. PacifiCorp has provided
substantial development funding and will be selling distributed energy
generating systems incorporating the Company's ultracapacitors, utilizing
ultracapacitors in its own backup systems and marketing ultracapacitor systems
to industrial customers for whom power quality is an important concern. Maxwell
has sold PacifiCorp a 56-volt, 300,000 joule bank of ultracapacitors for
demonstration purposes consisting of 56 cells connected in series and parallel,
with each cell 2" x 2" x 6" and having 2,700 farad capacitance. The Company is
manufacturing an additional 56-volt bank and a 170-volt bank for PacifiCorp for
demonstration and application purposes, with the 170-volt bank specifically
intended to address the power quality requirements of semiconductor
manufacturers. Additional potential applications include remote telephone
switching offices and utility switching stations handling major power grid
realignments.
Automotive. In conventional combustion engine vehicles, the Company's
PowerCache ultracapacitor has applications in catalytic converter pre-heating,
air bag deployment, seat belt tightening and engine ignition. In addition, the
Company's ultracapacitor may create significant energy efficiencies by enabling
the replacement of vacuum and hydraulic subsystems for power steering and power
brakes with electrical subsystems utilizing pulsed power. In electric vehicles,
the Company's ultracapacitor can reduce the load on the battery pack by using
its stored energy for acceleration power and recapturing energy otherwise lost
during braking. Ultracapacitors can thus significantly extend battery life and
improve driving range. Similarly, in hybrid electric vehicles, the
ultracapacitor provides acceleration power for passing and hill climbing,
thereby allowing highly efficient, low pollution constant power engines to be
used. The timing of development and consumer acceptance of electric vehicles is
uncertain because such acceptance is driven by factors including legislative
mandates and continued technical improvement. As a result, the Company believes
market acceptance of ultracapacitor use in electrical subsystems for combustion
vehicles will precede widespread use of electric vehicles and may provide a
larger initial potential market for ultracapacitors. Three automobile
manufacturers and two automotive component manufacturers are in discussions with
the Company to utilize ultracapacitors in the development of electrical
subsystems for combustion vehicles. The Company has sold ultracapacitors to
leading automotive manufacturers for tests in electric vehicles.
Purification Systems
The Company's PureBright and CoolPure purification systems are based on two
patented pulsed power processes incorporating capacitors and other pulsed power
components designed and manufactured by the Company. The PureBright system
utilizes intense pulsed light to kill microorganisms, including cryptosporidium,
viruses and spores in water and pharmaceuticals, on food and food packaging
surfaces and on medical products. The CoolPure system uses a direct electrical
pulse to kill microorganisms in liquids and liquid foods, such as juices, dairy
products and sauces. The Company's PureBright product line includes compact
water treatment systems and large industrial systems that can be used on a
standalone basis or as a component designed into other industrial equipment.
Prices of the Company's purification systems range from a few thousand dollars
to over $100,000. PureBright systems are in field testing for restaurant water
treatment applications, have been designed in as an option in Tetra Pak's next
generation food packaging machinery and are in the FDA approval process for use
as a sterilization device for certain medical products manufactured by other
strategic partners.
Water Quality. The Company, in a strategic partnership with an
international restaurant chain, has developed a PureBright system for water
treatment in restaurants. The PureBright system is designed to replace
ultraviolet light treatment and chemical treatments such as chlorine for
elimination of microorganisms in water. The PureBright water treatment system
designed for restaurant use is a four-gallon per minute wall-mounted unit with
dimensions of 16" x 30" x 11" and plugs into standard electrical power outlets.
The restaurant partner is now engaged in field testing the on-site performance
of the system. The Company has
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granted exclusivity for restaurant use to its strategic partner for a two-year
period, but intends to market the system for point-of-entry or point-of-use
applications to hotels, laboratories, manufacturers, healthcare providers and,
after the exclusivity period, other restaurant operators. The Company believes
PureBright technology will be particularly useful in developing nations because
of uneven water quality levels found in some of those countries. The Company
believes PureBright can be an effective and easily monitored safeguard against
domestic water quality problems, such as cryptosporidium outbreaks, that are not
effectively controlled by some conventional technologies.
Medical and Pharmaceutical Product Sterilization. Maxwell is also marketing
PureBright systems for sterilization of medical and pharmaceutical products and
packaging materials. PureBright systems for medical and pharmaceutical
applications consist of a standard enclosure containing the pulsed power
delivery system, with dimensions of 2' x 3' x 6', linked by cable to a flash
lamp unit. The flash lamp unit is configurable to the customer's specific
requirements for integration into processing line equipment. The Company has
strategic partnerships with medical and pharmaceutical product companies, which
are seeking FDA approval for PureBright's integration into blow-fill-seal
plastic packaging equipment and certain disposable medical product manufacturing
equipment. The Company also intends to market PureBright for medical product
sterilization applications where it would provide a cost-effective alternative
to expensive, time consuming autoclave heat-based sterilization systems.
Food Packaging. Through a long-standing partnership with Tetra Pak, the
Company has developed PureBright systems for food packaging applications similar
in size, price and customizable features to the PureBright systems for medical
and pharmaceutical products. Tetra Pak has incorporated PureBright as an option
in its next generation container filling machines. The Company's relationship
with Tetra Pak prohibits the Company from pursuing additional customers in most
food packaging applications, but permits it to pursue additional customers in
cup, lid, bottle cap and hot-filled pouch purification applications.
Food Treatment. PureBright systems similar to those used in medical and
food packaging may also have application in the market for reducing microbial
contamination on the surface of food products. The Company believes reduction of
surface microbes will extend the shelf life of a variety of foods. Among other
potential applications, the Japanese government is funding a study testing the
efficacy of purification systems, including the PureBright system, for meat
decontamination.
The CoolPure system, currently in the prototype stage, kills microorganisms
using pulses of electricity, rather than light. The CoolPure system is being
designed to be used with opaque or cloudy liquids or pumpable foods such as
juices, dairy products and sauces, which the PureBright light pulses are unable
to penetrate. CoolPure is effective against vegetative bacteria, a narrower
range of microorganisms than those controlled by PureBright. The Company has
supplied CoolPure prototypes to the United States Army and an international food
products company. CoolPure is composed of a 89" x 68" x 84" pulsed power unit,
linked to a smaller treatment chamber with electrodes applying the electrical
pulses.
EMI Filters
Maxwell's patented EMI feedthrough filter capacitor absorbs electromagnetic
energy from a broad band of frequencies. The Company believes it has significant
advantages over competing technologies because its filters block a broad band of
EMI frequencies from entering the device, in contrast to filters that are
embedded in the internal circuitry and are designed to absorb only a specific
frequency. Furthermore, the Company's surface mount filter design enables a
smaller form factor than competing feedthrough filters. The FDA has approved the
implantable pacemakers and heart defibrillators of medical device manufacturers
which contain the Company's filter.
The Company currently has supply agreements with two of the largest
manufacturers of implantable medical devices, CPI/Guidant, whose implantable
defibrillators use the Company's filters, and the Pacesetter division of St.
Jude Medical, Inc., which is incorporating the Company's EMI filter in certain
of its implantable heart pacemakers. The Pacesetter contract, awarded in March
1997, expands the market penetration of the Company's device from implantable
defibrillators to pacemakers. The Company also
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manufacturers and sells high-reliability feedthrough filter capacitors for
military and commercial space program applications in which broad band screening
of EMI and device size are important specifications.
Other Pulsed Power Products
The Company designs, manufactures and sells a number of electrical
components, including a range of high voltage capacitors supplying from
thousands of volts to tens of thousands of volts. Maxwell has long been a major
supplier of capacitors used in portable and stationary heart defibrillators used
by medical personnel to treat heart attacks. The Company also manufactures high
voltage capacitors for lasers for medical applications such as eye surgery,
dentistry and dermatology, and for industrial applications such as
microlithography for semiconductor manufacturing, flat panel annealing for LCD
displays, marking, welding, drilling and cutting. Other high-voltage capacitors
are sold for use in specialized applications and for use in large systems for
the United States government.
The Company has licensed traction capacitor technology from Thomson-CSF, a
multi-national industrial company, with rights to manufacture and distribute
such products in the United States. Traction capacitors, used in locomotives to
condition electric power running from a diesel generator to the electric motor,
have been used for years in Europe's high speed trains. Maxwell is supplying
traction capacitors to the consortium led by Bombardier and GEC Alsthom selected
to build AMTRAK's Northeast Corridor train, which is expected to be the first
high speed tilt train system in the United States. AMTRAK has announced that it
plans to upgrade its rail network to high speed trains nationwide over the next
20 years and the Company intends to pursue opportunities with locomotive
manufacturers to supply traction capacitors as well as capacitors for braking
and other subsystems for these programs.
The Company also develops, manufactures and sells a line of compact power
supplies used for charging high voltage capacitors for the medical and
industrial laser markets. Portions of this product line are manufactured under
license from Auburn University.
Government Funded Research and Systems Development
Maxwell is engaged in a variety of research and development programs in
pulsed power, weapons effects simulation and pulsed power and sensor systems
design and construction. These services are primarily supplied to the United
States government and its agencies including the Air Force and the Defense
Special Weapons Agency. The Company also provides systems and services to
national laboratories and industrial and defense companies. The Company
typically performs research and development under contracts that allow the
Company to apply developed technology in commercial markets.
The Company performs above-ground simulation and testing of weapons effects
via the design and operation of large-scale X-ray and electromagnetic pulse
producing systems. These systems employ the Company's capacitors and other
pulsed power components. The Company also has developed power quality systems
and power conditioning systems, including a power conditioning system for an
accelerator for tritium production. The Company provides technology oversight
and planning for space-based sensor design and development and testing of
hardening techniques for electronics modified to withstand hazardous effects of
hostile environments. In addition, the Company performs on-site technical,
operations and maintenance support at government facilities involving
applications such as electric and electrothermal gun research, advanced pulsed
power development, high-power microwave source development, energy storage and
system integration of advanced concept demonstration experiments.
A potential commercial application stemming from the Company's funded
research and systems development is ElectroBlast, a process initially identified
using expertise gained in studying effects of advanced weapons technology. The
ElectroBlast process uses a pulsed electric discharge to fracture rock by
rapidly expanding a non-toxic material. If successful, the technology would, in
contrast to dynamite and other conventional explosives, produce no toxic fumes
and minimize dust and flyrock, providing opportunities for continuous tunneling
and thus potentially significant economic advantages over conventional methods.
ElectroBlast is also being investigated as an alternative to explosives in
demolition of concrete structures. The technology has been tested in underground
mines, but is still in the early development stage.
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Industrial Computers and Subsystems
Through its industrial computers and subsystems business acquired in 1991,
the Company designs, manufactures and supplies standard, custom and semi-custom
industrial computer modules, platforms and fully-integrated systems to OEMs, on
a worldwide basis. The Company's product line ranges from enclosures, CPU cards
and backplanes to fully integrated and highly customized computer systems. The
Company's product line primarily employs passive backplane architecture and the
Company is completing the development of its first CompactPCI products. Prices
for the Company's standard products such as enclosures, CPU cards and fully
integrated systems range from $1,500 to $10,000.
The Company's components and systems are design-intensive applications
based on Intel's x86 and Pentium architecture and are PC-compatible. The
Company's products are utilized primarily in computer telephony equipment such
as voice-mail servers, interactive voice response servers, telephone switching
servers and telephone network transaction control servers. The Company's
industrial computers are also used in a number of non-telecommunication
applications such as medical (CT Scan, MRI equipment and drug dispensing
equipment), test instrumentation (data acquisition and test), imaging
instrumentation (large-scale optical reading and sorting equipment) and
manufacturing automation (pick-and-place equipment). In addition, the Company
has recently begun marketing its computers as private-labeled products to file
server manufacturers for resale into the small-to-medium file server market.
The Company's enclosures utilize passive backplane technology in which CPU
and input/output functionality is provided by add-in cards for flexibility and
ease of replacement. The Company provides fault resistant and fault tolerant
systems that include redundant components -- cooling fans, power supplies and
hard disks -- that can be "hot-swapped" without shutting down or otherwise
affecting the system. The Company also provides enclosures with segmented
backplanes that allow two or more independent computer systems to operate within
a single enclosure, an important feature in systems in which fault tolerance or
size requirements are critical. Enclosures are available to support from six to
twenty-five slots and can be configured in rack mount, table top or tower
models.
The Company's products employ several industry standard buses, form factors
and interfaces, which enable OEMs to integrate the Company's products with many
widely available and economical third party products thereby reducing reliance
on potentially higher priced or scarce custom component parts. The Company's
products incorporate standard bus architecture including ISA Bus, PCI Bus, SCSI
Bus and IDE and, microprocessors in the Intel family up to the Pentium Pro and
Pentium II, following its release, and support operating systems including
Windows 95, Windows NT and Solaris.
Computer-Based Analytic Services and Software
Maxwell provides complex computer-based analytic services, primarily to the
United States Department of Defense, and sells various commercial software
products. A primary focus of the Company's government funded research is
computer modeling of physical phenomena and improvement of the architecture of
the computer-based systems and networks used for transmitting and applying data.
The Company has developed highly advanced computer software for modeling and
predicting physical effects such as electromagnetic pulses, electric currents,
shock waves, ground shock and ground movement. The Company uses this software to
perform analysis of weapons effects and systems hardening, space environment
effects and satellite design, electric propulsion and geothermal and earthquake
effects.
In commercial markets, Maxwell provides software-related products and
services for cost accounting and management information systems, Internet
content, educational software and public safety and criminal justice information
systems. The Company is marketing its cost accounting and management information
software programs, which incorporate sophisticated job cost and activity-based
accounting capabilities, to large contractors and others interested in tracking
costs by job, activity or cost center. The software is sold under the JAMIS
(Job-cost Accounting and Management Information Systems) label, and contains
modules necessary for a comprehensive, enterprise-wide system including
accounting functions, Federal Acquisition Regulation compliant billings, human
resources, contracts and purchasing. Development continued in fiscal 1997 on a
new, open platform, graphical user interface based version of this software. The
Company
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completed development in fiscal 1997 of JAMIS Timecard an online time recording
system that currently operates in a client-server environment including
remote-site entry and is developing Internet compatibility for this product. The
Company also provides Internet content including real-time municipal traffic
information available to users on a co-branded basis with the Yahoo! search
directory and with Microsoft on the upcoming version of its Internet browser.
The Company also offers wide area and local area network and software
integration services. The Company offers interactive educational software
compact discs for mathematics and physical science instruction designed for
in-classroom use. The Company also markets and sells public safety and criminal
justice information system products and integration services, including
client-server based software for criminal case management, law enforcement
records management, computer-aided dispatch, jail management, and fire and
emergency record management.
STRATEGIC PARTNERSHIPS
In recent years the Company has formed or expanded several strategic
partnerships. Through these alliances, Maxwell obtains an enhanced understanding
of market demands and needs, access to funding for continued development and
commercialization of products, and a channel for market penetration. The
strategic partner obtains an opportunity for early adoption or use of the
product or service.
For purification products, the Company frequently accepts initial funding
to engineer a specific application for the strategic partner, thus reducing the
Company's product development expense, and in exchange the strategic partner
often receives a period of exclusivity for the application. The Company's
longest strategic relationship is with Tetra Pak, which has provided research
and product development funding to the Company's PurePulse Technologies, Inc.
subsidiary since its inception, and owns approximately 5% of PurePulse. The
Company's PureBright system has been designed-in as an option in Tetra Pak's
next generation food packaging machinery. Tetra Pak has an exclusive license for
PureBright in most food packaging applications. In similar fashion, the Company
has received funding from an international restaurant chain for development of
PureBright for water treatment applications. The Company and this strategic
partner are negotiating an agreement whereby the Company would supply PureBright
units to the restaurant chain, contingent upon successful completion of field
testing now in process. The strategic partner has a two-year exclusive right to
use PureBright in its restaurants beginning when the first system is ordered.
For CoolPure, an international food products company is providing product
development funding, is currently evaluating prototype units and has been
granted a period of exclusivity for use of CoolPure in some applications.
The Company has also developed strategic partner relationships for product
development and marketing of ultracapacitors. PacifiCorp has provided funding
for product development and testing for ultracapacitors in power quality
applications, and PacifiCorp and the Company are jointly marketing
ultracapacitors to industrial customers. The Company is discussing with
PacifiCorp an additional $5 million in funding, possibly including an equity
investment in the Company's subsidiary, Maxwell Energy Products, Inc. A leading
automobile manufacturer provided funding for ultracapacitor development and
purchased prototype units, with the Company providing technology disclosure and
a period of exclusivity that has now expired. The Company is negotiating with
this strategic partner for an expanded development agreement.
The Company's future success will depend in part on its continued
relationships with various of its strategic partners, its ability to enter into
other similar collaborative arrangements, the interest of certain of the
Company's strategic partners in the potential products under development and,
eventually, their success in marketing or willingness to purchase any such
products. The exclusivity rights granted to strategic partners may inhibit the
Company's ability to find a wider market for certain of its commercial products
and thus may materially reduce revenues during the exclusivity period. See "Risk
Factors -- Extensive Reliance on Strategic Relationships; Restrictions Due to
Exclusivity Rights."
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CUSTOMERS
The Company's products and services support a broad base of over 1,000
customers that spans each business segment. A number of the Company's customers
and strategic partners that are evaluating or are in the early stages of
adopting the Company's ultracapacitor products or purification systems have
required confidentiality from the Company and therefore are not named in this
Annual Report on Form 10-K or identified in the following table. Such customers
include a major wireless telecommunications device manufacturer and automotive
manufacturers for ultracapacitor products and an international restaurant chain,
an international food products company and a medical products manufacturer for
purification products. The following table is a representative list of the
Company's customers by product family.
<TABLE>
<CAPTION>
CUSTOMER APPLICATION PRODUCT
- ---------------------------------- -------------------------- ----------------------------------
<S> <C> <C>
PULSED POWER AND ELECTRONIC COMPONENTS
Cubic Defense Systems, Inc. Defense Nuclear Event Detector
General Electric Medical Systems Medical X-Ray Equipment Resistors
Hewlett-Packard Medical Equipment Defibrillator Capacitors
Los Alamos National Laboratory Physics Research Switches, Capacitors
PacifiCorp Power Quality Ultracapacitors
Pulse Sciences, Inc. Physics Research Capacitors, Power Supplies
SLS Biophile, Ltd. Medical Laser Equipment Capacitors, Power Supplies
TetraPak Food Packaging PureBright Purification Systems
Western Atlas Oil Well/Logging High Temperature Capacitors
Zoll Medical Medical Equipment Defibrillator Capacitors
EMI FILTERS
Baker Hughes Inteq Oil Field Services Capacitors, EMI Filters
Cardiac Control Systems Medical EMI Filters
Guidant/CPI Medical EMI Filters
Lockheed Martin Military EMI Filters
St. Jude/Pacesetter Medical EMI Filters
INDUSTRIAL COMPUTERS AND SUBSYSTEMS
Active Voice Inc. Voice Mail Systems Enclosures, CPU Boards
Allan Crawford Associates Canadian Distributor All Products
Applied Voice Technology, Inc. Voice Mail Systems Enclosures, CPU Boards
AT&T Computer Telephony Fault Tolerant Platforms, CPU
Boards
Banctec Technologies Document Sorting Systems Enclosures, CPU Boards
Brite Voice Interactive Voice Response Enclosures
Comverse Information Systems Computer Telephony Fault Tolerant Platforms
Digital Equipment Corp. Computer Platforms Enclosures, Fault Tolerant
Platforms
Lucent Technologies Voice Messaging Computer Platforms
Videoserver Inc. Video Conferencing Enclosures, CPU Boards
GOVERNMENT FUNDED RESEARCH AND SYSTEMS DEVELOPMENT
Defense Special Weapons Agency Weapons Effects Simulation Pulsed Power Operations, Analysis
Kyobuto Boeki Kaisha, Limited Geophysics and Geothermal Engineering, Scientific Support
Los Alamos National Laboratory Physics Research High Voltage Power Supplies
Mission Research Corporation Electromagnetic Electronic Testing
Interaction
NASA Space Environment Effects Physics Models and Effects
on Systems Analysis
Sandia National Laboratories Pulsed Power Research Engineering, Scientific Support
U.S. Air Force Phillips Lab Electronic Sensors for Technology Oversight and Analysis
Space
Weapons Effects Simulation Pulsed Power Operations and
Support
U.S. Air Force Hanscom AFB Space Physics Engineering and Scientific
Analysis
</TABLE>
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Products and services provided to the Department of Defense constituted a
substantial portion of the Company's sales in fiscal 1997, with sales to the
United States Air Force constituting 14.0% of consolidated sales. Only one other
individual customer, Lucent, accounted for more than 10% of consolidated sales.
Lucent accounted for approximately 11.9% of consolidated fiscal 1997 sales and
is a significant customer in the industrial computers and subsystems business
segment. The Company's products that comprise a significant portion of its sales
to Lucent have not been designed into Lucent's next generation products and the
Company therefore expects that its business with Lucent will decline
substantially in the second half of fiscal 1998 and subsequent periods.
Customers for the Company's software products include federal, state and local
government organizations such as judicial organizations and school districts,
government contractors and textbook publishers.
SALES AND MARKETING
The Company's commercial products sales teams consist of sales personnel
based in its manufacturing facilities and for the Company's industrial computing
products, geographically-dispersed sales offices. These sales teams are often
supported by scientists, application engineers and technical specialists. Sales
and marketing for the Company's products in the United States is handled
directly by the Company. The Company utilizes sales representatives to assist in
the marketing of its products outside the United States and has recently opened
a sales office in London focused on marketing and selling purification systems
and industrial computers in Europe. The Company conducts marketing programs
intended to position and promote its products and services, including trade
shows, seminars, advertising, public relations, distribution of product
literature and a website on the Internet.
As emerging technologies require customer acceptance of new and different
technical approaches, the sales effort for new products includes substantial
involvement from engineers to demonstrate the applications of the Company's
products. Senior management is also significantly involved in gaining access to
customers or potential strategic partners to discuss the Company's emerging
product lines. The time required to demonstrate technical and cost effectiveness
for new technologies often requires an extended initial marketing effort by the
Company. As a result, an important part of the sales strategy for new products
is to capitalize on strategic partnerships formed to develop the product and
establish an avenue to obtain product validation.
In its technology programs and systems segment, the Company's sales and
marketing is primarily conducted by key scientists and other members of its
technical staff. A large portion of this business is obtained in response to
requests for proposals by the government, with the Company's bids and proposals
focused on providing the government with detailed technical information as well
as competitive pricing. Successful performance of the Company's contracts is an
important factor in securing follow-on business, an important source of new
contracts for the Company.
The Company has limited experience marketing and selling ultracapacitors
and purification systems. To market these products, the Company will be required
to develop a marketing and sales force that will be able to effectively
demonstrate the advantages of these products over competing products and other
traditional solutions. Furthermore, the highly technical nature of the Company's
products limits the pool of potential sales personnel. By entering into
agreements with sales representatives, the Company may be substantially
dependent upon the efforts of others in deriving commercial benefits from its
products. See "Risk Factors -- Limited Sales and Marketing Experience."
COMPETITION
In most of the markets in which it operates, Maxwell has a number of
competitors, many of which have longer operating histories, significantly
greater financial, technical, marketing and other resources, greater name
recognition, and a larger installed base of customers than the Company. In some
of the Company's business areas involving emerging technologies, the Company
faces competition from products utilizing alternative technologies.
Although a number of companies are researching and developing
ultracapacitor technology, the Company has two principal competitors in
ultracapacitor products, Panasonic, a division of Matsushita
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<PAGE> 25
Electric Industries, Ltd., and SAFT, a unit of the Alcatel-Alsthom Group and a
prominent international battery supplier. The key competitive factors are
performance (energy stored and power delivered per unit volume), form factor and
breadth of product offerings. The Company believes it competes favorably with
respect to each of these factors. In addition, the Company will rely on
strategic partnerships to secure design wins and on aggressive pricing where
necessary. Ultracapacitors also compete with other technologies including
high-power batteries in power quality and automobile load leveling applications,
flywheels in power quality and automotive applications (including as a power
source for electric vehicles), and superconducting magnetic energy storage in
power quality.
The Company does not believe that its PureBright products have direct
competitors in the application of pulsed power in the form of light to water
treatment, food packaging or sterilization of medical or pharmaceutical
products. Pulsed power competes with many other established and developing
technologies, most of which are available in forms that are significantly less
expensive than the Company's products. For water treatment, the Company faces
competition from many alternative technologies including filtration systems,
reverse osmosis, chemicals, distillation technology and continuous wave
ultraviolet light systems. Alternative technologies also exist for the
sterilization, disinfection and purification of medical products, food packaging
and food products, including technologies such as autoclave heat sterilization,
chemicals, gamma radiation and modified atmosphere packaging. The Company
believes its purification systems will be competitive because of their efficacy
in microbial reduction and their ability to be utilized in processing lines for
food packaging or medical and pharmaceutical products without interruption of
the industrial process and without producing hazardous wastes.
The Company has one principal competitor in United States government funded
pulsed power research and weapons effects simulation, Physics International, a
unit of Primex Corporation. Contracts are awarded by the Department of Defense
based on cost and technical expertise. The Company believes it has the required
technical expertise in the area, and that it has streamlined its business so as
to competitively bid for contracts while remaining profitable.
The Company's EMI filter business competes with AVX Filter, a subsidiary of
Kyocera, in the EMI feedthrough filter market. The competitive factors in this
market include price, breadth of electromagnetic spectrum filtered, small size
and reliability. The Company believes it competes favorably with respect to each
of these factors. The Company believes its patent, for mounting of the filter on
the surface of an implantable medical device's feedthrough, provides a
competitive advantage by allowing manufacture of a smaller sized device.
The Company's traditional high voltage capacitors face competition from
numerous independent electronics suppliers in markets for storage capacitors,
medical and industrial applications and use in large systems by the United
States government as well as from component manufacturing operations within
certain medical and industrial OEM organizations. The largest independent
competitor in the United States is Aerovox, which has competing high voltage
capacitor lines very similar to the Company's. Customers generally select
capacitor components for systems based on criteria such as price, functionality
(i.e. voltage requirements) and past experience with a vendor. The Company
focuses on high-end, high power capacitors, maintains relationships with
customers geared towards achieving design wins and offers competitive pricing.
In the Company's target markets for passive backplane based industrial
computers and subsystems, its competitors include Texas Microsystems,
Diversified Technology, Advantech, the Industrial Computer Source division of
Dynatech, Teknor and Trenton, resulting in a highly fragmented market in which
no one entrant is dominant. Competitive factors in this market include price,
design expertise, functionality and fault tolerance. The Company believes it
competes favorably with respect to each of these factors. CompactPCI is an
emerging technology that is neither widely marketed nor accepted; it will
potentially compete with passive backplane and much more widely installed
VME-based systems for market share. The competitive factors for CompactPCI are
very similar to passive backplane systems.
In complex computer-based analytic services, the Company often competes
with larger, better funded entities to secure government and other contracts.
The Company relies on its expertise in modeling and analysis and ability to make
competitive bids to secure contracts. In commercial software, the JAMIS cost
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<PAGE> 26
accounting system competes principally with one similar government contract
based software application produced by Deltek Systems, as well as with numerous
off-the-shelf and customized accounting software products. The Company relies on
superior performance and an attractive price point to secure market share. The
Company has no significant competitors in the provision of real-time traffic
reports over the Internet, but believes barriers to entry are low. In all of its
businesses, the Company's competitive position depends in part on its ability to
hire and retain highly qualified engineers, scientists and management personnel.
See "Risk Factors -- Competition."
MANUFACTURING AND SUPPLIERS
Maxwell currently manufactures all of its industrial computers and
subsystems, pulsed power components and EMI filters. The Company has four
manufacturing facilities in San Diego, California and one manufacturing facility
in Carson City, Nevada. The Company's EMI filters are manufactured at the Carson
City location. For two facilities in San Diego, the Company has obtained ISO
9001 certification and is seeking ISO 9001 certification for other facilities.
The Company performs low volume manufacturing for certain products, such as
purification systems and major pulsed power systems. In fiscal 1998, the Company
expects to begin volume manufacturing of ultracapacitors, and is preparing for
volume manufacturing of PureBright water treatment systems. For certain emerging
products, the Company will evaluate whether outsourcing or licensing
arrangements are preferable to establishing its own high volume manufacturing
capacity for that product.
The Company generally purchases components and materials, such as
electronics components, dielectric materials and enclosures of metal and
plastic, from a number of suppliers. In certain operations, the Company relies
on a limited number of suppliers or a single supplier. Although the Company
believes there are alternative sources for components and materials currently
obtained from a single source, there can be no assurance that the Company will
be able to identify and qualify alternative suppliers in a timely manner.
Maxwell's industrial computer business relies on single qualified suppliers for
some of its critical components, primarily CPU boards, and the Company considers
the sources of supply to be adequate. However, after one of the Company's
significant OEM customers specified a particular source for power supplies, in
fiscal 1996 the Company experienced interruptions in shipments from this vendor
and the interruption had a materially adverse short-term impact on the Company's
operations. The Company currently has a single qualified supplier for one
component of ultracapacitors and is contractually obligated to qualify at least
one additional supplier of such components. No assurance can be given that
qualification will be completed in a timely manner. Additionally, the EMI filter
produced by the Company relies on a sole domestic source for one component, and
that supplier has indicated its plans to design, build and sell a competing
filter in the future. The Company believes this supplier will continue to sell
to the Company but, if necessary, the Company could replace this supplier.
Although the Company seeks to reduce its dependence on sole and limited source
suppliers, the partial or complete loss of these sources could have at least a
temporary material adverse effect on the Company's results of operations and
damage customer relationships due to the complexity of the products supplied and
the significant amount of time required to qualify new suppliers. See "Risk
Factors -- Reliance on Third Party Suppliers."
The Company has limited experience with volume manufacturing of commercial
products. To date, the Company has not manufactured in volume its
ultracapacitors or purification systems. The Company may face challenges in
scaling up production of its new products, especially those products that
contain newly developed technologies. In addition, the Company will need to
expand its current facilities or obtain additional facilities in order to
manufacture a substantial quantity of its products. There can be no assurance
that the Company will be successful in expanding its facilities or obtaining
additional facilities, or that it will be able to overcome the management,
technological, engineering and other challenges associated with the production
of significant quantities of products at acceptable cost on a timely basis.
Outsourcing of manufacturing involves risks with respect to quality assurance,
cost and the absence of close engineering support. See "Risk Factors -- Limited
Volume Manufacturing Experience."
24
<PAGE> 27
RESEARCH AND DEVELOPMENT
The Company conducts internally-funded engineering, research and
development to refine and expand its products and services. Approximately 25% of
the reported research and development expense consists of the Company's
preparation of proposals principally for contracts for funded research and
development for the government. For fiscal 1997, 1996 and 1995, expenditures for
internally-funded research and development were approximately $5,303,000,
$5,081,000 and $5,038,000, respectively.
A substantial portion of the Company's revenues in its Technology Programs
and Systems business segment consists of customer-funded research and
development activities. Additionally, in the Power Conversion Products business
segment, certain large contracts accounted for approximately 25% of sales in the
business segment in fiscal 1997, which contracts represented primarily various
strategic partnership arrangements involving customer funding of research and
product development as well as prototype sales. See "-- Strategy;" "-- Strategic
Partnerships" and "-- Products."
PATENTS, LICENSES AND TRADEMARKS
The Company's success is heavily dependent upon the establishment and
maintenance of proprietary technologies. Although the Company attempts to
protect its intellectual property rights through patents, copyrights, trade
secrets and other measures, there can be no assurance that the steps taken by
the Company to protect its proprietary technologies will be adequate to prevent
misappropriation by third parties or will be adequate under the laws of some
foreign countries, which may not protect the Company's proprietary rights to the
same extent as do the laws of the United States.
The Company uses employee and third-party confidentiality and
non-disclosure agreements to protect its trade secrets and unpatented know-how.
The Company requires each of its employees to enter into a proprietary rights
and non-disclosure agreement in which the employee agrees to maintain the
confidentiality of all proprietary information of the Company and, subject to
certain exceptions, to assign to the Company all rights in any proprietary
information or technology made or contributed by the employee during his or her
employment. In addition, the Company regularly enters into non-disclosure
agreements with third parties, such as consultants, potential joint venture
partners and customers.
The Company has historically relied primarily on its technological and
engineering abilities and on its design and production capabilities to gain
competitive business advantages, rather than on patents or other intellectual
property rights. However, the Company does file patent applications on concepts
and processes developed by the Company's personnel, and, as its commercial
businesses expand, the Company has placed increased emphasis on patents to
provide protection for certain of its technologies and products. The Company's
success will depend in part on its ability to maintain its patents, add to them
where appropriate, and to develop new products and applications without
infringing the patent and other proprietary rights of third parties and without
breaching or otherwise losing rights in technology licenses obtained by the
Company for other products. There can be no assurance that any patent owned by
the Company will not be circumvented or challenged, that the rights granted
thereunder will provide competitive advantages to the Company or that any of the
Company's pending or future patent applications will be issued with claims of
the scope sought by the Company, if at all. If challenged, there can be no
assurance that the Company's patents (or patents under which it licenses
technology) will be held valid or enforceable. In addition, a number of the
patents and patent applications owned or licensed by the Company are subject to
"march-in" rights and non-exclusive, royalty-free, confirmatory licenses held by
various governmental agencies or other entities.
Competing research and patent activity in many of the Company's
technologies is substantial and the markets are large enough that conflicting
patent and other proprietary rights claims may result in disputes or litigation.
Although the Company does not believe any of its products or proprietary rights
infringe the rights of third parties, there can be no assurance that
infringement claims will not be asserted against the Company in the future. Any
such claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, or at all. If
infringement were established, the Company could be required to pay damages or
be enjoined from
25
<PAGE> 28
making, using or selling the infringing product. Likewise, there can be no
assurance that a third party's product, if infringing on the Company's
proprietary rights, may be prevented from doing so without litigation. Any of
the foregoing could have a material adverse effect upon the Company's business,
financial condition and results of operations. See "Risk Factors -- Dependence
on Proprietary Technology."
BACKLOG
The Company's funded backlog as of July 31, 1997, 1996 and 1995 amounted to
approximately $39 million, $38 million and $38 million, respectively. The funded
backlog consists of remaining funding under cost plus contracts for tasks 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 Company expects to complete or deliver substantially all of its currently
funded backlog within 12 months. The unfunded portion of contracts awarded was
approximately $23 million, $28 million and $33 million at July 31, 1997, 1996
and 1995, respectively.
GOVERNMENT BUSINESS
A substantial portion of the Company's sales (approximately 33% in fiscal
1997, 40% in fiscal 1996 and 42% in fiscal 1995) is derived from contracts with
the United States government, principally agencies of the United States
Department of Defense, and subcontracts with government suppliers. The
reductions in defense budgets over the past several years have affected the
Company's activities, particularly in the area of system survivability products
and services, such as weapons effects simulation and testing. The Company has
also experienced increased competition in bidding for new defense programs from
contractors seeking to replace their lost business. The Company has experienced
significant reductions in its business with the Department of Defense through
fiscal 1995 as the Department responded to reduced global threats and shrinking
defense budgets. While the Department of Defense has continued to fund, although
at lower levels, research on next-generation pulsed power concepts, the
operation of existing simulation machines has been curtailed. Three of the four
weapons effects simulators in San Diego which were designed, built, and operated
by the Company and owned by the Department of Defense ceased operation on
October 1, 1995. The Company has provided services to the Department of Defense
to assist in the closure of these facilities, and has nearly completed this
task. The Company will continue to provide testing and analysis on the fourth
simulation facility, after the closure of the other three simulation devices.
The Company's funded government contracts are typically performable over a
one-year period. Government agencies may terminate their contracts, in whole or
in part, at their discretion, and in such event, the government agency is
obligated generally to pay the costs incurred by the Company thereunder plus a
fee based upon work completed. Contract costs for services or products supplied
to government agencies, including allocated indirect costs, are subject to audit
and adjustment. Contract costs have been reviewed and accepted by the government
through fiscal 1993. Contract revenues for periods subsequent to fiscal 1993
have been recorded in amounts which are expected to be realized upon final
review and settlement. Contracts entered into by the Company with government
agencies are fixed-price contracts or cost plus contracts. Under a fixed-price
contract, the customer agrees to pay a specific price for performance. Under a
cost plus contract, the customer agrees to pay an amount equal to the Company's
allowable costs in performing the contract, plus a fixed or incentive fee.
Certain costs of doing business, such as interest expenses and advertising
expenses, are not allowable under cost plus contracts. Greater risks are
involved under a fixed-price contract than under a cost plus contract because in
a fixed-price contract the Company 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 reduces or eliminates the contemplated profit and
can result in a loss. On the other hand, the government generally permits higher
profit margins when establishing prices for fixed-price contracts because of
such risks. In the technology programs and systems business segment
approximately 77% and 82% of sales were derived from cost plus contracts in
fiscal 1997 and 1996, respectively, and the balance of sales in such years were
derived from fixed-price contracts. See "Risk Factors -- Risks Associated with
Government Business."
26
<PAGE> 29
GOVERNMENT REGULATION
The testing, manufacture and sale of certain of the Company's products are
subject to regulation by numerous governmental authorities. Pursuant to the
Federal Food, Drug, and Cosmetic Act, and the regulations promulgated
thereunder, the FDA regulates the preclinical and clinical testing, manufacture,
labeling, storage, distribution and promotion of food and medical products and
processes. The Company has obtained clearance from the FDA for use of CoolPure
technology for preservation of liquid foods. In addition, the Company has
obtained clearance from the FDA of PureBright for food use and is applying for
similar approvals in Canada and Europe, as well as supporting customers in
obtaining clearance of PureBright for medical applications. The Company's EMI
filter capacitor has been approved for use in implantable defibrillators and
implantable pacemakers of certain medical device manufacturers. Delays in
receipt of or failure to receive anticipated approvals or clearances, the loss
of previously received approvals or clearances, limitations on intended use
imposed as a condition of such approvals or clearances, or failure to comply
with existing or future regulatory requirements would have a material adverse
effect on the Company's business, financial condition and results of operations.
The testing, preparation of necessary marketing applications and processing
of those applications with the FDA is expensive and time consuming, can vary
based on the type of product and may take several years to complete. There is no
assurance that the FDA will act favorably or quickly in making such reviews, and
significant difficulties or costs may be encountered by the Company in its
efforts to obtain FDA approvals that could delay or preclude the Company from
marketing any products it may develop or furnish an advantage to competitors.
The FDA may also require post-marketing testing and surveillance to monitor the
effects of approved products or place conditions on any approvals that could
restrict the commercial applications of such products. Product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant pre-market clearance or
pre-market approval for products, withdrawal of marketing clearances or
approvals and criminal prosecution. See "Risk Factors -- Government Regulation."
Because of the nature of its operations and the use of hazardous substances
in certain of its ongoing manufacturing and research and development activities,
the Company is subject to stringent federal, state and local laws, rules,
regulations and policies governing the use, generation, manufacturing, storage,
air emission, effluent discharge, handling and disposal of certain materials and
wastes. Although the Company believes it is in material compliance with all
applicable government and environmental laws, rules, regulations, and policies,
there can be no assurance that the Company's business, financial condition and
results of operations will not be materially adversely affected by current or
future environmental laws, rules, regulations and policies or by liability
arising out of any past or future releases or discharges of materials that could
be hazardous. See "Risk Factors -- Environmental Regulations."
SEGMENTS
The Company's business segments are discussed in Note 10 of Notes to
Consolidated Financial Statements. The Company operates in four business
segments: Power Conversion Products (includes design, development and
manufacture of electrical components and subsystems, including products that
capitalize on pulsed power such as ultracapacitors, microbial purification
systems, high voltage capacitors and other electrical components and EMI filter
capacitors); Industrial Computers and Subsystems (includes design and
manufacture of standard, custom and semi-custom industrial computer modules,
platforms and fully-integrated systems primarily for OEMs), Technology Programs
and Systems (includes research and development, programs in pulsed power, pulsed
power systems design and construction, weapons effects simulation and
computer-based analytic services, primarily for the Department of Defense) and
Information Products and Services (includes design, development and integration
of software products and services including job cost accounting and management
information systems and other software products including applications for the
Internet, as well as wide-area and local-area network and software integration
services). The Company's operating subsidiaries are Maxwell Energy Products,
Inc. (Power Conversion Products),
27
<PAGE> 30
PurePulse Technologies, Inc. (Power Conversion Products), I-Bus, Inc.
(Industrial Computers and Subsystems), Maxwell Federal Division, Inc.
(Technology Programs and Systems), Maxwell Information Systems, Inc.
(Information Products and Services) and Maxwell Business Systems, Inc.
(Information Products and Services). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
EMPLOYEES
At July 31, 1997, the Company had 607 employees, including 43 employees
with Ph.D degrees and 79 others with post-graduate degrees. None of the
Company's employees is represented by a labor union. Maxwell considers its
relations with its employees to be good. See "Risk Factors -- Dependence on Key
Personnel."
ITEM 2. PROPERTIES
The Company owns a 45,600 square foot office and laboratory building, a
22,000 square foot 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. Approximately three-fourths of the 35,000
square foot building is leased by the Company to another company. The Company
also leases five other facilities in the San Diego area. The Company utilizes
its facilities in the following manner: corporate, sales and administrative
(53,000 sq. ft.); manufacturing, assembly and testing, research and development
laboratories and engineering (276,000 sq. ft.). The Company's leased facilities
in San Diego, California are leased for varying terms and some of them contain
options permitting the Company to extend the lease term. The Company leases or
has commitments to lease office space in Reston and Sterling, Virginia; Orlando,
Tallahassee and Sarasota, Florida; Albuquerque, New Mexico; and Mission Viejo,
California. In addition, the Company owns a 12,400 square foot manufacturing
facility on 2.6 acres of land located in Carson City, Nevada, utilizes on a
rent-free basis 22,000 square feet at Kirtland Air Force Base in Albuquerque,
New Mexico and operates a 500 acre test site in San Diego under a facilities
contract with the Defense Special Weapons Agency.
ITEM 3. LEGAL PROCEEDINGS
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.
In 1992, the Company and approximately 40 other potentially responsible
parties signed a consent order with the State of California with respect to
costs to be incurred at a recycling facility to characterize and remediate
hazardous substances. To date, the site has been characterized, and the Company
and the other potentially responsible parties have paid substantially all of
their respective shares of the costs of such characterization. The estimated
cost of monitoring and remediation activities, of which the Company's share is
currently estimated at approximately 3.5%, totals approximately $23 million.
Approximately $21 million of this amount will consist of maintenance, monitoring
and related 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.
The Company has been named as a defendant in an action originally filed in
June 1994, in the United States District Court for the Eastern District of
Tennessee at Knoxville, Tennessee (Troy Murphy Morgan, et.
28
<PAGE> 31
al. v. Brush Wellman, Inc., et. al.) by six individuals against the U.S.
Government and four companies (Brush Wellman, Inc., Cabot Corporation, NGK
Metals Corporation, and Ceradyne, Inc.) for injuries allegedly related to
exposure to beryllium. Included as new defendants in addition to the Company are
Lockheed Martin Beryllium Corporation, Microtechnologies, Inc., Cercom Quality
Products, Inc., General Ceramics, Inc. and Eagle-Picher Industries, Inc.
Plaintiffs claim that exposure to beryllium while working at the U.S. Government
facility at Oak Ridge, Tennessee, has led to chronic beryllium disease and other
illnesses and are demanding a total of $14,000,000 in compensatory damages and
$5,000,000 in punitive damages. The Company was served with the complaint in
early June and has tendered the matter to its insurance carriers. The Company
has also been named as a defendant in two identical cases, each filed on behalf
of one former employee and naming the same group of defendants as in the Morgan
case. After conducting its own investigation into the matter, the Company does
not believe that its products could have contributed to any beryllium exposure
by the plaintiffs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "MXWL." The following table sets forth, for the fiscal periods
indicated, the high and low closing sales prices for the Common Stock as
reported by the Nasdaq National Market. The prices for fiscal 1996 and the first
and second quarters of fiscal 1997 have been adjusted to reflect the 2-for-1
stock split which occurred in December 1996.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
FISCAL YEAR 1996
Quarter ended October 31, 1995......................... $ 5 7/8 $ 3 5/8
Quarter ended January 31, 1996......................... 5 1/2 4 1/1
Quarter ended April 30, 1996........................... 5 1/8 3 3/8
Quarter ended July 31, 1996............................ 7 5/8 4 11/1
FISCAL YEAR 1997
Quarter ended October 31, 1996......................... $15 1/2 $ 6 3/4
Quarter ended January 31, 1997......................... 25 1/8 17
Quarter ended April 30, 1997........................... 23 18
Quarter ended July 31, 1997............................ 23 1/4 18
</TABLE>
The last reported sale price of the Common Stock on the Nasdaq National
Market on September 26, 1997 was $30.50 per share. As of August 31, 1997, there
were 505 holders of record of the Company's Common Stock.
The Company currently anticipates that any earnings will be retained for
the development and expansion of its business and, therefore, does not
anticipate paying dividends on its Common Stock in the foreseeable future. In
addition, under the Company's Line of Credit Agreement, neither the Company nor
any of its subsidiaries may, directly or indirectly, pay any cash dividends to
its stockholders.
RECENT SALES OF UNREGISTERED SECURITIES
None.
29
<PAGE> 32
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the
fiscal years ended July 31, 1995, 1996 and 1997, and consolidated balance sheet
data at July 31, 1996 and 1997 are derived from the Consolidated Financial
Statements of the Company and Notes thereto, which have been audited by Ernst &
Young LLP, independent auditors, and are included elsewhere in this Annual
Report on Form 10-K. The following selected consolidated statement of operations
data for the years ended July 31, 1993 and 1994 and consolidated balance sheet
data at July 31, 1993, 1994 and 1995 are derived from audited financial
statements of the Company not included herein. The following selected data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company and Notes thereto appearing elsewhere in this Form
10-K.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Sales................................... $86,902 $85,463 $75,004 $ 80,911 $101,411
Cost of sales........................... 65,765 68,555 56,447 65,893 70,107
------- ------- ------- -------- -------
Gross profit.......................... 21,137 16,908 18,557 15,018 31,304
Operating expenses:
Selling, general and administrative
expenses............................ 13,525 14,068 13,636 15,564 21,900
Research and development expenses..... 5,650 4,794 5,038 5,081 5,303
Restructure and asset impairment
losses (1).......................... -- -- -- 5,703 --
Loss on closing of Brobeck division... -- 1,018 -- -- --
------- ------- ------- -------- -------
Total operating expenses............ 19,175 19,880 18,674 26,348 27,203
------- ------- ------- -------- -------
Operating income (loss)................. 1,962 (2,972) (117) (11,330) 4,101
Interest expense........................ 244 252 315 329 173
Other-net............................... (35) (589) (848) (398) (150)
------- ------- ------- -------- -------
Income (loss) before income taxes,
minority interest and loss from
cumulative effect of change in
accounting principle.................. 1,753 (2,635) 416 (11,261) 4,078
Income tax expense (benefit)............ 683 (1,028) 15 1,296 --
Minority interest in net income of
subsidiary............................ 48 80 86 50 54
Loss from cumulative effect of change in
accounting principle (1).............. -- -- -- 2,569 --
------- ------- ------- -------- -------
Net income (loss)....................... $ 1,022 $(1,687) $ 315 $(15,176) $ 4,024
======= ======= ======= ======== =======
Earnings (loss) per share:
Income (loss) per share before
cumulative effect of change in
accounting principle................ $ 0.19 $ (0.32) $ 0.06 $ (2.29) $ 0.60
Net income (loss) per share........... $ 0.19 $ (0.32) $ 0.06 $ (2.76) $ 0.60
======= ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
JULY 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................... $20,142 $18,091 $17,855 $ 7,288 $ 10,908
Total assets............................ 55,086 54,322 52,370 40,724 47,120
Long-term debt, excluding current
portion............................... 1,515 2,797 1,928 1,018 465
Total stockholders' equity.............. 36,645 34,960 35,364 20,745 27,410
</TABLE>
- ---------------
(1) See Note 8 of Notes to Consolidated Financial Statements.
30
<PAGE> 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
From its roots as a pulsed power and advanced software applications company
performing research and development primarily for the United States Department
of Defense ("DOD"), Maxwell today has a portfolio of commercial products and
services derived from the technologies and expertise accumulated from its long
history of government funded pulsed power research and development. Although
Maxwell is aggressively pursuing technology commercialization, government funded
research and development continues as a significant part of the Company's
business, with sales under United States government contracts comprising 33% of
total sales in fiscal 1997. These efforts, and the technology advancements they
produce, are important factors in the development of applications with
commercial value.
The Company sustained a net loss of $15.2 million in fiscal 1996, including
charges totaling $14.4 million related to the following: (i) the adoption of
FASB Statement No. 121; (ii) the fiscal 1996 reorganization of the Company
including senior management related severance and recruitment charges and
charges for facilities consolidations; (iii) the establishment of a valuation
allowance for net deferred income tax assets and (iv) the establishment of
certain contract, inventory, environmental and related reserves. See Note 8 of
Notes to Consolidated Financial Statements.
In implementing its business reorganization, the Company selected a new
Chief Executive Officer, refocused or divested certain product lines,
consolidated certain of its facilities and recast the Company into distinct
business and operating units with new senior management for these business units
(the "Reorganization"). As part of the Reorganization which became effective
August 1, 1996, the Company placed its government focused operations into a
single business unit. The Company's new business segments are as follows:
- Power Conversion Products: Includes design, development and manufacture
of electrical components and subsystems, including products that
capitalize on pulsed power such as ultracapacitors, microbial
purification systems, high voltage capacitors and other electrical
components and EMI filter capacitors.
- Industrial Computers and Subsystems: Includes design and manufacture of
standard, custom and semi-custom industrial computer modules, platforms
and fully integrated systems primarily for OEMs.
- Technology Programs and Systems: Includes research and development
programs in pulsed power, pulsed power systems design and construction,
weapons effects simulation and computer-based analytic services,
primarily for the DOD.
- Information Products and Services: Includes design, development and
integration of software products and services including job cost
accounting and management information systems and other software products
including applications for the Internet, as well as wide-area and
local-area network and software integration services.
The Company recognizes substantially all revenue from the sale of
manufactured products and short-term fixed-price contracts upon shipment of
products or completion of services. Revenues, including estimated profits, on
long-term fixed-price contracts are recognized as costs are incurred. Revenues,
including fees earned, on cost plus contracts are also recognized as costs are
incurred. Contract revenue is reflected in the Company's sales and includes
amounts received from the United States government and commercial customers for
the funded research and development efforts of the Company. Provisions are made
on a current basis to fully recognize any anticipated losses on contracts.
A significant portion of the Company's product sales are to a relatively
small number of OEMs. OEM sales are characterized by relatively long product
life cycles and generally lower gross margins that can vary throughout product
life cycles. Gross margins are typically lower in the early stages of product
introduction before the Company has achieved a sufficient volume of sales to
increase absorption of its fixed costs. In
31
<PAGE> 34
addition, the Company may price its products aggressively in order to form new
OEM relationships, introduce new products or achieve market penetration. The
Company may receive product development funding from its OEM customers that
could partially mitigate these impacts on gross margins. Gross margins on OEM
sales are also particularly sensitive to changes in product and customer mix
because of margin variances among individual products and the relative
importance of a single large sale on overall operating results.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
operating data for the Company, expressed as a percentage of sales.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Sales......................................................... 100.0% 100.0% 100.0%
Cost of sales................................................. 75.3 81.4 69.1
------- ------- -------
Gross profit................................................ 24.7 18.6 30.9
Operating expenses:
Selling, general and administrative expenses................ 18.2 19.3 21.6
Research and development expenses........................... 6.7 6.3 5.2
Restructure and asset impairment losses..................... -- 7.0 --
------- ------- -------
Total operating expenses................................. 24.9 32.6 26.8
------- ------- -------
Operating income (loss)....................................... (0.2) (14.0) 4.1
Interest expense.............................................. 0.4 0.4 0.2
Other-net..................................................... (0.11) (0.5) (0.2)
------- ------- -------
Income (loss) before income taxes, minority interest and loss
from cumulative effect of change in accounting principle.... 0.5 (13.9) 4.1
Income tax expense............................................ -- 1.6 --
Minority interest in net income of subsidiary................. 0.1 0.1 0.1
Loss from cumulative effect of change in accounting
principle................................................... -- 3.2 --
------- ------- -------
Net income (loss)........................................... 0.4% (18.8)% 4.0%
======= ======= =======
</TABLE>
The following table sets forth, for the periods indicated, the Company's
business segment sales, gross profit and gross profit as a percentage of
business segment sales.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------
1995 1996 1997
------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Power Conversion Products:
Sales....................................................... $15,207 $16,448 $27,039
Gross profit............................................. 3,930 3,887 10,142
Gross profit as a percentage of sales.................... 25.8% 23.6% 37.5%
Industrial Computers and Subsystems:
Sales....................................................... $23,319 $26,131 $34,259
Gross profit............................................. 7,754 7,633 11,537
Gross profit as a percentage of sales.................... 33.3% 29.2% 33.7%
Technology Programs and Systems:
Sales....................................................... $31,064 $30,198 $31,087
Gross profit............................................. 6,232 5,659 6,246
Gross profit as a percentage of sales.................... 20.1% 18.7% 20.1%
Information Products and Services:
Sales....................................................... $ 5,414 $ 8,134 $ 9,026
Gross profit............................................. 641 (2,161) 3,379
Gross profit as a percentage of sales.................... 11.8% (26.6)% 37.4%
</TABLE>
32
<PAGE> 35
Sales
In fiscal 1997, the Company's total sales increased $20.5 million, or
25.3%, to $101.4 million from $80.9 million in fiscal 1996. In fiscal 1996,
sales increased $5.9 million, or 7.9%, to $80.9 million from $75.0 million in
fiscal 1995. International sales amounted to $12.6 million in fiscal 1997, $7.6
million in fiscal 1996 and $7.3 million in fiscal 1995. The increase in
international sales in fiscal 1997 was primarily attributable to increased
international revenues from customer funded development in the Power Conversion
Products business segment.
Power Conversion Products. In fiscal 1997, Power Conversion Products sales
increased $10.6 million, or 64.4%, to $27.0 million from $16.4 million in fiscal
1996. This increase was primarily attributable to higher revenues from customer
funded ultracapacitor development and sales of prototype ultracapacitor products
to potential OEM customers for evaluation, increased sales of EMI filters for
implantable medical products and increased revenues from customer funded
development of pulsed power purification systems.
In fiscal 1996, Power Conversion Products sales increased $1.2 million, or
8.2%, to $16.4 million from $15.2 million in fiscal 1995 as a result of higher
sales of certain pulsed power components, the introduction in the last half of
fiscal 1996 of the Company's EMI filters for implantable medical products and
increased revenues from customer funded development of pulsed power purification
systems.
Industrial Computers and Subsystems. In fiscal 1997, Industrial Computers
and Subsystems sales increased $8.1 million, or 31.1%, to $34.3 million from
$26.1 million in fiscal 1996. Sales in this business segment are made
principally to OEM customers and are primarily derived from the shipment of
computers and subsystems that are "designed-in" to the OEM's products. The sales
increase in fiscal 1997 was derived from increased sales to OEM customers
primarily in the computer telephony market. The largest portion of the increase
consisted of sales to a single, long-standing OEM customer for use in products
that are nearing the conclusion of their product cycles. The Company does not
currently expect that it will receive orders from this customer for its next
generation products. However, the Company's products have recently been
integrated into several new OEM products to be introduced by other OEM
customers. The Company believes that orders for industrial computers and
subsystems from these new OEM customers should largely offset the loss of sales
described above. If sales of the OEMs' new products do not achieve the levels
projected by the OEM, the Company may be unable to offset the expected loss of
sales.
In fiscal 1996, sales in this business segment increased $2.8 million, or
12.1%, to $26.1 million from $23.3 million in fiscal 1995. This increase was
also due to increased shipments to OEM customers as a result of design wins on
new OEM products.
Technology Programs and Systems. In fiscal 1997, sales in the Technology
Programs and Systems segment increased $0.9 million, or 2.9%, to $31.1 million
from $30.2 million in fiscal 1996. This increase was primarily attributable to
revenues from a new contract for high-voltage power supplies for a Department of
Energy accelerator project and increased work levels on two large multi-year
contracts for the DOD. This increase was partially offset by the absence of
revenue from the Company's chemical analytical services business, which was sold
in the fourth quarter of fiscal 1996, the winding-down of the Company's
environmental consulting business and lower hardware systems sales.
Revenues for fiscal 1997 included amounts related to the closure of three
DOD pulsed power simulation facilities operated by the Company for many years in
San Diego. These closures will be concluded in the first half of fiscal 1998 and
the underlying contracts with the DOD will be completed. However, the Company
has subsequently received additional long-term contracts from the DOD, including
one for research on next-generation pulsed power switch technology for x-ray
simulators. These and other contracts with the DOD are subject to periodic
Government funding provisions. The level of future DOD expenditures in the
Company's research and development area and the related impact on funding for
the Company's contracts are not predictable and, therefore, previously reported
results are not necessarily indicative of those to be expected in the future.
33
<PAGE> 36
In fiscal 1996, sales in this business segment decreased $0.9 million, or
2.8%, to $30.2 million from $31.1 million in fiscal 1995 primarily as a result
of reduced sales of chemical analytical services, partially offset by increased
revenues from the two multi-year DOD contracts.
Information Products and Services. In fiscal 1997, sales of Information
Products and Services increased $0.9 million, or 11.0%, to $9.0 million from
$8.1 million in fiscal 1996. This increase primarily reflects greater sales of
the Company's job-cost accounting software, partially offset by a decline in
revenues from two large multi-year software development contracts for criminal
justice information systems (the "CJIS Contracts"). Work on the CJIS Contracts
is scheduled to be substantially completed in the first half of fiscal 1998.
In fiscal 1996, sales in this business segment increased $2.7 million, or
50.2%, to $8.1 million from $5.4 million in fiscal 1995 principally due to
revenues attributable to the commencement of work in fiscal 1996 on one of the
CJIS Contracts.
Gross Profit
In fiscal 1997, the Company's gross profit was $31.3 million, or 30.9% of
sales, compared to $15.0 million, or 18.6% of sales, in fiscal 1996. The
increase in gross profit as a percentage of sales was primarily due to the
increased overall sales in fiscal 1997, resulting in improved overhead
absorption, and an improved mix of products and services, particularly in the
Power Conversion Products business segment. In fiscal 1996, the Company's gross
profit was $15.0 million, or 18.6% of sales, compared to $18.6 million, or 24.7%
of sales, in fiscal 1995. The decreases in fiscal 1996 were primarily
attributable to the portion of the $14.4 million charge taken in fiscal 1996
that was recorded in cost of sales.
Power Conversion Products. In fiscal 1997, Power Conversion Products gross
profit increased $6.3 million to $10.1 million from $3.9 million in fiscal 1996.
As a percentage of sales, gross profit increased to 37.5% in fiscal 1997 from
23.6% in fiscal 1996. This increase in gross profit as a percentage of sales
reflected improved overhead absorption and an improved mix of products and
services, including higher sales of EMI filters for implantable medical devices
and greater revenues from funded research and development.
As the Company introduces ultracapacitor products it may offer aggressive
pricing to gain market penetration. This would have an adverse impact on gross
profit margins until the Company reaches full production volumes.
In fiscal 1996 and 1995, gross profits in this business segment were
consistent at $3.9 million. As a percentage of sales, gross profit decreased to
23.6% in fiscal 1996 from 25.8% in fiscal 1995 primarily due to the portion of
the $14.4 million charge taken in fiscal 1996 that was recorded in cost of
sales.
Industrial Computers and Subsystems. In fiscal 1997, Industrial Computers
and Subsystems gross profit increased $3.9 million, or 51.1%, to $11.5 million
from $7.6 million in fiscal 1996. As a percentage of sales, gross profit
increased to 33.7% in fiscal 1997 from 29.2% in fiscal 1996 due to increased
sales of certain higher margin customized OEM products and improved overhead
absorption from the higher overall sales. In addition, cost of sales in fiscal
1996 reflected higher inventory write-offs than in fiscal 1997.
In fiscal 1996, gross profit decreased $0.1 million, or 1.6%, to $7.6
million from $7.8 million in fiscal 1995. As a percentage of sales, gross profit
decreased to 29.2% in fiscal 1996 from 33.3% in fiscal 1995 as a result of
higher inventory write-offs in fiscal 1996 and the impact in fiscal 1996 of
shipments on several large, competitively bid procurements that had lower profit
margins.
Technology Programs and Systems. Technology Programs and Systems gross
profit was $6.2 million, $5.7 million and $6.2 million in fiscal years 1997,
1996 and 1995, respectively. As a percentage of sales, gross profit remained
relatively constant at 20.1% in fiscal 1995, 18.7% in fiscal 1996 and 20.1% in
fiscal 1997. The stability of gross profit as a percentage of sales resulted
from the predominance of government cost plus contracts in this business
segment. See "Business -- Government Business."
Information Products and Services. In fiscal 1997, Information Products and
Services gross profit increased $5.5 million to $3.4 million from $(2.2) million
in fiscal 1996. As a percentage of sales, gross profit increased to 37.4% in
fiscal 1997 from (26.6)% in fiscal 1996. In fiscal 1996, the Company recorded
reserves
34
<PAGE> 37
against the CJIS Contracts because total contract completion costs were
projected to exceed the contract value on these fixed price contracts. In
addition, fiscal 1996 reflects a write-off of certain capitalized software
development costs. To a lesser extent, the comparative improvement in fiscal
1997 is attributable to increased sales of the Company's higher margin job-cost
accounting software products.
In fiscal 1996, gross profit in this business segment decreased $2.8
million to $(2.2) million from $0.6 million in fiscal 1995. As a percentage of
sales, gross profit decreased to (26.6)% in fiscal 1996 from 11.8% in fiscal
1995, reflecting the impact in fiscal 1996 of the reserves recorded on the CJIS
Contracts and the write-off of certain capitalized software development costs.
Selling, General and Administrative Expenses
In fiscal 1997, the Company's selling, general and administrative expenses
increased $6.3 million, or 40.7%, to $21.9 million from $15.6 million in fiscal
1996. As a percentage of total sales, selling, general and administrative
expenses increased to 21.6% in fiscal 1997 from 19.3% in fiscal 1996. These
increases were attributable primarily to (i) increased sales and marketing
costs, principally from the addition of new sales and marketing personnel added
as part of the Company's plan to grow its commercial businesses, and commissions
earned on higher commercial sales in fiscal 1997 primarily in the Company's
Power Conversion Products and Industrial Computers and Subsystems business
segments; (ii) accruals under new incentive and profit sharing plans implemented
in fiscal 1997 and (iii) additions to senior management, both at the executive
and business unit levels, to support the Company's new strategic direction.
In fiscal 1996, selling, general and administrative expenses increased $1.9
million, or 14.1%, to $15.6 million from $13.6 million in fiscal 1995. As a
percentage of sales, selling, general and administrative expenses increased to
19.3% in fiscal 1996 from 18.2% in fiscal 1995. These increases were
attributable primarily to a charge in fiscal 1996 of approximately $1.5 million
for environmental and other matters and for amounts in connection with the
Reorganization, as well as higher sales and marketing costs in support of the
Company's commercial business initiatives.
Research and Development Expenses
The Company's research and development expenses reflect only internally
funded research and development programs. Costs associated with United States
government and other customer funded research and development contracts are
included in cost of sales. Research and development expenses were $5.3 million,
$5.1 million and $5.0 million for fiscal 1997, 1996 and 1995, respectively. The
level of research and development expenses reflects the Company's ability to
obtain customer funding to support a significant portion of its research and
product development activities. Because of the increased overall sales level,
however, as a percentage of sales, research and development expenses decreased
to 5.2% in fiscal 1997 from 6.3% in fiscal 1996 and 6.7% in fiscal 1995.
Interest Expense
In fiscal 1997, interest expense decreased to $173,000 from $329,000 in
fiscal 1996 as a result of lower average borrowings. In fiscal 1996, interest
expense remained relatively constant in comparison to fiscal 1995.
Other-net
In fiscal 1997, other-net was $150,000, compared to $398,000 in fiscal 1996
and $848,000 in fiscal 1995. The decrease in other-net primarily reflects
completion in April 1996 of the amortization into income of amounts contributed
by minority stockholders upon the organization of the Company's PurePulse
Technologies, Inc. subsidiary over such stockholders' proportionate share of
PurePulse's equity. In fiscal 1996 and fiscal 1995 other-net included $379,000
and $508,000 of such income, respectively, while none was included in fiscal
1997. The balance of other-net in all three fiscal years was principally
interest income.
35
<PAGE> 38
Income Tax Expense
The Company has net operating loss carryforwards which offset the Company's
provision for income taxes in fiscal 1997. Fiscal 1996 income tax expense is
primarily due to the establishment of a valuation allowance of $1.1 million for
the net deferred income tax assets of the Company due to the losses incurred in
fiscal 1996. Income tax expense was incurred at an effective rate of 3.6% in
fiscal 1995, which primarily reflects the non-taxable status of the $508,000 of
amortization described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on a combination of internally
generated funds and bank borrowings to finance its working capital requirements
and capital expenditures. In addition, in fiscal 1997, the Company received
approximately $2.5 million from the exercise of stock options and purchases
under its stock purchase plans.
Cash flow from operations in fiscal 1997 was $2.9 million, with net income
plus depreciation and amortization of approximately $6.6 million partially
offset by increases in accounts receivable and inventory in support of the
higher fiscal 1997 sales.
The Company's capital expenditures in fiscal 1997 increased to $4.7 million
from $2.0 million in fiscal 1996, primarily for the acquisition of production
and computer equipment and other assets needed to support growth of the
Company's business units. The Company has currently budgeted capital
expenditures of $7.0 million for fiscal 1998 to support growth, including
expansion of manufacturing facilities for the EMI filter and ultracapacitor
operations, and expansion in one of the Company's owned buildings. In addition,
the Company will be addressing the need for high-volume manufacturing of
ultracapacitors, and commitments may be made during fiscal 1998 toward meeting
such needs. Alternatively, the Company may consider leasing facilities or
manufacturing equipment or both or may satisfy volume manufacturing requirements
through outsourcing or under licensing arrangements with third parties. If the
Company decides to internally finance construction of such facilities, a
significant amount of capital would be required.
The Company re-negotiated its bank line of credit during fiscal 1997,
converting the line of credit to a two year unsecured arrangement and increasing
the amount available to $10.0 million. The interest rate on the line of credit
is tied to LIBOR or the bank's prime rate. As of July 31, 1997, there were no
outstanding borrowings under the line of credit.
In addition to addressing the need for high volume manufacturing, the
Company may also from time to time consider acquisitions of complementary
businesses, products or technologies, which may require additional funding.
Sources of additional funding for these purposes could include one or more of
the following: cash flow from operations; investments by strategic partners and
additional debt or equity financing. There can be no assurance that the Company
will be able to obtain additional sources of financing on favorable terms, if at
all, at such time or times as the Company may require such capital.
SUBSIDIARY OPTION PROGRAMS
The Company has implemented employee stock option plans at each of its five
principal operating subsidiaries providing for the issuance of incentive and
nonqualified stock options to purchase common stock of these companies by each
subsidiary. The option plans are intended to encourage an entrepreneurial
atmosphere in each business segment, providing focused rewards promoting growth.
Options that are "in-the-money" at the subsidiary level will have a negative
impact on the Company's earnings per share. The Company expects that its
reported diluted earnings per share will be reduced in future quarters due to
in-the-money subsidiary options. Except to the extent exercised, however, such
subsidiary options will not affect the Company's consolidated net income as
reported in its consolidated statement of operations. Such options, when and if
exercised, will dilute the Company's actual ownership interests in its
subsidiaries, thus reducing the Company's share of the net income, potential
dividends or distributions and proceeds of any sale or other disposition of such
subsidiary. The equity interests upon exercise of stock options in the
subsidiaries would be accounted for as a minority interest. Based on current
programs, the dilutive impact attributable to
36
<PAGE> 39
these option plans could be up to 13% at each principal operating subsidiary
(17% at one subsidiary). In addition, certain key employees of the Company's
Maxwell Business Systems, Inc., subsidiary in the Information Products and
Services business segment, currently own an aggregate of 20% and have the right
to purchase up to an additional 29%, of that subsidiary. See "Risk
Factors -- Potential Dilutive Impact of Employee Stock Option Programs at
Subsidiaries" and "Management -- Executive Compensation."
INFLATION AND CHANGES IN PRICES
Generally, the Company has been able to increase prices to offset its
inflation-related increased costs in its commercial businesses. 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 government and other customers typically
include estimated costs for inflation in the contract price.
ACCOUNTING PRINCIPLES
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share. Under Statement No. 128, the Company will be
required to present basic net income per share, which excludes the effects of
dilutive common stock equivalents, and diluted net income per share. Basic net
income per share is expected to be higher than the currently presented primary
net income per share in periods of positive earnings due to the exclusion of
dilutive stock options in its computation. Diluted net income per share is not
expected to be materially different from the earnings per share amounts which
would be computed under the current method.
The Company is required to adopt Statement No. 128 in its fiscal quarter
ending January 31, 1998, and at that time all historical net income per share
data presented will be restated to conform to the provisions of Statement No.
128.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index included at "Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information set forth in Item 10, Item 11 and Item 12 herein is being
filed herewith because the information included therein is being filed with the
Securities and Exchange Commission as part of the Company's Registration
Statement on Form S-3 filed under the Securities Act of 1933, as amended. The
information included herewith under these items is not completely responsive to
Regulation S-K as applicable to these items on Form 10-K. The information set
forth in Item 10, Item 11, Item 12 and Item 13 is subject to supplement by the
information to be reported in the Company's Proxy Statement for the 1997 Annual
Meeting of Stockholders which the Company anticipates will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days of
July 31, 1997, and which is incorporated herein by this reference.
37
<PAGE> 40
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and senior management of the Company are set forth in the
following table. The Company's Board of Directors, consisting of seven members,
is divided into three classes with one class standing for election each year for
a three-year term. The terms of directors in Class II expire at the 1997 annual
meeting of stockholders.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- ---- ------------------------------------------------
<S> <C> <C>
Kenneth F. Potashner..... 39 Chairman, President, Chief Executive Officer,
Chief Operating Officer and Director -- Class I
R. Wayne Clark........... 59 Vice President, and President of PurePulse
Technologies, Inc.
Gary J. Davidson......... 41 Vice President -- Finance and Administration,
Treasurer and Chief Financial Officer
Thomas L. Horgan......... 37 Vice President and Director -- Class I
Gregg L. McKee........... 54 Vice President, and President of Maxwell Energy
Products, Inc.
Donald M. Roberts........ 49 General Counsel and Secretary
Walter P. Robertson...... 55 Vice President, and President of Maxwell Federal
Division, Inc.
Terrence M. Siegrist..... 47 Vice President, and President of Maxwell
Information Systems, Inc.
John D. Werderman........ 50 Vice President, and President of I-Bus, Inc.
Lewis J. Colby, Jr. ..... 63 Director -- Class II(1)(2)
Thomas B. Hayward........ 73 Director -- Class III(1)(2)
Alan C. Kolb............. 68 Director -- Class III
Karl M. Samuelian........ 65 Director -- Class III(1)(2)
Donn A. Starry........... 72 Director -- Class II(2)
</TABLE>
- ---------------
(1) Member of the Audit Committe.
(2) Member of the Compensation Committee.
Mr. Potashner joined Maxwell in April 1996 as President, CEO, COO and
Director and was appointed Chairman in April 1997. From 1994 to April 1996, he
served as Executive Vice President, Operations, of Conner Peripherals. From 1991
through 1994 he was Vice President, Product Engineering, for Quantum
Corporation.
Mr. Clark was named Vice President in January 1997. Mr. Clark has been
President of PurePulse Technologies, Inc., a majority-owned subsidiary of the
Company, since its formation in 1988. Prior to becoming President of PurePulse,
Mr. Clark held various executive positions with the Company. He joined the
Company in 1973.
Mr. Davidson served as Corporate Controller of the Company 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. Prior to joining Maxwell in 1986, Mr.
Davidson was a Senior Manager with Ernst & Young.
Mr. Horgan joined the Company in June 1996 as Vice President, Business
Development. From 1995 until joining Maxwell, he was Vice President, Customer
Service, for Conner Peripherals and from 1993 to 1995 served as Director,
Customer Service for Quantum Corporation. From 1991 to 1993 Mr. Horgan served as
European Information Security Center Manager for Digital Equipment Corporation.
Mr. McKee joined the Company in September 1996 as Vice President and
President of Maxwell Energy Products, Inc. From 1990 until joining Maxwell he
served Quantum Corporation in various capacities. From January 1995 until
joining Maxwell he was President, Quantum Malaysia. From February 1993 to
38
<PAGE> 41
December 1995, he served as Corporate Director of Malaysian Operations. From
1990 to January 1993 he was Director of the Customer Service Group.
Mr. Roberts joined the Company as General Counsel in April 1994, and was
appointed Secretary in June 1996. 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 as an outside legal advisor to the
Company for more than ten years.
Mr. Robertson joined the Company in August 1996 as Vice President and
President of Maxwell Federal Division, Inc. From April 1995 until joining
Maxwell, he served BioSolutions Technologies, a start-up company, as President
and Chief Executive Officer. From May 1994 through November 1994, Mr. Robertson
was Transition Director for Martin Marietta. Prior to that, he served General
Dynamics as Vice President and General Manager, Space Magnetics from 1992
through 1994 and as Vice President, Aircraft Production from 1991 through 1992.
Mr. Siegrist joined the Company in March 1997, and was named President of
Maxwell Information Systems, Inc. in May 1997. From 1990 through 1993, and again
from 1994 until September 1996, Mr. Siegrist held management positions with
Boole & Babbage, Inc., most recently as Director, International Business
Operations. From 1993 to 1994, Mr. Siegrist was Director of Marketing for
Interphase Corporation. From 1979 until joining Boole & Babbage in 1990, Mr.
Siegrist served as Vice President of Sales and Marketing with Lemcom Systems,
Inc.
Mr. Werderman was named President of I-Bus, Inc. in July 1997. Previously,
Mr. Werderman served as Chief Operating Officer of Maxwell Federal Division,
Inc. Prior to joining Maxwell in October 1996, Mr. Werderman worked for M/A.COM,
Inc. for over 15 years, most recently as President and General Manager of their
Baltimore, Maryland operation, M/A.COM Government Products, Inc.
Dr. Colby has been a director of the Company since December 1983. He was
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.
Admiral Hayward (U.S. Navy, Ret.) is 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 was appointed a
director of the Company in October 1987.
Dr. Kolb has been a director of the Company since 1970. He also served as a
director from July 1965 to October 1967. From 1970 to 1996, Dr. Kolb served as
Chief Executive Officer of the Company. He was President of the Company from
1970 until 1980 and again from 1992 until 1996. From 1980 to 1995, Dr. Kolb
served as Chairman of the Board. Dr. Kolb stepped down from his positions as
President and Chief Executive Officer in April 1996, and continues with the
Company as a consultant.
Mr. Samuelian has been a director of the Company since 1967 and served as
Secretary from that time until June 1996. 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 1997 and said firm has been retained in fiscal year 1998.
General Starry (U.S. Army, Ret.) has been a director of the Company since
1988, and served as Chairman of the Board from October 1995 until April 1997.
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.
39
<PAGE> 42
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and its four other
most highly compensated executive officers (the "Named Executive Officers")
whose total salary and bonus for fiscal 1997 exceeded $100,000, for services
rendered to the Company and its subsidiaries in all capacities during that
fiscal year. No executive who would otherwise have been includable in such table
on the basis of salary and bonus earned for fiscal 1997 has resigned or
otherwise terminated employment during fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(1) ---------------------------------------
------------------------------ RESTRICTED STOCK OPTION GRANTS(4) ALL OTHER
NAME AND POSITION YEAR SALARY BONUS OTHER(2) STOCK AWARD(3) (NO. OF SHARES) COMPENSATION(5)
- ----------------------- ---- -------- -------- -------- -------------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth F. Potashner
(6) 1997 $400,004 $400,000 $2,850 $190,000 50,000 $ 361,031
Chairman 1996 93,847 100,000 -0- 645,105 177,960 44,000
Chief Executive
Officer, President,
Chief Operating
Officer, Director
Thomas L. Horgan (6) 1997 180,083 81,630 -0- -0- 9,000 19,254
Vice President, 1996 19,615 -0- -0- -0- 60,000 -0-
Director
Gregg L. McKee. (6) 1997 167,990 82,617 -0- -0- 10,000 49,863
Vice President 1996 -0- -0- -0- -0- 60,000 -0-
Walter P. Robertson (6) 1997 165,713 69,228 -0- -0- 69,000 -0-
Vice President
Donald M. Roberts 1997 158,111 78,606 4,671 -0- 8,000 -0-
General Counsel & 1996 150,010 -0- 346 -0- 10,000 -0-
Secretary 1995 150,010 -0- -0- -0- -0- -0-
</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) Amounts in this column consist of matching contributions made by the Company
under its Savings Plan. They do 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 1997.
(3) Mr. Potashner was awarded 10,000 shares of restricted stock in fiscal 1997
and 177,960 shares of restricted stock in fiscal 1996, which restricted
shares vest 25% one year after grant and each month thereafter an additional
1/48 of the total number of shares granted become vested. Mr. Potashner has
full voting power and dividend rights with respect to all of the restricted
stock. At July 31, 1997, the aggregate value of such restricted stock based
on the closing price of the Company's Common Stock on that date was
$4,370,000.
(4) Options shown in this column are options to purchase shares of Common Stock
of Maxwell Technologies, Inc. granted under the Company's 1995 Stock Option
Plan. Each individual in the table also received options in fiscal 1997 to
purchase common stock in each of the Company's principal operating
subsidiaries: Maxwell Energy Products, Inc., PurePulse Technologies, Inc.,
I-Bus, Inc., Maxwell Federal Division, Inc., and Maxwell Information
Systems, Inc. See the following table under the heading "Option Grants in
Last Fiscal Year" for the specific number of shares included in option
grants by each such subsidiary for each individual. In addition, Mr.
Potashner received options in fiscal 1996 to purchase 150,000 shares of
PurePulse Technologies, Inc. common stock.
(5) Represents amounts paid to Mr. Potashner in fiscal 1996 for consulting
activities and in fiscal 1997 for relocation expenses including certain
carrying and sale-related costs for his former residence, and tax offset
payments. Represents amounts paid to Mr. Horgan and Mr. McKee in fiscal 1997
as
40
<PAGE> 43
reimbursement of relocation expenses (including reimbursement of brokerage
commissions on the sale of a residence).
(6) Mr. Potashner and Mr. Horgan were hired as executive officers in fiscal
1996. Mr. McKee and Mr. Robertson were hired as executive officers in fiscal
1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information on grants of stock options pursuant
to the Company's 1995 Stock Option Plan, the 1994 Stock Option Plan of the
Company's subsidiary, PurePulse Technologies, Inc. and the 1996 Stock Option
Plans of the Company's other principal operating subsidiaries, Maxwell Energy
Products, Inc., I-Bus, Inc., Maxwell Federal Division, Inc. and Maxwell
Information Systems, Inc., to the Named Executive Officers. Pursuant to
Securities and Exchange Commission rules, the table also shows the value of the
options at the end of the five and ten year option terms if the stock price were
to appreciate annually by 5% and 10%, respectively. These assumed values may not
reflect actual value at the times indicated.
<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 AND ENTITY GRANTED(1) FY 1997(2) (PER SHARE) DATE 5% 10%
- --------------------------------- ---------- ------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth F. Potashner
Company........................ 50,000 12.95% $ 19.50 7/22/02 $613,170 $1,553,900
Energy Products................ 100,000 13.65 1.16 11/7/06 72,950 184,870
PurePulse...................... -0- -0- -0- -- -0- -0-
I-Bus.......................... 100,000 15.17 1.15 11/7/06 72,320 183,280
Federal........................ 100,000 14.15 1.45 11/7/06 91,190 231,090
Information Systems............ 100,000 13.34 .26 11/7/06 16,350 41,440
Thomas L. Horgan
Company........................ 9,000 2.33% $ 19.50 7/22/02 $ 48,490 $ 107,140
Energy Products................ 37,500 5.12 1.16 11/7/06 27,360 69,330
PurePulse...................... 33,750 10.15 .65 8/7/06 13,800 34,960
I-Bus.......................... 37,500 5.69 1.15 11/7/06 27,120 68,730
Federal........................ 37,500 5.31 1.45 11/7/06 34,200 86,660
Information Systems............ 37,500 5.00 .26 11/7/06 6,130 15,540
Gregg L. McKee
Company........................ 10,000 2.59% $ 19.50 7/22/02 $ 53,870 $ 119,050
Energy Products................ 125,000 17.06 1.16 11/7/06 91,190 231,090
PurePulse...................... 22,500 6.77 .65 8/7/06 9,200 23,310
I-Bus.......................... 25,000 3.79 1.15 11/7/06 18,080 45,820
Federal........................ 25,000 3.54 1.45 11/7/06 22,800 57,770
Information Systems............ 25,000 3.33 .26 11/7/06 4,090 10,360
Walter P. Robertson
Company........................ 9,000 2.33% $ 19.50 7/22/02 $ 48,490 $ 107,140
60,000 15.54 6.88 8/1/01 114,050 252,020
Energy Products................ 25,000 3.41 1.16 11/7/06 18,240 46,220
PurePulse...................... 22,500 6.77 .65 8/7/06 9,200 23,310
I-Bus.......................... 25,000 3.79 1.15 11/7/06 18,080 45,820
Federal........................ 100,000 14.15 1.45 11/7/06 91,190 231,090
Information Systems............ 25,000 3.33 .26 11/7/06 4,090 10,360
Donald M. Roberts
Company........................ 8,000 2.07% $ 19.50 7/22/02 $ 43,100 $ 95,240
Energy Products................ 37,500 5.12 1.16 11/7/06 27,360 69,330
PurePulse...................... 33,750 10.15 .65 8/7/06 13,800 34,960
I-Bus.......................... 37,500 5.69 1.15 11/7/06 27,120 68,730
Federal........................ 37,500 5.31 1.45 11/7/06 34,200 86,660
Information Systems............ 37,500 5.00 .26 11/7/06 6,130 15,540
</TABLE>
41
<PAGE> 44
- ---------------
(1) These options are either incentive stock options or non-qualified stock
options and were granted at a purchase price equal to the fair market value
of the underlying common stock at the date of grant. Fair market value of
the Company's Common Stock was based on the trading price of such stock on
the date of grant, and fair market value of the common stock of the
subsidiaries was based on independent outside appraisals. The term of all
options covering shares of common stock of the Company's subsidiaries is ten
years. The term of options covering the Company's Common Stock is five
years, with the exception of Mr. Potashner's options covering Company Common
Stock which have ten year terms. The increments in which the options are
exercisable are determined by the committees which administer the plans.
(2) Total options for the Company include options covering 7,000 shares of
Company Common Stock granted to directors of the Company under the Company's
Director Stock Option Plan.
The stock option plans of the Company's five principal operating
subsidiaries permit options to be granted for an aggregate number of shares of
common stock amounting to approximately 13% of the total outstanding shares of
such stock on a fully-diluted basis (17.3% at one subsidiary). At August 31,
1997, the number of shares of common stock subject to outstanding options under
the Company's subsidiary stock option plans was, in the case of each such
subsidiary, 10.3% to 13.6% on a fully-diluted basis.
FISCAL YEAR END OPTION VALUES
Shown below is information on each Named Executive Officer with respect to
the value of stock options, measured in terms of the closing price of the
Company's Common Stock on the date of exercise, and with respect to the value of
unexercised options to purchase the Company's Common Stock held by them and
granted in fiscal 1997 and prior years under the Company's 1995 or 1985 Stock
Option Plans, measured in terms of the closing price of the Company's Common
Stock on July 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED JULY 31, 1997(1) JULY 31, 1997(1)
ON EXERCISE VALUE ----------------------------- -----------------------------
NAME (NUMBER OF SHARES) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ------------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth F.
Potashner........... 34,000 $563,040 25,320 168,640 $ 498,424 $ 2,522,928
Thomas L. Horgan...... -0- -0- 18,000 51,000 328,500 800,250
Gregg L. McKee........ 5,000 63,750 13,000 52,000 208,000 709,500
Walter P. Robertson... -0- -0- -0- 69,000 -0- 1,015,950
Donald M. Roberts..... -0- -0- 11,000 17,000 210,750 196,750
</TABLE>
- ---------------
(1) Does not include options held by the Named Executive Officers to purchase
shares of common stock in the Company's five principal operating
subsidiaries under the stock option plans of such subsidiaries. All options
held by these individuals under such stock option plans were granted in
fiscal 1997 and are shown in the preceding table, except for options to
purchase 150,000 shares of common stock of the Company's PurePulse
Technologies, Inc. subsidiary granted to Mr. Potashner in fiscal 1996 as to
which options for 37,500 shares were exercisable within 60 days of July 31,
1997. No public market exists for the common stock of any of the Company's
subsidiaries. For purposes of the above table, no value has been attributed
to the subsidiary stock options.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Employment Agreement. In March, 1996, the Company entered into an
Employment Contract ("Contract") with Kenneth F. Potashner pursuant to which Mr.
Potashner became the President and Chief Executive Officer of the Company
effective April 26, 1996. The Contract, as amended, is for a term ending July
31, 2000, and requires Mr. Potashner to perform the duties associated with the
office of chief executive of the Company plus such other duties or positions as
the Board of Directors may require. Mr. Potashner is currently also performing
the duties of the Company's chairman, president and chief operating officer. The
Contract provides for a base salary for fiscal 1998 of $450,000 per year,
reviewed annually, with an annual bonus opportunity of up to 200% of base
salary, with a target bonus of 100% of base salary, to be determined
42
<PAGE> 45
by the Board of Directors. Mr. Potashner has received a total of 187,960 shares
of restricted stock under the Contract and options under the Company's 1995
Stock Option Plan for a total of 227,960 shares. Both the restricted shares and
the options are subject to four-year vesting schedules.
Under the Contract, Mr. Potashner will be immediately vested in the
restricted shares and stock options, shall receive a payment equal to two years
of his initial base salary plus his initial term target bonus, and shall
continue for one year to receive benefits identical to those being received, in
the event that a "change of control" occurs and either his compensation or
responsibilities are reduced or the Company's headquarters are moved more than
30 miles. A "change of control" is defined as the acquisition by a person or
group of a majority of the Company's stock by direct purchase or through a
merger, the liquidation or sale of substantially all of the assets of the
Company or a change in a majority of the members of the Board of Directors other
than through membership changes determined by the Board itself. If Mr. Potashner
is terminated without cause during the term of the Contract, he will be paid the
base salary and target bonus remaining to be paid for the balance of the stated
term of the Contract (but not less than one full year of such salary and bonus)
and the restricted shares shall become free of any restrictions and stock
options shall become fully vested. In the event Mr. Potashner voluntarily
resigns or is terminated for cause, he shall be paid only such salary and
accrued vacation pay as is then due to him and no acceleration of vesting or
lifting of restrictions shall occur with respect to the restricted shares or
stock options. Upon completion of a public offering of Common Stock, pursuant to
the Contract, the Board will consider the grant of additional options to Mr.
Potashner.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of July 31, 1997, by (i)
each person (or group of affiliated persons) known by the Company to
beneficially own more than five percent of the outstanding shares of Common
Stock, (ii) each Selling Stockholder, (iii) each of the Company's directors,
(iv) each of the Named Executive Officers and (v) all directors and executive
officers of the Company as a group. Unless otherwise indicated, the address for
each stockholder is 9275 Sky Park Court, San Diego, CA 92123.
<TABLE>
<CAPTION>
SHARES
OF COMMON STOCK
BENEFICIALLY OWNED
(1)(2)(3)
NAME AND ADDRESS OF -------------------
BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------------------------------------------ ------- -------
<S> <C> <C>
The TCW Group, Inc...................................................... 424,576 6.9%
865 South Figueroa Street
Los Angeles, California 90017
Dimensional Fund Advisors, Inc.(4)...................................... 358,020 5.8
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Kenneth F. Potashner.................................................... 254,698 4.1
Gregg L. McKee.......................................................... 13,000 *
Walter P. Robertson..................................................... 18,100 *
Thomas L. Horgan........................................................ 20,200 *
Donald M. Roberts....................................................... 13,281 *
Lewis J. Colby, Jr...................................................... 33,830 *
Thomas B. Hayward....................................................... 19,334 *
Alan C. Kolb............................................................ 194,496 3.2
Karl M. Samuelian....................................................... 22,174 *
Donn A. Starry.......................................................... 16,181 *
All directors and executive officers as a group
(14 persons).......................................................... 651,471 10.6
</TABLE>
43
<PAGE> 46
- ---------------
* Less than one percent.
(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. The Company
understands that each individual person has sole voting and investment power
for shares beneficially owned by him, subject to community property laws
where applicable.
(2) Shares of Common Stock subject to options or warrants which are currently
exercisable or exercisable within 60 days of July 31, 1997, are deemed
outstanding for computing the percentage of the person holding such options
or warrants but are not deemed outstanding for computing the percentage of
any other person. Percentage of ownership is based on 6,142,911 shares of
Common Stock outstanding on July 31, 1997.
(3) Shares of Common Stock beneficially owned include options exercisable within
60 days of July 31, 1997 to purchase 66,738 shares granted to Mr. Potashner,
13,000 shares granted to Mr. McKee, 18,000 shares granted to Mr. Robertson,
18,000 shares granted to Mr. Horgan, 11,000 shares granted to Mr. Roberts,
19,334 shares granted to Dr. Colby, 19,334 shares granted to Adm. Hayward,
19,334 shares granted to Mr. Samuelian, and 13,028 shares granted to Gen.
Starry, respectively, and options to purchase 237,318 shares granted to all
directors and officers as a group.
(4) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 358,020 shares of the
Company's Common Stock as of June 30, 1997, 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, all
of which Dimensional Fund Advisors, Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares. Dimensional
has sole dispositive power over all of such 358,020 shares and sole voting
power over 257,938 of such shares. Persons who are officers of Dimensional
Fund Advisors, Inc. also serve as officers of DFA Investment Dimensions
Group Inc. (the "Fund") and the DFA Investment Trust Company (the "Trust"),
each an open-end management investment company registered under the
Investment Company Act of 1940. In their capacity as officers of the Fund
and the Trust, these persons vote 58,892 additional shares which are owned
by the Fund and 41,190 shares which are owned by the Trust (both included in
sole dispositive power above).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
1. Report of Ernst & Young LLP, Independent Auditors................ F-1
2. Consolidated Balance Sheets at July 31, 1997 and 1996............ F-2
3. Consolidated Statement of Operations for the Years Ended July 31,
1997, 1996 and 1995.............................................. F-3
4. Consolidated Statement of Stockholders' Equity for the Three
Years Ended July 31, 1997........................................ F-4
5. Consolidated Statement of Cash Flows for the Years Ended July 31,
1997, 1996 and 1995.............................................. F-5
6. Notes to Consolidated Financial Statements....................... F-6
</TABLE>
44
<PAGE> 47
(a)(2) INDEX TO 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) LIST OF EXHIBITS.
<TABLE>
<C> <S>
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+ Certificate of Amendment of Restated Certificate of Incorporation of the
Registrant increasing the number of authorized shares to 20 million, dated
November 22, 1996.
3.3 Bylaws of the Registrant as amended to date -- Exhibit 3.2 to the 1987 Form
10-K is incorporated by reference.
3.4+ Revised Article IV of the Bylaws of the Registrant.
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+ Amendment to Form of Rights Certificate, dated April 2, 1997.
4.3 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+ Amendment Number One to Maxwell Laboratories, Inc. Director Stock Option
Plan, dated February 7, 1997.
10.3 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.
10.4 Maxwell Laboratories, Inc. 1995 Stock Option Plan -- Exhibit 10.3 to the
Registrant's Form 10-K Annual Report for the year ended July 31, 1995
("1995 Form 10-K") is incorporated by reference.
10.5 Maxwell Laboratories, Inc. 1994 Employee Stock Purchase Plan -- Exhibit
10.4 to the 1995 Form 10-K is incorporated by reference.
10.6+ Amendment Number One to Maxwell Laboratories, Inc. 1995 Stock Option Plan,
dated March 19, 1997.
10.7 Maxwell Laboratories, Inc. 1994 Director Stock Purchase Plan -- Exhibit
10.5 to the 1995 Form 10-K is incorporated by reference.
10.8 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.
10.9 Lease dated June 14, 1996, between the Registrant, as Lessor, and Ceimic
Corporation, as Lessee -- Exhibit 10.7 to the Registrant's Form 10-K Annual
Report for the year ended July 31, 1996 (the "1996 Form 10-K") is
incorporated by reference.
10.10 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.
10.11+ First Amendment to Industrial Real Estate Lease between the Registrant, as
Lessee, and Elkhorn Ranch, Inc., as Lessor, dated June 30, 1995.
</TABLE>
45
<PAGE> 48
<TABLE>
<C> <S>
10.12 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.
10.13 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 1988 Form 10-K is
incorporated by reference.
10.14 Agreement of May, 1994 between the Registrant and Compagnie Europeene de
Composants Electroniques -- LCC under which the Registrant licenses,
manufactures and distributes certain capacitors -- Exhibit 10.11 to the
1995 Form 10-K is incorporated by reference.
10.15 Lease dated April 17, 1995, by and between Cody Three, Inc., as Lessor, and
the Registrant, as Lessee -- Exhibit 10.12 to the 1996 Form 10-K is
incorporated by reference.
10.16+ Amended and Restated Industrial Real Estate Lease dated January 1, 1997 by
and between Equus 9177, LLC, as Lessor, and I-Bus, Inc., as Lessee.
10.17 Maxwell Laboratories, Inc. Special Severance Pay Plan -- Exhibit 10.22 to
the 1989 Form 10-K is incorporated by reference.
10.18 Consulting Agreement dated June 25, 1996, between the Registrant and Alan
C. Kolb -- Exhibit 10.14 to the 1996 Form 10-K is incorporated by
reference.
10.19 Separation Agreement dated June 25, 1996, between the Registrant and Alan
C. Kolb -- Exhibit 10.15 to the 1996 Form 10-K is incorporated by
reference.
10.20 Chief Executive Officer Employment Contract dated March 25, 1996 and
Amendment dated April 16, 1996 between the Registrant and Kenneth F.
Potashner -- Exhibit 10.16 to the 1996 Form 10-K is incorporated by
reference.
10.21+ Second Amendment to the Chief Executive Officer Employment Contract dated
June 23, 1997 between the Registrant and Kenneth F. Potashner.
10.22 Restricted Stock Agreement dated July 25, 1996, between the Registrant and
Kenneth F. Potashner -- Exhibit 10.17 to the 1996 Form 10-K is incorporated
by reference.
10.23+ Amendment Number One to Restricted Stock Agreement, dated June 24, 1997,
between the Registrant and Kenneth F. Potashner.
10.24 Lease dated October 12, 1994 by and between Madison Square Partnership, as
Lessor, and PurePulse Technologies, Inc. (formerly Foodco Corporation), as
Lessee -- Exhibit 10.18 to the 1995 Form 10-K is incorporated by reference.
10.25+ Lease dated November 1, 1996, by and between Ponderosa Pines Partnership,
as Lessor, and PurePulse Technologies, Inc., as Lessee.
10.26+ Line of Credit Agreement dated January 31, 1997, between the Registrant and
Sanwa Bank California and Amendment dated January 31, 1997 between the
Registrant and Sanwa Bank of California.
10.27 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.
10.28 Lease dated February 13, 1994 by and between Terilee Enterprises, Inc., as
Lessor, and the Registrant, as Lessee -- Exhibit 10.23 to the 1994 Form
10-K is incorporated by reference.
10.29+ Lease dated June, 1997 by and between AEW/LBA Acquisition Company II, LLC,
as Lessor and the Registrant as Lessee.
10.30 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.
</TABLE>
46
<PAGE> 49
<TABLE>
<C> <S>
10.31 Severance Agreement dated March 15, 1996, between the Registrant and Sean
M. Maloy -- Exhibit 10.24 to the 1996 Form 10-K is incorporated by
reference.
10.32+ Executive Bonus Plan for Fiscal 1998.
10.33 PurePulse Technologies, Inc. 1994 Stock Option Plan -- Exhibit 10.26 to the
1996 Form 10-K is incorporated by reference.
10.34+ Maxwell Federal Division, Inc. 1996 Stock Option Plan.
10.35+ Maxwell Energy Products, Inc. 1996 Stock Option Plan.
10.36+ I-Bus, Inc. 1996 Stock Option Plan.
10.37+ Maxwell Information Systems, Inc. 1996 Stock Option Plan.
10.38+ Amendment Number One to the Maxwell Laboratories, Inc. 1994 Employee Stock
Purchase Plan, effective as of April 30, 1997.
21.1+ List of subsidiaries of the Registrant.
23.1+ Consent of Ernst & Young LLP, Independent Auditors.
27+ Financial Data Schedule.
</TABLE>
(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, 1997.
- ---------------
+ Filed herewith.
47
<PAGE> 50
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Consolidated Balance Sheets at July 31, 1996 and 1997................................. F-3
Consolidated Statement of Operations for the Years Ended July 31, 1995, 1996 and
1997................................................................................ F-4
Consolidated Statement of Stockholders' Equity for the Three Years Ended July 31,
1997................................................................................ F-5
Consolidated Statement of Cash Flows for the Years Ended July 31, 1995, 1996 and
1997................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 51
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Maxwell Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Maxwell
Technologies, Inc., and subsidiaries as of July 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended July 31, 1997. 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
Technologies, Inc., and subsidiaries at July 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended July 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 8 to the consolidated financial statements, in 1996
the Company changed its method of assessing the impairment of long-lived assets
in accordance with the adoption of Statement of Financial Accounting Standards
No. 121.
/s/ ERNST & YOUNG LLP
San Diego, California
September 12, 1997
F-2
<PAGE> 52
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 1,465 $ 826
Accounts receivable:
Trade and other, less allowance for doubtful accounts of $440 and
$350 at July 31, 1996 and 1997, respectively....................... 8,656 9,391
Long-term contracts (Note 2)........................................ 6,917 9,221
------- -------
15,573 18,612
Inventories and inventoried costs relating to long-term contracts (Note
11)................................................................. 6,808 8,722
Recoverable income taxes............................................... 740 --
Prepaid expenses....................................................... 548 1,203
Deferred income taxes.................................................. 161 161
------- -------
Total current assets................................................ 25,295 29,524
Property, plant and equipment, net (Note 11)............................. 14,809 16,929
Deposits and other....................................................... 620 667
------- -------
$40,724 $47,120
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $14,231 $13,640
Accrued employee compensation.......................................... 2,866 4,465
Current portion of long-term debt...................................... 910 511
------- -------
Total current liabilities........................................... 18,007 18,616
Long-term debt (Note 3).................................................. 1,018 465
Minority interest and additional amounts contributed..................... 954 629
Commitments and contingencies (Notes 6 and 9)
Stockholders' equity (Note 4):
Common stock, $0.10 par value, 20,000 shares authorized, 5,687 and
6,143 shares issued and outstanding at July 31, 1996 and 1997,
respectively........................................................ 568 614
Additional paid-in capital............................................. 19,752 22,364
Deferred compensation.................................................. (605) (622)
Retained earnings...................................................... 1,030 5,054
------- -------
Total stockholders' equity.......................................... 20,745 27,410
------- -------
$40,724 $47,120
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 53
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Sales....................................................... $75,004 $ 80,911 $101,411
Cost of sales............................................... 56,447 65,893 70,107
------- -------- --------
Gross profit.............................................. 18,557 15,018 31,304
Operating expenses:
Selling, general and administrative expenses.............. 13,636 15,564 21,900
Research and development expenses......................... 5,038 5,081 5,303
Restructure and asset impairment losses (Note 8).......... -- 5,703 --
------- -------- --------
Total operating expenses............................... 18,674 26,348 27,203
------- -------- --------
Operating income (loss)..................................... (117) (11,330) 4,101
Interest expense............................................ 315 329 173
Other-net (Note 11)......................................... (848) (398) (150)
------- -------- --------
Income (loss) before income taxes, minority interest and
loss from cumulative effect of change in accounting
principle................................................. 416 (11,261) 4,078
Income tax expense (benefit) (Note 5)....................... 15 1,296 --
Minority interest in net income of subsidiary............... 86 50 54
Loss from cumulative effect of change in accounting
principle (Note 8)........................................ -- 2,569 --
------- -------- --------
Net income (loss)........................................... $ 315 $(15,176) $ 4,024
======= ======== ========
Earnings (loss) per share:
Income (loss) per share before cumulative effect of
change in accounting principle....................... $ 0.06 $ (2.29) $ 0.60
======= ======== ========
Net income (loss) per share............................ $ 0.06 $ (2.76) $ 0.60
======= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 54
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE YEARS ENDED JULY 31, 1997
-----------------------------------------------------------------
TOTAL
COMMON ADDITIONAL DEFERRED RETAINED STOCKHOLDERS'
STOCK PAID-IN CAPITAL COMPENSATION EARNINGS EQUITY
------ --------------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Balance at August 1, 1994............... $534 $18,535 $ -- $ 15,891 $ 34,960
Issuance of 28,424 shares under stock
purchase plans..................... 3 86 -- -- 89
Net income for the year............... -- -- -- 315 315
---- ------- ----- -------- --------
Balance at July 31, 1995................ 537 18,621 -- 16,206 35,364
Issuance of 37,684 shares under stock
option plans....................... 4 152 -- -- 156
Issuance of 93,112 shares under stock
purchase plans..................... 9 352 -- -- 361
Deferred compensation related to
issuance of 177,960 shares......... 18 627 (645) -- --
Amortization of deferred
compensation....................... -- -- 40 -- 40
Net loss for the year................. -- -- -- (15,176) (15,176)
---- ------- ----- -------- --------
Balance at July 31, 1996................ 568 19,752 (605) 1,030 20,745
Issuance of 406,656 shares under stock
option plans....................... 41 1,985 -- -- 2,026
Issuance of 39,129 shares under stock
purchase plans..................... 4 438 -- -- 442
Deferred compensation related to
issuance of 10,000 shares.......... 1 189 (190) -- --
Amortization of deferred
compensation....................... -- -- 173 -- 173
Net income for the year............... -- -- -- 4,024 4,024
---- ------- ----- -------- --------
Balance at July 31, 1997................ $614 $22,364 $ (622) $ 5,054 $ 27,410
==== ======= ===== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 55
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Operating activities:
Net income (loss)........................................... $ 315 $(15,176) $ 4,024
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 2,907 2,128 2,587
Restructure and asset impairment losses............. -- 5,960 --
Loss from cumulative effect of change in accounting
principle......................................... -- 2,569 --
Provision for losses on accounts receivable......... 45 105 184
Loss on sales of property and equipment............. 122 118 10
Deferred income taxes............................... 820 1,124 --
Minority interest in net income of subsidiary....... 86 50 54
Deferred compensation............................... -- 40 173
Changes in operating assets and liabilities:
Accounts receivable............................... (52) 252 (3,223)
Inventories....................................... 369 (469) (1,914)
Prepaid expenses and other........................ 150 614 (702)
Accounts payable.................................. (525) 2,153 (683)
Accrued employee compensation..................... (255) 185 1,599
Income taxes payable/recoverable.................. (797) 121 832
------- -------- -------
Net cash provided by (used in) operating
activities................................... 3,185 (226) 2,941
Investing activities:
Purchases of property, plant and equipment.................. (2,951) (1,976) (4,725)
Proceeds from sales of property and equipment............... 80 6 8
------- -------- -------
Net cash used in investing activities.......... (2,871) (1,970) (4,717)
Financing activities:
Principal payments on long-term debt........................ (929) (909) (952)
Proceeds from issuance of Company and subsidiary stock...... 89 517 2,502
Repurchase of subsidiary stock.............................. -- -- (413)
------- -------- -------
Net cash provided by (used in) financing
activities................................... (840) (392) 1,137
------- -------- -------
Decrease in cash and cash equivalents.......... (526) (2,588) (639)
Cash and cash equivalents at beginning of year................ 4,579 4,053 1,465
------- -------- -------
Cash and cash equivalents at end of year....... $ 4,053 $ 1,465 $ 826
======= ======== =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 56
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company is a leader in pulsed power technologies, providing pulsed
power based systems and components for a wide range of commercial applications
and research and development for both commercial customers and the United States
government. The Company also offers industrial computers and subsystems,
primarily to OEMs in computer telephony and other markets, and software products
and services, both for government research and for various commercial
applications.
Consolidation and Minority Interest Amounts
The consolidated financial statements include the accounts of Maxwell
Technologies, Inc. and its subsidiaries. All significant intercompany
transactions and account balances are eliminated in consolidation.
Cash Equivalents
The Company classifies all highly liquid investments with a maturity of
three months or less when purchased as cash equivalents.
Inventories
Inventories are stated at the lower of cost (principally average cost
method) or market.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation and
amortization are provided over the estimated useful lives of the assets (three
to thirty years). Depreciation and amortization of property, plant and equipment
amounted to $3,415,000, $2,507,000 and $2,587,000 in fiscal 1995, 1996 and 1997,
respectively.
Revenue Recognition
The Company recognizes substantially all revenue from the sale of
manufactured products and short-term fixed price contracts upon shipment of
products or completion of services. Revenues, including estimated profits, on
long-term fixed price contracts are recognized as costs are incurred. Revenues,
including fees earned, on cost plus contracts are also recognized as costs are
incurred. Contract revenue is reflected in the Company's sales and includes
amounts received from the United States government and commercial customers for
the funded research and development efforts of the Company. Provisions are made
on a current basis to fully recognize any anticipated losses on contracts.
Earnings (Loss) Per Share
The computation of net income (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 weighted average number of
Common and Common equivalent shares outstanding was 5,356,000, 5,494,000 and
6,644,000 in fiscal 1995, 1996 and 1997, respectively. Net income (loss) per
share was unchanged on a fully-diluted basis.
F-7
<PAGE> 57
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Under Financial Accounting Standards Board Statement No. 128, Earnings Per
Share, the Company must change the method used to compute earnings per share in
fiscal 1998 and restate all prior periods. Under the new standard, the dilutive
effect of stock options will be excluded from basic earnings per share. The
impact is expected to result in the following basic net income (loss) per share
for the three years ended July 31:
<TABLE>
<CAPTION>
1995 1996 1997
----- ------ -----
<S> <C> <C> <C>
Primary net income (loss) per share, as reported... $0.06 $(2.76) $0.60
----- ------ -----
Basic net income (loss) per share, as restated
under Statement No. 128.......................... $0.06 $(2.76) $0.68
===== ====== =====
</TABLE>
The impact of Statement No. 128 on the calculation of diluted net income
(loss) per share for the above periods is not expected to be material.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Several of the industries in which the Company operates are
characterized by rapid technological change and short product life cycles. As a
result, estimates are required to provide for product returns, product
obsolescence as well as other matters. Historically, actual amounts recorded
have not varied significantly from estimated amounts.
Stock Split
In November 1996, the Company declared a 2-for-1 stock split of the
Company's common shares, effected as a 100% stock dividend that was distributed
on December 17, 1996 to stockholders of record as of November 26, 1996. Common
stock accounts, earnings per share and weighted average number of share amounts
from prior periods have been restated to reflect the stock split.
NOTE 2 -- ACCOUNTS RECEIVABLE
The following tabulation shows the component elements of accounts
receivable from long-term contracts at July 31:
<TABLE>
<CAPTION>
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
U.S. Government:
Amounts billed........................................... $2,832 $2,108
Amounts unbilled......................................... 427 1,326
Retainage due upon completion of contracts............... 312 287
Commercial customers:
Amounts billed........................................... 988 2,693
Amounts unbilled......................................... 2,358 2,681
Retainage due upon completion of contracts............... -- 126
------ ------
$6,917 $9,221
====== ======
</TABLE>
F-8
<PAGE> 58
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- ACCOUNTS RECEIVABLE (CONTINUED)
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 unbilled
receivables at July 31, 1997 are expected to become due and payable within the
next year.
NOTE 3 -- LONG-TERM DEBT AND CREDIT AGREEMENTS
Long-term debt consisted of the following at July 31:
<TABLE>
<CAPTION>
1996 1997
------ ----
(IN THOUSANDS)
<S> <C> <C>
Variable rate note payable to a bank, due $42,000 monthly
plus interest............................................. $1,292 $750
10.0% fixed rate promissory note, due $3,000 monthly........ 236 226
7.75% fixed rate note payable to a bank, due $100,000
quarterly plus interest................................... 400 --
------ ----
1,928 976
Less current portion........................................ 910 511
------ ----
$1,018 $465
====== ====
</TABLE>
The variable rate bank note is unsecured and bears interest at the bank's
prime rate plus one-half of one percent (9% at July 31, 1997). This bank note
contains certain restrictive covenants relating to net-worth, net-worth-ratio
and quarterly operating results.
Maturities of long-term debt for each of the five years ending July 31,
2002 are: 1998-$511,000; 1999-$263,000; 2000-$14,000; 2001-$16,000; and
2002-$17,000.
The Company also has an unsecured two-year bank line of credit agreement
under which the Company may borrow up to $10 million at the bank's prime rate,
or at LIBOR plus 1.75%. At July 31, 1997, there were no outstanding borrowings
under the line. The line of credit agreement provides that neither the Company
nor any of its subsidiaries may, directly or indirectly, make any distributions
of cash dividends.
NOTE 4 -- STOCK PLANS
Stock Option Plans
In December 1995, the Company adopted the 1995 Stock Option Plan under
which 500,000 shares of Common Stock were reserved for future grant. In January
1997, an additional 300,000 shares were reserved for future issuance. This Plan,
and the Company's Director Stock Option Plan 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. Options
are also outstanding under an expired stock option plan. 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 generally 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.
F-9
<PAGE> 59
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- STOCK PLANS (CONTINUED)
The following table summarizes Company stock option activity for the three
years ended July 31, 1997.
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF SHARES AVERAGE PRICE
--------- -------------
<S> <C> <C>
Balance at August 1, 1994............................ 771,758 $ 5.38
Granted............................................ 224,000 $ 3.77
Exercised.......................................... -- --
Expired or forfeited............................... (278,014) $ 5.49
--------
Balance at July 31, 1995............................. 717,744 $ 4.84
Granted............................................ 623,600 $ 4.31
Exercised.......................................... (37,684) $ 4.13
Expired or forfeited............................... (107,634) $ 5.05
--------
Balance at July 31, 1996............................. 1,196,026 $ 4.57
Granted............................................ 373,700 $ 15.95
Exercised.......................................... (406,656) $ 4.61
Expired or forfeited............................... (108,390) $ 4.42
--------
Outstanding at July 31, 1997......................... 1,054,680 $ 8.60
========
Available for future grant under the 1995 Stock
Option Plan........................................ 83,300
========
Available for future grant under the Director Option
Plan............................................... 124,584
========
</TABLE>
In addition, the Company has established separate stock option plans for
its five principal operating subsidiaries. During fiscal 1997, options to
purchase various shares of subsidiary stock were granted at the estimated fair
value of the subsidiary shares, as determined by an independent outside
appraisal. Options outstanding at July 31, 1997 amount to 10.3% to 13.6% of each
subsidiary's outstanding common stock.
The following table summarizes information concerning outstanding and
exercisable stock options at July 31, 1997.
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF EXERCISE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
- ----------------- ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 3.56 - 5.00 476,400 $ 3.96 6.4 years 169,875 $ 4.08
$ 5.12 - 7.25 266,580 $ 6.23 3.7 years 164,580 $ 5.73
$11.00 - 20.63 311,700 $15.73 5.0 years -- $ --
--------- -------
1,054,680 334,455
========= =======
</TABLE>
The Company has adopted the disclosure-only provisions of Financial
Accounting Standards Board Statement No. 123, Accounting for Stock-Based
Compensation. In accordance with the provisions of Statement No. 123, the
Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans, and accordingly, no
compensation cost has been recognized for stock options in 1996 or 1997. If the
Company had elected to recognize compensation cost
F-10
<PAGE> 60
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- STOCK PLANS (CONTINUED)
based on the fair value method prescribed by Statement No. 123, the Company's
net income (loss) and net income (loss) per share would have been adjusted to
the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------
1996 1997
-------- ------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net income (loss)
As reported........................................... $(15,176) $4,024
Pro forma............................................. (15,305) 3,405
Net income (loss) per share
As reported........................................... $ (2.76) $ 0.60
Pro forma............................................. (2.78) 0.51
</TABLE>
The impact of outstanding non-vested stock options granted prior to 1996
has been excluded from the pro forma calculations; accordingly, the 1996 and
1997 pro forma adjustments are not indicative of future period pro forma
adjustments when the calculation will reflect all applicable stock options. The
fair value of Company options at date of grant was estimated using the
Black-Scholes option-pricing model with assumptions for both 1996 and 1997 as
follows: risk-free interest rate of 6.0%; dividend yield of 0%; volatility
factor of 52%; and a weighted-average expected term of 3 years. The fair value
of subsidiary options at date of grant was estimated using the Minimum Value
option-pricing model, which is similar to the Black-Scholes model except that it
excludes the factor for volatility since there is no public market for the
subsidiary shares. The estimated weighted average fair value at grant date for
Company options granted during 1996 and 1997 was $1.74 and $7.33 per option,
respectively.
Stock Purchase Plans
In December 1994, the Company established the 1994 Employee Stock Purchase
Plan and a Director Stock Purchase Plan. 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 years 1996 and 1997, 93,112 and
39,129 shares were issued under the two plans for an aggregate of $361,000 and
$442,000, respectively. At July 31, 1997, 339,335 shares are reserved for future
issuance under these plans.
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 $16.25 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 stockholders. In addition, the
Company may redeem the Rights at a price of $0.01 per Right, subject to certain
restrictions.
F-11
<PAGE> 61
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- STOCK PLANS (CONTINUED)
Deferred Compensation
In 1996 and 1997, one of the executive officers of the Company was granted
shares of the Company's Common Stock subject to certain restrictions. The shares
vest over four year periods, and at the respective grant dates, the shares
issued in fiscal 1996 had a value of approximately $645,000, while the shares
issued in fiscal 1997 had a value of approximately $190,000. Those values, net
of accumulated amortization, are shown as deferred compensation in the
stockholder's equity section of the Balance Sheet. The deferred compensation is
being amortized to expense over the four year vesting periods, and such
amortization totaled $40,000 and $173,000 in fiscal 1996 and 1997, respectively.
NOTE 5 -- INCOME TAXES
Income taxes (credit) are as follows for the years ended July 31:
<TABLE>
<CAPTION>
1995 1996 1997
----- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current......................................... $(634) $ 128 $ --
Deferred........................................ 604 814 --
------ ------ ------
(30) 942 --
State:
Current......................................... (171) 44 --
Deferred........................................ 216 310 --
------ ------ ------
45 354 --
------ ------ ------
$ 15 $1,296 $ --
====== ====== ======
</TABLE>
F-12
<PAGE> 62
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- INCOME TAXES (CONTINUED)
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 at July 31:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Uniform capitalization, contract and inventory-related
reserves........................................... $ 723 $ 1,542 $ 1,465
Environmental and restructure reserves................ 495 1,606 1,195
Asset write-downs under FASB Statement No. 121........ -- 1,062 943
Accrued vacation...................................... 551 506 594
Allowance for doubtful accounts....................... 217 259 321
Other................................................. 239 426 313
NOL carryforwards..................................... 300 2,500 1,800
Valuation allowance................................... (300) (7,015) (5,814)
------ ------- -------
Total deferred tax assets..................... 2,225 886 817
------ ------- -------
Deferred tax liabilities:
Tax over book depreciation............................ 802 617 656
Deferred contract income recognition.................. 134 108 --
Other................................................. 4 -- --
------ ------- -------
Total deferred tax liabilities................ 940 725 656
------ ------- -------
Net deferred tax assets....................... $1,285 $ 161 $ 161
====== ======= =======
</TABLE>
As the Company cannot carry losses back to prior years, and had a loss in
the prior year, a valuation allowance is provided on the net operating loss
carryforwards and net deferred income tax assets of the parent company. The
valuation allowance at July 31, 1997 includes approximately $700,000 relating to
employee stock option and stock purchase plan activity, which upon realization
will result in a credit to additional paid-in capital. Income tax expense in
fiscal year 1996 was to provide for a valuation allowance on beginning of year
net deferred tax assets, and to provide for income tax expense at the PurePulse
Technologies subsidiary, which filed a separate tax return for that year.
As of July 31, 1997, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $4,300,000 and
$3,400,000, respectively. The federal loss carryforward expires in fiscal year
2011, while the state loss carryforwards expire in fiscal years 1999 through
2001.
The effective income tax rate varied from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<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 (6.0) 6.0
Utilization of net operating loss carryforwards..... -- -- (40.0)
Amortization of minority interest................... (41.5) (1.1) --
Valuation allowance and other items................. 3.8 52.6 --
----- ----- -----
Effective income tax rate........................... 3.6% 11.5% --%
===== ===== =====
</TABLE>
F-13
<PAGE> 63
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- LEASES
Rental expense amounted to $2,110,000, $1,992,000 and $1,831,000 in fiscal
1995, 1996 and 1997, respectively, and was incurred primarily for building
rental. Future minimum rental commitments as of July 31, 1997, are as follows
(in thousands):
<TABLE>
<S> <C>
1998............................................... $ 2,126
1999............................................... 2,063
2000............................................... 1,827
2001............................................... 1,587
2002............................................... 1,117
Thereafter......................................... 2,672
-------
$11,392
=======
</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
indices. Substantially all leases provide that the Company pay for property
taxes, insurance, and repairs and maintenance.
NOTE 7 -- EMPLOYEE BENEFIT 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,
$541,000 and $592,000 in fiscal 1995, 1996 and 1997, respectively.
NOTE 8 -- IMPAIRMENT LOSSES, RESTRUCTURING AND OTHER CHARGES
In fiscal 1996, the Company recorded $14.4 million of pre-tax charges
primarily in the second and third quarters. Of this amount, $9.5 million was
recorded during the first two quarters, and included asset write-downs due to
the adoption of FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, an increase in
the valuation allowance against the Company's net deferred income tax assets,
the cost, primarily in the form of inventory reserves, of re-positioning the
Sierra Capacitor/Filter operation to focus on a new commercial business area,
and other operational reserves primarily associated with fixed-price contracts
and inventory. The $4.9 million charge in the third quarter resulted primarily
from costs associated with management changes and a restructuring of the
Company's business units.
Of the first and second quarter charge, $4.1 million is attributable to the
January 1996 adoption of FASB Statement No. 121. Statement 121 requires that the
carrying amount of certain long-lived assets be written down if an impairment in
value is determined to exist and the assets are not supported by adequate
anticipated future cash flows, as defined by the FASB. Upon adoption of
Statement 121, the Company recorded impairment losses to reflect the difference
between pre-adoption carrying values and the estimated fair values of the assets
subject to review, of which approximately $2.6 million was recorded in restated
first quarter results as the cumulative effect of a change in accounting
principle, and the balance of $1.5 million impacted second quarter results.
These assets included primarily facilities and equipment associated with the
chemical analytical services group, and certain other equipment not currently in
substantive use. The chemical analytical services business was not profitable in
fiscal 1996, and the Company began exploring its possible sale during the first
quarter of fiscal 1996. The business was sold in June 1996. The estimated fair
values of the assets were determined by reference to comparable asset sales,
lease values, or estimated discounted future cash flows. The facilities subject
to the impairment loss are corporate assets, and the chemistry group
F-14
<PAGE> 64
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- IMPAIRMENT LOSSES, RESTRUCTURING AND OTHER CHARGES (CONTINUED)
equipment as well as the majority of the under-utilized equipment subject to
impairment are from the Company's Technology Programs and Systems business
segment.
NOTE 9 -- ENVIRONMENTAL MATTER
In 1992, the Company and approximately 40 other potentially responsible
parties signed a consent order with the State of California with respect to
costs to be incurred at a recycling facility to characterize and remediate
hazardous substances. To date, the site has been characterized, and the Company
and the other potentially responsible parties have paid substantially all of
their respective shares of the costs of such characterization. The estimated
cost of monitoring and remediation activities, of which the Company's share is
currently estimated at approximately 3.5%, totals approximately $23 million.
Approximately $21 million of this amount will consist of maintenance, monitoring
and related 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 10 -- BUSINESS SEGMENTS
For purposes of analyzing and understanding the financial statements, the
Company's operations have been classified into the following business segments:
Power Conversion Products: Includes design, development and
manufacture of electrical components and subsystems, including products
that capitalize on pulsed power such as ultracapacitors, microbial
purification systems, high voltage capacitors and other electrical
components and EMI filter capacitors.
Industrial Computers and Subsystems: Includes design and manufacture
of standard, custom and semi-custom industrial computer modules, platforms
and fully integrated systems primarily for OEMs.
Technology Programs and Systems: Includes research and development
programs in pulsed power, pulsed power systems design and construction,
weapons effects simulation and computer-based analytic services, primarily
for the Department of Defense.
Information Products and Services: Includes design, development and
integration of software products and services including job cost accounting
and management information systems and other software products including
applications for the Internet, as well as wide-area and local-area network
and software integration services.
F-15
<PAGE> 65
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- BUSINESS SEGMENTS (CONTINUED)
Business segment financial data for the three years ended July 31 is as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales:
Power Conversion Products................................. $15,207 $ 16,448 $ 27,039
Industrial Computers and Subsystems....................... 23,319 26,131 34,259
Technology Programs and Systems........................... 31,064 30,198 31,087
Information Products and Services......................... 5,414 8,134 9,026
------- -------- --------
Consolidated total................................ $75,004 $ 80,911 $101,411
======= ======== ========
Operating profit (loss):
Power Conversion Products................................. $ (561) $ (752) $ 2,482
Industrial Computers and Subsystems....................... 2,287 1,078 2,417
Technology Programs and Systems........................... 1,550 2,131 1,804
Information Products and Services......................... (1,097) (3,680) (2,886)
------- -------- --------
Total operating profit (loss)..................... 2,179 (1,223) 3,817
Corporate expenses and revenues........................... (1,448) (9,709) 434
Interest expense.......................................... (315) (329) (173)
------- -------- --------
Income (loss) before income taxes, minority
interest and cumulative effect of change in
accounting principle............................ $ 416 $(11,261) $ 4,078
======= ======== ========
Identifiable assets:
Power Conversion Products................................. $13,932 $ 11,253 $ 12,299
Industrial Computers and Subsystems....................... 8,000 9,166 12,167
Technology Programs and Systems........................... 12,640 7,586 8,298
Information Products and Services......................... 3,893 3,136 5,920
Corporate................................................. 13,905 9,583 8,436
------- -------- --------
Consolidated total................................ $52,370 $ 40,724 $ 47,120
======= ======== ========
Depreciation and amortization:
Power Conversion Products................................. $ 1,138 $ 763 $ 887
Industrial Computers and Subsystems....................... 260 316 469
Technology Programs and Systems........................... 1,563 994 647
Information Products and Services......................... 61 162 258
Corporate................................................. 393 272 326
------- -------- --------
Consolidated total................................ $ 3,415 $ 2,507 $ 2,587
======= ======== ========
Capital expenditures:
Power Conversion Products................................. $ 1,078 $ 670 $ 1,768
Industrial Computers and Subsystems....................... 337 529 992
Technology Programs and Systems........................... 1,034 240 424
Information Products and Services......................... 435 482 1,231
Corporate................................................. 67 55 310
------- -------- --------
Consolidated total................................ $ 2,951 $ 1,976 $ 4,725
======= ======== ========
</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 fiscal 1996
F-16
<PAGE> 66
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- BUSINESS SEGMENTS (CONTINUED)
include certain restructuring costs and asset writedowns relating to the
adoption of FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. Identifiable assets by
segment include the assets directly identified with those segments. Corporate
assets consist primarily of cash and cash equivalents, facilities and land, and,
as of July 31, 1997, certain telecommunications, computers and networking
equipment of the Company .
Sales under United States government contracts and subcontracts are
primarily in the Technology Programs and Systems business segment, and
aggregated $32,120,000, $32,622,000 and $33,526,000, in fiscal 1995, 1996, and
1997, respectively. The portion of such sales to the United States Air Force in
fiscal 1997 amounted to 14.0% of total Company sales in that year. A customer of
the Industrial Computers and Subsystems business segment represented 11.9% of
total sales of the Company in fiscal 1997.
International sales amounted to $7,318,000, $7,555,000 and $12,609,000 in
fiscal 1995, 1996, and 1997, respectively, principally to countries in Europe
and the Pacific Rim.
NOTE 11 -- SUPPLEMENTARY FINANCIAL INFORMATION
Inventories and inventoried costs relating to long-term contracts are
classified as follows at July 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods................................... $ 714 $ 1,793
Costs under long-term contracts.................. 226 --
Work in process.................................. 1,610 882
Raw materials and purchased parts................ 4,258 6,047
------- -------
$ 6,808 $ 8,722
======= =======
</TABLE>
Property, plant and equipment consist of the following at July 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements....................... $ 3,470 $ 3,470
Buildings and building improvements.............. 7,448 7,581
Machinery and equipment.......................... 23,267 25,939
Office furniture and equipment................... 7,249 7,861
Leasehold improvements........................... 3,347 3,462
------- -------
44,781 48,313
Less allowances for depreciation and
amortization................................... 30,192 32,113
------- -------
14,589 16,200
Construction in progress......................... 220 729
------- -------
$14,809 $16,929
======= =======
</TABLE>
Accounts payable consist of the following at July 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable and accrued expenses............ $11,618 $10,516
Environmental reserves........................... 1,620 1,252
Customer advances................................ 993 1,872
------- -------
$14,231 $13,640
======= =======
</TABLE>
F-17
<PAGE> 67
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)
Included in Other-net in fiscal 1995 and 1996 is the amortization into
income over a three-year period of amounts contributed by minority stockholders
upon the organization of the Company's PurePulse Technologies, Inc. subsidiary
over such stockholders' proportionate share of PurePulse Technologies' equity.
These amounts were fully amortized at the end of the third quarter of fiscal
1996, and amounted to $508,000 and $379,000 in fiscal 1995 and 1996,
respectively. Also included in Other-net is interest income of $358,000,
$128,000 and $147,000 in fiscal 1995, 1996 and 1997, 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 United States 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 United States government, as well as contract and product sales to
non-government customers in various industries. The Company performs ongoing
credit evaluations of selected non-government customers and generally requires
no collateral.
Supplemental disclosure of cash flow information consists of the following
for the three years ended July 31:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid (refunded) for:
Interest................................... $315 $329 $ 173
Income taxes............................... $(11) $152 $(831)
Non-cash activities:
Issuance of Common Stock in connection with
deferred compensation agreement......... $ -- $645 $ 190
</TABLE>
F-18
<PAGE> 68
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, in the City of San
Diego, State of California, on this 30th day of September, 1997.
MAXWELL TECHNOLOGIES, INC.
By: /s/ KENNETH F. POTASHNER
------------------------------------
Kenneth F. Potashner
Chairman, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -------------------
<C> <S> <C>
/s/ KENNETH F. POTASHNER Chairman, Chief Executive September 30, 1997
- --------------------------------------------- Officer, President and
Kenneth F. Potashner Director (Principal
Executive Officer)
/s/ GARY J. DAVIDSON Vice President-Finance and September 30, 1997
- --------------------------------------------- Administration, Treasurer
Gary J. Davidson and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ DONN A. STARRY Director September 30, 1997
- ---------------------------------------------
Donn A. Starry
/s/ LEWIS J. COLBY, JR. Director September 30, 1997
- ---------------------------------------------
Lewis J. Colby, Jr.
/s/ THOMAS L. HORGAN Director September 30, 1997
- ---------------------------------------------
Thomas L. Horgan
/s/ ALAN C. KOLB Director September 30, 1997
- ---------------------------------------------
Alan C. Kolb
/s/ KARL M. SAMUELIAN Director September 30, 1997
- ---------------------------------------------
Karl M. Samuelian
/s/ THOMAS B. HAYWARD Director September 30, 1997
- ---------------------------------------------
Thomas B. Hayward
</TABLE>
II-1
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
MAXWELL TECHNOLOGIES, INC.
ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 242 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
The undersigned, Kenneth F. Potashner, President, and Donald M.
Roberts, Secretary, of MAXWELL TECHNOLOGIES, INC., a corporation existing under
the laws of the State of Delaware (hereinafter referred to as the
"Corporation"), do hereby certify as follows:
FIRST: That the Restated Certificate of Incorporation of the
Corporation was filed in the Office of the Secretary of State of Delaware on
February 17, 1987.
SECOND: That Article FOURTH of the Restated Certificate of
Incorporation is amended to read as follows:
"The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Twenty Million
(20,000,000) shares, consisting of Twenty Million (20,000,000)
shares of Common Stock, par value $0.10 per share (the "Common
Stock").
THIRD: That such amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to its Restated Certificate of Incorporation to be executed on its
behalf by its President and Secretary this 22nd day of November, 1996.
/s/ KENNETH F. POTASHNER
-------------------------------
Kenneth F. Potashner, President
/s/ DONALD M. ROBERTS
-------------------------------
Donald M. Roberts, Secretary
<PAGE> 2
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "MAXWELL TECHNOLOGIES, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SECOND DAY OF NOVEMBER, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SECRETARY'S OFFICE /s/ Edward J. Freel
SEAL] ----------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2105646 8100 8206070
DATE:
960342383 11-22-96
<PAGE> 1
EXHIBIT 3.4
EXHIBIT A - REVISED BYLAWS
ARTICLE IV
Officers
Section 4.01. DESIGNATION, ELECTION AND TERM OF OFFICE. The Corporation
shall have a Chairman of the Board, a Chief Executive Officer, a President, and
such Vice Presidents as the Board of Directors deems appropriate, a Secretary
and a Treasurer. Any number of offices may be held by the same person. These
officers shall be elected annually by the Board of Directors at an
organizational meeting immediately following the annual meeting of stockholders,
and each officer shall serve at the pleasure of the Board of Directors, to hold
office until the corresponding meeting of the Board of Directors in the next
year, and until his successor shall have been elected and qualified, or until
his earlier resignation, death or removal. Any vacancy in any of the above
offices may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting.
Section 4.02a CHAIRMAN OF THE BOARD. The Chairman of the Board shall
have the general powers and duties of management usually vested in the office of
the Chairman of the Board and shall, in addition, be the Chief Executive Officer
of the Corporation with all the powers and duties vested in the office of the
CEO as prescribed in Section 4.02b of this Article IV unless the Board of
Directors elects another individual to fill such office. He shall, if present,
preside at all meetings of the Board of Directors and at all meetings of the
stockholders and he shall be ex-officio a member of all standing committees, if
any, of the Board of Directors. The Chairman of the Board shall have such other
powers and duties as may be prescribed by the Board of Directors or these
Bylaws. Subject to such limitations as may be imposed by the Board of Directors,
any powers or duties vested in the Chairman of the Board may be delegated by him
to such subordinates as he may choose.
Section 4.02b. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall provide senior level executive leadership to the Corporation. He shall
have the general powers and duties of management usually vested in the office of
the Chief Executive of a corporation, and shall have in addition such other
powers and duties as may be prescribed by the Chairman of the Board or these
Bylaws. In the absence of the Chairman of the Board, he shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors. He
shall be ex-officio a member of all standing committees, if any, of the Board of
Directors. Subject to such limitations as may be imposed by the Chairman, any
powers or duties vested in the Chief Executive Officer may be delegated by him
to such subordinates as he may choose. If there is no President, the CEO shall,
in addition, be the President of the Corporation and shall have the powers and
duties vested in the office of the President, as prescribed in Section 4.03 of
this Article IV.
Section 4.03. PRESIDENT. Subject to the control of the Chief Executive
Officer and to the general oversight powers of the Chairman, the President shall
provide general supervision, direction and control of the business and
operations of the Corporation. He shall have the general powers and duties of
management usually vested in the office of President of a corporation and shall
have, in addition, such other powers and duties as may be prescribed by the CEO.
Subject to such limitations as may be imposed by the CEO, any powers and duties
vested in the President may be delegated by him to such subordinates as he may
choose.
Section 4.04. VICE PRESIDENTS. Vice Presidents and Executive Vice
Presidents of the Corporation who are elected by the Board of Directors shall
perform such duties as may be assigned to them from time to time by the Board of
Directors, Chairman of the Board, President, or by these Bylaws.
<PAGE> 1
Exhibit 4.2
[MAXWELL TECHNOLOGIES LETTERHEAD]
April 2, 1997
ChaseMellon Shareholder Services, L.L.C. as Rights Agent
as successor to First Interstate Bank
400 South Hope Street, Fourth Floor
Los Angeles, CA 90071
RE: Amendment to Rights Agreement
Ladies and Gentlemen:
The Rights Agreement by and between Maxwell Technologies and First
Interstate Bank (which was acquired by ChaseMellon Shareholder Services, L.L.C.
("Successor Agent")], dated February 1, 1990, is hereby amended as follows:
Section 21 of the Rights Agreement is hereby modified and amended by
deleting the fifth sentence in its entirety and replacing it with:
Any successor Rights Agent, whether appointed by the Company
or by such a court, shall be either (a) a corporation
organized and doing business under the laws of the United
States or of any state of the United States, in good standing,
which is authorized under such laws to exercise corporate
trust powers and is subject to supervision or examination by
federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of
at least $100,000,000 or (b) an affiliate of such a
corporation.
In executing and delivering this amendment, the Successor Agent shall
be entitled to all the privileges and immunities afforded to the Rights Agent
under the terms and conditions of the Rights Agreement.
MAXWELL TECHNOLOGIES, INC.
By: /s/ DONALD M. ROBERTS
---------------------------------------
Donald M. Roberts
General Counsel and Secretary
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
as successor Rights Agent
By: /s/ SHARON KNEPPER
- -----------------------------
Name: Sharon Knepper
Title: Assistant Vice President
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NUMBER ONE TO
MAXWELL LABORATORIES, INC.
DIRECTOR STOCK OPTION PLAN
The Maxwell Laboratories, Inc. Director Stock Option Plan (the "Plan")
is hereby amended in the following respects:
1. Name.
The name of the Plan is hereby changed to Maxwell Technologies, Inc.
Director Stock Option Plan.
2. Stock Split Adjustments.
(a) Section 5 entitled, Stock Subject to the Plan, which sets
forth the stock subject to the Plan consisting of 120,000 shares of the $.10 par
value Common Stock, is hereby adjusted to 240,000 shares of the $.10 par value
Common Stock, to reflect the 2 for 1 stock split which occurred on December 17,
1996.
(b) Section 6(B) entitled, Number of Shares, which sets forth
the initial grant of options to each eligible director at 3,000 shares of Common
Stock and thereafter each annual grant to each eligible director at 1,000 shares
of Common Stock is hereby adjusted to 6,000 shares of Common Stock and 2,000
shares of Common Stock, respectively, to reflect the 2 for 1 stock split which
occurred on December 17, 1996.
3. Elimination of Sixty (60) Day Provision.
Section 6(E), Period of Option, is hereby amended to delete in its
entirety the last sentence thereof.
4. Effect of Amendments. These amendments to the Plan shall be
effective as of January 22, 1997. Except to the extent specifically modified
herein, the Plan shall remain in full force and effect.
MAXWELL TECHNOLOGIES, INC.
By: /s/ Donald M. Roberts
----------------------------
Donald M. Roberts, Secretary
Date: February 7, 1997
--------------------------
<PAGE> 1
EXHIBIT 10.6
AMENDMENT NUMBER ONE TO
MAXWELL LABORATORIES, INC.
1995 STOCK OPTION PLAN
The Maxwell Laboratories, Inc. 1995 Stock Option Plan (the "Plan") is
hereby amended in the following respects:
1. Name.
The name of the Plan is hereby changed to Maxwell Technologies, Inc.
1995 Stock Option Plan.
2. Common Stock Subject to Options.
(a) Paragraph 4 entitled Common Stock Subject to Options,
which sets forth the maximum number of shares of the Company's Common Stock
subject to the Plan consisting of 250,000 shares of Common Stock, is hereby
adjusted to a maximum of 400,000 shares of the Company's Common Stock.
Reflecting a two for one stock split effected in December, 1996, the maximum
number of shares subject to the Plan is hereby established at 800,000 shares of
the Company's Common Stock.
3. Effect of Amendments. These amendments to the Plan shall be
effective as of January 22, 1997. Except to the extent specifically modified
herein, the Plan shall remain in full force and effect.
MAXWELL TECHNOLOGIES, INC.
By: /s/ Donald M. Roberts
----------------------------
Donald M. Roberts, Secretary
Date: 3/19/97
---------------------------
<PAGE> 1
EXHIBIT 10.11
FIRST AMENDMENT TO INDUSTRIAL REAL ESTATE LEASE
This First Amendment to Lease is entered into this 30th day of June, 1995, by
and between ELKHORN RANCH, INC., A CALIFORNIA CORPORATION (hereinafter referred
to as "Landlord"), and MAXWELL LABORATORIES, INC., A DELAWARE CORPORATION,
formerly a California Corporation (hereinafter referred to as "Tenant").
WHEREAS, Landlord and Tenant entered into that certain Lease dated February 28,
1986, with leased premises of approximately 67,950 square feet, more commonly
known as a single-story concrete tilt-up building on approximately 3.47 acres
at 4949 Greencraig Lane, San Diego, California; Tax Assessor's Parcel Nos.
369-181-32, -33 and -34 (the "Lease"); and
WHEREAS, Tenant has accepted the premises and currently occupies the premises;
and
WHEREAS, Landlord and Tenant desire to amend the terms and conditions of the
Lease in certain respects;
NOW, THEREFORE, in consideration of the foregoing and intending to be legally
bound, Tenant and Landlord agree as follows:
1. The new term of the Lease shall be eleven and one-half (11 1/2) years,
commencing July 1, 1995, and ending December 31, 2006.
2. Tenant's base rent, on a net of expenses basis,for the new term shall
be as follows:
<TABLE>
<S> <C>
July 1, 1995-June 30, 1996 $.5153 per square foot per month ($420,175.62 annually)
July 1, 1996-June 30, 1997 $.5333 per square foot per month ($434,881.76 annually)
July 1, 1997-June 30, 1998 $.5520 per square foot per month ($450,102.62 annually)
July 1, 1998-June 30, 1999 $.5713 per square foot per month ($465,856.21 annually)
July 1, 1999-June 30, 2000 $.5913 per square foot per month ($482,161.18 annually)
July 1, 2000-June 30, 2001 $.6120 per square foot per month ($499,036.82 annually)
July 1, 2001-June 30, 2002 $.6334 per square foot per month ($516,503.11 annually)
July 1, 2002-June 30, 2003 $.6556 per square foot per month ($534,580.72 annually)
July 1, 2003-June 30, 2004 $.6785 per square foot per month ($553,291.04 annually)
July 1, 2004-June 30, 2005 $.6785 per square foot per month ($553,291.04 annually)
July 1, 2005-June 30, 2006 $.6785 per square foot per month ($553,291.04 annually)
July 1, 2006-December 31, 2006 $.6785 per square foot per month ($276,645.52 total for 6 months)
</TABLE>
3. $37,858.00 of the Tenant's existing security deposit ($53,051.00 per
Section 1.1 and Paragraphs 3.03 and 13.03(c) of the Lease) shall be
amortized over the new 11 1/2-year lease term (reflected in the above
rental schedule), and at the beginning of Month 13 (July 1, 1996), the
remaining $15,193.00 portion of the security deposit shall be returned
to Tenant by Landlord.
4. Addendum Paragraph 20.1, Grant of Option, shall be modified to reflect
that Landlord grants to Tenant one (1) option (the "Option") to extend
the Lease Term for an additional term of five (5) years (the
"Extension"). The remainder of Paragraph 20.1 and Paragraph 20.2,
Personal Options, is unchanged and shall remain in full force and
effect.
Paragraph 20.3, Fair Rental Value Adjustment, shall be modified to
reflect that the Base Rent shall be increased on the first day of the
first month of the Extension of the Lease Term (the "Rental Adjustment
Date") to the "fair rental value" of the Property. The remainder of
Paragraph 20.3 is unchanged and shall remain in full force and effect.
5. Landlord will assist in any manner with the County of San Diego Tax
Assessor's office to try and establish a lower property tax payment
for the property. Any expenses incurred in this process will be
Tenant's responsibility.
6. Landlord will use its best efforts to have the existing and/or any new
lender on the property execute a Non-Disturbance and Attornment
Agreement in a form and content acceptable to Tenant.
7. Any required ADA improvements or upgrades to the property during the
term of the Lease will be the Tenant's responsibility and at Tenant's
sole expense.
8. No commission shall be payable by Landlord for the negotiation of this
Amendment or in the event Tenant exercises the five-year option to
renew.
All other terms and conditions of the Lease remain unchanged.
To the extent that anything contained in this First Amendment to Industrial
Real Estate Lease is contrary or inconsistent with the Lease, the verbiage of
this First Amendment shall govern.
IN WITNESS WHEREOF, the parties hereto have executed this document as of the
date first written above.
<TABLE>
<S> <C>
LANDLORD: ELKHORN RANCH, INC., TENANT: MAXWELL LABORATORIES, INC.,
A CALIFORNIA CORPORATION A DELAWARE CORPORATION
By: /s/ H. WILLS BOOTH III By: /s/ SEAN M. MALOY
------------------------------------- ---------------------------------------
H. Wills Booth III, Managing Partner Sean M. Maloy, Executive Vice President
and Chief Operating Officer
By: /s/ DEBORAH W. BOOTH
-------------------------------------
Deborah Booth Date: 1/15/96
--------------------------------------
By: /s/ KATHLEEN BOOTH RANDOL
-------------------------------------
Kathleen Booth Randol
Date: 8/29/95
-----------------------------------
</TABLE>
<PAGE> 2
BOOTH BUSINESS PARK
KEARNY MESA, CA
BASE RENT
<TABLE>
<S> <C> <C> <C>
1. July 1, 1995-June 30, 1996 $.5153 per square foot per month ($420,175.62 annually)
2. July 1, 1996-June 30, 1997 $.5333 per square foot per month ($434,851.76 annually)
3. July 1, 1997-June 30, 1998 $.5520 per square foot per month ($450,102.62 annually)
4. July 1, 1998-June 30, 1999 $.5713 per square foot per month ($465,856.21 annually)
5. July 1, 1999-June 30, 2000 $.5913 per square foot per month ($487,161.18 annually)
6. July 1, 2000-June 30, 2001 $.6120 per square foot per month ($499,036.82 annually)
7. July 1, 2001-June 30, 2002 $.6334 per square foot per month ($516,503.11 annually)
8. July 1, 2002-June 30, 2003 $.6556 per square foot per month ($534,560.72 annually)
9. July 1, 2003-June 30, 2004 $.6785 per square foot per month ($553,291.04 annually)
10. July 1, 2004-June 30, 2005 $.6785 per square foot per month ($553.291.04 annually)
11. July 1, 2005-June 30, 2006 $.6785 per square foot per month ($553.291.04 annually)
12. July 1, 2006-December 31, 2006 $.6785 per square foot per month ($276,645.52 total for 6 months)
</TABLE>
<PAGE> 1
EXHIBIT 10.16
[CB COMMERCIAL LOGO]
AMENDED AND RESTATED
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 Amended and Restated
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: January 1, 1997
Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): EQUUS 9177, LLC
Address of Landlord: 2635 Camino del Rio South, Suite 208
San Diego, California 92108
Section 1.03. TENANT (INCLUDE LEGAL ENTITY):
I-Bus, Inc., a California corporation
Address of Tenant: 9174 Sky Park Court, San Diego, California 92123
See First Lease Rider Recitals and Item 17.
Section 1.04. PROPERTY: The Property is part of Landlord's multi-tenant
real property development known as Sky Park Center (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) 9173 and
9174 Sky Park Court, San Diego, California, approximately 57,648 square feet as
further described in Exhibits B, C, D, and H. The Expansion Space which
consists of approximately 5,589 sq. ft. shall be built out as described in
Article 15 of the First Lease Rider. The Additional Space which consists of
approximately 14,074 sq. ft. is described in Exhibit H. See First Lease Rider,
Item 1.
Section 1.05. LEASE TERM: Four (4) years two (2) months BEGINNING ON
January 1, 1997 or such other date as is specified in this Lease, and ENDING ON
February 29, 2001
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: See First Lease Rider, Item 11.
Tenant's Broker:
Section 1.09. COMMISSION PAYABLE TO LANDLORD'S BROKER: (See Article
Fourteen) $ See First Lease Rider, Item 11.
Section 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) $ None
Section 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: (See Section
4.05) See First Lease Rider, Item 2.
Section 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT:
(a) BASE RENT: See First Lease Rider, Item 3. Dollars ($ )
per month for the first months, as provided in Section 3.01, and
shall be increased on the first day of the month(s) after
the Commencement Date, either (i) as provided in Section 3.02, or (ii)
. (If (ii) is completed,
then (i) and Section 3.02 are inapplicable.)
(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section
4.02); (ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section
4.04); (iv) Tenant's Initial Pro Rata Share of Common Area Expenses %
(See Section 4.05); (v) Impounds for Insurance Premiums and Property Taxes (See
Section 4.08); (vi) Maintenance, Repairs and Alterations (See Article Six). See
First Lease Rider, Item 4.
Section 1.13. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE:
(See Section 9.05) See First Lease Rider, Item 9(B). percent ( %) of the
Profit (the "Landlord's Share").
Section 1.14. 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 Space
Exhibit D - Project Site Plan
Exhibit E - Building Rules and Regulations
Exhibit F - Work Letter Agreement
Exhibit G - Tenant's Use of Hazardous Mat.
Exhibit H - Additional Space
Copyright 1988 Southern California Chapter [LOGO]
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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 1.05 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 date 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 if Landlord does not deliver possession of the Expansion Space to Tenant
on the Commencement Date. Landlord's non-delivery of the Expansion Space to
Tenant on that date shall not affect this Lease or the obligations of Tenant
under this Lease except that the payment of the increase in Base Rent and Other
Periodic Payments as described in paragraph ?(c) and ?(B) of the First Lease
Rider shall be delayed until Landlord delivers possession of the Expansion
Space to Tenant.
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. If 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 shall 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.
Section 3.02. COST OF LIVING INCREASES. The Base Rent shall be
increased on each date (the "Rental Adjustment Date") stated in Paragraph
1.12(a) above in accordance with the increase in the United States Department
of Labor, Bureau of Labor Statistics, Consumer Price Index for All 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:
(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 3.
(b) 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. If 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 nearly 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 rules 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.
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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.
Section 4.02. PROPERTY TAXES.
(a) REAL PROPERTY TAXES. Tenant shall pay all real property taxes on
the Property (including any fees, taxes or assessments against, or as a result
of, any tenant improvements installed on the Property by or for the benefit of
Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and Section 4.08
below, such payment shall be made at least ten (10) days prior to the
delinquency date of the taxes. Within such ten (10) -day period, Tenant shall
furnish Landlord with satisfactory evidence that the real property taxes have
been paid. Landlord shall reimburse Tenant for any real property taxes paid by
Tenant covering any period of time prior to or after the Lease Term. If Tenant
fails to pay the real property taxes when due, Landlord may pay the taxes and
Tenant shall reimburse Landlord for the amount of such tax payment as
Additional Rent. See First Lease Rider, Item 4.
(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 fee 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.
(c) JOINT ASSESSMENT. If the Property is not separately assessed,
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.02(a) from the assessor's worksheets or
other reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(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.
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 and the immediately surrounding area including the
parking area all of which are separately metered.
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 shall name Landlord as an additional insured under such policy. The
initial amount of such insurance shall be One Million Dollars ($1,000,000) 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 Inflation 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. See First Lease Rider, Item 5.
(c) PAYMENT OF PREMIUMS. Subject to Section 4.08, Tenant shall pay all
premiums for the insurance policies described in Paragraphs 4.04(a) and (b)
(whether obtained by Landlord or Tenant) within fifteen (15 days after Tenant's
receipt of a copy of the premium statement or other evidence of the amount due,
except Landlord shall pay all premiums for non-primary comprehensive public
liability insurance which Landlord elects to obtain as provided in Paragraph
4.04(a). For insurance policies
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maintained by Landlord which cover improvements on the entire Project, Tenant
shall pay Tenant's prorated share of the premiums, in accordance with the
formula in Paragraph 4.05(e) for determining Tenant's share of Common Area
costs. If insurance policies maintained by Landlord cover improvements on real
property other than the Project, Landlord shall deliver to Tenant a statement of
the premium applicable to the Property showing in reasonable detail how Tenant's
share of the premium was computed. If the Lease Term expires before the
expiration of an insurance policy maintained by Landlord, Tenant shall be liable
for Tenant's prorated share of the insurance premiums. Before the Commencement
Date, Tenant shall deliver to Landlord a copy of any policy of insurance which
Tenant is required to maintain under this Section 4.04. At least thirty (30)
days prior to the expiration of any such policy, Tenant shall deliver to
Landlord a renewal of such policy. As an alternative to providing a policy of
insurance, Tenant shall have the right to provide Landlord a certificate of
insurance, executed by an authorized officer of the insurance company, showing
that the insurance which Tenant is required to maintain under this Section 4.04
is in full force and effect and containing such other information which Landlord
reasonably requires. See First Lease Rider, Item 4.
(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 that 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 cancelled 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 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 if 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 2 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 OF 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. Tenant shall pay Tenant's pro rata share (as determined below) of
all costs incurred by Landlord for the operation and maintenance of the Common
Areas. Common Area costs include, but are not limited to, costs and expenses for
the following: gardening and landscaping; utilities, water and sewage charges;
maintenance of signs (other than tenant's signs); premiums for liability,
property damage, fire and other types of casualty insurance on the Common Areas
and worker's compensation insurance; all property taxes and assessments levied
on or attributable to the Common Areas and all Common Area improvements; all
personal property taxes levied on or attributable to personal property used in
connection with the Common Areas; straight-line depreciation on personal
property owned by Landlord which is consumed in the operation or maintenance of
the Common Areas; rental or lease payments paid by Landlord for rented or leased
personal property used in the operation or maintenance
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of the Common Areas: fees for required licenses and permits; repairing,
resurfacing, repaving, maintaining, painting, lighting, cleaning, refuse
removal, security and similar items; reserves for roof replacement and exterior
painting and other appropriate reserves; and a reasonable allowance to Landlord
for Landlord's supervision of the Common Areas (not to exceed five percent (5%)
of the gross rents of the Project for the calendar year). Landlord may cause any
or all of such services to be provided by third parties and the cost of such
services shall be included in Common Areas costs. Common Area costs shall not
include depreciation of real property which forms part of the Common Areas. See
First Lease Rider, Item 4.
(e) TENANT'S SHARE AND PAYMENT. Tenant shall pay Tenant's annual pro rata
share of all Common Area costs (prorated for any fractional month) upon written
notice from Landlord that such costs are due and payable, and in any event prior
to delinquency. Tenant's pro rata share shall be calculated by dividing the
square foot area of the Property, as set forth in Section 1.04 of the Lease, by
the aggregate square foot area of the Project which is leased or held for lease
by tenants, as of the date on which the computation is made. Tenant's initial
pro rata share is set out in Paragraph 1.12(b). Any changes in the Common Area
costs and/or the aggregate area of the Project leased or held for lease during
the Lease Term shall be effective on the first day of the month after such
change occurs. Landlord may, at Landlord's election, estimate in advance and
charge to Tenant as Common Area costs, all real property taxes for which Tenant
is liable under Section 4.02 of the Lease, all insurance premiums for which
Tenant is liable under Section 4.04 of the Lease, all maintenance and repair
costs for which Tenant is liable under Section 6.04 of the Lease, and all other
Common Area costs payable by Tenant hereunder. At Landlord's election, such
statements of estimated Common Area costs shall be delivered monthly, quarterly
or at any other periodic intervals to be designated by Landlord. Landlord may
adjust such estimates at any time based upon Landlord's experience and
reasonable anticipation of costs. Such adjustments shall be effective as of the
next rent payment date after notice to Tenant. Within sixty (60) days after the
end of each calendar year of the Lease Term, Landlord shall deliver to Tenant a
statement prepared in accordance with generally accepted accounting principles
setting forth, in reasonable detail, the Common Area costs paid or incurred by
Landlord during the preceding calendar year and Tenant's pro rata share. Upon
receipt of such statement, there shall be an adjustment between Landlord and
Tenant, with payment to or credit given by Landlord (as the case may be) so that
Landlord shall receive the entire amount of Tenant's share of such costs and
expenses for such period. See First Lease Rider, Item 4.
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 costs Landlord will incur by reason
of such late payment.
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.
Section 4.08. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES. If
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period, at
Landlord's option. Tenant shall pay Landlord a sum equal to one-twelfth (1/12)
of the annual real property taxes and insurance premiums payable by Tenant under
this Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-interest bearing impound account. If unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord may
apply any funds in the impound account to any obligation then due under this
Lease. See First Lease Rider, Item 5.
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
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, DDT, 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 have adverse effects on the environment or the health and
safety of persons. Tenant 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 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 6.
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. See First Lease Rider,
Item 7.
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
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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 within 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 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, such as provided in First Lease
Rider, Item 8 and Item 12, subject to all recorded matters, laws, ordinances,
and governmental regulations and orders. Except as provided herein, Tenant
acknowledges that neither Landlord nor any agent of Landlord has made any
representation as to the condition of the Property 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 6.02. EXEMPTION OF 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.
(a) Except as provided in Article Seven (Damage or Destruction) and Article
Eight (Condemnation), Landlord shall keep the following in good order, condition
and repair: the foundations, exterior walls and roof of the Property (including
painting the exterior surface of the exterior walls of the Property not more
often than once every five (5) years, if necessary) and all components of
electrical, mechanical, plumbing, heating and air conditioning systems and
facilities located in the Property which are concealed or used in common by
tenants of the Project. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the interior surfaces of exterior walls.
Landlord shall make repairs under this Section 6.03 within a reasonable time
after receipt of written notice from Tenant of the need for such repairs.
(b) Tenant shall pay or reimburse Landlord for all costs Landlord incurs
under Paragraph 6.03(a) above as Common Area costs as provided for in Section
4.05 of the Lease.
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 structural, nonstructural, interior, systems and
equipment) 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). Tenant shall maintain a preventive maintenance
contract providing for the regular inspection and maintenance of the heating and
air conditioning system by a licensed heating and air conditioning contractor,
unless Landlord maintains such equipment under Section 6.03 above. If any part
of the Property or the Project is damaged by any act or omission of Tenant,
Tenant shall pay Landlord the cost of repairing or replacing such damaged
property, whether or not Landlord would otherwise be obligated to pay the cost
of maintaining or repairing such property. It is the intention of Landlord and
Tenant that at all times Tenant shall maintain the portions of the Property
which Tenant is obligated to maintain in an attractive, first-class and fully
operative condition. See First Lease Rider, Item 8.
(b) Tenant shall fulfill all of Tenant's obligations under this Section
6.04 at Tenant's sole expense. If 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
emergency), enter the Property and perform such maintenance or repair (including
replacement, as needed) on behalf of Tenant. In such case, Tenant shall
reimburse Landlord for all costs incurred in performing such maintenance or
repair immediately upon demand.
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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 ($10,000) 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 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
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 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 7.01. 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 polices 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) If the insurance proceeds received by Landlord are not sufficient to
pay the entire cost of repair, or if 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, Tenant shall pay Landlord, 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 the repairs are
to return the Property to the original and/or like condition. If 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) If 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
the Tenant's notice to the 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 7.01), and regardless of
whether Landlord receives any insurance proceeds, this Lease shall terminate as
of the date the destruction occurred. Notwithstanding the preceding sentence, if
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. Should Landlord so elect,
Landlord would bear the reasonable costs of providing temporary facilities,
including costs of moving to and from said temporary replacement facilities. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense.
Section 7.03. TEMPORARY REDUCTION OF RENT. If the Property is destroyed
or damaged and Landlord or Tenant repairs or restores the 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.
** and from said temporary replacement facilities
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Section 7.04. 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 7.02 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 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 Rider Lease,
Item 9.
Section 9.02. TENANT AFFILIATE. See First Rider Lease, Item 10.
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 on 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 1.13) 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 (B) 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
*--Rent and other reasonable charges hereunder paid by Tenant after
vacating the Property and before commencement of Rent payments by a subtenant
or assignee and
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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.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is
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 all 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
thirty (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 the award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which Landlord
would have earned after the 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 10.03(a), or (ii) proceeding under Paragraph
10.03(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 called the "Abated Rent".
Tenant shall
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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 all other monetary obligations 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 shall
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
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 further 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. See First Lease Rider, Item 15.
Section 11.03. SIGNING OF DOCUMENTS. Tenant shall 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.
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
cancelled 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. Such costs shall include legal fees and costs
incurred for the negotiation of a
(c) 1988 Southern California Chapter 10
of the Society of Industrial
Realtors,(R) Inc. [LOGO]
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(Multi-Tenant Form)
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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 all
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 thirty (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 thirty
(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 part 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 parties in reading this Lease and are not a
part 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 shall 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.
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. All 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 for 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.
(c) 1988 Southern California Chapter 11
of the Society of Industrial
Realtors,(R) Inc. [LOGO]
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(Multi-Tenant Form)
<PAGE> 12
Section 13.11. JOINT AND SEVERAL LIABILITY. All parties 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 13.13. 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 13.14. SURVIVAL. All representations and warranties of Landlord
and Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS See First Lease Rider, Item 11.
ARTICLE FIFTEEN: COMPLIANCE
The parties 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
(c) 1988 Southern California Chapter 12
of the Society of Industrial
Realtors,(R) Inc. [LOGO]
Reprinted under license
(Multi-Tenant Form)
<PAGE> 13
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 February 11, 1997 EQUUS 9177, LLC, a California limited
----------- -- -------------------------------------
at San Diego, California liability company
------------------------ -------------------------------------
By: /s/ David Bourne
---------------------------------
Its: David Bourne, Manager
--------------------------------
By:
---------------------------------
Its: Chad Carpenter, Manager
--------------------------------
"TENANT"
Signed on February 5, 1997 I-BUS, INC., a California corporation
---------- -- -------------------------------------
at San Diego, California
------------------------ -------------------------------------
By:
---------------------------------
Its: V.P. Finance
--------------------------------
By: /s/ Donald M. Robert
---------------------------------
Its: Secretary
--------------------------------
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(R), INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN
CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS(R), 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.
"ORIGINAL TENANT"
Signed on February 5, 1997 MAXWELL TECHNOLOGIES, INC., a Delaware
----------------- corporation
at San Diego, California.
By: /s/ Donald M. Robert
-------------------------------
Its: General Counsel and Secretary
------------------------------
(c) 1988 Southern California Chapter 13 Initials /s/ JP ??
of the Society of industrial [SIOR LOGO] ------------
and Office Realtors(R) Inc. (Multi-Tenant Net Form)
<PAGE> 14
FIRST LEASE RIDER
EQUUS 9177, LLC, AS LANDLORD
AND I-BUS, INC., AS TENANT
This First Lease Rider to Amended and Restated Industrial Real Estate
Lease ("Rider") is entered into concurrently with and made a part of the Amended
and Restated Industrial Real Estate Lease between EQUUS 9177, LLC ("Landlord"),
and I-BUS, INC. ("Tenant"), dated January 1, 1997, for the premises located at
9173 and 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.
Recitals. A. On or about April 17, 1995, Cody Three, Inc., a
Wyoming corporation, predecessor-in-interest to Landlord
("Cody"), and Maxwell Laboratories, Inc., a Delaware
corporation, I-Bus Division ("Original Tenant"), entered
into that certain Industrial Real Estate Lease (the
"Original Lease"), with respect to that certain real
property commonly known as 9174 Sky Park Court, San
Diego, California, consisting of approximately 35,417
square feet as more particularly described in the Lease
(the "Original Premises").
B. On or about January 22, 1996, Cody and Original Tenant
entered into that certain First Amendment to the Lease
which, among other things, increased the size of the
Original Premises by 2,568 square feet (the "Increased
Space") for a total of 37,985 square feet.
C. Tenant, the successor-in-interest to Original Tenant,
has assumed all of the duties and obligations of Original
Tenant under the Original Lease, as amended, and Landlord
accepts Tenant; provided, however, Original Tenant is not
released from its obligations under the Original Lease,
as amended. Original Tenant now desires to reaffirm its
continuing duties and obligations under the Original
Lease, as amended and restated by this Amended and
Restated Lease, although it has changed its name to
Maxwell Technologies, Inc., and to acknowledge that
Tenant and Original Tenant shall be jointly and severally
liable for all obligations of Tenant.
D. Landlord and Tenant also now desire to amend and
restate the terms and provisions of the Original Lease,
as amended, as set forth in this Amended and Restated
Lease, and this Amended and Restated Lease is intended to
supersede and supplant in all respects the Original
Lease, as amended.
1. Section 1.04 Square Footage of Premises. The Original Premises consist
of approximately 35,417 square feet, the Increased Space
consists of approximately 2,568 square feet, the
Expansion Space (as defined in Article 15 below) consists
of approximately 5 589 square feet, and the Additional
Space (as defined in Exhibit H) consists of approximately
14,074 square feet, for a total of 57,648 square feet
(the "Amended Premises").
2. Sections 1.11
and 4.05(c) Parking: Effective as of the Commencement Date of
this Lease, Tenant will have 192 parking spaces available
of which four (4) are reserved, and the remaining 188
will be unreserved. Upon Tenant's occupancy of the
Expansion Space, Tenant will have an additional 21
unreserved parking spaces for a total of 213 parking
spaces, consistent with a ratio of 3.7/1000 square feet
of net rental area.
3. Sections 1.12(a)
and 3.02(a) Base Rent:
A. Commencing on January 1, 1997, Base Rent shall be the
sum of $21,272.00; provided, however, such amount is
subject to the cost of living increase described in
Section 3.02 of the Lease. Landlord will notify Tenant of
the amount of such increase as soon as such information
is available, and such increase shall be applied
retroactively.
B. The Base Rent (as increased by subsections C. and D.
below) shall also be increased on the first day of the
13th, 25th, and 37th months after the Commencement Date
as provided in Section 3.02 of the Lease. The minimum
amount of such increases will be two percent (2%) per
year and the maximum amount of such increases will be
five percent (5%) per year.
C. Commencing upon the completion of the Tenant
Improvements for the Expansion Space, the Base Rent shall
be increased to the sum of $24,401.44, as such amount
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shall be increased by the cost of living increase
described above.
D. Commencing on April 1, 1997, Base Rent shall be
increased by the sum of $10,555.50 in connection with
the Additional Space.
4. Sections 1.12(b),
4.02(a), 4.04(c),
4.05(d) and (e) Other Periodic Payments:
A. In connection with the Original Premises and the
Increased Space, commencing on January 1, 1997,
notwithstanding anything to the contrary set forth in the
Lease, Tenant's obligation for (a) Real Property Taxes
pursuant to Section 4.02, (b) insurance policy premiums
pursuant to Section 4.04(c), and (c) Tenant's share of
Common Area costs pursuant to Section 4.05 (collectively,
"Triple Net Costs"), shall be $4,558.00 per month. The
foregoing amount of Triple Net Costs shall be increased
effective as of January 1, 1997, and on the same date of
each year thereafter, by the same percentage of cost of
living increase by which Base Rent is increased pursuant
to Sections 3.01 and 3.02.
B. Commencing upon the completion of the Tenant
Improvements for the Expansion Space, notwithstanding
anything to the contrary set forth in the Lease, Tenant's
obligation for Triple Net Costs shall be $5228.88, as
such amount shall be increased by the cost of living
increase discussed above.
C. In connection with the Additional Space, commencing on
January 1, 1997, Tenant shall pay all of the Triple Net
Costs. Tenant's pro-rata share of Common Area Expenses is
13%. Notwithstanding any provision in the Lease to the
contrary, there is no cap on Tenant's share of the Triple
Net Costs relating to the Additional Space.
5. Sections 4.04(b)
and 4.08 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.
Impounds: The provisions set forth in Section 4.08 of the
Lease shall not apply to the Original Premises, the
Increased Space, or the Expansion Space during the
initial term of the Lease.
6. 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 Tenant's 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 subject 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 6 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
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<PAGE> 16
directly in the event insurance does not cover these
payments or liabilities.
7. Section 5.04 Signs: Tenant shall have the right to place a sign, which
must be approved by the Landlord, on the premises, in
conformity with all CC&R's and all applicable 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.
8. Sections 6.01
and 6.04(a) Condition of Property: Landlord shall deliver the
premises, excluding the Expansion Space, in a condition
that meets all codes and regulations, the Americans With
Disabilities Act (ADA), and any Title 24 requirements as
the aforementioned existed as of April 17, 1995. Tenant
shall be responsible for costs associated with compliance
with the ADA only for those interior items of the
premises, excluding the Expansion Space, that have
become or may become required subsequent to April 17,
1995. See Article 15 below regarding the Expansion Space.
To the best of Landlord's knowledge, as of April 17,
1995, the building did not contain, nor had it ever
contained, asbestos containing materials; and there was
no use, storage or disposal of significant quantities of
hazardous materials on the site.
Tenant's Obligations: Notwithstanding any provision to
the contrary set forth in the Lease, during the initial
term of the Lease only, in connection with the Original
Premises, the Increased Space, and the Expansion Space
only, Tenant shall have no obligation (i) to keep the
heating, ventilation, or air conditioning equipment or
the structural portions of such space in good order,
condition, and repair, or (ii) to maintain a preventive
maintenance contract providing for the regular inspection
and maintenance of the heating and air conditioning
system.
9. Section 9.01 Assignment and Subletting:
A. 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.
B. Landlord's share of the Profit (as defined in the
Lease) on assignment or sublease of the Original
Premises, the Increased Space, or the Expansion Space
shall be zero percent (0%). However, if Tenant assigns or
subleases the Additional Space to any unaffiliated party,
then Tenant shall pay to Landlord as Additional Rent
under the Lease fifty percent (50%) of the Profit on such
transaction as and when received by Tenant; provided,
however, that if Landlord so elects, and if the amount of
Profit has been agreed to by both Landlord and Tenant in
writing, then upon written notice to Tenant and the
assignee or subtenant, the Profit shall be paid by the
assignee or subtenant to Landlord directly.
10. Section 9.02 Assignment and Subletting- Tenant Affiliate: 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.
11. Article 14 Brokers:
A. In connection with the Expansion Space and the
Additional Space, Landlord and Tenant each warrant that
they have dealt with no other real estate broker other
than CB Commercial Real Estate Group, Inc., which
represents both Landlord and Tenant, and that no other
broker is entitled to any commission on account of the
lease of such space. Landlord and Tenant hereby confirm
that they were timely advised of the dual representation
of CB Commercial Real Estate Group, Inc., and that they
consent to the same, and that they do not expect said
broker to disclose to either of them confidential
information of the other party. In connection with the
Expansion Space, CB Commercial Real Estate Group, Inc.,
shall be entitled to a commission in the amount of
$4,376.50. In connection with the Additional Space, CB
Commercial Real Estate Group, Inc., shall be entitled to
a commission in accordance with the terms of that certain
Listing Agreement dated June 15, 1996,
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<PAGE> 17
entered into by and between Landlord and CB Commercial
Real Estate Group, Inc., as amended.
B. CB Commercial Real Estate Group, Inc., hereby
acknowledges and agrees that it (i) is not entitled to a
commission in connection with this Lease other than as
set forth in Paragraph 11 (A) above, and (ii) shall not
be entitled to a commission in connection with any future
renewal, extension, amendment, or restatement of the
Lease.
12. Article 15 Tenant Improvements: Landlord agrees to improve the
expansion space as shown and described on Exhibit "C"
attached hereto and made a part hereof (the "Expansion
Space") in accordance with the applicable specifications
and conditions set forth in Exhibits "A" and "F" to this
Lease, attached hereto and made a part hereof. Any
additional improvements to the Amended 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 Expansion Space
are of a satisfactory air quality. Such air quality
testing shall include analyzing the Expansion Space air
handling system to ensure that any toxin-containing
materials or fibers are not circulated or vented into the
Expansion Space. 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 Expansion Space, and electrical and
plumbing systems and equipment in the Expansion Space are
in good working order as of the date of the completion of
such tenant improvements.
In addition, Landlord shall deliver the Expansion Space
in a condition that meets all codes and regulations, the
ADA, and any Title 24 requirements as the aforementioned
existed as of date of this Lease. Tenant will be
responsible for costs associated with compliance with the
ADA only for those interior items of the Expansion Space
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.
13. Article 16 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; (c) the Base
Rent shall be at the then prevailing fair market rate and
increased annual according to Article Three of this
Lease; and (d) the Triple Net Costs shall not be limited
as set forth in Section 4 above. 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
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<PAGE> 18
to Tenant during the renewal term unless expressly
granted by Landlord in writing; (c) the Base Rent shall
be at 90% of the then prevailing fair market rate
increased according to Article Three of this Lease; and
(d) the Triple Net Costs shall not be limited as set
forth in Section 4 above. 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.
14. Article 17 Intentionally Omitted.
15. Article 18 Non-Disturbance: Should the Property be financed,
refinanced, 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.
16. Article 19 Right of Opportunity. Tenant shall have the first right
of opportunity to lease any portion of the remainder of
the building located at 9173 Sky Park Court that becomes
available for lease under terms and conditions to be
mutually agreed upon by both Tenant and Landlord.
17. Article 20 Reaffirmation of Duties of Original Tenant. Tenant hereby
acknowledges and agrees that it has assumed all of the
duties and obligations of Original Tenant under the
Original Lease, as amended, and Landlord hereby accepts
Tenant. Original Tenant hereby acknowledges and agrees
that it is not released from its duties and obligations
under the Original Lease, as amended, and hereby
reaffirms its duties and obligations under the Original
Lease, as amended and restated by this Amended and
Restated Lease. Tenant and Original Tenant acknowledge
and agree that they shall be jointly and severally liable
for all obligations of Tenant hereunder.
The undersigned hereby consents and agrees to the provisions of Article
14 of this Amended and Restated Lease as set forth in the First Lease Rider.
CB Commercial Real Estate Group, Inc.
By: /s/ [NAME ILLEGIBLE]
---------------------------------
E.V.P./EXEC. MANAGING OFFICER
---------------------------------
By:
---------------------------------
---------------------------------
By:
---------------------------------
---------------------------------
5
<PAGE> 19
EXHIBIT "A"
SPECIFICATIONS FOR 9174 SKY PARK COURT, SAN DIEGO
I-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 SHALL 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; 5. 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).
0.2 EXISTING AREAS TO BE RETAINED AND PROTECTED FROM DAMAGE DURING CONSTRUCTION:
A. EXISTING FIRE CORRIDOR TO 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 BE 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.
B. 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).
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 REDUCTED 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 AQ 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 #76 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, #36, #40, #68, #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. REPIPE UPPER AND LOWER LEVELS AS PER PLANS AND CODE REQUIREMENTS.
B. HONEYWELL PROTECTION SERVICES/HONEYWELL, INC. (OR APPROVED COMPANY)
TO TEST AND MONITOR IRE 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 #73 (TEN (10) FOOT) TO BE MADE AT LOCATION OF THE END OF THE
MEZZANINE LEVEL ABOVE.
<PAGE> 20
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(8) 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.
08. 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 CAFETERIA 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 TENANTS 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 120V TO 230V PANEL TO SUPPLY POWER TO THE QA 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.
I. 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.
Q. 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.
2. 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 10V 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.
5. 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> 21
EXHIBIT A
PAGE 3
6. BURN IN AT 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 - 110V 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.
8. 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 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 $40.00 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 $18.00 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 $18.00 PER SQUARE FOOT.
E. PREPARE, CLEAN AND CLEAR SEAL AREAS #75 AND #76 NOT TO EXCEED $0.55
PER SQUARE FOOT.
F. CARPET THE NETWORK ROOM #21, QA LAB #36 AND ENGINEERING LAB #40 WITH
AN ESD MATERIAL AS PER PLANS NOT TO EXCEED $4.00 PER SQUARE FOOT
INSTALLED.
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
OPERATED, 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 $3,000.00.
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 HALF 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 - 6X8 BEAMS. IF CODE REQUIRES ADDITIONAL SUPPORT,
TENANT TO PAY FOR ADDITIONAL COST.
I. ONE MIRROR (MINIMUM) TO BE INSTALLED IN EACH UPPER LEVEL RESTROOM
WITH MINIMUM FOUR (4) FOOT WIDTH.
J. SUPPLY AND INSTALL 1 - 4' X 8' 1/2" PLYWOOD BACKBOARD IN ROOM #21 FOR
PHONE EQUIPMENT.
<PAGE> 22
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 STRIPING 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 FILLED 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> 23
EXHIBIT "B"
[FLOORPLAN]
GROUND FLOOR
<PAGE> 24
EXHIBIT "B"
[FLOORPLAN]
MEZZANINE AREA
<PAGE> 25
EXHIBIT "C"
[FLOORPLAN]
EXPANSION AREA - MEZZANINE
<PAGE> 26
EXHIBIT "D"
SKY PARK CENTRE
[LOT PLAN OF BUILDINGS & PARKING AREA]
Note: As of 1/1/97, the parking area is not as depicted above.
<PAGE> 27
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.
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 Tenant's employees, suppliers, shippers, customers or
invitees to be loaded, unloaded or parked in areas other than those designated
by Landlord for such activities.
2. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
1
<PAGE> 28
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, injury 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 non-discriminatory 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> 29
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 matters covered
by this Work Letter Agreement. All inquiries, requests, instructions,
authorizations and other communications with respect to the matters 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> 30
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 quaisi-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 all 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 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> 31
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> 32
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 title in the Premises under this Lease.
<PAGE> 33
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> 34
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.
<PAGE> 1
EXHIBIT 10.21
SECOND AMENDMENT TO
EMPLOYMENT CONTRACT
This Second Amendment to Employment Contract ("Amendment") is made as
of this 23rd day of June, 1997, by and between Maxwell Technologies, Inc.,
(formerly Maxwell Laboratories, Inc.) a Delaware corporation ("Company") and
Mr. Kenneth Potashner, an individual ("Executive").
WHEREAS, the Company and Executive are parties to that certain Chief
Executive Officer Employment Contract, dated March 25, 1996, as amended by that
certain Amendment to Employment Contract, dated March 28, 1996, ("Employment
Contract"), pertaining to certain terms and conditions of Executive's
employment by the Company as Chief Executive Officer; and
WHEREAS, the parties desire to set forth herein amendments which have
been agreed to with respect to various aspects of the Employment Contract;
NOW, THEREFORE, the parties agree as follows:
1. AMENDMENT TO SECTION 1. Section 1 of the Employment Contract
is hereby amended as follows:
(a) The date "July 31, 1998" is deleted from the first sentence
and replaced with the date "July 31, 2000".
(b) Just before the last sentence of Section 1 the following
new sentence is added: "The Board shall terminate the relevant terms of Section
3 Compensation of Executive applicable to each of the years ending July 31,
1999, and July 31, 2000, prior to the beginning of each such year, which
relevant terms shall be no less favorable to Executive than such terms as are
applicable for the year ending July 31, 1998."
2. AMENDMENT TO SECTION 3(a). Section 3(a) is hereby amended by
adding after the first sentence thereof the following sentence: "Effective
August 1, 1997, Executive shall be paid
<PAGE> 2
a base salary at the annual rate of $450,000, payable in installments
consistent with the Company's payroll practices."
3. AMENDMENT TO SECTION 3(b)(3). Section 3(b)(3) is hereby amended to
change the figure "$400,000" the first time it appears in such section to the
figure "$900,000" and to change the figure "$400,000" the second time it
appears in the section to the figure "$450,000".
4. AMENDMENT TO SECTION 3(c). A new Section 3(c)(3) is added as
follows:
"(3) Additional Options. On the date of this Amendment Executive shall
receive options under the Company's 1995 Stock Option Plan for 50,000 shares,
which options shall be incentive stock options to the maximum extent permitted
by applicable law. Such options shall be for a ten-year term and be on the same
terms and conditions as the options described in clause (2) above in this
Section 3(c), including the vesting schedule with vesting measured from the
date of this Amendment. Promptly following the closing of an underwritten
public offering of shares of common stock by the Company, the Board will
consider the grant of additional options to Executive."
5. AMENDMENT TO ADD SECTION 3(g). A new Section 3(g) is added as
follows:
"(g) Commencing August 1, 1997, Executive shall be entitled to a car
allowance consistent with such allowances being paid to other executives of the
Company."
6. EFFECT OF AMENDMENT. This Second Amendment to Employment Contract
is effective as of the date set forth above and as amended herein, the
Employment contract remains in full force and effect.
<PAGE> 3
SIGNATURES. The parties hereto have executed this Amendment as of the
date first above mentioned.
MAXWELL TECHNOLOGIES, INC.
By [SIG]
-------------------------------------
/s/ KENNETH POTASHNER
-------------------------------------
Kenneth Potashner
<PAGE> 1
EXHIBIT 10.23
MAXWELL TECHNOLOGIES, INC.
AMENDMENT NUMBER ONE TO
RESTRICTED STOCK AGREEMENT
THIS AMENDMENT NUMBER ONE TO RESTRICTED STOCK AGREEMENT (the
"Amendment") is made and entered into as of June 24, 1997 between MAXWELL
TECHNOLOGIES, INC., a Delaware corporation, (the "Company") and KENNETH
POTASHNER (the "Executive").
RECITALS
WHEREAS, the Company and Executive are parties to that certain Maxwell
Laboratories, Inc. Restricted Stock Agreement, dated July 25, 1996
("Agreement") under which Executive was granted shares of the Company's Common
Stock subject to certain restrictions; and
WHEREAS, the parties desire to amend the Agreement to reflect the grant
of additional restricted shares of Common Stock to Executive;
NOW, THEREFORE, the parties hereby amend the Agreement as follows:
1. Award of Additional Stock. Paragraph 1 of the Agreement is
amended to award to Executive 10,000 shares of Company common stock, $.10 par
value, (the "Additional Stock"), in addition to the 177,960 shares of
Restricted stock (after giving effect to a 2 for 1 stock split after the date
of the Agreement) granted under the Agreement. The Additional Stock shall be
subject to the terms and conditions of the Agreement, as amended by this
Amendment.
2. Vesting Schedule. The shares of Additional Stock granted
hereunder and not hereafter forfeited shall vest and cease to be subject to
forfeiture in accordance with the following schedule: 2,500 shares of
Additional Stock shall vest on April 30, 1998 and an additional 209 shares of
Additional Stock shall vest on the last day of each month thereafter for the
next 12 such months, and 208 shares of Additional Stock shall vest on the last
day of each of the 24 months immediately following such 12 month period, at
which time all shares of Additional Stock shall be vested (each such date and
the date of any event described in Section 5 of the Agreement is referred to
hereinafter and in the Agreement as a "Vesting Date"). Upon the vesting of
shares of Additional Stock, the "Transfer Restrictions" (within the meaning of
Section 3 of the Agreement) thereon shall lapse.
3. Effect of Amendment. All other terms and conditions of the
Agreement shall apply to the Additional Stock as though such shares were
included therein as originally granted shares of Restricted Stock. Except as
specifically provided in paragraphs 1 and 2 above, the parties rights and
obligations with respect to the Additional Stock shall be as set forth in the
Agreement, and all of the terms and conditions of the Agreement, as
supplemented by this Amendment, shall remain in full force and effect.
MAXWELL TECHNOLOGIES, INC.
By: /s/ Gary J. Davidson
---------------------------------
Gary L. Davidson, Vice President-
Finance & Administration
By: /s/ Kenneth Potashner
---------------------------------
Kenneth Potashner
<PAGE> 1
EXHIBIT 10.25
PONDEROSA PINES BUSINESS PARK
LEASE AGREEMENT
THIS LEASE is executed at San Diego, California, on November 1, 1996
by and between PONDEROSA PINES PARTNERSHIP, a general partnership (the "Lessor")
and, PUREPULSE TECHNOLOGIES, INC. (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 4229 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 22,145 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 improved by Landlord in accordance with
Section 1 of the attached Addendum.
1.3 The cost of any additional Improvements not outlined in the
attached Addendum, 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 the date Landlord
completes the tenant improvements per Section 1 of the Addendum. 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.
1
<PAGE> 2
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 = $9,965.25 per month NNN.
During the second 12 months following the
Commencement Date = $13,287.00 per month NNN.
During the third 12 months following the
Commencement Date = second year's monthly rent
plus annual CPI increase per Section 3.2.1
below.
During the fourth 12 months following the
Commencement Date = third year's monthly rent
plus annual CPI increase per Section 3.2.1
below.
During the fifth 12 months following the
Commencement Date = fourth year's monthly rent
plus annual CPI increase per Section 3.2.1
below.
Annual CPI increases for Years 3, 4 and 5 to be a maximum of five (5%) percent.
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 second 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
2
<PAGE> 3
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 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
$0.00 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.
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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 8 spaces, directly in front of or
behind building 4229, for exclusive use in accordance with regulations adopted
by Lessor.
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, hut 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
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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 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.
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
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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 cancelable 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
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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 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
1O. 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.
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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.
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
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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.
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, restripping, 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.
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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 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.
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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, 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.
15.5 In the event that Lessee subleases or assigns all or any part of
the Premises, the limitation on cost of living
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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
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
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<PAGE> 13
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 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 re-entry 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
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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.
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
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<PAGE> 15
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% EG 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, 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. C0NDEMNATION
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.
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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.
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.
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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 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.
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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.
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 knows
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 include 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
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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 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
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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
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).
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of
the day and year first above written.
LESSOR: LESSEE:
PONDEROSA PINES PARTNERSHIP PUREPULSE TECHNOLOGIES, INC.
By: /s/ Gerald W. Bosstick By: /s/ Joseph C. Stumpf
----------------------- ---------------------
Gerald W. Bosstick Joseph C. Stumpf
Its: General Partner Its: Vice President
---------------------- ---------------------
5414 Oberlin Drive, #140 8888 Balboa Avenue
------------------------ ------------------------
San Diego, CA 92121 San Diego, CA 92123
------------------------ ------------------------
(619) 597-6888 (619) 496-4100
------------------------ ------------------------
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EXHIBIT "A"
[PONDEROSA PINES SITE PLAN MAP]
<PAGE> 22
ADDENDUM DATED NOVEMBER 1, 1996 TO THAT CERTAIN LEASE AGREEMENT DATED NOVEMBER
1, 1996 BY AND BETWEEN PONDEROSA PINES PARTNERSHIP, AS LANDLORD, AND PUREPULSE
TECHNOLOGIES, INC., AS TENANT.
1. Tenant Improvements. Landlord shall provide the following improvements to
building 4229:
1.1 Restrooms: Intensive cleaning, repaint stalls and walls, replace
damaged fixtures and toilet seats, replace tiles/linoleum on floor,
new base all around;
1.2 Repair all drywall all the way to the ceiling - replace broken pieces,
patch small holes, tape, and spackle ready for paint;
1.3 Paint all walls in former office and shop area, including roof
pillars, all the way to the ceiling;
1.4 Jackhammer and repair cracks in slab;
1.5 Pay for PurePulse Technologies, Inc. roofer to repair roof - estimate
is $3,000.00;
1.6 Paint all ceiling lams and rafters, sprinkler system and remaining
HVAC ducting;
1.7 Insulate at ceiling in shop and former office area - use R-16 batts
(preferentially a light reflective "down" side);
1.8 Acid scrub, pressure wash and seal shop and former office area floor;
1.9 Repair leaks around windows, and replace and paint deteriorated
wallboard under leaks;
1.10 Patch carpet in office areas where wall partitions were removed. Use
carpet in back hall by restrooms for patch material;
1.11 Repair non-functioning crash bar on North wall door.
2. Demolition. Landlord shall demolition the following existing improvements
in building 4229:
2.1 Office partitions along West (front) glass wall ("former office
area");
2.2 All t-bar and hangers in former office and shop areas;
2.3 Remove and cap sprinkler system t-bar extensions as high as possible;
2.4 Branch electrical circuits in former office and shop area;
2.5 Certain partitions in current office area (marked);
2.6 Communication and data wiring in all areas (NOT comm. wiring from
dmark);
2.7 Certain identified HVAC ducting in shop area.
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first about written.
LANDLORD: PONDEROSA PINES PARTNERSHIP
By: /s/ Gerald W. Bosstick
---------------------------
Gerald W. Bosstick
Title: General Partner
---------------------------
Date:
---------------------------
TENANT: PUREPULSE TECHNOLOGIES, INC.
By: /s/ Joe Stumpf
---------------------------
Joe Stumpf
Title: Vice President
---------------------------
Date: 12/12/96
---------------------------
<PAGE> 1
EXHIBIT 10.26
LINE OF CREDIT AGREEMENT
THIS LINE OF CREDIT AGREEMENT (the "Agreement") is made and entered
into as of this 31 day of January, 1997 by and between SANWA BANK CALIFORNIA
(the "Bank") and MAXWELL TECHNOLOGIES, INC. (the "Borrower").
SECTION I
AGREEMENT TO LEND
1.01 COMMITMENT TO LEND. Subject to the terms and conditions of this
Agreement and so long as no Event of Default occurs, the Bank agrees to extend
to the Borrower the credit accommodations that follow.
1.02 LINE OF CREDIT. The Bank agrees to make loans and advances
("Advances") to the Borrower, upon the Borrower's request therefor made prior to
the Expiration Date, up to a total principal amount from time to time
outstanding of not more than $10,000,000 (the "Line of Credit"); provided that
any sums repaid under the Line of Credit may be reborrowed.
A. PURPOSE. Advances made under the Line of Credit shall be
used for general corporate purposes and for working capital.
B. INTEREST. Interest shall accrue from the date of each
Advance under the Line of Credit at one of the following rates, as quoted by the
Bank and as elected by the Borrower below:
1. A variable rate per annum equivalent to an index for a
variable interest rate which is quoted, published or announced from time to time
by the Bank as its reference rate (the "Reference Rate") and as to which loans
may be made by the Bank at, below or above such Reference Rate (the "Variable
Rate"). Interest shall be adjusted concurrently with any change in the Reference
Rate. An Advance based upon the Variable Rate is hereinafter referred to as a
"Variable Rate Advance".
2. A fixed rate quoted by the Bank for 14 to 180 days or
for such other period of time that the Bank may quote and offer (provided that
any such period of time does not extend beyond the Expiration Date) [the
"Eurodollar Interest Period"] for Advances in the minimum amount of $100.000.
Such interest rate shall be a percentage approximately equivalent to 1.75% in
excess of the rate which the Bank's Treasury Desk determines as being the
approximate rate at which the Bank could purchase offshore U.S. dollar deposits
(adjusted for any and all assessments, surcharges and reserve requirements
pertaining to the purchase by the Bank of such U.S. dollar deposits) in an
amount approximately equal to the amount of the relevant Advance and for a
period of time approximately equal to the relevant Eurodollar Interest Period
[the "Eurodollar Rate"]. An Advance based upon the Eurodollar Rate is
hereinafter referred to as a "Eurodollar Advance".
Interest on any Advance shall be computed on the basis of
360 days per year, but charged on the actual number of days elapsed.
Interest on Variable Rate Advances shall be paid in
monthly installments commencing on the last day of the month following the date
of the first such Advance and continuing on the last day of each month
thereafter.
Interest on any Eurodollar Advance with an Interest Period
of 90 days or less on the last day of the relevant Eurodollar Interest Period.
The Borrower further promises and agrees to pay the Bank interest on any
Eurodollar Advance with an Interest Period in excess of 90 days on a quarterly
basis (i.e., on the last day of each 90-day period occurring in such Eurodollar
Interest Period) and on the last day of the relevant Eurodollar Interest Period.
If interest is not paid as and when it is due, it shall be
added to the principal, become and be treated as a part thereof, and shall
thereafter bear like interest.
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C. NOTICE OF BORROWING: Upon telephonic notice which shall be
received by the Bank at or before 2:00 p.m. (California time) on a business day,
the Borrower may borrow under the Line of Credit by requesting:
1. A Variable Rate Advance. A Variable Rate Advance may be
made on the day notice is received by the Bank; provided, however, that if the
Bank shall not have received notice at or before 2:00 p.m. on the day such
Advance is requested to be made, such Variable Rate Advance may, at the Bank's
option, be made on the next business day.
2. A Eurodollar Advance. Notice of any Eurodollar Advance
shall be received by the Bank no later than two business days prior to the day
(which shall be a Business Day) on which the Borrower requests such Eurodollar
Advance to be made.
D. NOTICE OF ELECTION TO ADJUST INTEREST RATE: Upon telephonic
notice which shall be received by the Bank at or before 2:00 p.m. (California
time) on a business day, the Borrower may elect:
1. That interest on a Variable Rate Advance shall be
adjusted to accrue at the Eurodollar Rate; provided, however, that such notice
shall be received by the Bank no later than two business days prior to the day
(which shall be a business day) on which the Borrower requests that interest be
adjusted to accrue at the Eurodollar Rate.
2. That interest on a Eurodollar Advance shall continue to
accrue at a newly quoted Eurodollar Rate or shall be adjusted to commence to
accrue at the Variable Rate; provided, however, that such notice shall be
received by the Bank no later than two business days prior to the last day of
the Eurodollar Interest Period pertaining to such Eurodollar Advance. If the
Bank shall not have received notice (as prescribed herein) of the Borrower's
election that interest on any Eurodollar Advance shall continue to accrue at the
newly quoted Eurodollar Rate, the Borrower shall be deemed to have elected that
interest thereon shall be adjusted to accrue at the Variable Rate upon the
expiration of the Interest Period pertaining to such Advance.
E. PREPAYMENT: The Borrower may prepay any Advance in whole or
in part, at any time and without penalty, provided, however, that: (i) any
partial prepayment shall first be applied, at the Bank's option, to accrued and
unpaid interest and next to the outstanding principal balance; and (ii) during
any period of time in which interest is accruing on any Advance on the basis of
the Eurodollar Rate, no prepayment shall be made on any Advance bearing interest
at the Eurodollar Rate except on a day which is the last day of the Interest
Period pertaining thereto. If the whole or any part of any Eurodollar Advance is
prepaid by reason of acceleration or otherwise, the Borrower shall, upon the
Bank's request, promptly pay to and indemnify the Bank for all costs, expenses
and any loss (including loss of future interest income) actually incurred by the
Bank and any loss (including loss of profit resulting from the re-employment of
funds) deemed sustained by the Bank as a consequence of such prepayment.
The Bank shall be entitled to fund all or any portion of its Advances
in any manner it may determine in its sole discretion, but all calculations and
transactions hereunder shall be conducted as though the Bank actually funded all
Advances through the purchase of dollar deposits in the Eurodollar Interbank
Market in the amount of the relevant Advance and in maturities corresponding to
the then applicable Interest Period.
F. INDEMNIFICATION FOR EURODOLLAR RATE COSTS: During any
period of time in which interest on any Advance is accruing on the basis of the
Eurodollar Rate, the Borrower shall, upon the Bank's request, promptly pay to
and reimburse the Bank for all costs incurred and payments made by the Bank by
reason of any future assessment, reserve, deposit or similar requirement or any
surcharge, tax or fee imposed upon the Bank or as a result of the Bank's
compliance with any directive or requirement of any regulatory authority
pertaining or relating to funds used by the Bank in quoting and determining the
Eurodollar Rate.
G. CONVERSION FROM EURODOLLAR RATE TO VARIABLE RATE: In the
event that the Bank shall at any time determine that the accrual of interest on
the basis of the Eurodollar Rate (i) is infeasible because the Bank is unable to
determine the Eurodollar Rate due to the unavailability of U.S. dollar deposits,
contracts of certificates of deposit in an amount approximately equal to the
amount of the relevant Advance and for a period of time approximately equal to
relevant Interest Period or (ii) is or has become unlawful or infeasible by
reason of the Bank's compliance with any new law, rule, regulation, guideline or
order, or any new interpretation of any present law, rule, regulation, guideline
or order, then the Bank shall give telephonic notice thereof (confirmed in
writing) to the Borrower, in which event the Advance bearing interest at the
Eurodollar Rate shall be deemed to be a Variable Rate Advance and interest shall
thereupon immediately accrue at the Variable Rate.
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H. PRINCIPAL. Unless sooner due in accordance with the terms
of this Agreement, on the Expiration Date, the Borrower hereby promises and
agrees to pay to the Bank in full the aggregate unpaid principal amount of all
Advances then outstanding, together with all accrued and unpaid interest
thereon.
I. EXPIRATION OF LINE OF CREDIT. Unless earlier terminated in
accordance with the terms of this Agreement, the Bank's commitment to make
Advances to the Borrower hereunder shall automatically expire on January 31,
1999 (the "Expiration Date").
J. COMMITMENT FEE. Borrower agrees to pay to Bank a
commitment fee of.125% per annum on the unused portion of the Line of Credit,
payable quarterly in arrears on the last day of each January, April, July and
October and computed on a year of 360 days for actual days elapsed.
K. LINE ACCOUNT:
1. The Bank shall maintain on its books a record of
account in which the Bank shall make entries for each Advance and such other
debits and credits as shall be appropriate in connection with the Line of Credit
(the "Line Account"). The Bank shall provide the Borrower with a monthly
statement of the Borrower's Line Account upon the Borrower's request therefor
from time to time, which statement shall be considered to be correct and
conclusively binding on the Borrower unless the Borrower notifies the Bank to
the contrary within 30 days after the Borrower's receipt of any such statement
which it deems to be incorrect.
2. The Borrower hereby authorizes the Bank, if and to the
extent payment owed to the Bank under this Agreement is not made when due, to
charge, from time to time, against any or all of the Borrower's deposit accounts
with the Bank any amount so due.
3. If any payment required to be made by the Borrower
hereunder becomes due and payable on a day other than a Business Day, the due
date thereof shall be extended to the next succeeding Business Day and interest
thereon shall be payable at the then applicable rate during such extension. All
payments required to be made hereunder shall be made to the office of the Bank
designated for the receipt of notices herein or such other office as Bank shall
from time to time designate.
L. LATE PAYMENT: In addition to any other rights the Bank may
have hereunder, if any payment of principal (other than a principal payment due
pursuant to Section 1.02H.) or interest, or any portion thereof, under this
Agreement is not paid when due, a late payment charge equal to five percent (5%)
of such past due payment may be assessed and shall be immediately payable.
M. DISBURSEMENT OF PROCEEDS FROM ADVANCES. Any Advance made
hereunder shall be conclusively presumed to have been made to and for the
Borrower's benefit when the proceeds of such Advance are disbursed in accordance
with the Borrower's instructions or deposited into a checking account of the
Borrower maintained at the Bank.
1.03 LETTER OF CREDIT SUB-FACILITY: Subject to the terms of the
Agreement and those contained herein, the Bank agrees to issue commercial and
standby letters of credit (each a "Letter of Credit") on behalf of the Borrower
for general corporate purposes. At no time, however, shall the total face amount
of all Letters of Credit outstanding, less any partial draws paid by the Bank,
exceed the sum of $10,000,000 and, together with the total principal amount of
all Advances and the aggregate settlement price of all Foreign Exchange
Contracts outstanding, exceed the Line of Credit.
A. Upon the Bank's request, the Borrower shall promptly pay to
the Bank issuance fees of 1.50% per annum for standby letters of credit
and standard fees as quoted by the Bank in its sole discretion from
time to time for commercial letters of credit and such other fees,
commissions, costs and any out-of-pocket expenses charged or incurred
by the Bank with respect to any Letter of Credit.
B. The commitment by the Bank to issue Letters of Credit
shall, unless earlier terminated in accordance with the terms of the
Agreement, automatically terminate on the Expiration Date and no Letter
of Credit shall expire on a date which is 365 days after the Expiration
Date.
C. Each Letter of Credit shall be in form and substance
satisfactory to the Bank and in favor of beneficiaries satisfactory to
the Bank, provided that the Bank may refuse to issue a Letter of Credit
due to the nature of the
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<PAGE> 4
transaction or its terms or in connection with any transaction where
the Bank, due to the beneficiary or the nationality or residence of the
beneficiary, would be prohibited by any applicable law, regulation or
order from issuing such Letter of Credit.
D. Prior to the issuance of each Letter of Credit, but in no
event later than 10:00 a.m. (California time) on the day such Letter of
Credit is to be issued (which shall be a Business Day), the Borrower
shall deliver to the Bank a duly executed form of the Bank's standard
form of application for issuance of a Letter of Credit with proper
insertions.
E. The Borrower shall, upon the Bank's request, promptly pay
to and reimburse the Bank for all costs incurred and payments made by
the Bank by reason of any future assessment, reserve, deposit or
similar requirement or any surcharge, tax or fee imposed upon the Bank
or as a result of the Bank's compliance with any directive or
requirement of any regulatory authority pertaining or relating to any
Letter of Credit.
In the event that Borrower fails to pay any drawing under any
Letter of Credit or the balances in the depository account or accounts
maintained by the Borrower with Bank are insufficient to pay such drawing,
without limiting the rights of Bank hereunder or waiving any Event of Default
caused thereby, Bank may, and Borrower hereby authorizes Bank to create an
Advance bearing interest at the rate provided in Section 1.02 hereof to pay such
drawing.
1.04 FOREIGN EXCHANGE SUB-FACILITY. Borrower may from time to time
request Bank to purchase or sell foreign currency in a specified amount, at a
fixed price, and for delivery at a future date no greater than 365 days from the
date of purchase (each a "Foreign Exchange Contract"). At no time, however,
shall 15% of the aggregate settlement price of all Foreign Exchange Contracts
outstanding exceed $200,000 as determined by Bank at the time of entering into
each Foreign Exchange Contract and, together with the total principal amount of
all Advances and the total face amount of all Letters of Credit outstanding,
less any partial draws paid by the Bank, exceed the Line of Credit.
A. REQUESTS FOR FOREIGN EXCHANGE CONTRACTS. Each request for a
Foreign Exchange Contract shall be made by telephone or rapifax, confirmed in
writing (each a "Request"). Each Request shall be delivered or communicated to
the Bank no later than 3:00 p.m. (California time) on the day (which shall be a
Business Day) on which the Foreign Exchange Contract is requested. By making any
such Request, Borrower agrees that all matters relating to each such Foreign
Exchange Contract shall be governed by this Agreement and Borrower restates all
warranties and representations made by Borrower herein as if made on the date
the Foreign Exchange Contract is entered into.
B. EXPIRATION DATE. The commitment by the Bank to enter into
Foreign Exchange Contracts shall, unless earlier terminated in accordance with
this Agreement, automatically terminate on the Expiration Date and no Foreign
Exchange Contract shall expire on a date which is after the Expiration Date.
C. AVAILABILITY. Bank may refuse to enter into a Foreign
Exchange Contract with the Borrower where the Bank, in its sole discretion,
determines that such foreign currency is unavailable, or where Bank would be
prohibited by any applicable law, regulation or order from purchasing such
foreign currency.
D. PURPOSE. The Foreign Exchange Contract shall be used to
hedge foreign exchange exposure and/or risk.
E. PAYMENT. Payment is due on the settlement date of any
Foreign Exchange Contract (the "Payment Date"). Bank is hereby authorized by
Borrower to charge the full settlement price of any Foreign Exchange Contract
against the depository account or accounts maintained by the Borrower with Bank
on the Payment Date.
F. ASSESSMENTS. Borrower shall, upon the Bank's request,
promptly pay to and reimburse the Bank for all costs incurred and payments made
by the Bank by reason of any assessment, reserve, deposit, capital maintenance
or similar requirement or any surcharge, tax or fee imposed upon the Bank or as
a result of the Bank's compliance with any directive or requirement of any
regulatory authority pertaining or relating to any Foreign Exchange Contract.
1.05 EXISTING TERM LOANS. The Borrower is presently indebted to the
Bank under a certain promissory note dated May 28, 1992 in the original
principal sum of $2,000,000.00 (the "Existing Term Notes"). It is hereby
understood and agreed that the Existing Term Notes shall be and are subject to
the terms and conditions of this Agreement.
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SECTION II
CONDITIONS PRECEDENT
2.01 CONDITIONS PRECEDENT TO FIRST ADVANCE. Prior to the first Advance
or disbursement of the Term Loan hereunder, the Borrower shall deliver or cause
to be delivered to the Bank, in form and substance satisfactory to the Bank:
A. AUTHORITY TO BORROW. Evidence relating to the duly given
approval and authorization of the execution, delivery and performance of this
Agreement, all other documents, instruments and agreements required under this
Agreement and all other actions to be taken by the Borrower hereunder or
thereunder.
B. LOAN DOCUMENTS. All other documents, instruments and
agreements required or necessary to consummate the transactions contemplated
under this Agreement (collectively the "Loan Documents"), all fully executed.
C. GUARANTIES. Continuing guaranty(ies) in favor of the Bank
executed by I-Bus, Inc., Maxwell Federal Division, Inc., Maxwell Information
Systems, Inc., Maxwell Business Systems, Inc., Maxwell Energy Products, Inc.,
and PurePulse Technologies, Inc., together with evidence that the execution,
delivery and performance by a guarantor has been duly authorized.
D. MISCELLANEOUS DOCUMENTS. Such other documents and opinions
as the Bank may require with respect to the transactions described in this
Agreement.
2.02 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of the Bank
to make each Advance (including the first Advance) is subject to the further
conditions precedent that, as of the date of each Advance and after the making
of such Advance:
A. REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Section IV hereof and in any other document, instrument,
agreement or certificate delivered to the Bank hereunder are true and correct.
B. EVENT OF DEFAULT. No event has occurred and is continuing
which constitutes, or, with the lapse of time or giving of notice or both, would
constitute an Event of Default as defined in Section VI hereof.
For the purposes hereof, the Borrower's acceptance of the proceeds of
any Advance shall be deemed to constitute the Borrower's representation and
warranty that the statements set forth in sections 3.02 A. and 3.02 B. above are
true and correct.
SECTION III
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties
to the Bank, which representations and warranties are continuing:
3.01 STATUS. The Borrower is a corporation duly organized and validly
existing under the laws of the State of Delaware and is properly licensed,
qualified to do business and in good standing in, and, where necessary to
maintain the Borrower's rights and privileges, has complied with the fictitious
name statute of every jurisdiction in which the Borrower is doing business.
3.02 AUTHORITY. The execution, delivery and performance by the Borrower
of this Agreement and the Loan Documents have been duly authorized and do not
and will not: (i) violate any provision of any law, rule, regulation, writ,
judgment or injunction presently in effect affecting the Borrower; (ii) result
in a breach of or constitute a default under any material agreement to which the
Borrower is a party or by which it or its properties may be bound of affected;
(iii) require any consent or approval of its stockholders or violate any
provision of its articles of incorporation or by-laws.
3.03 LEGAL EFFECT. This Agreement constitutes, and any document,
instrument or agreement required hereunder when delivered will constitute,
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms.
3.04 FICTITIOUS TRADE STYLES. There are no fictitious trade styles used
by the Borrower in connection with its business operations. The Borrower shall
notify the Bank not less than 30 days prior to effecting any change in the
matters described herein or prior to using any other fictitious trade style at
any future date, indicating the trade style and state(s) of its use.
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3.05 FINANCIAL STATEMENTS. All financial statements, information and
other data which may have been or which may hereafter be submitted by the
Borrower to the Bank are true, accurate and correct and have been or will be
prepared in accordance with generally accepted accounting principles
consistently applied and accurately represent the Borrower's financial condition
or, as applicable, the other information disclosed therein. Since the most
recent submission of any such financial statement, information or other data to
the Bank, the Borrower represents and warrants that no material adverse change
in the Borrower's financial condition or operations has occurred which has not
been fully disclosed to the Bank in writing.
3.06 LITIGATION. Except as have been disclosed to the Bank in writing,
there are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or the Borrower's
properties before any court or administrative agency which, if determined
adversely to the Borrower, would have a material adverse effect on the
Borrower's financial condition or operations.
3.07 TITLE TO ASSETS; PERMITTED LIENS. The Borrower has good and
marketable title to all of its assets and the same are not subject to any
security interest, encumbrance, lien or claim of any third person other than:
(i) liens for taxes, assessments or similar charges either not yet due or being
duly contested in good faith; (ii) liens of mechanics, materialmen, warehousemen
or other like liens arising in the ordinary course of business and securing
obligations which are not yet delinquent; (iii) liens and security interests
which, as of the date of this Agreement, have been disclosed to and approved by
the Bank in writing; (iv) purchase money liens or purchase money security
interests upon or in any property acquired or held by the Borrower in the
ordinary course of business to secure indebtedness outstanding on the date
hereof or permitted to be incurred hereunder; and (v) those liens and security
interests which in the aggregate constitute an immaterial and insignificant
monetary amount with respect to the net value of the Borrower's assets
(collectively "Permitted Liens").
3.08 ERISA. If the Borrower has a pension, profit sharing or retirement
plan subject to the Employee Retirement Income Security Act of 1974, as amended
from time to time, including any rules and regulations promulgated thereunder
("ERISA"), such plan has been and will continue to be funded in accordance with
its terms and otherwise complies with and continues to comply with the
requirements of ERISA.
3.09 TAXES. The Borrower has filed all tax returns required to be filed
and paid all taxes shown thereon to be due, including interest and penalties,
other than taxes which are currently payable without penalty or interest or
those which are being duly contested in good faith.
3.10 ENVIRONMENTAL COMPLIANCE. The Borrower has implemented and com-
plied in all material respects with all applicable federal, state and local
laws, ordinances, statutes and regulations with respect to hazardous or toxic
wastes, substances or related materials, industrial hygiene or environmental
conditions. There are no suits, proceedings, claims or disputes pending or, to
the knowledge of the Borrower, threatened against or affecting the Borrower or
its property claiming violations of any federal, state or local law, ordinance,
statute or regulation relating to hazardous or toxic wastes, substances or
related materials.
SECTION IV
COVENANTS
The Borrower covenants and agrees that, during the term of this
Agreement, and so long thereafter as the Borrower is indebted to the Bank under
this Agreement, the Borrower shall, unless the Bank otherwise consents in
writing:
4.01 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS.
Maintain and preserve its existence and all rights and privileges now enjoyed;
not liquidate or dissolve, merge or consolidate with or into, or acquire any
other business organization; and conduct its business in accordance with all
applicable laws, rules and regulations.
4.02 MAINTENANCE OF INSURANCE. Maintain insurance in such amounts and
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which the
Borrower operates and maintain such other insurance and coverages as may be
required by the Bank.
4.03 PAYMENT OF OBLIGATIONS AND TAXES. Make timely payment of all
assessments and taxes and all of its liabilities and obligations unless the same
are being contested in good faith.
4.04 INSPECTION RIGHTS. At any reasonable time and from time to time
permit the Bank or any representative thereof to examine and make copies of the
records and visit the properties of the Borrower and to discuss the business and
operations of the Borrower with any employee or representative thereof. If the
Borrower now or at any time hereafter maintains any
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records (including, but not limited to, computer generated records and computer
programs for the generation of such records) in the possession of a third party,
the Borrower hereby agrees to notify such third party to permit the Bank free
access to such records at all reasonable times and to provide the Bank with
copies of any records it may request, all at the Borrower's expense, the amount
of which shall be payable immediately upon demand.
4.05 REPORTING REQUIREMENTS. Deliver or cause to be delivered to the
Bank in form and detail satisfactory to the Bank:
A. ANNUAL STATEMENTS. Not later than 120 days after the end of
each of the Borrower's fiscal years, a copy of the annual audited financial
report and Securities Exchange Commission Form 10-K of the Borrower for such
year, which report shall be prepared by a firm of certified public accountants
acceptable to Bank and not later than 60 days after the end of each of the
Borrower's fiscal years, a copy of the Borrower's financial projections for the
succeeding year.
B. INTERIM STATEMENTS. Not later than 45 days after the end of
each fiscal quarter, the Borrower's financial statement and Securities Exchange
Commission Form 10-Q as of the end of such quarter.
C. SEMI-ANNUAL REPORTS. Not later than 60 days after the end
of each January and July of each year, a copy of the Borrower's status report on
its fixed price contracts in excess of $500,000.00 and on its existing and new
reserves established by Borrower in connection with Borrower's business
operations and/or financial performance, such listing and summary to contain
such additional information as may be required by Bank from time to time.
D. COMPLIANCE CERTIFICATE. Concurrently with the delivery of
the financial reports required hereunder, a compliance certificate stating that
the Borrower is in compliance with all covenants contained herein and that no
Event of Default or potential Event of Default has occurred or is continuing,
and certified to by the chief financial officer of the Borrower.
E. OTHER INFORMATION. Promptly upon the Bank's request, such
other information pertaining to the Borrower or any Guarantor as the Bank may
reasonably request, including but not limited to all public documents and
notices filed with any federal or state agency.
4.06 REDEMPTION OR REPURCHASE OF STOCK. Not redeem or repurchase any
class of the Borrower's stock now or hereafter outstanding.
4.07 PAYMENT OF DIVIDENDS: Not declare or pay any dividends on any
class of stock now or hereafter outstanding except dividends payable solely in
the Borrower's capital stock.
4.08 ADDITIONAL INDEBTEDNESS. Without prior Bank approval, not, after
the date hereof, create, incur or assume, directly or indirectly, any liability
or Indebtedness other than (i) indebtedness owed or to be owed to the Bank or
(ii) indebtedness to trade creditors incurred in the ordinary course of the
Borrower's business or (iii) indebtedness incurred in the ordinary course of
business as purchase money financing for the purchase of equipment or
subordinated debt of up to $2,000,000 in the aggregate.
4.09 LOANS. Not make any loans or advances or extend credit to any
third person, including, but not limited to, directors, officers, shareholders,
partners, employees, affiliated entities or subsidiaries of the Borrower other
than the guarantors hereunder, except for credit extended in the ordinary course
of the Borrower's business as presently conducted.
4.10 LIENS AND ENCUMBRANCES. Not create, assume or permit to exist any
security interest, encumbrance, mortgage, deed of trust or other lien including,
but not limited to, a lien of attachment, judgment or execution) affecting any
of the Borrower's properties, or execute or allow to be filed any financing
statement or continuation thereof affecting any such properties, except for
Permitted Liens and as otherwise provided in this Agreement.
4.11 TRANSFER ASSETS. Not sell, contract for sale, transfer, convey,
assign, lease or sublet any of its assets except for the sale of the Borrower's
real property and except in the ordinary course of business as presently
conducted by the Borrower, and then, only for full, fair and reasonable
consideration.
4.12 CHANGE IN THE NATURE OF BUSINESS. Not make any material change in
its financial structure or in the nature of its business as existing or
conducted as of the date of this Agreement.
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4.13 FINANCIAL CONDITION. Maintain at all times:
A. NET WORTH. A minimum effective tangible net worth of not
less than $23,000,000.00.
B. DEBT TO NET WORTH RATIO. A debt to effective tangible net
worth ratio of not more than 1.5 to 1.
C. PROFITABILITY. A minimum net profit after tax of at least
$1.00 at the end of each fiscal quarter.
D. QUICK RATIO. A ratio of the sum of cash, cash equivalents
and accounts receivable to outstanding Advances under the Line of Credit of not
less than 1.30 to 1.
For purposes of the foregoing, the term "effective tangible net worth"
shall mean the Borrower's stated net worth less all its intangible assets (i.e.,
goodwill, trademarks, patents, copyrights, organization expense and similar
intangible items) but including leaseholds and leasehold improvements and plus
indebtedness subordinated (by its terms or by written agreement) to indebtedness
owed by the Borrower to the Bank and plus non-majority-owned equity investments
and the term "debt" shall mean all of the Borrower's direct or contingent
liabilities excluding indebtedness subordinated (by its terms or by written
agreement) to indebtedness owed by the Borrower to the Bank.
4.14 NOTICES. Give prompt written notice to the Bank of any and all (i)
Events of Default, (ii) litigation, arbitration or administrative proceedings to
which the Borrower is a party and in which the claim or liability exceeds
$1,000,000.00.
4.15 CAPITAL EXPENSE. Without prior Bank approval, not make any fixed
capital expenditure or any commitment therefor, including, but not limited to,
incurring liability for leases which would be, in accordance with generally
accepted accounting principles, reported as capital leases, or purchase any real
or personal property in an aggregate amount exceeding $5,000,000 in any one
fiscal year.
4.16 ENVIRONMENTAL COMPLIANCE. The Borrower shall:
A. Implement and comply in all material respects with all
applicable federal, state and local laws, ordinances, statutes and regulations
with respect to hazardous or toxic wastes, substances or related materials,
industrial hygiene or to environmental conditions.
B. Give prompt written notice of any discovery of or suit,
proceeding, claim, dispute, threat, inquiry or filing respecting hazardous or
toxic wastes, substances or related materials.
C. At all times indemnify and hold harmless Bank from and
against any and all liability arising out of the use, generation, manufacture,
storage, handling, treatment, disposal or presence of hazardous or toxic wastes,
substances or related materials.
SECTION V
EVENTS OF DEFAULT
Any one or more of the following described events shall constitute an
event of default (an "Event of Default") under this Agreement:
5.01 NON-PAYMENT. The Borrower shall fail to pay any payment of
principal or interest or any other sum referred to in this Agreement within 5
days of when due.
5.02 PERFORMANCE UNDER THIS AGREEMENT: The Borrower shall fail in any
material respect to perform or observe any term, covenant or agreement contained
in this Agreement or in any document, instrument or agreement relating to this
Agreement and any such failure shall continue unremedied for more than 30 days
after the occurrence thereof.
5.03 OTHER AGREEMENTS: If there is a default under any agreement to
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness.
-8-
<PAGE> 9
5.04 REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any
representation or warranty made by the Borrower under or in connection with this
Agreement or any financial statement given by the Borrower or any Guarantor
shall prove to have been incorrect in any material respect when made or given or
when deemed to have been made or given.
5.05 INSOLVENCY. The Borrower or any Guarantor shall: (i) become
insolvent or be unable to pay its debts as they mature; (ii) make an assignment
for the benefit of creditors or to an agent authorized to liquidate any
substantial amount of its properties or assets; (iii) file a voluntary petition
in bankruptcy or seeking reorganization or to effect a plan or other arrangement
with creditors; (iv) file an answer admitting the material allegations of an
involuntary petition relating to bankruptcy or reorganization or join in any
such petition; (v) become or be adjudicated a bankrupt; (vi) apply for or
consent to the appointment of, or consent that an order be made, appointing any
receiver, custodian or trustee for itself or any of its properties, assets or
businesses; or (vii) any receiver, custodian or trustee shall have been
appointed for all or a substantial part of its properties, assets or businesses
and shall not be discharged within 30 days after the date of such appointment.
5.06 EXECUTION. Any writ of execution or attachment or any judgment
lien shall be issued against any property of the Borrower and shall not be
discharged or bonded against or released within 30 days after the issuance or
attachment of such writ or lien.
5.07 REVOCATION OR LIMITATION OF GUARANTY. Any Guaranty shall be
revoked or limited or its enforceability or validity shall be contested by any
Guarantor, by operation of law, legal proceeding or otherwise or any Guarantor
who is a natural person shall die.
5.08 SUSPENSION. The Borrower shall voluntarily suspend the transaction
of business or allow to be suspended, terminated, revoked or expired any permit,
license or approval of any governmental body necessary to conduct the Borrower's
business as now conducted.
5.09 CHANGE IN OWNERSHIP. There shall occur a sale, transfer,
disposition or encumbrance (whether voluntary or involuntary), or an agreement
shall be entered into to do so, with respect to more than 10% of the issued and
outstanding capital stock of the Borrower.
SECTION VI
REMEDIES ON DEFAULT
Upon the occurrence of any Event of Default, the Bank may, at its sole
election, without demand and upon only such notice as may be required by law:
6.01 ACCELERATION. Declare any or all of the Borrower's indebtedness
owing to the Bank, whether under this Agreement or under any other document,
instrument or agreement, immediately due and payable, whether or not otherwise
due and payable.
6.02 CEASE EXTENDING CREDIT. Cease making Advances or otherwise
extending credit to or for the account of the Borrower under this Agreement or
under any other agreement now existing or hereafter entered into between the
Borrower and the Bank.
6.03 TERMINATION. Terminate this Agreement as to any future obligation
of the Bank without affecting the Borrower's obligations to the Bank or the
Bank's rights and remedies under this Agreement or under any other document,
instrument or agreement.
6.04 LETTERS OF CREDIT. Require the Borrower to pay immediately to the
Bank, for application against drawings under any outstanding Letters of Credit,
the outstanding principal amount of any such Letters of Credit which have not
expired. Any portion of the amount so paid to the Bank which is not applied to
satisfy draws under any such Letters of Credit or any other obligations of the
Borrower to the Bank shall be repaid to the Borrower without interest.
6.05 FOREIGN EXCHANGE CONTRACTS: Require the Borrower to pay
immediately to the Bank, for application against the future settlement price
under any outstanding Foreign Exchange Contracts, the outstanding face amount of
any such Foreign Exchange Contracts which have not matured or settled and
Borrower hereby grants to Bank a security interest in and to such funds. Any
portion of the amount so paid to the Bank which is not subsequently applied to
satisfy repayment on any such
-9-
<PAGE> 10
matured Foreign Exchange Contracts or any other obligations of the Borrower to
the Bank shall be repaid to the Borrower without interest.
6.06 NON-EXCLUSIVITY OF REMEDIES. Exercise one or more of the Bank's
rights set forth herein or seek such other rights or pursue such other remedies
as may be provided by law, in equity or in any other agreement now existing or
hereafter entered into between the Borrower and the Bank, or otherwise.
SECTION VII
MISCELLANEOUS PROVISIONS
7.01 AMOUNTS PAYABLE ON DEMAND. If the Borrower fails to pay on demand
any amount so payable under this Agreement, the Bank may, at its option and
without any obligation to do so and without waiving any default occasioned by
the Borrower's failure to pay such amount, create an Advance in an amount equal
to the amount so payable, which Advance shall thereafter bear interest as
provided under the Line of Credit.
7.02 DEFAULT INTEREST RATE: If an Event of Default, or an event which,
with notice or passage of time could become an Event of Default, has occurred
or is continuing, the Borrower shall pay to the Bank interest on any
Indebtedness or amount payable under this Agreement at a rate which is 3% in
excess of the rate or rates then in effect under this Agreement.
7.03 DISPUTE RESOLUTION. It is understood and agreed that upon the
request of any party to this agreement any dispute, claim, or controversy of any
kind, whether in contract or in tort, statutory or common law, legal or
equitable now existing or hereinafter arising between the parties in any way
arising out of, pertaining to or in connection with: (1) this Agreement, or any
related agreements, documents, or instruments, (2) all past and present loans,
credits, accounts, deposit accounts (whether demand deposits or time deposits),
safe deposit boxes, safekeeping agreements, guarantees, letters of credit, goods
or services, or other transactions, contracts or agreements of any kind, (3) any
incidents, omissions, acts, practices, or occurrences causing injury to either
party whereby the other party or its agents, employees or representatives may be
liable, in whole or in part, or (4) any aspect of the past or present
relationships of the parties, shall be resolved through a two-step dispute
resolution process administered by Judicial Arbitration & Mediation Services,
Inc. ("J-A-M-S") as follows:
a) Step I - Mediation: At the request of any party to the
dispute, claim or controversy of the matter shall be referred to the
nearest office of J-A-M-S for mediation, that is, an informal,
non-binding conference or conferences between the parties in which a
retired judge or justice for the J-A-M-S panel will seek to guide the
parties to a resolution of the case.
b) Step II - Unsecured Contracts - Arbitration: Should any
dispute, claim or controversy remain unresolved at the conclusion of
the Step I Mediation Phase then all such remaining matters shall be
resolved by final and binding arbitration before a different judicial
panelist, unless the parties shall agree to have the mediator panelist
act as arbitrator. The hearing shall be conducted at a location
determined by the arbitrator in San Diego County and shall be
administered by and in accordance with the then existing Rules of
Practice and Procedure of Judicial Arbitration & Mediation Services,
Inc., and judgement upon any award rendered by the arbitrator may be
entered by any State or Federal Court having jurisdiction thereof. The
arbitrator shall determine which is the prevailing party and shall
include in the award that party's reasonable attorneys fees and costs.
This subparagraph (b) shall apply only if, at the time of the
submission of the matter to J-A-M-S, the dispute(s) or issue(s) do(es)
not arise out of a transaction(s) which is/are secured by real property
collateral or, if so secured, all parties consent to such submission.
As soon as practicable after selection of the arbitrator, the
arbitrator or his/her designated representative shall determine a
reasonable estimate of anticipated fees and costs of the Arbitrator,
and render a statement to each party setting forth that party's
pro-rata share of said fees and costs. Thereafter each party shall,
within 10 days of receipt of said statement, deposit said sum with the
Arbitrator. Failure of any party to make such a deposit shall result in
a forfeiture by the non-depositing party of the right to prosecute or
defend the claim which is the subject of the arbitration, out shall not
otherwise serve to abate, stay or suspend the arbitration proceedings.
c) Step II - Contracts Secured By Real Estate - Trial by Court
Reference [Section 638 (1)] Code of Civil Procedure): If the dispute,
claim or controversy is not one required or agreed to be submitted to
arbitration as provided by subparagraph (b) and has not been resolved
by Step I mediation, then any remaining dispute, claim or controversy
shall be submitted for determination by a trial on Order of Reference
conducted by a retired judge or justice from the panel of J-A-M-S
appointed pursuant to the provisions of California Code of Civil
Procedure Section 638(l) or any
-10-
<PAGE> 11
amendment, addition or successor section thereto to hear the case and
report a statement of decision thereon. The parties intend this general
reference agreement to be specifically enforceable in accordance with
said section. If the parties are unable to agree upon a member of the
J-A-M-S panel to act as referee then one shall be appointed by the
Presiding Judge of the county wherein the hearing is to be held. The
parties shall pay in advance, to the referee, the estimated reasonable
fees and costs of the reference, as may be specified in advance by the
referee. The parties shall initially share equally, by paying their
proportionate amount of the estimated fees and costs of the reference.
Failure of any party to make such a fee deposit shall result in a
forfeiture by the non-depositing party of the right to prosecute or
defend the cause(s) of action which is(are) the subject of the
reference, but shall not otherwise serve to abate, stay or suspend the
reference proceeding.
d) Provisional Remedies, Self Help and Foreclosure: No provision of, or
the exercise of any right(s) under subparagraph (b), nor any other
provision of this Dispute Resolution Provision, shall limit the right
of any party to exercise self help remedies such as set off, to
foreclose against any real or personal property collateral, or obtain
provisional or ancillary remedies such as injunctive relief or the
appointment of a receiver from any court having jurisdiction before,
during or after the pendency of any arbitration. At Bank's option,
foreclosure under a deed of trust or mortgage may be accomplished
either by exercise of power of sale under the deed of trust or
mortgage, or by judicial foreclosure. The institution and maintenance
of an action for provisional remedies pursuit of provisional or
ancillary remedies or excercise of self help remedies shall not
constitute a waiver of the right of any party, including the plaintiff,
to submit the controversy or claim to arbitration.
7.04 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE
BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
7.05 ACCOUNTING AND OTHER TERMS. All references to financial
statements, assets, liabilities and similar accounting terms not specifically
defined in this Agreement shall mean such financial statements prepared and such
terms determined in accordance with generally accepted accounting principles
consistently applied. Except where otherwise specified in this Agreement, all
financial data submitted or to be submitted to the Bank pursuant to this
Agreement shall be prepared in accordance with generally accepted accounting
principles consistently applied. Terms not otherwise defined in this Agreement
shall have the meanings attributed to such terms in the California Uniform
Commercial Code.
7.06 RELIANCE. Each warranty, representation, covenant and agreement
contained in this Agreement shall be conclusively presumed to have been relied
upon by the Bank regardless of any investigation made or information possessed
by the Bank and shall be cumulative and in addition to any other warranties,
representations, covenants or agreements which the Borrower shall now or
hereafter give, or cause to be given, to the Bank.
7.07 ATTORNEYS' FEES. Borrower shall pay to the Bank all costs and
expenses, including but not limited to reasonable attorneys fees, incurred by
Bank in connection with the administration, enforcement, including any
bankruptcy, appeal or the enforcement of any judgment or any refinancing or
restructuring of this Agreement or any document, instrument or agreement
executed with respect to, evidencing or securing the indebtedness hereunder.
7.08 NOTICES. All notices, payments, requests, information and demands
which either party hereto may desire, or may be required to give or make to the
other party shall be given or made to such party by hand delivery or through
deposit in the United States mail, postage prepaid, or by Western Union
telegram, addressed to the address set forth below such party's signature to
this Agreement or to such other address as may be specified from time to time in
writing by either party to the other.
-11-
<PAGE> 12
7.09 WAIVER. Neither the failure nor delay by the Bank in exercising
any right hereunder or under any document, instrument or agreement mentioned
herein shall operate as a waiver thereof, nor shall any single or partial
exercise of any right hereunder or under any document, instrument or agreement
mentioned herein preclude other or further exercise thereof or the exercise of
any other right; nor shall any waiver of any right or default hereunder or under
any other document, instrument or agreement mentioned herein constitute a waiver
of any other right or default or constitute a waiver of any other default of the
same or any other term or provision.
7.10 CONFLICTING PROVISIONS. To the extent that any of the terms or
provisions contained in this Agreement are inconsistent with those contained in
any other document, instrument or agreement executed pursuant hereto, the terms
and provisions contained herein shall control. Otherwise, such provisions shall
be considered cumulative.
7.11 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the Bank's prior
written consent. The Bank may sell, assign or grant participations in all or any
portion of its rights and benefits hereunder. The Borrower agrees that, in
connection with any such sale, grant or assignment, the Bank may deliver to the
prospective buyer, participant or assignee financial statements and other
relevant information relating to the Borrower.
7.12 JURISDICTION. This Agreement, any notes issued hereunder, and any
documents, instruments or agreements mentioned or referred to herein shall be
governed by and construed according to the laws of the State of California, to
the jurisdiction of whose courts the parties hereby submit.
7.13 HEADINGS. The headings set forth herein are solely for the purpose
of identification and have no legal significance.
7.14 ENTIRE AGREEMENT. This Agreement and the Loan Documents shall
constitute the entire and complete understanding of the parties with respect to
the transactions contemplated hereunder. All previous conversations, memoranda
and writings between the parties or pertaining to the transactions contemplated
hereunder that are not incorporate or referenced in this Agreement or the Loan
Documents are superseded hereby.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA MAXWELL TECHNOLOGIES, INC.
BY:/s/ Thomas L. Gore By:/s/ Ken Potashner
------------------------- ---------------------------------
Thomas L. Gore, AVP Ken Potashner/Pres.& C.E.O.
(Name/Title) (Name/Title)
Address: 1280 Fourth Avenue By:/s/ Gary Davidson
San Diego, CA 92101 ---------------------------------
Gary Davidson/V.P. & C.F.O.
(Name/Title)
Address: 8888 BALBOA AVENUE
SAN DIEGO, CALIF. 92123
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<PAGE> 13
AMENDMENT TO LINE OF CREDIT AGREEMENT
This 5th Amendment to Line of Credit Agreement (the "Amendment") is
made and entered into this 31 day of January, 1997, by and between SANWA
BANK CALIFORNIA (the "Bank") and MAXWELL TECHNOLOGIES, INC. (the "Borrower")
with respect to the following:
This Amendment shall be deemed to be a part of and subject to that
certain Line of Credit Agreement dated as of February 4, 1994, as it may be
amended from time to time, and any and all addenda and riders thereto
(collectively the "Agreement"). Unless otherwise defined herein, all terms used
in this Amendment shall have the same meanings as in the Agreement. To the
extent that any of the terms or provisions of this Amendment conflict with those
contained in the Agreement, the terms and provisions contained herein shall
control.
WHEREAS, the Borrower and the Bank mutually desire to extend and/or
modify the Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the Borrower
and the Bank agree as follows:
1. COMPLIANCE CERTIFICATE. A new Section 4.05 E. is added to
the Agreement as follows:
"D. COMPLIANCE CERTIFICATE. Concurrently with the
delivery of the financial reports required hereunder,
a compliance certificate stating that the Borrower is
in compliance with all covenants contained herein and
that no Event of Default or potential Event of
Default has occurred or is continuing, and certified
to by the chief financial officer of the Borrower".
2. CHANGE IN ADDITIONAL INDEBTEDNESS. Section 4.07 of the
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
"4.07 ADDITIONAL INDEBTEDNESS. Without prior Bank
approval, not, after the date hereof, create, incur
or assume, directly or indirectly, any liability or
Indebtedness other than (i) indebtedness owed or to
be owed to the Bank or (ii) indebtedness to trade
creditors incurred in the ordinary course of the
Borrower's business or (iii) indebtedness incurred in
the ordinary course of business as purchase money
financing for the purchase of equipment or
subordinated debt of up to $2,000,000 in the
aggregate".
3. MODIFICATION OF LOANS. Section 4.08 of the Agreement is
deleted in its entirety and the following is substituted in lieu thereof:
"4.08 LOANS. Not make any loans or advances or extend
credit to any third person, including, but not
limited to, directors, officers, shareholders,
partners, employees, affiliated entities or
subsidiaries of the Borrower other than the
guarantors hereunder, except for credit extended in
the ordinary course of the Borrower's business as
presently conducted".
4. CHANGE IN ASSET SALES. Section 4.10 of the Agreement is
deleted in its entirety and the following is substituted in lieu thereof:
"4.10 TRANSFER ASSETS. Not sell, contract for sale,
transfer, convey, assign, lease or sublet any of its
assets except for the sale of the Borrower's real
property and except in the ordinary course of
business as presently conducted by the Borrower, and
then, only for full, fair and reasonable
consideration".
5. CHANGE IN FINANCIAL CONDITION. Section 4.12 of the
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
"4.13 FINANCIAL CONDITION. Maintain at all times:
A. NET WORTH. A minimum effective tangible
net worth of not less than $23,000,000.00.
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<PAGE> 14
B. DEBT TO NET WORTH RATIO. A debt to
effective tangible net worth ratio of not
more than 1.5 to 1.
C. PROFITABILITY. A minimum net profit after
tax of at least $1.00 at the end of each
fiscal quarter.
D. QUICK RATIO. A ratio of the sum of cash,
cash equivalents and accounts receivable to
outstanding Advances under the Line of
Credit of not less than 1.30 to 1".
6. REMOVAL OF CONSECUTIVE LOSS AND ADDITION OF CAPITAL
EXPENDITURES. Section 4.14 of the Agreement is deleted in its entirety and a new
Section 4.14 is added as follows:
"4.14 CAPITAL EXPENSE. Without prior Bank approval,
not make any fixed capital expenditure or any
commitment therefor, including, but not limited to,
incurring liability for leases which would be, in
accordance with generally accepted accounting
principles, reported as capital leases, or purchase
any real or personal property in an aggregate amount
exceeding $5,000,000 in any one fiscal year".
7. RESTRICTION ON DIVIDENDS. A new Section 4.16 is added as
follows:
"4.16 PAYMENT OF DIVIDENDS: Not declare or pay any
dividends on any class of stock now or hereafter
outstanding except dividends payable solely in the
Borrower's capital stock".
8. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE
AGREEMENT. Except as specifically provided in this Amendment, all other terms,
conditions and covenants of the Agreement unaffected by this Amendment shall
remain unchanged and shall continue in full force and effect and the Borrower
hereby covenants and agrees to perform and observe all terms, covenants and
agreements provided for in the Agreement, as hereby amended.
IN WITNESS WHEREOF, this Amendment has been executed by the parties
hereto as of the date first hereinabove written.
BANK BORROWER:
SANWA BANK CALIFORNIA MAXWELL TECHNOLOGIES, INC.
By:/s/ Thomas L. Gore By:/s/ Gary Davidson
--------------------------- -------------------------------
Thomas L. Gore, AVP Gary Davidson/V.P. & C.F.O.
(Name/Title) (Name/Title)
By:
-------------------------------
----------------------------------
(Name/Title)
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<PAGE> 1
EXHIBIT 10.29
OFFICE LEASE
LANDLORD:
AEW/LBA ACQUISITION COMPANY II, LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY
TENANT:
MAXWELL TECHNOLOGIES, INC.
A DELAWARE CORPORATION
<PAGE> 2
SUMMARY OF BASIC LEASE INFORMATION AND DEFINITIONS
This SUMMARY OF BASIC LEASE INFORMATION AND DEFINITIONS ("SUMMARY") is hereby
incorporated into and made a part of the attached Office Lease which pertains to
the Building described in Section 1.4 below. All references in the Lease to the
"Lease" shall include this Summary. All references in the Lease to any term
defined in this Summary shall have the meaning set forth in this Summary for
such term. Any initially capitalized terms used in this Summary and any
initially capitalized terms in the Lease which are not otherwise defined in this
Summary shall have the meaning given to such terms in the Lease.
1.1 LANDLORD'S ADDRESS: AEW/LBA Acquisition Company II, LLC
c/o Layton-Belling & Associates
5510 Morehouse Drive, Suite 150
San Diego, California 92121
Attn: Mr. David C. Thomas
Telephone: (619) 597-8795
Facsimile: (619) 597-0242
With a copy to:
AEW/LBA Acquisition Company II, LLC
c/o Layton-Belling & Associates
4440 Von Karman Avenue, Suite 150
Newport Beach, California 92660
Attn: Mr. Phil A. Belling
Telephone: (714) 833-0400
Facsimile: (714) 553-1211
1.2 TENANT'S ADDRESS: Prior to Commencement Date:
Maxwell Technologies, Inc.
8888 Balboa Avenue
San Diego, California 92123
Attn: Chief Financial Officer
Telephone: (619) 279-5100
Facsimile: (619) 277-6754
After Commencement Date:
Maxwell Technologies, Inc.
9275 Skypark Court, Suite 400
San Diego, California 92123
Attn: Chief Financial Officer
Telephone: (619) 279-5100
Facsimile: (619) 277-6754
1.3 SITE; PROJECT: The Site consists of the parcel(s) of real property
located in the City of San Diego , County of San Diego, State of
California, as shown on the site plan attached hereto as Exhibit "A".
The Project includes the Site and all buildings, improvements and
facilities, now or subsequently located on the Site from time to time,
including, without limitation, the Building currently located on the
Site, as depicted on the site plan attached hereto as Exhibit "A". The
aggregate rentable square feet of the office buildings (including the
Building) located within the Project contain 202,530 rentable square
feet.
1.4 BUILDING: A four (4) story office building located on the Site
containing 131,847 rentable square feet, the address of which is 9275
Skypark Court, San Diego, California 92123.
1.5 PREMISES: Those certain premises known as Suite 400 as generally shown
on the floor plan attached hereto as Exhibit "B", consisting of a
portion of the fourth (4th) floor of the Building, and containing
24,942 rentable square feet (23,905 usable square feet).
1.6 TERM: Sixty-six (66) months, subject to extension as provided in
Section 2.2 of the Lease.
1.7 COMMENCEMENT DATE: The earlier of (i) August 1, 1997, or (ii) the date
that Tenant commences business operations from the Premises.
1.8 MONTHLY BASIC RENT: Upon the commencement of the Term of this Lease,
and on the first day of each month thereafter during the Term of this
Lease, Tenant shall pay to Landlord, in advance and without offset, as
Monthly Basic Rent for the Premises the following monthly payments:
-i-
<PAGE> 3
<TABLE>
<CAPTION>
MONTHLY BASIC RENT
MONTHS PER RENTABLE SQUARE FEET
------ ------------------------
<S> <C>
Prorated for any partial month $1.35
and the first full month
2-7 Free
(subject to Section 3.1 hereof)
8-12 $1.35
13-24 $1.404
25-36 $1.46
37-48 $1.518
49-60 $1.578
61-66 $1.641
</TABLE>
1.9 TENANT'S PERCENTAGE: 18.92%. Accordingly, as more particularly set
forth in Sections 4.3 and 4.4 hereof, Tenant shall pay to Landlord
18.92% of the "Operating Expenses" (as defined in Section 4.4) in
excess of "Landlord's Contribution to Operating Expenses" as defined in
Section 1.10 of the Summary below.
1.10 LANDLORD'S CONTRIBUTION TO OPERATING EXPENSES: Tenant's Percentage of
Operating Expenses incurred by Landlord during calendar year 1997 (the
"BASE YEAR"), adjusted to reflect an assumption that the Building is
fully assessed for real property tax purposes as a completed Building
ready for occupancy and that the Building is one hundred percent (100%)
occupied during such year.
1.11 SECURITY DEPOSIT: None.
1.12 PERMITTED USE: General office uses.
1.13 BROKERS: Landlord is not represented by a broker.
CB Commercial Real Estate Group, Inc. is representing Tenant.
1.14 INTEREST RATE: The lesser of: (a) the rate announced from time to time
by Wells Fargo Bank or, if Wells Fargo Bank ceases to exist or ceases
to publish such rate, then the rate announced from time to time by the
largest (as measured by deposits) chartered bank operating in
California, as its "prime rate" or "reference rate", plus five percent
(5%); (b) the maximum rate permitted by law; or (c) the actual rate
paid by Landlord.
1.15 TENANT IMPROVEMENTS: The initial tenant improvements installed or to be
installed in the Premises as described in Section 12.5 of this Lease.
1.16 PARKING PASS RATIO: Three and seven tenths (3.7) parking spaces per one
thousand (1,000) usable square feet in the Premises, consisting of (i)
seventy-eight (78) unreserved parking spaces and (ii) ten (10) reserved
covered parking spaces.
1.17 BUSINESS HOURS FOR THE BUILDING. 7:00 a.m. to 6:00 p.m., Mondays
through Fridays (except Building Holidays) and 9:00 a.m. to 1:00 p.m.
on Saturdays (except Building Holidays). "BUILDING HOLIDAYS" shall mean
New Year's Day, Labor Day, Presidents' Day, Thanksgiving Day, Memorial
Day, Independence Day and Christmas Day and such other national
holidays as are adopted by Landlord, in Landlord's reasonable
discretion, as holidays for the Building so long as such other national
holidays are adopted by other landlords of comparable buildings in the
vicinity of the Building.
1.18 GUARANTORS: None.
-ii-
<PAGE> 4
STANDARD FORM OFFICE LEASE
TABLE OF CONTENTS
SECTION TITLE PAGE
- ------- ----- ----
1. Premises ........................................................ 1
2. Term ............................................................ 2
3. Rent ............................................................ 4
4. Common Areas; Operating Expenses ................................ 4
5. [Intentionally Deleted] ......................................... 8
6. Use ............................................................. 8
7. Payments and Notices ............................................ 9
8. Brokers ......................................................... 10
9. Surrender; Holding Over ......................................... 10
10. Taxes on Tenant's Property ...................................... 10
11. Condition of Premises; Repairs .................................. 11
12. Alterations ..................................................... 11
13. Liens ........................................................... 13
14. Assignment and Subletting ....................................... 13
15. Entry by Landlord ............................................... 15
16. Utilities and Services .......................................... 15
17. Indemnification and Exculpation ................................. 17
18. Damage or Destruction ........................................... 17
19. Eminent Domain .................................................. 18
20. Tenant's Insurance .............................................. 19
21. Landlord's Insurance ............................................ 20
22. Waiver of Claims; Waiver of Subrogation ......................... 20
23. Tenant's Default and Landlord's Remedies ........................ 20
24. Landlord's Default .............................................. 22
25. Subordination ................................................... 22
26. Estoppel Certificate ............................................ 23
27. Intentionally Deleted ........................................... 23
28. Modification and Cure Rights of Landlord's Mortgagees and Lessors 23
29. Quiet Enjoyment ................................................. 23
30. Transfer of Landlord's Interest ................................. 23
31. Limitation on Landlord's Liability .............................. 23
32. Miscellaneous ................................................... 24
33. Lease Execution ................................................. 25
34. Arbitration ..................................................... 27
EXHIBITS
EXHIBIT "A" Site Plan
EXHIBIT "B" Floor Plan
EXHIBIT "C" [INTENTIONALLY DELETED]
EXHIBIT "D" Sample Form of Notice of Lease Term Dates
EXHIBIT "E" Rules and Regulations
EXHIBIT "F" Sample Form of Tenant Estoppel Certificate
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INDEX OF MAJOR DEFINED TERMS
LOCATION OF
DEFINED TERMS DEFINITION IN OFFICE LEASE
Abandonment ........................................................... 20
Actual Statement ...................................................... 7
ADA ................................................................... 8
Affiliate ............................................................. 14
Audit Notice .......................................................... 7
Base Year ............................................................. ii
Brokers ............................................................... ii
Building .............................................................. i
Building Common Areas ................................................. 4
Building Holidays ..................................................... ii
Building Top Signs .................................................... 8
Build-to-Suit Transaction ............................................. 26
claims ................................................................ 26
Commencement Date ..................................................... i
Communications Equipment .............................................. 25
days .................................................................. 24
Directory Signage ..................................................... 9
Economic Terms ........................................................ 2
Election Date ......................................................... 2
Election Notice ....................................................... 18
Eligibility Period .................................................... 16
Entry Door and Premises Lobby Signage ................................. 9
Estimate Statement .................................................... 7
Excess Expenses ....................................................... 5
First Refusal Notice .................................................. 2
First Refusal Space ................................................... 1
Force Majeure Delays .................................................. 25
Hazardous Materials ................................................... 9
HVAC .................................................................. 11
Improvement Allowance ................................................. 12
Improvement Allowance Items ........................................... 13
Improvement Drawings .................................................. 13
Indemnified Claims .................................................... 17
Invoice ............................................................... 22
Landlord .............................................................. 1
Landlord Indemnified Parties .......................................... 9
Landlord's Contribution to Operating Expenses ......................... ii
Lease ................................................................. 1
Monthly Basic Rent .................................................... i
Must Take Effective Date .............................................. 1
Must Take Space ....................................................... 1
New Lease Transactions ................................................ 26
Operating Expenses .................................................... 5
Option Notice ......................................................... 3
Option Rent ........................................................... 3
Option Term ........................................................... 3
Original Tenant ....................................................... 1
Outside Agreement Date ................................................ 3
PCBs .................................................................. 9
Permitted Transfer .................................................... 14
Permitted Use ......................................................... ii
Pre-Approved Change ................................................... 11
Premises .............................................................. i
Project ............................................................... i
Project Common Areas .................................................. 4
Real Property Taxes and Assessments ................................... 6
Relocation Transaction ................................................ 26
Renewal Rental Rate ................................................... 3
rent .................................................................. 4
Security Deposit ...................................................... ii
Site .................................................................. i
Summary ............................................................... 1
Superior Lease ........................................................ 1
Superior Rights ....................................................... 1
Tenant ................................................................ 1
Tenant Changes ........................................................ 11
tenant concessions .................................................... 3
Tenant Improvements ................................................... 13
Tenant Indemnified Parties ............................................ 17
Tenant Parties ........................................................ 17
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Tenant's Agents ....................................................... 13
Tenant's Election Notice .............................................. 2
Tenant's Parties ...................................................... 9
Tenant's Percentage ................................................... ii
Tenant's Review Period ................................................ 3
Tenant's Signage ...................................................... 9
Term .................................................................. i
Termination Date ...................................................... 26
Termination Notice .................................................... 26
Termination Option .................................................... 26
Transfer .............................................................. 13
Transfer Notice ....................................................... 14
Transferee ............................................................ 14
worth at the time of award ............................................ 21
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OFFICE LEASE
This LEASE, which includes the preceding Summary of Basic Lease Information and
Definitions ("SUMMARY") attached hereto and incorporated herein by this
reference ("LEASE"), is made as of the _ day of June, 1997, by and between
AEW/LBA ACQUISITION COMPANY II, LLC, a California limited liability company
("LANDLORD"), and MAXWELL TECHNOLOGIES, INC., a Delaware corporation ("TENANT").
1. PREMISES.
1.1 PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, the Premises described in Section 1.5 of the Summary above,
improved or to be improved with the Tenant Improvements. Such lease is upon, and
subject to, the terms, covenants and conditions herein set forth and each party
covenants, as a material part of the consideration for this Lease, to keep and
perform their respective obligations under this Lease.
1.2 LANDLORD'S RESERVATION OF RIGHTS. Provided Tenant's use of and access
to the Premises is not interfered with in an unreasonable manner, and subject to
the terms of this Lease, Landlord reserves for itself the right from time to
time to install, use, maintain, repair, replace and relocate pipes, ducts,
conduits, wires and appurtenant meters and equipment above the ceiling surfaces,
below the floor surfaces and within the walls of the Building and the Premises.
1.3 RENTABLE AND USABLE SQUARE FEET OF PREMISES. Landlord and Tenant agree
that the number of rentable and usable square feet contained in the Premises and
the Building, as well as Tenant's Percentage are (and are stipulated to be) as
set forth in the Summary.
1.4 MUST TAKE SPACE. Tenant hereby agrees to add to the Premises the
balance of the fourth (4th) floor of the Building stipulated by the parties
hereto to contain 9,606 rentable (9207 usable) square feet of space ("MUST TAKE
SPACE"). The effective date of Tenant's lease of the Must Take Space shall be
the first day of the thirteenth (13th) month of the Lease Term ("MUST TAKE
EFFECTIVE DATE") and Tenant shall not be obligated to pay any Basic Rent or
Operating Expenses for the Must Take Space until the Must Take Effective Date.
Notwithstanding anything above to the contrary, and upon at least twenty (20)
days prior written notice to Landlord, Tenant may enter the Must Take Space
three (3) months prior to the Must Take Effective Date in order to commence
construction of the Tenant Improvements in the Must Take Space in accordance
with Section 12.5; provided, however, that such early entry shall be subject to
all of the terms and provisions of this Lease (except for the obligation to pay
rent, unless Tenant commences business operations from the Must Take Space, in
which event Tenant's obligation to pay rent shall commence on such date), and
such reasonable rules and procedures promulgated by Landlord; provided further,
that without limiting the generality of the foregoing, Landlord shall not be
responsible for and Tenant is required to obtain insurance covering, any loss,
including theft, damage or destruction to any work or material installed or
stored by Tenant or Landlord, or any contractor or individual involved in the
completion of the Tenant Improvements into the Must Take Space, or for any
injury to Tenant or Tenant's employees, invitees, licensees or Tenant's Agents
(as such term is defined in Section 12.5 hereof) and provided further that
Landlord shall have the right to post the appropriate notices of
non-responsibility and to require Tenant to provide Landlord with evidence that
Tenant has fulfilled its obligation to provide insurance pursuant to Section 20
of this Lease. Tenant's lease of the Must Take Space shall be on the same terms
and conditions as affect the original Premises throughout the Lease Term,
including, without limitation, the same Base Year (1997), and, on a per rentable
square foot basis, the same Monthly Basic Rent, which Monthly Basic Rent shall
increase, on each annual anniversary of the Commencement Date, by the same per
rentable square foot increase as the Monthly Basic Rent for the initial Premises
(four percent (4%)). On the Must Take Effective Date, Tenant's Percentage shall
be increased to take into account the addition of the number of rentable square
feet of the Must Take Space to the Premises. Tenant acknowledges and agrees that
the Must Take Space shall be leased to Tenant in its "as is" condition (as of
the date hereof). The Lease Term for the Must Take Space shall expire
coterminously with the Lease Term for the initial Premises. Notwithstanding
anything above to the contrary, Landlord shall not be liable to Tenant or
otherwise be in default hereunder in the event that Landlord is unable to
deliver the Must Take Space to Tenant on the projected delivery date thereof due
to the failure of any other tenant to timely vacate and surrender to Landlord
such Must Take Space, or any portion thereof; provided, however, Landlord
agrees to use its commercially reasonable efforts to enforce its right to
possession of such Must Take Space against such other tenant. Promptly after
Landlord's delivery of the Must Take Space to Tenant, Landlord and Tenant shall
execute an amendment to this Lease adding the Must Take Space to the Premises
upon the terms and conditions set forth in this Section 1.4. The construction of
any improvements by Tenant in the Must Take Space shall be in accordance with
Section 12.5 of this Lease and Landlord shall, in accordance with Section 12.5
hereof, provide Tenant with an improvement allowance in an amount up to Six
Dollars ($6.00) per usable square foot of the Must Take Space for the costs
relating to the design and construction of the initial improvements in the Must
Take Space, the disbursement of which improvement allowance shall be in strict
accordance with Section 12.5 hereof.
1.5 RIGHT OF FIRST REFUSAL. Landlord hereby grants to the Tenant named in
the Summary ("ORIGINAL TENANT") a continuing right of first refusal with respect
to available space located on the first (1st) floor of the Building (the "FIRST
REFUSAL SPACE"). Notwithstanding the foregoing (i) for First Refusal Space which
is subject to a lease as of the date of this Lease, such first refusal right of
Tenant shall commence only following the expiration or earlier termination of
such existing lease (such existing lease may be referred to herein as the
"SUPERIOR LEASE"), including any renewal of such Superior Lease, whether or not
such renewal is pursuant to an express written provision in such lease, and
regardless of whether any such renewal is consummated pursuant to a lease
amendment or a new lease, and (ii) such first refusal right shall be subordinate
and secondary to all rights of expansion, first refusal, first offer or similar
rights granted to the tenant(s) of the Superior Lease (the rights described in
items (i) and (ii), above to be known collectively as "SUPERIOR RIGHTS").
Tenant's right of first refusal shall be on the terms and conditions set forth
in this Section 1.5; provided, however, that in addition to the Permitted Use
set forth in Section 1.12 of the Summary, Tenant shall be permitted to use
<PAGE> 8
the First Refusal Space (but not the initial Premises or the Must Take Space)
for light manufacturing, laboratories and product distribution so long as any
such uses are otherwise in compliance with all of the terms and provisions of
this Lease including, but not limited to, Section 6.1. Notwithstanding anything
in this Section 1.5 to the contrary, the rights contained in this Section 1.5
may also be exercised by any Affiliate (as defined Section 14.2 hereof) of the
Original Tenant.
(a) Procedure. Landlord shall notify Tenant (the "FIRST REFUSAL NOTICE")
when Landlord receives a proposal or request for proposal that Landlord
would seriously consider for all or any portion of the First Refusal
Space, where no holder of a Superior Right desires to lease such space.
The First Refusal Notice shall describe the space which is the subject
of the proposal or request for proposal and shall set forth Landlord's
proposed economic terms and conditions applicable to Tenant's lease of
such space (collectively, the "ECONOMIC TERMS"). Notwithstanding the
foregoing, Landlord's obligation to deliver the First Refusal Notice
shall not apply during the last twelve (12) months of the initial Lease
Term unless Tenant has delivered an Interest Notice to Landlord
pursuant to Section 2.2(c) below nor shall Landlord be obligated to
deliver the First Refusal Notice during the last nine (9) months of the
initial Lease Term unless Tenant has delivered the Option Notice to
Landlord pursuant to Section 2.2(c) below.
(b) Procedure for Acceptance. If Tenant wishes to exercise Tenant's right
of first refusal with respect to the space described in the First
Refusal Notice, then within five (5) business days after delivery of
the First Refusal Notice to Tenant (the "ELECTION DATE"), Tenant shall
deliver written notice to Landlord ("TENANT'S ELECTION NOTICE")
pursuant to which Tenant shall elect either to (i) lease the entire
First Refusal Space described in the First Refusal Notice upon the
Economic Terms set forth in the First Refusal Notice and the same
non-economic Terms as set forth in this Lease; (ii) refuse to lease
such First Refusal Space identified in the First Refusal Notice,
specifying that such refusal is not based upon the Economic Terms set
forth by Landlord in the First Refusal Notice, but upon Tenant's lack
of need for such First Refusal Space, in which event Landlord may lease
such First Refusal Space to any entity on any terms Landlord desires
and Tenant's right of first refusal set forth herein shall thereupon
terminate and be of no further force or effect; or (iii) refuse to
lease the First Refusal Space, specifying that such refusal is based
upon the Economic Terms set forth in the First Refusal Notice, in which
event Tenant shall also specify in Tenant's Election Notice revised
Economic Terms upon which Tenant would be willing to lease such First
Refusal Space from Landlord. If Tenant does not so respond in writing
to Landlord's First Refusal Notice by the Election Date, Tenant shall
be deemed to have elected the option described in clause (ii) above. If
Tenant timely delivers to Landlord Tenant's Election Notice pursuant to
clause (iii) above, Landlord may elect either to: (A) lease such First
Refusal Space to Tenant upon the revised Economic Terms specified by
Tenant in Tenant's Election Notice, and the same non-Economic Terms as
set forth in this Lease; or (B) lease the First Refusal Space to any
person or entity upon any terms Landlord desires; provided, however, if
(1) the Economic Terms of Landlord's proposed lease to said third party
are more favorable to the third party than those Economic Terms
proposed by Tenant in Tenant's Election Notice, or (2) the size of the
First Refusal Space to be leased to such third party is less than the
size of the First Refusal Space offered to Tenant, before entering into
such third party lease, Landlord shall notify Tenant of such more
favorable Economic Terms (or such reduced size) and Tenant shall have
the right to lease the First Refusal Space upon such more favorable
Economic Terms (or as to such reduced size) by delivering written
notice thereof to Landlord within two (2) business days after Tenant's
receipt of Landlord's notice. If Tenant does not elect to lease such
space from Landlord within said two (2) business day period, Tenant
shall be deemed to have elected the option described in clause (ii)
above and Tenant's right of first refusal set forth herein shall
thereupon terminate and be of no further force or effect.
(c) Construction of First Refusal Space. Tenant shall take the applicable
First Refusal Space in its then "as-is" condition, and Tenant shall be
entitled to construct improvements in the First Refusal Space in
accordance with the provisions of Section 12 (but excluding Section
12.5) of this Lease.
(d) Lease of First Refusal Space. If Tenant timely exercises Tenant's
right to lease the First Refusal Space as set forth herein, Landlord
and Tenant shall execute an amendment adding such First Refusal Space
to this Lease upon the same non-economic terms and conditions as
applicable to the initial Premises, and the Economic Terms and
conditions as provided in this Section 1.5. All terms and provisions of
the Lease, including Tenant's unreserved parking privileges and
Tenant's Percentage, shall be adjusted to take into account the
addition of the First Refusal Space to the Premises. Tenant shall
commence payment of rent for the First Refusal Space and the Lease Term
of the First Refusal Space shall commence upon the date Landlord makes
possession of the First Refusal Space available to Tenant. The lease
term for the First Refusal Space shall be for a term coterminous with
Tenant's lease of the initial Premises.
(e) Termination of Right of First Refusal. The rights set forth in this
Section 1.5, and Landlord's obligations with respect thereto, shall be
personal to the Original Tenant. The right of first refusal granted
herein shall terminate with respect to such First Refusal Space upon
the failure by Tenant to exercise its right of first refusal with
respect to such First Refusal Space as offered by Landlord. Tenant
shall not have the right to lease the First Refusal Space if, as of the
date of the attempted exercise of any right of first refusal by Tenant,
or, at Landlord's option, as of the scheduled date of delivery of such
First Refusal Space to Tenant, Tenant is in default under this Lease
after any applicable notice and cure periods.
2. TERM.
2.1 TERM; NOTICE OF LEASE DATES. The Term of this Lease shall be for the
period designated in Section 1.6 of the Summary commencing on the Commencement
Date, and ending on the expiration of such period, unless the Term is sooner
terminated as provided in this Lease. Notwithstanding the foregoing, if the
Commencement Date falls on any day other than the first day of a calendar month
then the term of this Lease will be measured from the first day of the month
following the month in which the Commencement Date occurs. Within ten (10) days
after Landlord's written request, Tenant shall execute a written confirmation of
the Commencement Date and expiration date of the Term in the form of
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the Notice of Lease Term Dates attached hereto as Exhibit "D". The Notice of
Lease Term Dates shall be binding upon Tenant unless Tenant objects thereto in
writing within such ten (10) day period.
2.2 OPTION TERM.
(a) Option Right. Landlord hereby grants the Original Tenant and any
Affiliate of the Original Tenant one (1) option to extend the Lease
Term (for the entire Premises only (including the Must Take Space)) for
a period of three (3) years (the "OPTION TERM"), which option shall be
exercisable only by written notice delivered by Tenant to Landlord as
provided below, provided that, as of the date of delivery of such
notice, Tenant is not in default under this Lease and, at Landlord's
option, Tenant is not in default under this Lease as of the end of the
initial Lease Term (with any applicable notice and cure periods having
expired). The rights contained in this Section 2.2 shall be personal to
the Original Tenant and to any Affiliate of the Original Tenant and may
only be exercised by the Original Tenant and by any Affiliate of the
Original Tenant (and not any other assignee, sublessee or other
transferee of Tenant's interest in this Lease) if the Original Tenant
and/or any Affiliate of the Original Tenant occupies at least fifty
percent (50%) of the Premises as of the date it exercises its option in
accordance with the terms of this Section 2.2.
(b) Option Rent. The Rent payable by Tenant during the Option Term (the
"OPTION RENT") shall be equal to the Renewal Rental Rate (as
hereinafter defined). The term "RENEWAL RENTAL RATE" shall mean the
rate being charged to tenants for comparable space by Landlord in the
Building (or, if not enough comparable transactions exist in the
Building, then the rate being charged to tenants for comparable space
in, as reasonably determined by Landlord, comparable buildings in the
vicinity of the Building), with similar amenities, taking into
consideration the size, location, floor level, the proposed term of the
Option Term, the extent of the services to be provided and any other
relevant terms and conditions in each instance including "tenant
concessions," if any, then being offered to prospective tenants in the
Building or comparable buildings. The term "TENANT CONCESSIONS" shall
include, without limitation, so-called free rent, tenant improvement
allowances, and other tenant inducements, taking into account the value
of the existing improvements in the Premises, based on the age, quality
and layout of the improvements. The Renewal Rental Rate will be an
effective rate, not specifically including, but accounting for, the
appropriate tenant concessions described above.
(c) Exercise of Option. The option contained in this Section 2.2 shall be
exercised by Tenant, if at all, by delivering written notice ("OPTION
NOTICE") to Landlord not less than nine (9) months prior to the
expiration of the initial Lease Term, stating that Tenant is exercising
its option. Failure of Tenant to deliver the Option Notice to Landlord
on or before the date specified above shall be deemed to constitute
Tenant's failure to exercise its option to extend. If Tenant timely
exercises its option to extend, the Lease Term shall be extended for
the Option Term upon all of the terms and conditions set forth in this
Lease, except that the rent shall be determined as provided below.
(d) If a determination of the Renewal Rental Rate is required under the
Lease, then Landlord will provide written notice of Landlord's
determination of the Renewal Rental Rate not later than thirty (30)
days after the date upon which Tenant timely exercises the right giving
rise to the necessity for such Renewal Rental Rate determination.
Tenant will have thirty (30) days ("TENANT'S REVIEW PERIOD") after
receipt of Landlord's notice of the Renewal Rental Rate within which to
accept such Renewal Rental Rate or to reasonably object thereto in
writing. Tenant's failure to object to the Renewal Rental Rate
submitted by Landlord in writing within Tenant's Review Period will
conclusively be deemed Tenant's approval and acceptance thereof. If
Tenant reasonably objects to the Renewal Rental Rate submitted by
Landlord within Tenant's Review Period, Landlord and Tenant will
attempt in good faith to agree upon such Renewal Rental Rate using
their best good faith efforts. If Landlord and Tenant fail to reach
agreement on such Renewal Rental Rate within fifteen (15) days
following the expiration of Tenant's Review Period (the "OUTSIDE
AGREEMENT DATE"), then each party's determination will be submitted to
appraisal in accordance with the provisions below.
(e) (i) Landlord and Tenant will each appoint one (1) independent
appraiser who by profession must be a real estate broker who
has been active over the five (5) year period ending on the
date of such appointment in the leasing of commercial
properties comparable to the Building located in the vicinity
of the Building. The determination of the appraisers will be
limited solely to the issue of whether Landlord's or Tenant's
submitted Renewal Rental Rate for the leased area at issue is
the closest to the actual Renewal Rental Rate for such area as
determined by the appraisers, taking into account the
requirements specified in Section 2.2(b) above. Each such
appraiser will be appointed within fifteen (15) days after the
Outside Agreement Date.
(ii) The two (2) appraisers so appointed will within fifteen (15)
days of the date of the appointment of the last appointed
appraiser agree upon and appoint a third appraiser who shall
be qualified under the same criteria set forth hereinabove for
qualification of the initial two (2) appraisers.
(iii) The three (3) appraisers will within thirty (30) days of the
appointment of the third appraiser reach a decision as to
whether the parties will use Landlord's or Tenant's submitted
Renewal Rental Rate, and will notify Landlord and Tenant
thereof.
(iv) The decision of the majority of the three (3) appraisers will
be binding upon Landlord and Tenant. If either Landlord or
Tenant fails to appoint an appraiser within the time period
specified in Subsection (e)(i) hereinabove, the appraiser
appointed by one of them will, within thirty (30) days
following the date on which the party failing to appoint an
appraiser could have last appointed such appraiser, reach a
decision based upon the procedures set forth above (i.e., by
selecting either Landlord's or Tenant's submitted Renewal
Rental Rate) and notify Landlord and Tenant thereof, and such
appraiser's decision will be binding upon Landlord and Tenant.
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(v) If the two (2) appraisers fail to agree upon and timely
appoint a third appraiser, both appraisers will be dismissed
and the matter to be decided will be forthwith submitted to
arbitration under the provisions of the American Arbitration
Association based upon the procedures set forth above (i.e.,
by selecting either Landlord's or Tenant's submitted Renewal
Rental Rate).
(vi) The cost of appraisal (and, if necessary, arbitration) will be
shared by Landlord and Tenant equally.
(vii) If the process described in this Section 2.2 has not resulted
in a selection of Landlord's or Tenant's Renewal Rental Rate
by the commencement of the applicable period, then the
existing rent will be used until the appraiser(s) reach a
decision, with an appropriate rental credit and other
adjustments for any overpayments of Monthly Basic Rent or
other amounts if the appraisers select Tenant's estimate of
the Renewal Rental Rate.
2.3 EARLY OCCUPANCY. If Tenant occupies the Premises prior to the
Commencement Date for the purpose of performing Tenant's Work, such early
occupancy shall be subject to all of the terms and conditions of this Lease,
including, without limitation, the provisions of Sections 20, 21 and 23, except
that provided Tenant does not commence the operation of business from the
Premises, Tenant will not be obligated to pay Monthly Basic Rent or any
additional rent during the period of such early occupancy. Tenant agrees to
provide Landlord with prior notice of any such intended early occupancy.
3. RENT.
3.1 BASIC RENT. Tenant agrees to pay Landlord, as basic rent for the
Premises, the Monthly Basic Rent in the amounts designated in Section 1.8 of the
Summary. The Monthly Basic Rent shall be paid by Tenant in monthly installments
in the amounts designated in Section 1.8 of the Summary in advance on the first
day of each and every calendar month during the Term, without demand, notice,
deduction or offset except that the first full month's Monthly Basic Rent shall
be paid upon the execution of this Lease. Monthly Basic Rent for any partial
month shall be prorated in the proportion that the number of days this Lease is
in effect during such month bears to the actual number of days in such month.
Notwithstanding anything to the contrary in Section 1.8 of the Summary, (i)
Tenant agrees to pay to Landlord during Tenant's free rent period (i.e., months
two (2) through seven (7) of the Lease Term), an amount equal to $.20 per
rentable square foot in the Premises for each such month in Tenant's free rent
period in order to partially reimburse Landlord for Tenant's occupancy of the
Premises during such free rent period and (ii) such free rent period shall be
null and void if Tenant is in default under the Lease (with all applicable
notice and cure periods having expired) at any time prior to or during such free
rent period.
3.2 ADDITIONAL RENT. All amounts and charges payable by Tenant to Landlord
under this Lease in addition to the Monthly Basic Rent described in Section 3.1
above (including, without limitation, Tenant's Percentage of Operating Expenses
in excess of Landlord's Contribution to Operating Expenses as provided in
Section 6) shall be considered additional rent for the purposes of this Lease,
and the word "RENT" in this Lease shall include such additional rent unless the
context specifically or clearly implies that only the Monthly Basic Rent is
referenced. The Monthly Basic Rent and additional rent shall be paid to Landlord
as provided in Section 7, without any prior demand therefor and without any
deduction or offset whatever, in lawful money of the United States of America.
4. COMMON AREAS; OPERATING EXPENSES.
4.1 DEFINITIONS; TENANT'S RIGHTS. During the Term of this Lease, Tenant
shall have the non-exclusive right to use, in common with other tenants in the
Project, and subject to the Rules and Regulations referred to in Section 6.1
below, those portions of the Project (the "PROJECT COMMON AREAS") not leased or
designated for lease to tenants that are provided for use in common by Landlord,
Tenant and any other tenants of the Project (or by the sublessees (agents,
employees, customers invitees, guests or licensees of any such party), whether
or not those areas are open to the general public. The Project Common Areas
shall include, without limitation, any fixtures, systems, decor, facilities and
landscaping contained, maintained or used in connection with those areas, and
shall be deemed to include any city sidewalks adjacent to the Project, any
pedestrian walkway system, park or other facilities located on the Site and open
to the general public. The common areas appurtenant to the Building shall be
referred to herein as the "BUILDING COMMON AREAS" and shall include, without
limitation, the following areas:
(a) the common entrances, lobbies, restrooms on multi-tenant floors,
elevators, stairways and accessways, loading docks, ramps, drives and
platforms and any passageways and serviceways thereto to the extent not
exclusively serving another tenant or contained within another tenant's
premises, and the common pipes, conduits, wires and appurtenant
equipment serving the Premises; and
(b) the parking structure and parking areas (subject to Section 6.2 below),
loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, driveways and landscaped areas appurtenant to the
Building.
The Building Common Areas and the Project Common Areas shall be referred to
herein collectively as the "Common Areas".
4.2 LANDLORD'S RESERVED RIGHTS. Landlord reserves the right from time to
time to use any of the Common Areas and to do any of the following, as long as
such acts do not unreasonably interfere with Tenant's use of or access to the
Premises, Tenant's Signage or Tenant's parking privileges:
(a) expand the Building and construct or alter other buildings or
improvements on the Site;
(b) make any changes, additions, improvements, repairs or replacements in
or to the Project, the Site, the Common Areas and/or the Building
(including the Premises if required to do so by any law or regulation)
and the fixtures
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and equipment thereof, including, without limitation: (i) maintenance,
replacement and relocation of pipes, ducts, conduits, wires and meters;
and (ii) changes in the location, size, shape and number of driveways,
entrances, stairways, elevators, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways and,
subject to Section 6.2, parking spaces and parking areas;
(c) close temporarily any of the Common Areas while engaged in making
repairs, improvements or alterations to the Project, Site and/or
Building; and
(d) perform such other acts and make such other changes with respect to the
Project, Site, Common Areas and Building, as Landlord may, in the
exercise of good faith business judgment, deem to be appropriate.
Notwithstanding the foregoing, in taking any action pursuant to this Section
4.2, Landlord shall use commercially reasonable efforts so as to not materially
and adversely affect (A) Tenant's sign rights set forth in this Lease; or (B)
the number and/or location of Tenant's parking spaces; or (C) Tenant's ingress
and egress to the Building and/or parking structure.
4.3 EXCESS EXPENSES. In addition to the Monthly Basic Rent required to be
paid by Tenant pursuant to Section 3.1 above, during each month during the Term
of this Lease (after the Base Year noted in Section 1.10 of the Summary), Tenant
shall pay to Landlord the amount by which Tenant's Percentage of Operating
Expenses for such calendar year exceeds Landlord's Contribution to Operating
Expenses (such amount shall be referred to in this Section 4 as the "EXCESS
EXPENSES"), in the manner and at the times set forth in the following provisions
of this Section 4. Notwithstanding anything contained in this Section 4 of this
Lease to the contrary, the aggregate Operating Expenses shall not, in any
calendar year after the Base Year, increase more than seven percent (7%) over
the Operating Expenses for the immediately preceding calendar year.
4.4 DEFINITION OF OPERATING EXPENSES. As used in this Lease, the term
"OPERATING EXPENSES" shall consist of all costs and expenses of operation and
maintenance of the Building, the Common Areas and the Site, as determined by
standard accounting practices, calculated assuming (i) the Building is one
hundred percent (100%) occupied, (ii) the Building is fully assessed (reflecting
the acquisition of the Building by Landlord) and fully completed as of the
Commencement Date, and (iii) all tenants are paying full rent, disregarding free
rent or any reduced rent. Operating Expenses shall include the following costs
by way of illustration but not limitation: (a) Real Property Taxes and
Assessments (as defined in Section 4.5 below) and any taxes or assessments
imposed in lieu thereof; (b) any and all assessments imposed with respect to the
Building, Common Areas, and/or Site pursuant to any covenants, conditions and
restrictions affecting the Site, Common Areas or Building; (c) water and sewer
charges and the costs of electricity, heating, ventilating, air conditioning and
other utilities; (d) utilities surcharges and any other costs, levies or
assessments resulting from statutes or regulations promulgated by any government
authority in connection with the use or occupancy of the Building or the
Premises or the parking facilities serving the Building or the Premises; (e)
costs of insurance obtained by Landlord pursuant to Section 21 of this Lease;
(f) waste disposal and janitorial services; (g) security; (h) costs incurred in
the management of the Site, Building and Common Areas, including, without
limitation: (1) supplies, (2) wages and salaries (and payroll taxes and similar
governmental charges related thereto) of employees used in the operation and
maintenance of the Site, Building and Common Areas, and (3) a
management/administrative fee not to exceed five percent (5%) of the annual
gross receipts of the Project; (i) supplies, materials, equipment and tools; (j)
repair and maintenance of the elevators and the structural portions of the
Building, including the plumbing, heating, ventilating, air-conditioning and
electrical systems installed or furnished by Landlord; (k) maintenance, costs
and upkeep of all parking and Common Areas: (l) amortization on a straight-line
basis over the useful life together with interest at the Interest Rate (as
defined in Section 1.14 of the Summary of this Lease) on the unamortized balance
of all costs of a capital nature (including, without limitation, capital
improvements, capital replacements, capital repairs, capital equipment and
capital tools): (1) reasonably intended to produce a reduction in operating
charges or energy consumption; or (2) required after the date of this Lease
under any governmental law or regulation that was not applicable to the Building
as of the date hereof; (m) costs and expenses of gardening and landscaping; (n)
maintenance of signs (other than signs of tenants of the Building); (o) personal
property taxes levied on or attributable to personal property used in connection
with the Building, the Common Areas and/or the Site; and (p) costs and expenses
of repairs, resurfacing, repairing, maintenance, painting, lighting, cleaning,
refuse removal, security and similar items, including appropriate reserves. For
purposes of determining Landlord's Contribution to Operating Expenses, Operating
Expenses shall not include one-time special assessments, charges, costs or fees
or extraordinary charges or costs incurred in the Base Year only, including
those attributable to boycotts, embargoes, strikes or other shortages of
services or supplies.
Notwithstanding anything to the contrary contained in this Lease, "Operating
Expenses" shall not include any of the following:
(1) Any ground lease rental or master lease rental;
(2) Costs reimbursed by insurers, governmental authorities or any
other entity;
(3) Costs, including permit, license and inspection costs, incurred
with respect to the installation of other tenants' or occupants' improvements
made for other tenants or occupants in the Building or the Project or incurred
in renovating or otherwise improving, decorating, painting or redecorating
vacant space for other tenants or occupants of the Building or the Project;
(4) Marketing costs including any sale/transfer/leasing commissions,
attorneys' fees in connection with the negotiation and preparation of letters,
deal memos, letters of intent, agreements, leases, subleases and/or assignments,
space planning costs, and other costs and expenses incurred in connection with
sale/transfer/lease, sublease and/or assignment negotiations and transactions
with present or prospective purchasers, tenants or other occupants of the
Building or the Project;
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(5) Costs incurred by Landlord, including attorneys' fees and costs,
judgment and awards, due to the violation by Landlord or other tenants or
occupants of the Project of (A) the terms and conditions of any lease or other
occupancy of space in the Building or the Project, (B) this Lease, (C) any
master lease, or (D) any other agreements, covenants, conditions and
restrictions encumbering the Building or the Project;
(6) Interest, principal, points and fees on debts or amortization on
any mortgage or mortgages or any other debt instrument encumbering the Building
or the Project;
(7) Penalties, fines and interest incurred as a result of Landlord's
negligence, inability or unwillingness to make any payments when due or to file
any real property tax, income tax or informational returns when due;
(8) Costs arising from Landlord's charitable or political
contributions;
(9) Costs for acquisition of sculpture, paintings or other objects of
art (but not excluding customary janitorial and maintenance associated with any
such items);
(10) Advertising and promotional expenditures, and the cost of signs in
or on the Project identifying the owner of the Building or other tenants of the
Building or the Project;
(11) Costs associated with the operation of the business of the
partnership or entity which constitutes Landlord as the same are distinguished
from the costs of operation of the Building, including partnership accounting
and legal matters, costs of defending any lawsuits with any mortgagee (except
actions where the default of Tenant may be in issue), costs of selling,
syndicating, financing, mortgaging or hypothecating any of Landlord's interest
in the Building and/or the Project, costs of any disputes between Landlord and
its employees (if any) not engaged in the operation of the Building, disputes of
Landlord with Building or parking management, or outside fees paid in connection
with disputes with other tenants:
(12) Attorneys' fees and costs in connection with any litigation
between Landlord and Tenant;
(13) Costs associated with the installation, maintenance and removal of
any signage associated with the tenants of the Building (except for any
directory signage, directional signage and any signs required by Law);
(14) Any rental and associated costs, either actual or not, for the
leasing office of Landlord, but not excluding any commercially reasonable
on-site property management office rental and associated costs for an office not
to exceed 3,000 rentable square feet in area;
(15) Any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord;
(16) Any entertainment, dining or travel expenses of Landlord for any
purpose;
(17) Any flowers, gifts, balloons, etc. provided to any entity
whatsoever, including, but not limited to, Tenant, or other tenants, employees,
vendors, contractors, prospective tenants and agents; and
(18) Except for costs relating to any of Tenant's actions or any
failure to act where Tenant is responsible under this Lease to so act, any
costs, expenses, fees or penalties incurred by Landlord to comply with any
Hazardous Materials laws, rules, ordinances or regulations enacted prior to the
Commencement Date.
4.5 DEFINITION OF REAL PROPERTY TAXES AND ASSESSMENTS. All Real Property
Taxes and Assessments shall be adjusted to reflect an assumption that the
Building is fully assessed for real property tax purposes as a completed
building(s) ready for occupancy. As used in this Lease, the term "REAL PROPERTY
TAXES AND ASSESSMENTS" shall mean: any form of assessment, license fee, license
tax, business license fee, commercial rental tax, levy, charge, improvement
bond, tax or similar imposition imposed by any authority having the direct power
to tax, including any city, county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement or special assessment
district thereof, as against any legal or equitable interest of Landlord in the
Premises, Building. Common Areas or Site, including the following by way of
illustration but not limitation:
(a) any tax on Landlord's "right" to rent or "right" to other income from
the Premises or as against Landlord's business of leasing the Premises;
(b) any assessment, tax, fee, levy or charge in substitution, partially or
totally, of any assessment, tax, fee, levy or charge previously
included within the definition of real property tax, it being
acknowledged by Tenant and Landlord that Proposition 13 was adopted by
the voters of the State of California in the June, 1978 election and
that assessments, taxes, fees, levies and charges may be imposed by
governmental agencies for such services as fire protection, street,
sidewalk and road maintenance, refuse removal and for other
governmental services formerly provided without charge to property
owners or occupants. It is the intention of Tenant and Landlord that
all such new and increased assessments, taxes, fees, levies and charges
be included within the definition of "real property taxes" for the
purposes of this Lease;
(c) any assessment, tax, fee, levy or charge allocable to or measured by
the area of the Premises or other premises in the Building or the rent
payable by Tenant hereunder or other tenants of the Building,
including, without limitation, any gross receipts tax or excise tax
levied by state, city or federal government, or any political
subdivision thereof, with respect to the receipt of such rent, or upon
or with respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the
Premises, or any portion thereof but not on Landlord's other
operations;
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(d) any assessment, tax, fee, levy or charge upon this transaction or any
document to which Tenant is a party, creating or transferring an
interest or an estate in the Premises; and/or
(e) any assessment, tax, fee, levy or charge by any governmental agency
related to any transportation plan, fund or system (including
assessment districts) instituted within the geographic area of which
the Building is a part.
Notwithstanding the foregoing, if after the Commencement Date Real Property
Taxes and Assessments are reduced, then for purposes of all subsequent Lease
Years including the Lease Year in which the reduction occurs, Landlord's
Contribution to Operating Expenses shall be proportionately reduced.
Notwithstanding the foregoing provisions of this Section 4.5 above to the
contrary, "Real Property Taxes and Assessments" shall not include Landlord's
federal or state income, franchise, inheritance or estate taxes.
4.6 ESTIMATE STATEMENT. By the first day of April of each calendar year
during the Term of this Lease (after the Base Year noted in Section 1.10 of the
Summary), Landlord shall endeavor to deliver to Tenant a line item statement
("ESTIMATE STATEMENT") estimating the Operating Expenses for the current
calendar year and the estimated amount of Excess Expenses payable by Tenant.
Landlord shall have the right no more than three (3) times in any calendar year
to deliver a revised Estimate Statement showing the Excess Expenses for such
calendar year if Landlord determines that the Excess Expenses are greater than
those set forth in the original Estimate Statement (or previously delivered
revised Estimate Statement) for such calendar year. The Excess Expenses shown on
the Estimate Statement (or revised Estimate Statement, as applicable) shall be
divided into twelve (12) equal monthly installments, and Tenant shall pay to
Landlord, concurrently with the regular monthly rent payment next due following
the receipt of the Estimate Statement (or revised Estimate Statement, as
applicable), an amount equal to one (1) monthly installment of such Excess
Expenses multiplied by the number of months from January in the calendar year in
which such statement is submitted to the month of such payment, both months
inclusive (less any amounts previously paid by Tenant with respect to any
previously delivered Estimate Statement or revised Estimate Statement for such
calendar year). Subsequent installments shall be paid concurrently with the
regular monthly rent payments for the balance of the calendar year and shall
continue until the next calendar year's Estimate Statement (or current calendar
year's revised Estimate Statement) is received.
4.7 ACTUAL STATEMENT. By the first day of April of each succeeding calendar
year during the Term of this Lease, Landlord shall endeavor to deliver to Tenant
a statement ("ACTUAL STATEMENT") of the actual Operating Expenses and Excess
Expenses for the immediately preceding calendar year. If the Actual Statement
reveals that Excess Expenses were over-stated or under-stated in any Estimate
Statement (or revised Estimate Statement) previously delivered by Landlord
pursuant to Section 4.6 above, then within thirty (30) days after delivery of
the Actual Statement, Tenant shall pay to Landlord the amount of any such
under-payment, or, Landlord shall pay to Tenant (or credit against the next
monthly rent falling due), the amount of such over-payment, as the case may be.
Such obligation will be a continuing one which will survive the expiration or
earlier termination of this Lease. Prior to the expiration or sooner termination
of the Lease Term and Landlord's acceptance of Tenant's surrender of the
Premises, Landlord will have the right to estimate the actual Operating Expenses
for the then current Lease Year and to collect from Tenant prior to Tenant's
surrender of the Premises, Tenant's Percentage of any excess of such actual
Operating Expenses over the estimated Operating Expenses paid by Tenant in such
Lease Year.
4.8 NO RELEASE. Any delay or failure by Landlord in delivering any Estimate
or Actual Statement pursuant to this Section 4 shall not constitute a waiver of
its right to receive Tenant's payment of Excess Expenses, nor shall it relieve
Tenant of its obligations to pay Excess Expenses pursuant to this Section 4,
except that Tenant shall not be obligated to make any payments based on such
Estimate or Actual Statement until ten (10) business days after receipt of such
statement.
4.9 BOOKS AND RECORDS. Landlord shall maintain books and records in
accordance with sound accounting and management practices, reflecting the
Operating Expenses. If Tenant wishes to review or audit the amount of Tenant's
Percentage of Operating Expenses or any component thereof as to the Base Year or
as to the first Lease Year immediately following the Base Year, Tenant must
deliver to Landlord a written notice of Tenant's desire to review or audit
Landlord's books and records ("AUDIT NOTICE") within six (6) months following
Tenant's receipt of Landlord's first annual reconciliation. Thereafter, if
Tenant wishes to review or audit Tenant's Percentage of Operating Expenses as to
any subsequent Lease Year, Tenant and its duly authorized representatives (which
representatives (including Tenant's auditors, if any) shall be subject to
Landlord's reasonable approval) shall have the right to do so with respect to
any calendar year within one (1) year following receipt of the applicable
Actual Statement for such calendar year, upon thirty (30) days' prior delivery
of an Audit Notice. Such audit will be conducted (i) during normal business
hours at Landlord's business offices or at the management office of the
Building; (ii) on consecutive business days until completed; and (iii) in an
expeditious manner so as to minimize interference with Landlord's operations.
Landlord agrees that Tenant or its auditors shall have the right to photocopy
Landlord's books and records at Tenant's sole cost and expense. Tenant shall pay
in a timely manner as required by this Lease any amounts stated as due on the
Actual Statement, provided that such payment shall not waive any right to audit
and/or dispute by Tenant as set forth herein. In no event will Landlord or its
property manager be required to (i) photocopy any accounting records or other
items or contracts, (ii) create any ledgers or schedules not already in
existence, (iii) incur any costs or expenses relative to such inspection, or
(iv) perform any other tasks other than making available such accounting
records as are described in this paragraph. Tenant agrees to deliver to Landlord
the results of any such audit within ninety (90) days of completion of the
audit. If Tenant does not deliver an Audit Notice as to any annual
reconciliation within the time frames set forth hereinabove, then Tenant
acknowledges and agrees that such annual reconciliation will be conclusively
binding on Tenant.
If Tenant's audit or review reveals that Landlord has overcharged Tenant and
Landlord agrees with the results of such audit or the results of such audit are
confirmed in an arbitration between the parties pursuant to Section 34, then
within thirty (30) days after the results of such audit are made available to
Landlord, Landlord agrees to reimburse Tenant the amount of such overcharge plus
interest at the Interest Rate stated in Section 1.14 of the Summary. If the
audit reveals that Tenant was undercharged, then within thirty (30) days after
the results of the audit are made available to Tenant,
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Tenant agrees to reimburse Landlord the amount of such undercharge plus interest
thereon at the Interest Rate stated in Section 1.14 of the Summary within thirty
(30) days of demand by Landlord. Tenant agrees to pay the cost of such audit,
provided that if the audit reveals that Landlord's determination of Tenant's
Percentage of Operating Expenses as set forth in a certified statement sent to
Tenant was in error in Landlord's favor by more than eight percent (8%) of the
amount paid by Tenant prior to delivering the Audit Notice and Landlord agrees
with the results of such audit or the results of such audit are confirmed in an
arbitration between the parties pursuant to Section 34, then Landlord agrees to
pay the reasonable, third-party cost of such audit incurred by Tenant within
thirty (30) days of demand by Tenant. To the extent Landlord must pay the cost
of such audit, such cost shall not exceed a reasonable hourly charge for a
reasonable amount of hours spent by such third-party in connection with the
audit. Landlord shall not be liable for any contingency fee payments to any
auditors or consultants of Tenant. Tenant agrees to keep the results of the
audit (and any settlement, if any, resulting therefrom) confidential and will
cause its agents, employees and contractors to keep such results (and any
settlement, if any, resulting therefrom) confidential. If Landlord disputes the
results of Tenant's audit of Operating Expenses, Landlord shall have the right
to initiate an arbitration of the dispute as provided in Section 34.
5. [INTENTIONALLY DELETED].
6. USE.
6.1 GENERAL. Tenant shall use the Premises solely for the Permitted Use
specified in Section 1.12 of the Summary, and shall not use or permit the
Premises to be used for any other use or purpose whatsoever. Tenant shall
observe and comply with the "Rules and Regulations" attached hereto as Exhibit
"E", and all reasonable non-discriminatory modifications thereof and additions
thereto from time to time put into effect and furnished to Tenant by Landlord.
Landlord shall endeavor to enforce the Rules and Regulations, but shall have no
liability to Tenant for the violation or non-performance by any other tenant or
occupant of the Project or the Building of any such Rules and Regulations.
Tenant shall, at its sole cost and expense, observe and comply with all
requirements of any board of fire underwriters or similar body relating to the
Premises, and all laws, statutes, codes, rules and regulations now or hereafter
in force relating to or affecting the use, occupancy, alteration or improvement
of the Premises, including, without limitation, the provisions of Title III of
the Americans with Disabilities Act of 1990 ("ADA") as it pertains to Tenant's
use, occupancy, improvement and alteration of the Premises; provided, however,
that Landlord shall be responsible for any costs (if any) of causing the
restrooms of the floor on which the Premises are located (which restrooms
constitute part of the Premises) to comply, as of the date hereof, with the ADA
in effect as of the date hereof. Tenant shall not use or allow the Premises to
be used (a) in violation of any recorded covenants, conditions and restrictions
affecting the Site or of any law or governmental rule or regulation, or of any
certificate of occupancy issued for the Premises or Building, or (b) for any
improper, immoral, unlawful or reasonably objectionable purpose. Tenant shall
not do or permit to be done anything which will obstruct or interfere with the
rights of other tenants or occupants of the Project or the Building, or injure
or annoy them. Tenant shall not cause, maintain or permit any nuisance in, on or
about the Premises, the Building, the Project or the Site, nor commit or suffer
to be committed any waste in, on or about the Premises.
6.2 PARKING.
(a) Tenant's Parking Privileges. During the Term of this Lease, Landlord
shall lease to Tenant, and Tenant shall lease from Landlord, the number
of parking spaces specified in Section 1.16 of the Summary hereof based
on the parking pass ratio set forth therein for use by Tenant's
employees in the common parking areas for the Building within the
Project, as designated by Landlord from time to time. In addition to
the parking spaces specified in Section 1.16 of the Summary, Tenant
shall be entitled, on a non-exclusive basis and in common with other
tenants of the Project, to twelve (12) visitor parking spaces within
the Project, the exact location of which is set forth on Exhibit "A."
Landlord shall at all times have the right to establish and modify the
nature and extent of the parking areas for the Building and Project
(including whether such areas shall be surface, underground and/or
other structures) as long as Tenant is provided the number of parking
spaces designated in Section 1.16 of the Summary. In addition, Landlord
may, in its sole discretion, assign any unreserved and unassigned
parking spaces, and/or make all or a portion of such spaces reserved so
long as Tenant is provided the number of parking spaces in Section 1.16
of the Summary.
(b) Parking Charges; Loss of Parking Spaces. Each of Tenant's parking
spaces set forth in Section 1.16 of the Summary hereof shall not be
subject to any additional charge to Tenant. In addition to such parking
spaces for use by Tenant's employees, Landlord shall permit access to
the parking areas for Tenant's visitors, subject to availability of
spaces.
(c) Parking Rules. The use of the parking areas shall be subject to the
Parking Rules and Regulations contained in Exhibit "E" attached hereto
and any other reasonable, non-discriminatory rules and regulations
adopted by Landlord and/or Landlord's parking operators from time to
time, including any system for controlled ingress and egress and
charging visitors and invitees. Tenant shall not use more parking
spaces than its allotment and shall not use any parking spaces
specifically assigned by Landlord to other tenants of the Building or
Project or for such other uses as visitor parking. Tenant's parking
spaces shall be used only for parking by vehicles no larger than
normally sized passenger automobiles or pick-up trucks. Tenant shall
not permit or allow any vehicles that belong to or are controlled by
Tenant or Tenant's employees, suppliers, shippers, customers or
invitees to be loaded, unloaded, or parked in areas other than those
designated by Landlord for such activities. If Tenant permits or allows
any of the prohibited activities described herein, then Landlord shall
have the right, without notice, in addition to such other rights and
remedies that it may have, to remove or tow away the vehicle involved
and charge the cost thereof to Tenant, which cost shall be immediately
payable by Tenant upon demand by Landlord.
6.3 SIGNS AND AUCTIONS. Subject to compliance with all governmental rules
and requirements and the provisions of this Lease, Tenant shall have (i) the
exclusive right to install a building top sign identifying Tenant's name on the
north and east facing sides of the Building (the "BUILDING TOP SIGNS"), (ii) the
right to have Landlord install, at Tenant's sole
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cost and expense and in Landlord's standard manner, directory strips on the
Building directory in the lobby of the Building to display Tenant's name, the
names of Tenant's principal employees and Tenant's location in the Building (the
"DIRECTORY SIGNAGE"), and (iii) the right to install signs identifying Tenant's
name in the lobby entrance to its Premises and on the entry doors of the
Premises (the "ENTRY DOOR AND PREMISES LOBBY SIGNAGE"). The Building Top Signs,
the Directory Signage and the Entry Door and Premises Lobby Signage are
collectively referred to as "TENANT'S SIGNAGE." The exact location, dimensions,
color, illumination and other features of Tenant's Signage shall be subject to
Landlord's prior approval in accordance with the Project's signage program. The
Building Top Signs right is personal to the Original Tenant and to any Affiliate
of the Original Tenant only so long as the Original Tenant or any Affiliate of
the Original Tenant is occupying one hundred percent (100%) of the total
rentable square feet comprising the initial Premises (not including the Must
Take Space). Tenant's Signage shall be installed (except for the installation of
the Directory Signage (which shall be installed by Landlord)) and maintained by
Tenant at Tenant's sole cost and expense pursuant to an installation and
maintenance program approved and supervised by Landlord. If Tenant fails to
maintain Tenant's Signage in a manner reasonably satisfactory to Landlord, then
Landlord may maintain Tenant's Signage and charge the costs thereof to Tenant as
additional rent. At the expiration or earlier termination of this Lease, Tenant
shall, at Tenant's sole cost and expense, remove Tenant's Signage and repair any
damage or discoloration to the Building caused by the installation or removal
thereof. Except for Tenant's Signage, Tenant shall have no right to place any
sign upon the Premises, the Building, Site or Project or which can be seen from
outside the Premises. Tenant shall have no right to conduct any auction in, on
or about the Premises, the Building or Site.
6.4 HAZARDOUS MATERIALS. Except for materials used in connection with
Tenant's business conducted from the Premises, including ordinary and general
office supplies, such as copier toner, liquid paper, glue, ink and common
household cleaning materials (some or all of which may constitute "HAZARDOUS
MATERIALS" as defined in this Lease), Tenant agrees not to cause or permit any
Hazardous Materials to be brought upon, stored, used, handled, generated,
released or disposed of on, in, under or about the Premises, the Building, the
Common Areas or any other portion of the Project by Tenant, its agents,
employees, subtenants, assignees, licensees, contractors or invitees
(collectively, "TENANT'S PARTIES"), without the prior written consent of
Landlord, which consent Landlord may withhold in its sole and absolute
discretion. Upon the expiration or earlier termination of this Lease, Tenant
agrees to promptly remove from the Premises, the Building and the Project, at
its sole cost and expense, any and all Hazardous Materials, including any
equipment or systems containing Hazardous Materials which are installed, brought
upon, stored, used, generated or released upon, in, under or about the Premises,
the Building and/or the Project or any portion thereof by Tenant or any of
Tenant's Parties. To the fullest extent permitted by law, Tenant agrees to
promptly indemnify, protect, defend and hold harmless Landlord and Landlord's
partners, officers, directors, employees, agents, successors and assigns
(collectively, "LANDLORD INDEMNIFIED PARTIES") from and against any and all
claims, damages, judgments, suits, causes of action, losses, liabilities,
penalties, fines, expenses and costs (including, without limitation, clean-up,
removal, remediation and restoration costs, sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees and court costs, but
specifically excluding special, indirect or consequential damages including but
not limited to claims for loss of use, anticipated profit or business
opportunity, market-based stigma damages or business interruption, or mental or
emotional distress or fear of injury or disease) which arise or result from the
presence of Hazardous Materials on, in, under or about the Premises, the
Building or any other portion of the Project and which are caused or permitted
by Tenant or any of Tenant's Parties. Tenant agrees to promptly notify Landlord
of any release of Hazardous Materials in the Premises, the Building or any other
portion of the Project which Tenant becomes aware of during the Term of this
Lease, whether caused by Tenant or any other persons or entities. In the event
of any release of Hazardous Materials caused or permitted by Tenant or any of
Tenant's Parties, Landlord shall have the right, but not the obligation, to
cause Tenant to immediately take all steps Landlord deems necessary or
appropriate to remediate such release and prevent any similar future release to
the satisfaction of Landlord and Landlord's mortgagee(s). At all times during
the Term of this Lease, Landlord will have the right, but not the obligation, to
enter upon the Premises to inspect, investigate, sample and/or monitor the
Premises to determine if Tenant is in compliance with the terms of this Lease
regarding Hazardous Materials. As used in this Lease, the term "HAZARDOUS
MATERIALS" shall mean and include any hazardous or toxic materials, substances
or wastes as now or hereafter designated under any law, statute, ordinance,
rule, regulation, order or ruling of any agency of the State, the United States
Government or any local governmental authority, including, without limitation,
asbestos, petroleum, petroleum hydrocarbons and petroleum based products, urea
formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), and freon and
other chlorofluorocarbons. The provisions of this Section 6.4 will survive the
expiration or earlier termination of this Lease.
Landlord represents to Tenant that, to Landlord's actual knowledge as of the
date of Landlord's delivery of the Premises to Tenant, the Building does not,
except as may be disclosed in the April 28, 1996 Phase I Environmental
Assessment Report No. 889-6E060 prepared by Professional Services Industries,
Inc., contain Hazardous Materials in levels in excess of those permitted by
Hazardous Materials laws existing as of the date of Landlord's delivery of the
Premises to Tenant. Landlord shall indemnify, defend and hold harmless Tenant
from and against any and all claims, judgments, damages, penalties, fines,
costs, liabilities and losses (including, without limitation, sums paid in
settlement of claims and for reasonable attorneys' fees, consultant fees and
expert fees, (but specifically excluding special, indirect or consequential
damages including but not limited to claims for loss of use, anticipated profit
or business opportunity, market-based stigma damages or business interruption,
or mental or emotional distress or fear of injury or disease) to the extent
arising as a result of any Hazardous Materials (1) located in, on, under or
about the Building and/or Project as of the commencement of Tenant's occupancy
of the Premises, or (2) hereafter caused to be located in, on, under or about
the Building and/or Project by Landlord and/or any of Landlord's employees,
agents or representatives or other tenants of the Project. This indemnification
of Tenant by Landlord includes, without limitation, costs incurred in connection
with any investigation of site conditions or any clean-up, remedial, removal or
restoration work. The covenants of Landlord under this Section 6.5 shall survive
the expiration of the Term or earlier termination of this Lease. Notwithstanding
anything above to the contrary, the foregoing indemnity shall not extend to
Hazardous Materials caused to be located in the Building and/or the Project by
Tenant or any of Tenant's Parties.
7. PAYMENTS AND NOTICES. All rent and other sums payable by Tenant to
Landlord hereunder shall be paid to Landlord at the first address designated in
Section 1.1 of the Summary, or to such other persons and/or at such other places
as Landlord may hereafter designate in writing. Any notice required or permitted
to be given hereunder must be
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in writing and may be given by personal delivery (including delivery by
nationally recognized overnight courier or express mailing service), facsimile
transmission, or by registered or certified mail, postage prepaid, return
receipt requested, addressed to Tenant at the address(es) designated in Section
1.2 of the Summary, or to Landlord at the address(es) designated in Section 1.1
of the Summary. Either party may, by written notice to the other, specify a
different address for notice purposes.
8. BROKERS. The parties recognize that the broker(s) who negotiated this
Lease are stated in Section 1.13 of the Summary, and agree that Landlord shall
be solely responsible for the payment of brokerage commissions to said
broker(s), and that Tenant shall have no responsibility therefor unless written
provision to the contrary has been made. Each party represents and warrants to
the other, that, to its knowledge, no other broker, agent or finder (a)
negotiated or was instrumental in negotiating or consummating this Lease on its
behalf, and (b) is or might be entitled to a commission or compensation in
connection with this Lease. Any broker, agent or finder of Tenant whom Tenant
has failed to disclose herein shall be paid by Tenant. Tenant shall indemnify,
defend (by counsel reasonably approved in writing by Landlord) and hold
Landlord harmless from and against any and all claims, judgments, suits, causes
of action, damages, losses, liabilities and expenses (including attorneys' fees
and court costs) resulting from any breach by Tenant of the foregoing
representation, including, without limitation, any claims that may be asserted
against Landlord by any broker, agent or finder undisclosed by Tenant herein.
Landlord shall indemnify, defend (by counsel reasonably approved in writing by
Tenant) and hold Tenant harmless from and against any and all claims, judgments,
suits, causes of action, damages, losses, liabilities and expenses (including
attorneys' fees and court costs) resulting from any breach by Landlord of the
foregoing representation, including, without limitation, any claims that may be
asserted against Tenant by any broker, agent or finder undisclosed by Landlord
herein. The foregoing indemnities shall survive the expiration or earlier
termination of this Lease.
9. SURRENDER; HOLDING OVER.
9.1 SURRENDER OF PREMISES. Upon the expiration or sooner termination of
this Lease, Tenant shall surrender all keys for the Premises to Landlord, and
exclusive possession of the Premises to Landlord broom clean and in
substantially the same condition and repair as received by Tenant, reasonable
wear and tear excepted (and casualty damage excepted if this Lease is terminated
as a result thereof pursuant to Section 18), with all of Tenant's personal
property (and those items, if any, of Tenant Improvements and Tenant Changes
identified by Landlord pursuant to Section 12.2 below) removed therefrom and all
damage caused by such removal repaired, as required pursuant to Sections 12.2
and 12.3 below. If, for any reason, Tenant fails to surrender the Premises on
the expiration or earlier termination of this Lease (including upon the
expiration of any subsequent month-to-month tenancy consented to by Landlord
pursuant to Section 9.2 below), with such removal and repair obligations
completed, then, in addition to the provisions of Section 9.3 below and
Landlord's rights and remedies under Section 12.4 and the other provisions of
this Lease, Tenant shall indemnify, protect, defend (by counsel approved in
writing by Landlord) and hold Landlord harmless from and against any and all
claims, judgments, suits, causes of action, damages, losses, liabilities and
expenses (including attorneys' fees and court costs) resulting from such failure
to surrender, including, without limitation, any claim made by any succeeding
tenant based thereon. The foregoing indemnity shall survive the expiration or
earlier termination of this Lease.
9.2 HOLD OVER WITH LANDLORD'S CONSENT. If, with Landlord's express written
consent, Tenant remains in possession of the Premises after the expiration or
earlier termination of the Lease Term, Tenant shall become a tenant from
month-to-month upon the terms and conditions set forth in this Lease (including
Tenant's obligation to pay all Excess Expenses and any other additional rent
under this Lease), but at a Monthly Basic Rent equal to the greater of: (a) one
hundred fifty percent (150%) of the Monthly Basic Rent applicable to the
Premises immediately prior to the date of such expiration or earlier
termination; or (b) one hundred twenty-five percent (125%) of the prevailing
market rate excluding any rental or other concessions (as reasonably determined
by Landlord) for the Premises in effect on the date of such expiration or
earlier termination. Tenant shall pay an entire month's Monthly Basic Rent
calculated in accordance with this Section 9.2 for any portion of a month it
holds over and remains in possession of the Premises pursuant to this Section
9.2. This Section 9.2 shall not be construed to create any expressed or implied
right to holdover beyond the expiration of the Lease Term or any extension
thereof.
9.3 HOLD OVER WITHOUT LANDLORD'S CONSENT. If Tenant holds over after the
expiration or earlier termination of the Lease Term without the express written
consent of Landlord, then, in addition to all other remedies available to
Landlord, Tenant shall become a tenant at sufferance only, upon the terms and
conditions set forth in this Lease so far as applicable (including Tenant's
obligation to pay all Excess Expenses and any other additional rent under this
Lease), but at a Monthly Basic Rent equal to the greater of: (a) one hundred
fifty percent (150%) of the Monthly Basic Rent applicable to the Premises
immediately prior to the date of such expiration or earlier termination; or (b)
one hundred twenty-five percent (125%) of the prevailing market rate excluding
any rental or other concessions (as reasonably determined by Landlord) for the
Premises in effect on the date of such expiration or earlier termination.
Acceptance by Landlord of rent after such expiration or earlier termination
shall not constitute a consent to a hold over hereunder or result in an
extension of this Lease. Tenant shall pay an entire month's Monthly Basic Rent
calculated in accordance with this Section 9.3 for any portion of a month it
holds over and remains in possession of the Premises pursuant to this Section
9.3.
9.4 NO EFFECT ON LANDLORD'S RIGHTS. The foregoing provisions of this
Section 9 are in addition to, and do not affect, Landlord's right of re-entry or
any other rights of Landlord hereunder or otherwise provided by law or equity.
10. TAXES ON TENANT'S PROPERTY. Tenant shall be liable for, and shall pay
before delinquency, all taxes and assessments (real and personal) levied
against (a) any personal property or trade fixtures placed by Tenant in or about
the Premises (including any increase in the assessed value of the Premises based
upon the value of any such personal property or trade fixtures); and (b) any
Tenant Improvements, Tenant Changes or other alterations in the Premises
(whether installed and/or paid for by Landlord or Tenant) to the extent such
items are assessed at a valuation higher than the valuation at which tenant
improvements conforming to the Building's standard tenant improvements are
assessed. If any such taxes or assessments are levied against Landlord or
Landlord's property, Landlord may, after written notice to
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Tenant (and under proper protest if requested by Tenant) pay such taxes and
assessments, and Tenant shall reimburse Landlord therefor within ten (10)
business days after demand by Landlord; provided, however, Tenant, at its sole
cost and expense, shall have the right, with Landlord's cooperation, to bring
suit in any court of competent jurisdiction to recover the amount of any such
taxes and assessments so paid under protest.
11. CONDITION OF PREMISES; REPAIRS.
11.1 CONDITION OF PREMISES. Tenant acknowledges that, except as otherwise
expressly set forth in this Lease, neither Landlord nor any agent of Landlord
has made any representation or warranty with respect to the Premises, the
Building, the Site or the Project or their condition, or with respect to the
suitability thereof for the conduct of Tenant's business. Subject to Landlord's
repair obligations set forth below, the taking of possession of the Premises by
Tenant shall conclusively establish that the Project, the Site, the Premises,
the Tenant Improvements therein, the Building and the Common Areas were at such
time complete and in good, sanitary and satisfactory condition and repair and
without any obligation on Landlord's part to make any alterations, upgrades or
improvements thereto; provided, however, that notwithstanding anything herein to
the contrary, Landlord shall, prior to the Commencement Date and at its sole
cost and expense, (i) replace any missing window blinds to the extent any such
blinds were previously located in the Premises and were not removed by Tenant,
Tenant's employees, invitees or Tenant's Agents, and (ii) repair holes in the
walls of the Premises to the extent not caused by Tenant, Tenant's employees,
invitees or Tenant's Agents.
11.2 LANDLORD'S REPAIR OBLIGATIONS. Subject to Section 18.1 and 18.2 of this
Lease, Landlord shall, as part of the Operating Expenses, repair and maintain
(a) the Building shell and other structural portions of the Building (including
the roof and foundations), (b) the basic heating, ventilating, air conditioning
("HVAC"), sprinkler and electrical systems within the Building core and standard
conduits, connections and distribution systems thereof within the Premises (but
not any above standard improvements installed in the Premises such as, for
example, but by way of limitation, custom lighting, special or supplementary
HVAC or plumbing systems or distribution extensions, special or supplemental
electrical panels or distribution systems, or kitchen or restroom facilities and
appliances to the extent such facilities and appliances are intended for the
exclusive use of Tenant), and (c) the Common Areas; provided, however, to the
extent such maintenance or repairs are required as a result of any act, neglect,
fault or omission of Tenant or any of Tenant's agents, employees contractors,
licensees or invitees, Tenant shall pay to Landlord, as additional rent, the
costs of such maintenance and repairs. Landlord shall not be liable to Tenant
for failure to perform any such repairs or maintenance, unless Landlord shall
fail to make such repairs and such failure shall continue for an unreasonable
time following written notice from Tenant to Landlord of the need for such
repairs. Without limiting the foregoing, Tenant waives the right to make repairs
at Landlord's expense under any law, statute or ordinance now or hereafter in
effect (including the provisions of California Civil Code Section 1942 and any
successive sections or statutes of a similar nature).
11.3 TENANT'S REPAIR OBLIGATIONS. Except for Landlord's obligations
specifically set forth in Sections 11.1, 11.2, 16.1, 18.1 and 19.2 hereof,
Tenant shall at all times and at Tenant's sole cost and expense, keep, maintain,
clean, repair and preserve the Premises and all parts thereof including,
without limitation, all Tenant Improvements, Tenant Changes, utility meters, all
special or supplemental HVAC systems, electrical systems, pipes and conduits,
located within the Premises, all fixtures, furniture and equipment, Tenant's
storefront, Tenant's signs, locks, closing devices, security devices, widows,
window sashes, casements and frames, floors and floor coverings, shelving,
kitchen and/or restroom facilities and appliances located within the Premises
to the extent such facilities and appliances are intended for the exclusive use
of Tenant, if any, custom lighting, and any alterations, additions and other
property located within the Premises in good condition and repair, reasonable
wear and tear excepted. Tenant shall replace, at its expense, any and all plate
and other glass in and about the Premises to the extent the same is damaged or
broken by Tenant, its agents, employees invitees, contractors or licensees. Such
maintenance and repairs shall be performed with due diligence, lien-free and in
a first-class and workmanlike manner, by licensed contractor(s) which are
selected by Tenant and approved by Landlord, which approval Landlord shall not
unreasonably withhold or delay. Except as otherwise expressly provided in this
Lease, Landlord shall have no obligation to alter, remodel, improve, repair,
renovate, redecorate or paint all or any part of the Premises.
12. ALTERATIONS.
12.1 TENANT CHANGES; CONDITIONS. Tenant may, at its sole cost and expense,
make alterations, additions, improvements and decorations to the Premises
(collectively, "TENANT CHANGES") subject to and upon the following terms and
conditions:
(a) Notwithstanding any provision in this Section 12 (including, but not
limited to, Section 12.1(b)) to the contrary, Tenant is absolutely
prohibited from making any alterations, additions, improvements or
decorations which: (i) affect any area outside the Premises; (ii)
affect the Building's structure, equipment, services or systems, or the
proper functioning thereof, or Landlord's access thereto; (iii) affect
the outside appearance, character or use of the Project, the Building
or the Common Areas; (iv) weaken or impair the structural strength of
the Building; (v) in the reasonable opinion of Landlord, lessen the
value of the Project or Building; or (vi) will violate or require a
change in any occupancy certificate applicable to the Premises.
(b) Before proceeding with any Tenant Change which is not otherwise
prohibited in Section 12.1(a) above, Tenant must first obtain
Landlord's written approval thereof (including approval of all plans,
specifications and working drawings for such Tenant Change), which
approval shall not be unreasonably withheld or delayed. However,
Landlord's prior approval shall not be required for any Tenant Change
which is cosmetic in nature (e.g. interior painting and wallpapering),
or which satisfies each of the following conditions (hereinafter a
"PRE-APPROVED CHANGE"): (i) the costs of such Tenant Change does not
exceed Three Thousand Dollars ($3,000.00) individually. (ii) the costs
of such Tenant Change when aggregated with the costs of all other
Tenant Changes made by Tenant during the Term of this Lease do not
exceed Fifteen Thousand Dollars ($15,000.00); (iii) Tenant delivers to
Landlord final plans, specifications and working drawings for such
Change at least ten (10) days prior
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to commencement of the work thereof; and (iv) Tenant and such Tenant
Change otherwise satisfy all other conditions set forth in this Section
12.1.
(c) After Landlord has approved the Tenant Changes and the plans,
specifications and working drawings therefor (or is deemed to have
approved the Pre-Approved Changes as set forth in Section 12.1(b)
above), Tenant shall: (i) enter into an agreement for the performance
of such Tenant Changes with such contractors and subcontractors
selected by Tenant and approved by Landlord, which approval shall not
be unreasonably withheld or delayed; (ii) before proceeding with any
Tenant Change (including any Pre-Approved Change), provide Landlord
with ten (10) days' prior written notice thereof; and (iii) pay to
Landlord, within ten (10) days after written demand, the costs of any
increased insurance premiums incurred by Landlord to include such
Tenant Changes in the fire and extended coverage insurance obtained by
Landlord pursuant to Section 21 below. However, Landlord shall be
required to include the Tenant Changes under such insurance only to the
extent such insurance is actually obtained by Landlord and such Tenant
Changes are insurable under such insurance; if such Tenant Changes are
not or cannot be included in Landlord's insurance, Tenant shall insure
the Tenant Changes under its casualty insurance pursuant to Section
21.1(a) below. In addition, before proceeding with any Tenant Change,
Tenant's contractors shall obtain, on behalf of Tenant and at Tenant's
sole cost and expense: (A) all necessary governmental permits and
approvals for the commencement and completion of such Tenant Change;
and (B) a completion and lien indemnity bond, or other surety,
satisfactory to Landlord for such Tenant Change; provided, however,
that Tenant shall not be required to obtain any such bond with respect
to Tenant's construction of the Tenant Improvements or any Tenant
Change costing less than One Hundred Thousand Dollars ($100,000.00).
Landlord's approval of any contractor(s) and subcontractor(s) of Tenant
shall not release Tenant or any such contractor(s) and/or
subcontractor(s) from any liability for any conduct or acts of such
contractor(s) and/or subcontractor(s).
(d) Tenant shall pay to Landlord, as additional rent, the reasonable costs
of Landlord's engineers and other consultants (but not Landlord's
on-site management personnel) for review of all plans, specifications
and working drawings for the Tenant Changes, within ten (10) business
days after Tenant's receipt of invoices either from Landlord or such
consultants. In addition to such costs, Tenant shall pay to Landlord,
within ten (10) business days after completion of any Tenant Change,
the actual, reasonable costs incurred by Landlord for services rendered
by Landlord's management personnel and engineers to coordinate and/or
supervise any of the Tenant Changes to the extent such services are
provided in excess of or after the normal on-site hours of such
engineers and management personnel.
(e) All Tenant Changes shall be performed: (i) in accordance with the
approved plans, specifications and working drawings; (ii) lien-free and
in a first-class workmanlike manner; (iii) in compliance with all laws,
rules, regulations of all governmental agencies and authorities
including, without limitation, the provisions of Title III of the
Americans with Disabilities Act of 1990; (iv) in such a manner so as
not to unreasonably interfere with the occupancy of any other tenant in
the Project or Building, nor impose any additional expense upon nor
delay Landlord in the maintenance and operation of the Project or
Building; and (v) at such times, in such manner and subject to such
rules and regulations as Landlord may from time to time reasonably
designate.
(f) Throughout the performance of the Tenant Changes, Tenant shall obtain,
or cause its contractors to obtain, workers compensation insurance and
general liability insurance in compliance with the provisions of
Section 20 of this Lease.
12.2 REMOVAL OF TENANT CHANGES AND TENANT IMPROVEMENTS. Except for the
Tenant Improvements constructed by Tenant which shall remain in the Premises,
all Tenant Changes required by Landlord to be removed by Tenant at the time
Landlord provided Tenant with Landlord's consent to a Tenant Change (or, in the
event of a Pre-Approved Change (not requiring Landlord's consent), at the time
Landlord approves Tenant's plans and specifications regarding such Pre-Approved
Change), shall be removed by Tenant upon the expiration or earlier termination
of this Lease. If Tenant is required to remove any such items as described
above, Tenant shall, at its sole cost, remove the identified items on or before
the expiration or sooner termination of this Lease and repair any damage to the
Premises caused by such removal (or, at Landlord's option, shall pay to Landlord
all of Landlord's costs of such removal and repair).
12.3 REMOVAL OF PERSONAL PROPERTY. All articles of personal property owned
by Tenant or installed by Tenant at its expense in the Premises (including
business and trade fixtures, furniture and moveable partitions) shall be, and
remain, the property of Tenant, and shall be removed by Tenant from the
Premises, at Tenant's sole cost and expense, on or before the expiration or
sooner termination of this Lease. Tenant shall promptly repair any damage caused
by such removal.
12.4 TENANT'S FAILURE TO REMOVE. If Tenant fails to remove by the expiration
or sooner termination of this Lease all of its personal property, or any items
of Tenant Improvements or Tenant Changes identified by Landlord for removal
pursuant to Section 12.2 above, or if Tenant fails to comply with its
obligations under Section 12.3, Landlord may, at its option, treat such failure
as a hold over pursuant to Section 9.3 above, and/or may (without liability to
Tenant for loss thereof, at Tenant's sole cost and in addition to Landlord's
other rights and remedies under this Lease, at law or in equity: (a) remove and
store such items in accordance with applicable law; and/or (b) upon ten (10)
days' prior notice to Tenant, sell all or any such items at private or public
sale for such price as Landlord may obtain as permitted under applicable law.
Landlord shall apply the proceeds of any such sale to any amounts due to
Landlord under this Lease from Tenant (including Landlord's attorneys' fees and
other costs incurred in the removal, storage and/or sale of such items), with
any remainder to be paid to Tenant.
12.5 INITIAL IMPROVEMENTS IN THE PREMISES. Tenant shall be entitled to
perform initial improvements in the Premises (including the Must Take Space) in
accordance with this Section 12.5 and otherwise in accordance with Section 12.
In connection therewith, Tenant shall be entitled to a one-time improvement
allowance (the "IMPROVEMENT ALLOWANCE") in an amount up to Six Dollars ($6.00)
per usable square foot of the Premises (including the Must Take Space) for the
costs
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relating to the design and construction of Tenant's initial improvements in the
Premises and which are to be permanently affixed to the Premises (the "TENANT
IMPROVEMENTS") and the Improvement Allowance Items, which Improvement Allowance
will only be disbursed by Landlord, if at all, in accordance with all of the
terms and provisions of this Section 12.5. In no event shall Landlord be
obligated to make disbursements under this Section 12.5 in a total amount which
exceeds the Improvement Allowance. Any such Tenant Improvements made by Tenant
shall be in accordance with, and subject to, Section 12 including, but not
limited to, the terms and conditions of Section 12.1.
(a) Improvement Allowance Items. The Improvement Allowance shall be
disbursed by Landlord only for the following items and costs
(collectively, the "IMPROVEMENT ALLOWANCE ITEMS"):
(i) Payment of the fees of the architect and engineer(s) retained
by Tenant, and Landlord and Landlord's consultants in
connection with the review of the plans and specifications
prepared for the Tenant Improvements ("IMPROVEMENT DRAWINGS");
(ii) The payment of plan check, permit and license fees relating to
construction of the Tenant Improvements;
(iii) The cost of construction of the Tenant Improvements,
including, without limitation, testing and inspection costs,
trash removal costs, and contractors' fees and general
conditions;
(iv) The cost of any changes in the existing Building when such
changes are required by the Improvement Drawings, such cost to
include all direct architectural and/or engineering fees and
expenses incurred in connection therewith;
(v) The cost of any changes to the Improvement Drawings or Tenant
Improvements required by applicable building codes;
(vi) Sales and use taxes and Title 24 fees;
(vii) Tenant's relocation expenses pertaining to Tenant's move into
the Premises;
(viii) Cabling and wiring to be installed in the Premises; and
(ix) Furniture, fixtures and equipment utilized by Tenant for the
conduct of Tenant's business from the Premises.
(b) Disbursement of Improvement Allowance. Upon the execution and delivery
of this Lease by Landlord and Tenant, Landlord shall disburse to Tenant
the first one-half (1/2) of the Improvement Allowance to Tenant. On
July 15, 1997, Landlord shall disburse to Tenant the second one-half
(1/2) of the Improvement Allowance. Within thirty (30) days after the
Commencement Date, Tenant shall provide to Landlord executed
unconditional mechanics' lien releases from all of Tenant's Agents (as
such term is defined below) which shall comply with the appropriate
provisions, as reasonably determined by Landlord, of California Civil
Code Section 3262(d) and either Section 3262(d)(3) or Section
3262(d)(4).
(c) Other Terms. All Improvement Allowance Items for which the Improvement
Allowance has been made available shall, except for Tenant's furniture,
trade fixtures and equipment, be deemed Landlord's property. All drafts
of the Improvement Drawings shall be subject to Landlord's prior
written approval, which approval shall not be unreasonably withheld or
delayed. In addition, all of Tenant's contractors, subcontractors,
laborers, materialmen and suppliers (collectively, "TENANT'S AGENTS")
shall be subject to Landlord's prior written approval (which approval
shall not be unreasonably withheld or delayed), except that
subcontractors of Landlord's selection shall be retained by the
Contractor to perform all mechanical, electrical, plumbing, structural
and heating, ventilation and air conditioning work.
13. LIENS. Tenant shall not permit any mechanic's, materialmen's or other
liens to be filed against all or any part of the Project, the Site, the Building
or the Premises, nor against Tenant's leasehold interest in the Premises, by
reason of or in connection with any repairs, alterations, improvements or other
work contracted for or undertaken by Tenant or any other act or omission of
Tenant or Tenant's agents, employees, contractors, licensees or invitees. Tenant
shall, at Landlord's request, provide Landlord with enforceable, unconditional
and final lien releases (and other evidence reasonably requested by Landlord to
demonstrate protection from liens) from all persons furnishing labor and/or
materials with respect to the Premises. Landlord shall have the right at all
reasonable times to post on the Premises and record any notices of
non-responsibility which it deems necessary for protection from such liens. If
any such liens are filed, Tenant shall, at its sole cost, immediately cause such
lien to be released of record or bonded to Landlord's reasonable satisfaction so
that it no longer affects title to the Project, the Site, the Building or the
Premises. If Tenant fails to cause such lien to be so released or bonded within
twenty (20) days after filing thereof, Landlord may, without waiving its rights
and remedies based on such breach, and without releasing Tenant from any of its
obligations, cause such lien to be released by any means it shall deem proper,
including payment in satisfaction of the claim giving rise to such lien. Tenant
shall pay to Landlord within five (5) days after receipt of invoice from
Landlord, any sum paid by Landlord to remove such liens, together with interest
at the Interest Rate from the date of such payment by Landlord.
14. ASSIGNMENT AND SUBLETTING.
14.1 RESTRICTION ON TRANSFER. Except as otherwise expressly provided in this
Section 14, Tenant shall not, without the prior written consent of Landlord,
which consent Landlord will not unreasonably withhold, assign or encumber this
Lease or any interest herein or sublet the Premises or any part thereof, or
permit the use or occupancy of the Premises by any party other than Tenant (any
such assignment, encumbrance, sublease, license or the like shall sometimes be
referred to as a "TRANSFER"). Any Transfer without Landlord's consent (except
for a Permitted Transfer pursuant to
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Section 14.2 below) shall constitute a default by Tenant under this Lease, and
in addition to all of Landlord's other remedies at law, in equity or under this
Lease, such Transfer shall be voidable at Landlord's election. In addition, this
Lease shall not, nor shall any interest of Tenant herein, be assignable by
operation of law without the written consent of Landlord. For purposes of this
Section 14, other than with respect to a Permitted Transfer under Section 14.2
and transfers of stock of Tenant if Tenant is a publicly-held corporation and
such stock is transferred publicly over a recognized security exchange or
over-the-counter market, if Tenant is a corporation, partnership or other
entity, any transfer, assignment, encumbrance or hypothecation of twenty-five
percent (25%) or more (individually or in the aggregate) of any stock or other
ownership interest in such entity, and/or any transfer, assignment,
hypothecation or encumbrance of any controlling ownership or voting interest in
such entity, shall be deemed an assignment of this Lease and shall be subject to
all of the restrictions and provisions contained in this Section 14.
14.2 PERMITTED CONTROLLED TRANSFERS. Notwithstanding the provisions of
Sections 14.1 above to the contrary, Tenant may assign this Lease or sublet the
Premises or any portion thereof (herein, a "PERMITTED TRANSFER"), without
Landlord's consent and without extending any sublease or termination option to
Landlord, to any corporation which controls, is controlled by or is under common
control with Tenant, or to any corporation resulting from a merger or
consolidation with Tenant, or to any person or entity which acquires all the
assets of Tenant's business as a going concern ("AFFILIATE"), provided that: (a)
at least twenty (20) days prior to such assignment or sublease, Tenant delivers
to Landlord the financial statements and other financial and background
information of the assignee or sublessee described in Section 14.3 below; (b) if
an assignment, the assignee assumes, in full, the obligations of Tenant under
this Lease (or if a sublease, the sublessee of a portion of the Premises or Term
assumes, in full, the obligations of Tenant with respect to such portion); (c)
Tenant remains fully liable under this Lease; (d) the use of the Premises is
permitted under Article 6 and, to the extent applicable, Section 1.5 of this
Lease; and (e) such transaction is not entered into as a subterfuge to avoid the
restrictions and provisions of this Section 14.
14.3 LANDLORD'S OPTIONS. If at any time or from time to time during the Term
Tenant desires to effect a Transfer, Tenant shall deliver to Landlord written
notice ("TRANSFER NOTICE") setting forth the terms and provisions of the
proposed Transfer and the identity of the proposed assignee, sublessee or other
transferee (sometimes referred to hereinafter as a "TRANSFEREE"). Tenant shall
also deliver to Landlord with the Transfer Notice, a current financial statement
and financial statements for the preceding two (2) years of the Transferee which
have been certified or audited by a reputable independent accounting firm
acceptable to Landlord, and such other information concerning the business
background and financial condition of the proposed Transferee as Landlord may
reasonably request. Except with respect to a Permitted Transfer (pursuant to the
terms and provisions of Section 14.2 hereof), Landlord shall have the option,
exercisable by written notice delivered to Tenant within twenty (20) days after
Landlord's receipt of the Transfer Notice, such financial statements and other
information, to: approve or disapprove such Transfer, which approval shall not
be unreasonably withheld.
14.4 ADDITIONAL CONDITIONS; EXCESS RENT. If for a Transfer other than a
Permitted Transfer, Landlord approves of the proposed Transfer pursuant to
Section 14.3 above, Tenant may enter into the proposed Transfer with such
proposed Transferee subject to the following further conditions:
(a) the Transfer shall be on the same terms set forth in the Transfer
Notice delivered to Landlord (if the terms have changed, Tenant must
submit a revised Transfer Notice to Landlord and Landlord shall have
another twenty (20) days after receipt thereof to make the election in
Section 14.3 above);
(b) no Transfer shall be valid and no Transferee shall take possession of
the Premises until an executed counterpart of the assignment, sublease
or other instrument affecting the Transfer has been delivered to
Landlord pursuant to which the Transferee shall expressly assume all of
Tenant's obligations under this Lease (or with respect to a sublease of
a portion of the Premises or for a portion of the Term, all of Tenant's
obligations applicable to such portion);
(c) no Transferee shall have a further right to assign, encumber or sublet,
except on the terms herein contained; and
(d) one-half (1/2) of any rent or other economic consideration received by
Tenant as a result of such Transfer which exceeds, in the aggregate,
(i) the total rent which Tenant is obligated to pay Landlord under this
Lease (prorated to reflect obligations allocable to any portion of the
Premises subleased), plus (ii) the total rent paid to Landlord by
Tenant for all days the portion of the Premises in question was vacated
commencing on and after the Downtime Start Date (as defined below),
plus (iii) any reasonable brokerage commissions, attorneys' fees,
moving costs and other economic concessions actually paid by Tenant in
connection with such Transfer, shall be paid to Landlord within ten
(10) days after receipt thereof as additional rental under this Lease,
without affecting or reducing any other obligations of Tenant
hereunder. The Downtime Start Date shall mean the later of (A) the date
which Tenant vacates and does not reoccupy the portion of the Premises
in question and delivers written notice of the same to Landlord, and
(B) the date Tenant enters into a listing agreement for the portion of
the Premises in question with a reputable broker, and provides Landlord
with written notice thereof.
14.5 REASONABLE DISAPPROVAL. Landlord and Tenant hereby acknowledge that
Landlord's disapproval of any proposed Transfer (other than a Permitted
Transfer) pursuant to Section 14.3 shall be deemed reasonably withheld if based
upon any reasonable factor, including, without limitation, any or all of the
following factors: (a) the proposed Transfer would result in more than two (2)
subleases of portions of the Premises being in effect at any one time during the
Term; (b) the proposed Transferee is an existing tenant of the Project and
Landlord is unable to accommodate such existing tenant's space needs; (c) the
proposed Transferee is a governmental entity which (i) is capable of exercising
the power of eminent domain or condemnation or (ii) is of a character or
reputation, is engaged in a business, or is of, or is associated with, a
political orientation or faction which is not consistent with the quality of the
Building, or which would reasonably offend a landlord of a building comparable
to the Building, (iii) would significantly increase the human traffic in the
Premises or the Building beyond the traffic which generally results from general
office use of space in a first-class office building or (iv) is engaged in the
business of law enforcement; (d) the portion of the Premises to be sublet or
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assigned is irregular in shape with legally inadequate means of ingress and
egress; (e) the use of the Premises by the Transferee (i) is not permitted by
the use provisions in Section 6 hereof, or (ii) violates any exclusive use
granted by Landlord to another tenant in the Building; (f) the Transferee does
not have the financial capability to fulfill the obligations imposed by the
Transfer; or (g) the Transferee is not, in Landlord's reasonable opinion, of
reputable or good character.
14.6 NO RELEASE. No Transfer shall release Tenant of Tenant's obligations
under this Lease or alter the primary liability of Tenant to pay the rent and to
perform all other obligations to be performed by Tenant hereunder. Landlord may
require that any Transferee except for an Affiliate remit directly to Landlord
on a monthly basis, all monies due Tenant by said Transferee. However, the
acceptance of rent by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any provision hereof. Consent by Landlord to one Transfer
shall not be deemed consent to any subsequent Transfer. In the event of default
by any Transferee of Tenant or any successor of Tenant in the performance of any
of the terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against such Transferee or successor. Landlord
may consent to subsequent assignments of the Lease or sublettings or amendments
or modifications to the Lease with assignees of Tenant, without notifying
Tenant, or any successor of Tenant, and without obtaining its or their consent
thereto and any such actions shall not relieve Tenant of liability under this
Lease.
14.7 ADMINISTRATIVE AND ATTORNEYS' FEES. If Tenant effects a Transfer or
requests the consent of Landlord to any Transfer, then Tenant shall, upon
demand, pay Landlord a non-refundable administrative fee of Five Hundred Dollars
($500.00), plus any reasonable attorneys' and paralegal fees and costs incurred
by Landlord in connection with such Transfer or request for consent (whether
attributable to Landlord's in-house attorneys or paralegals or otherwise).
Acceptance of the $500.00 administrative fee and/or reimbursement of Landlord's
attorneys' and paralegal fees shall in no event obligate Landlord to consent to
any proposed Transfer.
14.8 MATERIAL INDUCEMENT. Tenant understands, acknowledges and agrees that
(a) Landlord's option to sublease from Tenant any space which Tenant proposes to
sublease or terminate this Lease upon any proposed assignment or encumbrance of
this Lease by Tenant as provided in Section 14.3(b) above rather than approve
the proposed sublease, assignment or encumbrance, and (b) Landlord's right to
receive any excess consideration paid by a Transferee in connection with an
approved Transfer as provided in Section 14.4(d) above, are a material
inducement for Landlord's agreement to lease the Premises to Tenant upon the
terms and conditions herein set forth.
15. ENTRY BY LANDLORD. Landlord and its employees and agents shall at all
reasonable times following prior notice to Tenant (which, except in the case of
emergencies and except with respect to ordinary services to be provided by
Landlord within the Premises, shall be no less than twenty-four (24) hours prior
notice) have the right to enter the Premises to inspect the same, to supply
janitorial service and any other service required to be provided by Landlord to
Tenant under this Lease, to exhibit the Premises to prospective lenders or
purchasers (or during the last year of the Term, to prospective tenants), to
post notices of non-responsibility, and/or to alter, improve or repair the
Premises or any other portion of the Building or Project, all without being
deemed guilty of or liable for any breach of Landlord's covenant of quiet
enjoyment or any eviction of Tenant, and without abatement of rent. In
exercising such entry rights, Landlord shall endeavor to minimize, as reasonably
practicable, the interference with Tenant's business. For each of the foregoing
purposes, Landlord shall at all times have and retain a key with which to unlock
all of the doors in, upon and about the Premises, excluding Tenant's vaults and
safes, and Landlord shall have the means which Landlord may deem proper to open
said doors in an emergency in order to obtain entry to the Premises; provided,
however, that Tenant reserves the right to not provide Landlord with a key to
certain offices designed by Tenant in writing to Landlord; provided further,
however, that Tenant hereby agrees to release Landlord from any liability,
claim, loss or damage arising from Landlord's inability to access such offices.
Any entry to the Premises obtained by Landlord by any of said means or otherwise
shall not under any circumstances be construed or deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant
from the Premises or any portion thereof, or grounds for any abatement or
reduction of rent and Landlord shall not have any liability to Tenant for any
damages or losses on account of any such entry by Landlord except, subject to
the provisions of Section 22.1, to the extent of Landlord's gross negligence or
willful misconduct.
16. UTILITIES AND SERVICES.
16.1 STANDARD UTILITIES AND SERVICES. As long as Tenant has not committed an
uncured default under any of the provisions of this Lease, and subject to the
terms and conditions of this Lease, and the obligations of Tenant as set forth
hereinbelow, Landlord shall furnish or cause to be furnished to the Premises the
following utilities and services, the costs of which shall be included in
Operating Expenses, unless otherwise specified below (Landlord reserves the
right to adopt non-discriminatory modifications and additions to the following
provisions from time to time):
(a) Landlord shall make the elevator of the Building available for Tenant's
non-exclusive use, twenty-four (24) hours per day.
(b) Landlord shall furnish during the Business Hours for the Building
specified in Section 1.17 of the Summary, heating, ventilation and air
conditioning ("HVAC") for the Premises as required for the comfortable
and normal occupancy of the Premises. The cost of maintenance and
service calls to adjust and regulate the HVAC system shall be charged
to Tenant if the need for maintenance work results from either Tenant's
adjustment of room thermostats or Tenant's failure to comply with its
obligations under this Section 16, including keeping window coverings
closed as needed. Such work shall be charged at hourly rates equal to
then-current journeyman's wages for HVAC mechanics. If Tenant desires
HVAC at any time other than during the Business Hours for the Building,
Landlord shall provide such "after-hours" usage after advance
reasonable request by Tenant, and Tenant shall pay to Landlord, as
additional rent (and not as part of the Operating Expenses) the actual
cost, as fairly determined by Landlord from time to time throughout the
term of this Lease, of such after-hours usage (as well as the actual
cost of any HVAC used by Tenant in excess of what Landlord considers
reasonable or normal), including any minimum hour charges for
after-hours requests and any special start-up costs for after-hours
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services which requires a special start-up (such as late evenings,
weekends and holidays). As of the date of this Lease, the charge
(including start up costs) for after-hours HVAC is Twenty-Five Dollars
($25.00) per hour for each HVAC zone contained in the Premises for
which after-hours HVAC is requested (which after-hours charges are,
from time to time throughout the Lease Term, subject to increases or
decreases in Landlord's actual costs to provide such after-hours HVAC).
Landlord shall furnish to the Premises twenty-four (24) hours per day,
reasonable quantities of electric current as required in Landlord's
judgment for normal lighting and fractional horsepower office business
machines. In no event shall Tenant's use of electric current ever
exceed the capacity of the feeders to the Building or the risers or
wiring installation of the Building. Landlord shall also furnish water
to the Premises twenty-four (24) hours per day for drinking and
lavatory purposes, in such quantities as required in Landlord's
judgment for the comfortable and normal use of the Premises. If Tenant
requires or consumes water or electrical power in excess of what is
considered reasonable or normal by Landlord, Landlord may require
Tenant to pay to Landlord, as additional rent the cost as fairly
determined by Landlord incurred for such excess usage.
(d) Landlord shall furnish janitorial services to the Premises five (5)
days per week pursuant to janitorial and cleaning specifications as may
be adopted by Landlord from time to time. No person(s) other than those
persons approved by Landlord shall be permitted to enter the Premises
for such purposes. Janitor service shall include ordinary dusting and
cleaning (and shall include coffee and eating area cleaning) by the
janitor assigned to do such work and shall not include cleaning of
carpets or rugs, except normal vacuuming, or moving of furniture,
interior window cleaning except on a periodic basis, and other special
services. Such additional services may be rendered by Landlord pursuant
to written agreement with Tenant as to the extent of such services and
the payment of the cost thereof. Janitor service will not be furnished
on nights when rooms are occupied after 7:30 p.m. or to rooms which
are locked unless a key is furnished to the Landlord for use by the
janitorial contractor. Window cleaning shall be done only by Landlord,
at such time and frequency as determined by Landlord at Landlord's sole
discretion. Tenant shall pay to Landlord the cost of removal of any of
Tenant's refuse and rubbish to the extent that the same exceeds the
refuse and rubbish usually attendant upon the use of the Premises as
offices.
(e) Landlord shall provide security service for the Building, in a manner
deemed reasonable by Landlord at Landlord's sole discretion, from the
Commencement Date throughout the Term. Landlord shall also provide a
card reader access system for the Premises and the elevators serving
the Premises restricting access to Tenant's floor in the Building and
shall provide access cards for all of Tenant's employees, at Landlord's
sole cost and expense; provided, however, that all replacement cards
shall be at Tenant's sole cost and expense. Notwithstanding anything
above to the contrary, Tenant acknowledges and agrees that it shall be
Tenant's responsibility to take appropriate measures to ensure the
protection of Tenant, Tenant's employees and visitors and its and
their respective property from the acts of third parties. Landlord does
not represent or assume responsibility that Tenant will be secure from
the acts of third parties.
(f) At landlord's option, Landlord may install water, electricity and/or
HVAC meters in the Premises to measure Tenant's consumption of such
utilities, including any after-hours and extraordinary usage described
above. Tenant shall pay to Landlord, within ten (10) days after demand,
the cost of the installation, maintenance and repair of such meter(s).
16.2 TENANT'S OBLIGATIONS. Tenant shall cooperate fully at all times with
Landlord, and abide by all reasonable regulations arid requirements which
Landlord may prescribe for the proper functioning and protection of the
Building's services and systems. Tenant shall not use any apparatus or device
in, upon or about the Premises which may in any way increase the amount of
services or utilities usually furnished or supplied to the Premises or other
premises in the Building. In addition, Tenant shall not connect any conduit,
pipe, apparatus or other device to the Building's water, waste or, other supply
lines or systems for any purpose. Neither Tenant nor its employees, agents,
contractors, licensees or invitees shall at any time enter, adjust, tamper with,
touch or otherwise in any manner affect the mechanical installations or
facilities of the Building.
16.3 FAILURE TO PROVIDE UTILITIES. Landlord's failure to furnish any of the
utilities and services described in Section 16.1 above when such failure is
caused by all or any of the following shall not result in any liability of
Landlord: (a) accident, breakage or repairs; (b) strikes, lockouts or other
labor disturbances or labor disputes of any such character; (c) governmental
regulation, moratorium or other governmental action; (d) inability, despite the
exercise of reasonable diligence, to obtain electricity, water or fuel; or (e)
any other cause beyond Landlord's reasonable control. In addition, in the event
of the failure of any said utilities or services, Tenant shall not be entitled
to any abatement or reduction of rent (except as expressly provided in Sections
18.3 and 19.2 if such failure is a result of a damage or taking described
therein), no eviction of Tenant shall result, and Tenant shall not be relieved
from the performance of any covenant or agreement in this Lease. In the event of
any stoppage or interruption of services or utilities, Landlord shall diligently
attempt to resume such services or utilities as promptly as practicable.
Notwithstanding anything to the contrary contained in this Section 16.3, if for
reasons not caused by Tenant, any Affiliate of Tenant, or any of their
respective employees, contractors, invitees or agents, for more than five (5)
consecutive business days following written notice to Landlord (the "ELIGIBILITY
PERIOD"), there is an interruption of essential utilities such that Tenant is
prevented from using, and does not use, the Premises or any portion thereof,
then Tenant's rent shall be abated or reduced, as the case may be, after
expiration of the Eligibility Period for such time that Tenant continues to be
so prevented from using, and does not use, the Premises or a portion thereof, in
the proportion that the rentable area of the portion of the Premises that Tenant
is prevented from using, and does not use, bears to the total rentable area of
the Premises; provided, however, that if Landlord is diligently pursuing the
repair of such utilities or services and Landlord provides substitute services
reasonably suitable for Tenant's purposes as reasonably determined by Tenant, as
for example, bringing in portable air-conditioning equipment, then there shall
not be any abatement of rent. However, in the event that Tenant is prevented
from conducting and does not conduct, its business in any portion of the
Premises for a period of time in excess of the Eligibility Period, and the
remaining portion of the Premises is not sufficient to allow Tenant to
effectively conduct its business therein, and if Tenant does not conduct its
business from such remaining portion, then for such time after
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expiration of the Eligibility Period during which Tenant is so prevented from
effectively conducting its business therein, the rent for the entire Premises
shall be abated; provided, however, if Tenant reoccupies and conducts its
business from any portion of the Premises during such period, the rent allocable
to such reoccupied portion, based on the proportion that the rentable area of
such reoccupied portion of the Premises bears to the total rentable area of the
Premises, shall be payable by Tenant from the date such business operations
commence. This Section 16.3 shall not apply in case of damage to, or destruction
of, the Premises or the Building, or any eminent domain proceedings which shall
be governed by separate provisions of this Lease.
17. INDEMNIFICATION AND EXCULPATION.
17.1 TENANT'S ASSUMPTION OF RISK AND WAIVER. Except to the extent such matter is
not covered by the insurance required to be maintained by Tenant under this
Lease and such matter is attributable to the gross negligence or willful
misconduct of Landlord, Landlord shall not be liable to Tenant, Tenant's
employees, agents or invitees for: (i) any damage to property of Tenant, or of
others, located in, on or about the Premises, nor for (ii) the loss of or damage
to any property of Tenant or of others by theft or otherwise, (iii) any injury
or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water, rain or leaks from any part of the
Premises or from the pipes, appliance of plumbing works or from the roof, street
or subsurface or from any other places or by dampness or by any other cause of
whatsoever nature, or (iv) any such damage caused by other tenants or persons in
the Premises, occupants of adjacent property of the Project, or the public, or
caused by operations in construction of any private, public or quasi-public
work. Landlord shall in no event be liable to Tenant for any consequential
damages or for loss of revenue or income and Tenant waives any and all claims
for any such damages. Notwithstanding anything to the contrary contained in this
Section 17.1, all property of Tenant, its agents, employees and invitees kept or
stored on the Premises, whether leased or owned by any such parties, shall be so
kept or stored at the sole risk of Tenant and Tenant shall hold Landlord
harmless from any claims arising out of damage to the same, including
subrogation claims by Tenant's insurance carriers, unless such damage shall be
caused by the gross negligence or willful misconduct of Landlord. Landlord or
its agents shall not be liable for interference with the light or other
intangible rights.
17.2 TENANT'S INDEMNIFICATION OF LANDLORD. Tenant shall be liable for, and shall
indemnify, defend, protect and hold Landlord and the Landlord Indemnified
Parties harmless from and against, any and all claims, damages, judgments,
suits, causes of action, losses, liabilities and expenses, including attorneys'
fees and court costs (but not for injury to, or interference with, Landlord's or
any Landlord Indemnified Parties' business or for consequential damages)
(collectively, "INDEMNIFIED CLAIMS"), arising or resulting from (a) any act or
omission of Tenant or any of Tenant's agents, employees, contractors,
subtenants, assignees, licensees or with respect to acts or omissions within the
Premises only, Tenant's invitees (collectively, "TENANT PARTIES"); (b) the use
of the Premises and Common Areas and conduct of Tenant's business by Tenant or
any Tenant Parties, or any other activity, work or thing done, permitted or
suffered by Tenant or any Tenant Parties, in or about the Premises, the Building
or elsewhere in the Project; and/or (c) any default by Tenant of any obligations
on Tenant's part to be performed under the terms of this Lease. In case any
action or proceeding is brought against Landlord or any Landlord Indemnified
Parties by reason of any such Indemnified Claims, Tenant, upon notice from
Landlord, shall defend the same at Tenant's expense by counsel approved in
writing by Landlord, which approval shall not be unreasonably withheld.
17.3 LANDLORD'S INDEMNIFICATION OF TENANT. Notwithstanding anything to the
contrary contained in Section 17.2 above, subject to the limitation on
Landlord's liability contained in Section 31 below and the mutual waivers
contained in Section 22 below, Landlord will be liable for, and agrees to
indemnify, protect, defend and hold harmless Tenant and Tenant's agents,
successors and assigns (collectively, "TENANT INDEMNIFIED PARTIES"), from and
against, any Indemnified Claims (as defined in Section 17.2 above) (but not for
injury to, or interference with, Tenant's or any Tenant Indemnified Parties'
business or for consequential damages), to the extent any such Indemnified Claim
arises or results from (a) any negligent or willful act or omission of Landlord
or any Landlord Parties; (b) any default by Landlord of any obligations on
Landlord's part to be performed under the terms of this Lease; and (c) to the
extent covered by the insurance required to be maintained by Landlord under this
Lease (or which would have been covered if Landlord had carried such required
insurance), any acts or omissions of any third parties occurring in the Common
Areas other than the gross negligence or willful misconduct of Tenant or any
Tenant Parties; provided, however, that Landlord's indemnity shall not apply or
extend to any such damage or injury which occurs within the Premises which is
covered by any insurance maintained by Tenant or any Tenant Indemnified Parties
(or which would have been covered had Tenant obtained the insurance required
under this Lease). In case any action or proceeding is brought against Tenant or
any Tenant Indemnified Parties by reason of any such injury or damage
indemnified by Landlord as set forth hereinabove, Landlord, upon notice from
Tenant, agrees to defend the same at Landlord's expense by counsel approved in
writing by Tenant, which approval Tenant will not unreasonably withhold.
17.4 SURVIVAL; NO RELEASE OF INSURERS. Tenant's indemnification obligations
under Section 17.2 shall survive the expiration or earlier termination of this
Lease. Tenant's covenants, agreements and indemnification in Sections 17.1 and
17.2 above are not intended to and shall not relieve any insurance carrier of
its obligations under policies required to be carried by Tenant pursuant to the
provisions of this Lease.
18. DAMAGE OR DESTRUCTION.
18.1 LANDLORD'S RIGHTS AND OBLIGATIONS. In the event the Premises or any part of
the Building is damaged by fire or other casualty to an extent not exceeding
twenty-five percent (25%) of the full replacement cost thereof, and Landlord's
contractor estimates in a writing delivered to the parties that the damage
thereto is such that the Building and/or Premises may be repaired, reconstructed
or restored to substantially its condition immediately prior to such damage
within one hundred twenty (120) days from the date of such casualty, and
Landlord will receive insurance proceeds sufficient to cover the costs of such
repairs, reconstruction and restoration (or Landlord would have received such
insurance proceeds if Landlord carried the insurance required to be carried by
Landlord pursuant to Section 21 hereof) (including proceeds from Tenant and/or
Tenant's insurance which Tenant is required to deliver to Landlord pursuant to
Section 18.2 below), then Landlord shall commence and proceed diligently with
the work of repair, reconstruction and
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<PAGE> 24
restoration and this Lease shall continue in full force and effect. If, however,
the Premises or any other part of the Building is damaged to an extent exceeding
twenty-five percent (25%) of the full replacement cost thereof, or Landlord's
contractor estimates that such work of repair, reconstruction and restoration
will require longer than one hundred twenty (120) days to complete, or Landlord
will not receive insurance proceeds (and/or proceeds from Tenant, as applicable)
sufficient to cover the costs of such repairs, reconstruction and restoration,
then Landlord may elect to either:
(a) repair, reconstruct and restore the portion of the Building and
Premises damaged by such casualty (including the Tenant Improvements
and Tenant Changes), in which case this Lease shall continue in full
force and effect; or
(b) terminate this Lease effective as of the date which is thirty (30) days
after Tenant's receipt of Landlord's election to so terminate.
Under any of the conditions of this Section 18.1, Landlord shall give written
notice ("ELECTION NOTICE") to Tenant of its intention to repair or terminate
within the later of forty-five (45) days after the occurrence of such casualty,
or fifteen (15) days after Landlord's receipt of the estimate from Landlord's
contractor.
18.2 TENANT'S COSTS AND INSURANCE PROCEEDS. In the event of any damage or
destruction of all or any part of the Premises, Tenant shall immediately: (a)
notify Landlord thereof; and (b) deliver to Landlord all insurance proceeds
received by Tenant with respect to the Tenant Improvements and Tenant Changes in
the Premises (excluding proceeds for Tenant's furniture and other personal
property), whether or not this Lease is terminated as permitted in this Section
18, and Tenant hereby assigns to Landlord all rights to receive such insurance
proceeds. If, for any reason (including Tenant's failure to obtain insurance for
the full replacement cost of any Tenant Changes which Tenant is required to
insure pursuant to Sections 12.1(c) and/or 20.1(a) hereof), Tenant fails to
receive insurance proceeds covering the full replacement cost of such Tenant
Changes which are damaged, Tenant shall be deemed to have self-insured the
replacement cost of such Tenant Changes, and upon any damage or destruction
thereto, Tenant shall immediately pay to Landlord the full replacement cost of
such items, less any insurance proceeds actually received by Landlord from
Landlord's or Tenant's insurance with respect to such items.
18.3 ABATEMENT OF RENT. In the event that as a result of any such damage,
repair, reconstruction and/or restoration of the Premises or the Building,
Tenant is prevented from using, and does not use, the Premises or any portion
thereof, then the rent shall be abated or reduced, as the case may be, during
the period that Tenant continues to be so prevented from using and does not use
the Premises or portion thereof, in the proportion that the Rentable Square Feet
of the portion of the Premises that Tenant is prevented from using, and does not
use, bears to the total Rentable Square Feet of the Premises. Notwithstanding
the foregoing to the contrary, if the damage is due to the negligence or willful
misconduct of Tenant or any Tenant Parties, there shall be no abatement of rent.
Except for abatement of rent as provided hereinabove, Tenant shall not be
entitled to any compensation or damages for loss of, or interference with,
Tenant's business or use or access of all or any part of the Premises resulting
from any such damage, repair, reconstruction or restoration.
18.4 INABILITY TO COMPLETE. Notwithstanding anything to the contrary contained
in this Section 18, in the event Landlord is obligated or elects to repair,
reconstruct and/or restore the damaged portion of the Building or Premises
pursuant to Section 18.1 above, but is delayed from completing such repair,
reconstruction and/or restoration beyond the date which is six (6) months after
the date Tenant notifies Landlord of the need for such repair, reconstruction or
restoration or the date specified in Landlord's Election Notice, whichever is
later, then any party who has not caused such delay may elect to terminate this
Lease upon thirty (30) days' prior written notice sent to the other; provided,
however, if Tenant terminates this Lease, Landlord may rescind such termination
by completing such work within ten (10) days following Tenant's election to
terminate.
18.5 DAMAGE NEAR END OF TERM. In addition to its termination rights in Sections
18.1 and 18.4 above, Landlord shall have the right to terminate this Lease if
any damage to the Building or Premises occurs during the last twelve (12) months
of the Term of this Lease and Landlord's contractor estimates in a writing
delivered to the parties that the repair, reconstruction or restoration of such
damage cannot be completed within the earlier of (a) the scheduled expiration
date of the Lease Term, or (b) sixty (60) days after the date of such casualty.
18.6 WAIVER OF TERMINATION RIGHT. This Lease sets forth the terms and conditions
upon which this Lease may terminate in the event of any damage or destruction.
Accordingly, the parties hereby waive the provisions of California Civil Code
Section 1932, Subsection 2, and Section 1933, Subsection 4 (and any successor
statutes thereof permitting the parties lo terminate this Lease as a result of
any damage or destruction).
19. EMINENT DOMAIN.
19.1 SUBSTANTIAL TAKING. Subject to the provisions of Section 19.4 below in case
the whole of the Premises, of such part thereof as shall substantially interfere
with Tenant's use and occupancy of the Premises, shall be taken for any public
or quasi-public purpose by any lawful power or authority by exercise of the
right of appropriation, condemnation or eminent domain, or sold to prevent such
taking, either party shall have the right to terminate this Lease effective as
of the date possession is required to be surrendered to said authority.
19.2 PARTIAL TAKING; ABATEMENT OF RENT. In the event of a taking of a portion of
the Premises which does not substantially interfere with the conduct of Tenant's
business, then, except as otherwise provided in the immediately following
sentence, neither party shall have the right to terminate this Lease and
Landlord shall thereafter proceed to make a functional unit of the remaining
portion of the Premises (but only to the extent Landlord receives proceeds
therefor from the condemning authority), and rent shall be abated with respect
to the part of the Premises which Tenant shall be so deprived on account of such
taking.
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19.3 CONDEMNATION AWARD. Subject to the provisions of Section 19.4 below, in
connection with any taking of the Premises or Building, Landlord shall be
entitled to receive the entire amount of any award which may be made or given in
such taking or condemnation, without deduction or apportionment for any estate
or interest of Tenant, it being expressly understood and agreed by Tenant that
no portion of any such award shall be allowed or paid to Tenant for any
so-called bonus or excess value of this Lease, and such bonus or excess value
shall be the sole property of Landlord except for the unamortized value of the
Tenant Improvements (in excess of the Improvement Allowance) and any Tenant
Changes, which shall belong to Tenant. Tenant shall not assert any claim against
Landlord or the taking authority for any compensation because of such taking
(including any claim for bonus or excess value of this Lease); provided,
however, if any portion of the Premises is taken, Tenant shall be granted the
right to recover from the condemning authority (but not from Landlord) any
compensation as may be separately awarded or recoverable by Tenant for the
taking of Tenant's furniture, fixtures, equipment and other personal property
within the Premises, for Tenant's relocation expenses, and for any loss of
goodwill or other damage to Tenant's business by reason of such taking.
19.4 TEMPORARY TAKING. In the event of a taking of the Premises or any part
thereof for temporary use, (a) this Lease shall be and remain unaffected thereby
and rent shall not abate, and (b) Tenant shall be entitled to receive for
itself such portion or portions of any award made for such use with respect to
the period of the taking which is within the Term, provided that if such taking
shall remain in force at the expiration or earlier termination of this Lease,
Tenant shall perform its obligations under Section 9 with respect to surrender
of the Premises and shall pay to Landlord the portion of any award which is
attributable to any period of time beyond the Term expiration date. For purpose
of this Section 19.4, a temporary taking shall be defined as a taking for a
period of two hundred seventy (270) days or less.
20. TENANT'S INSURANCE.
20.1 TYPES OF INSURANCE. On or before the earlier of the Commencement Date or
the date Tenant commences or causes to be commenced any work of any type in or
on the Premises pursuant to this Lease, and continuing during the entire Term,
Tenant shall obtain and keep in full force and effect, the following insurance:
(a) All Risk insurance, including fire and extended coverage, sprinkler
leakage (including earthquake sprinkler leakage), vandalism, malicious
mischief and earthquake coverage upon property of every description and
kind owned by Tenant and located in the Premises or Building, or for
which Tenant is legally liable or installed by or on behalf of Tenant
including, without limitation, furniture, equipment and any other
personal property, and any Tenant Changes (but excluding the initial
Tenant Improvements previously existing or installed in the Premises),
in an amount not less than the full replacement cost thereof. In the
event that there shall be a dispute as to the amount which comprises
full replacement cost, the decision of Landlord or the mortgagees of
Landlord shall be presumptive.
(b) Commercial general liability insurance coverage, including personal
injury, bodily injury (including wrongful death), broad form property
damage, operations hazard, owner's protective coverage, contractual
liability (including Tenant's indemnification obligations under this
Lease, including Section 17 hereof), liquor liability (if Tenant serves
alcohol on the Premises), products and completed operations liability,
and owned/non-owned auto liability, with an initial combined single
limit of liability of not less than Two Million Dollars
($2,000,000.00). The limits of liability of such commercial general
liability insurance shall be increased every five (5) years during the
Term of this Lease to an amount reasonably required by Landlord.
(c) Worker's compensation and employer's liability insurance, in statutory
amounts and limits.
(d) Loss of income, extra expense and business interruption insurance in
such amounts as will reimburse Tenant for direct loss of earnings
attributable to all perils commonly insured against by prudent tenants
or attributable to prevention of access to the Premises, Tenant's
parking areas or to the Building as a result of such perils.
(e) Any other form or forms of insurance as Tenant or Landlord or the
mortgagees of Landlord may reasonably require from time to time, in
form, amounts and for insurance risks against which a prudent tenant
would protect itself, but only to the extent such risks and amounts are
available in the insurance market at commercially reasonable costs.
20.2 REQUIREMENTS. Each policy required to be obtained by Tenant hereunder
shall: (a) be issued by insurers authorized to do business in the state in which
the Building is located and rated not less than financial class X, and not less
than policyholder rating VIII/B+ in the most recent version of Best's Key Rating
Guide (provided that, in any event, the same insurance company shall provide the
coverages described in Sections 20.1 (a) and 20.1(d) above); (b) be in form
reasonably satisfactory from time to time to Landlord; (c) name Tenant as named
insured thereunder and shall name Landlord and, at Landlord's request,
Landlord's mortgagees and ground lessors of which Tenant has been informed in
writing, as additional insureds thereunder, all as their respective interests
may appear; (d) shall not have a deductible amount exceeding Twenty-Five
Thousand Dollars ($25,000.00); (e) specifically provide that the insurance
afforded by such policy for the benefit of Landlord and Landlord's mortgagees
and ground lessors shall be primary, and any insurance carried by Landlord or
Landlord's mortgagees and ground lessors shall be excess and non-contributing;
(f) except for worker's compensation insurance, contain an endorsement that the
insurer waives its right to subrogation as described in Section 22 below: (g)
contain an undertaking by the insurer to notify Landlord (and the mortgagees
and ground lessors of Landlord who are named as additional insureds) in writing
not less than ten (10) days prior to any material change, reduction in
coverage, cancellation or other termination thereof; and (h) contain a cross
liability or severability of interest endorsement. Tenant agrees to deliver to
Landlord, as soon as practicable after the placing of the required insurance,
but in no event later than ten (10) days after the date Tenant takes possession
of all or any part of the Premises, certified copies of each such insurance
policy (or certificates from the insurance company evidencing the existence of
such insurance and Tenant's compliance with the foregoing provisions of this
Section 20). Tenant shall cause replacement policies or certificates to be
delivered to Landlord no later than ten (10) days after to the expiration of
any such policy or policies. If any such initial or replacement policies or
certificates are not furnished within the time(s)
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specified herein, Tenant shall be deemed to be in material default under this
Lease without the benefit of any additional notice or cure period provided in
Section 23.1 below, and Landlord shall have the right, but not the obligation,
to procure such policies and certificates at Tenant's expense. At Tenant's
option, Tenant's insurance may be carried under a blanket policy reasonably
approved by Landlord.
20.3 EFFECT ON INSURANCE. Tenant shall not do or permit to be done anything
which will (a) violate or invalidate any insurance policy maintained by Landlord
or Tenant hereunder, or (b) increase the costs of any insurance policy
maintained by Landlord pursuant to Section 21 or otherwise with respect to the
Building or the Project. If Tenant's occupancy or conduct of its business in or
on the Premises results in any increase in premiums for any insurance carried by
Landlord with respect to the Building or the Project, Tenant shall pay such
increase as additional rent within ten (10) days after being billed therefor by
Landlord. If any insurance coverage carried by Landlord pursuant to Section 21
or otherwise with respect to the Building or the Project shall be cancelled or
reduced (or cancellation or reduction thereof shall be threatened) by reason of
the use or occupancy of the Premises by Tenant or by anyone permitted by Tenant
to be upon the Premises, and if Tenant fails to remedy such condition within
five (5) days after notice thereof, Tenant shall be deemed to be in default
under this Lease, without the benefit of any additional notice or cure period
specified in Section 23.1 below, and Landlord shall have all remedies provided
in this Lease, at law or in equity, including, without limitation, the right
(but not the obligation) to enter upon the Premises and attempt to remedy such
condition at Tenant's cost.
21. LANDLORD'S INSURANCE. During the Term, Landlord shall insure the Building,
the Premises and the Tenant Improvements initially installed in the Premises
(including the Must Take Space) pursuant to Section 12.5 (excluding, however,
Tenant's furniture, equipment and other personal property and any Tenant
Changes) against damage by fire and standard extended coverage perils and with
vandalism and malicious mischief endorsements, rental loss coverage, at
Landlord's option, earthquake damage coverage, and such additional coverage as
Landlord deems appropriate. Landlord shall also carry commercial general
liability insurance, in such reasonable amounts and with such reasonable
deductibles as would be carried by a prudent owner of a similar building in the
state in which the Building is located. At Landlord's option, all such insurance
may be carried under any blanket or umbrella policies which Landlord has in
force for other buildings and projects and Landlord shall reasonably allocate
the cost of such blanket or umbrella policies between such other buildings and
projects and the Building and the Project. In addition, at Landlord's option,
Landlord may elect to self-insure all or any part of such required insurance
coverage. Landlord may, but shall not be obligated to, carry any other form or
forms of insurance as Landlord or the mortgagees or ground lessors of Landlord
may reasonably determine is advisable. The cost of insurance obtained by
Landlord pursuant to this Section 21 shall be included in Operating Expenses.
Landlord's fire and standard extended coverage insurance shall be in an amount
equal to one hundred percent (100%) of the replacement cost of the Building.
22. WAIVER OF CLAIMS; WAIVER OF SUBROGATION.
22.1 MUTUAL WAIVER OF PARTIES. Landlord and Tenant hereby waive their rights
against each other with respect to any claims or damages or losses which are
caused by or result from (a) property damage insured against under any property
insurance policy carried by Landlord or Tenant (as the case may be) pursuant to
the provisions of this Lease and enforceable at the time of such damage or loss,
or (b) property damage which would have been covered under any insurance
required to be obtained and maintained by Landlord or Tenant (as the case may
be) under Sections 20 and 21 of this Lease (as applicable) had such insurance
been obtained and maintained as required therein. The foregoing waivers shall be
in addition to, and not a limitation of, any other waivers or releases contained
in this Lease.
22.2 WAIVER OF INSURERS. Each party shall cause each property insurance policy
required to be obtained by it pursuant to Sections 20 and 21 to provide that the
insurer waives all rights of recovery by way of subrogation against either
Landlord or Tenant, as the case may be, in connection with any claims, losses
and damages covered by such policy. If either party fails to maintain property
insurance required hereunder, such insurance shall be deemed to be self-insured
with a deemed full waiver of subrogation as set forth in the immediately
preceding sentence.
23. TENANT'S DEFAULT AND LANDLORD'S REMEDIES.
23.1 TENANT'S DEFAULT. The occurrence of any one or more of the following events
shall constitute a default under this Lease by Tenant:
(a) abandonment of the Premises by Tenant. "ABANDONMENT" is herein defined
to include, but is not limited to, any absence by Tenant from the
Premises for five (5) business days or longer while in default of any
other provision of this Lease;
(b) the failure by Tenant to make any payment of rent or additional rent or
any other payment required to be made by Tenant hereunder, within ten
(10) days after written notice thereof from Landlord to Tenant;
(c) the failure by Tenant to observe or perform any of the express or
implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in Sections 23.1 (a) or
(b) above, where such failure shall continue for a period of thirty
(30) days after written notice thereof from Landlord to Tenant;
provided, however, that any such notice shall be in lieu of, and not in
addition to, any notice Required under California Code of Civil
Procedure, Section 1161 and provided further that, if the nature of
Tenant's default is such that more than ten (10) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default
if Tenant shall commence such cure within said thirty (30) day period
and thereafter diligently prosecute such cure to completion; and
(d) (i) the making by Tenant of any general assignment for the benefit of
creditors, (ii) the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case
of a petition filed against the Tenant, the same is dismissed within
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sixty (60) days), (iii) the appointment of a trustee or receiver to
take possession of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where possession is not
restored to Tenant within sixty (60) days, or (iv) the attachment,
execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease
where such seizure is not discharged within sixty (60) days.
23.2 LANDLORD'S REMEDIES; TERMINATION. In the event of any such default by
Tenant, in addition to any other remedies available to Landlord under this
Lease, at law or in equity, Landlord shall have the immediate option to
terminate this Lease and all rights of Tenant hereunder. In the event that
Landlord shall elect to so terminate this Lease, then Landlord may recover from
Tenant:
(a) the worth at the time of award of any unpaid rent which had been earned
at the time of such termination; plus
(b) the worth at the time of the award of the amount by which the unpaid
rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; plus
(c) the worth at the time of award of the amount by which the unpaid rent
for the balance of the term after the time of award exceeds the amount
of such rental loss that Tenant proves could be reasonably avoided;
plus
(d) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under
this Lease or which, in the ordinary course of things, would be likely
to result therefrom including, but not limited to: unamortized Tenant
Improvement costs: attorneys' fees; brokers' commissions; the costs of
refurbishment, alterations, renovation and repair of the Premises; and
removal (including the repair of any damage caused by such removal) and
storage (or disposal) of Tenant's personal property, equipment,
fixtures, Tenant Changes, Tenant Improvements and any other items which
Tenant is required under this Lease to remove but does not remove.
As used in Sections 23.2(a) and 23.2(b) above, the "WORTH AT THE TIME OF AWARD"
is computed by allowing interest at the Interest Rate set forth in Section 1.14
of the Summary. As used in Section 23.2(c) above, the "worth at the time of
award" 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%).
23.3 LANDLORD'S REMEDIES; RE-ENTRY RIGHTS. In the event of any such default by
Tenant, in addition to any other remedies available to Landlord under this
Lease, at law or in equity, Landlord shall also have the right, with or without
terminating this Lease, to re-enter the Premises and remove all persons and
property from the Premises; such property may be removed, stored and/or disposed
of pursuant to Section 12.4 of this Lease or any other procedures permitted by
applicable law. No re-entry or taking possession of the Premises by Landlord
pursuant to this Section 23.3, and no acceptance of surrender of the Premises or
other action on Landlord's part, shall be construed as an election to terminate
this Lease unless a written notice of such intention be given to Tenant or
unless the termination thereof be decreed by a court of competent jurisdiction.
23.4 LANDLORD'S REMEDIES; CONTINUATION OF LEASE. In the event of any such
default by Tenant, in addition to any other remedies available to Landlord under
this Lease, at law or in equity, Landlord shall have the right to continue this
Lease in full force and effect, whether or not Tenant shall have abandoned the
Premises. The foregoing remedy shall also be available to Landlord pursuant to
California Civil Code Section 1951.4 and any successor statute thereof in the
event Tenant has abandoned the Premises. In the event Landlord elects to
continue this Lease in full force and effect pursuant to this Section 23.4, then
Landlord shall be entitled to enforce all of its rights and remedies under this
Lease, including the right to recover rent as it becomes due. Landlord's
election not to terminate this Lease pursuant to this Section 23.4 or pursuant
to any other provision of this Lease, at law or in equity, shall not preclude
Landlord from subsequently electing to terminate this Lease or pursuing any of
its other remedies.
23.5 LANDLORD'S RIGHT TO PERFORM. Except as specifically provided otherwise in
this Lease, all covenants and agreements by Tenant under this Lease shall be
performed by Tenant at Tenant's sole cost and expense and without any abatement
or offset of rent. If Tenant shall fail to pay any sum of money (other than
Monthly Basic Rent) or perform any other act on its part to be paid or performed
hereunder and such failure shall continue for three (3) days with respect to
monetary obligations (or ten (10) days with respect to non-monetary obligations)
after Tenant's receipt of written notice thereof from Landlord, Landlord may,
without waiving or releasing Tenant from any of Tenant's obligations, make such
payment or perform such other act on behalf of Tenant. All sums so paid by
Landlord and all necessary incidental costs incurred by Landlord in performing
such other acts shall be payable by Tenant to Landlord within five (5) days
after demand therefor as additional rent.
23.6 INTEREST. If any monthly installment of Rent or Project Operating Expenses,
or any other amount payable by Tenant hereunder is not received by Landlord
within ten (10) days after written notice to Tenant, it shall bear interest at
the Interest Rate set forth in Section 1.14 of the Summary from the date due
until paid. All interest, and any late charges imposed pursuant to Section 23.7
below shall be considered additional rent due from Tenant to Landlord under the
terms of this Lease.
23.7 LATE CHARGES. Tenant acknowledges that, in addition to interest costs, the
late payments by Tenant to Landlord of any Monthly Basic Rent or other sums due
under this Lease will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely difficult and impractical
to fix. Such other costs include, without limitation, processing, administrative
and accounting charges and late charges that may be imposed on Landlord by the
terms of any mortgage, deed of trust or related loan documents encumbering the
Premises, the Building or the Project. Accordingly if any monthly installment of
Monthly Basic Rent or Project Operating Expenses or any other amount payable by
Tenant hereunder is not received by Landlord within five (5) days after written
notice to Tenant, Tenant shall
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pay to Landlord an additional sum of five percent (5%) of the overdue amount as
a late charge, but in no event more than the maximum late charge allowed by law.
The parties agree that such late charge represents a fair and reasonable
estimate of the costs that Landlord will incur by reason of any late payment as
hereinabove referred to by Tenant, and the payment of late charges and interest
are distinct and separate in that the payment of interest is to compensate
Landlord for the use of Landlord's money by Tenant, while the payment of late
charges is to compensate Landlord for Landlord's processing, administrative and
other costs incurred by Landlord as a result of Tenant's delinquent payments.
Acceptance of a late charge or interest shall not constitute a waiver of
Tenant's default with respect to the overdue amount or prevent Landlord from
exercising any of the other rights and remedies available to Landlord under this
Lease or at law or in equity now or hereafter in effect.
23.8 LANDLORD'S LIEN WAIVER.
If Tenant desires to obtain a loan secured by Tenant's personal property in the
Premises and requests that Landlord execute a lien waiver in connection
therewith, Landlord shall provide Tenant with a commercially reasonable form of
lien waiver, provided that Tenant delivers such request in writing to Landlord
together with a nonrefundable processing fee in the amount of three hundred
dollars ($300.00).
23.9 RIGHTS AND REMEDIES CUMULATIVE. All rights, options and remedies of
Landlord contained in this Section 23 and elsewhere in this Lease (including
Section 28 below) shall be construed and held to be cumulative, and no one of
them shall be exclusive of the other, and Landlord shall have the right to
pursue any one or all of such remedies or any other remedy or relief which may
be provided by law or in equity, whether or not stated in this Lease. Nothing in
this Section 23 shall be deemed to limit or otherwise affect Tenant's
indemnification of Landlord pursuant to any provision of this Lease.
24. LANDLORD'S DEFAULT. Landlord shall not be in default in the performance of
any obligation required to be performed by Landlord under this Lease unless
Landlord has failed to perform such obligation within thirty (30) days after the
receipt of written notice from Tenant specifying in detail Landlord's failure to
perform; provided however, that if the nature of Landlord's obligation is such
that more than thirty (30) days are required for its performance, then Landlord
shall not be deemed in default if it commences such performance within such
thirty (30) day period and thereafter diligently pursues the same to completion.
Upon any such uncured default by Landlord, Tenant may exercise any of its rights
provided in law or at equity; provided, however: (a) Tenant shall have no right
to offset or abate rent in the event of any default by Landlord under this
Lease, except to the extent offset rights are specifically provided to Tenant in
this Lease; and (b) Tenant's rights and remedies hereunder shall be limited to
the extent (i) Tenant has expressly waived in this Lease any of such rights or
remedies and/or (ii) this Lease otherwise expressly limits Tenant's rights or
remedies, including the limitation on Landlord's liability contained in Section
31 hereof.
If Landlord fails to perform any obligation under this Lease within the time
periods set forth in this Section 24 following receipt of written notice from
Tenant to Landlord and its lender pursuant to Section 28 hereof, then Tenant
shall be permitted to perform such obligations on Landlord's behalf, provided
Tenant first delivers to Landlord (and its lender) an estimate of the cost to
cure and an additional two (2) business days' prior written notice that Tenant
will be performing such obligations, and provided Landlord fails to commence to
perform such obligations within such additional two (2) business day period or
to thereafter diligently pursue such cure to completion. If the obligations to
be performed by Tenant will affect the Building's life safety, electrical,
plumbing or sprinkler systems, then Tenant shall use only those contractors used
by Landlord in the Building for work on such systems or such other contractors
as are commonly used by owners of first-class office buildings in San Diego.
All other contractors shall be licensed and bonded and all requisite permits
must have been obtained for the desired work. Any work performed by or on behalf
of Tenant shall be performed in accordance with the provisions of Sections
12.1(e) and (f) of this Lease, except that Tenant will not be required to
obtain any consent or approval from Landlord. Promptly following completion of
any such work, Tenant shall deliver to Landlord an invoice containing a
particularized breakdown of the costs incurred by Tenant in connection therewith
(the "INVOICE"). If, within thirty (30) days following Landlord's receipt of the
Invoice, Landlord does not either pay the sums set forth in the Invoice or
deliver written notice to Tenant objecting to the amounts set forth in the
Invoice, then Tenant may deduct the amounts set forth in the Invoice, together
with interest thereon at the Interest Rate, against rent. If Landlord gives
Tenant written notice of Landlord's objection to the amounts set forth in the
Invoice within such thirty (30) day period, then Tenant shall not have any right
to offset the cost of performing any such obligations against rental or other
charges payable under this Lease, but Tenant shall have the right to pursue any
other remedies against Landlord available to it under applicable law, including
the right to have the dispute resolved by arbitration pursuant to Section 34. If
the dispute is resolved by arbitration pursuant to Section 34 and it is held
that Tenant is entitled to reimbursement of all or a portion of sums previously
objected to by Landlord, and if Landlord fails to reimburse Tenant such sums,
together with interest thereon at the Interest Rate, within thirty (30) days
following such arbitration decision, then Tenant may deduct such sums against
rent. Notwithstanding the foregoing, Tenant may elect to have Tenant's right to
perform such obligations of Landlord, and the appropriate cost thereof,
determined by arbitration prior to Tenant's undertaking such performance, and
such arbitration shall be binding upon the parties.
25. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee of a mortgage or a beneficiary of a deed
of trust now or hereafter encumbering all or any portion of the Building or
Site, or any lessor of any ground or master lease now or hereafter affecting all
or any portion of the Building or Site, and conditioned upon such mortgagee or
lessor agreeing to provide Tenant with a commercially reasonable form of
non-disturbance agreement, this Lease shall be subject and subordinate at all
times to such ground or master leases (and such extensions and modifications
thereof), and to the lien of such mortgages and deeds of trust (as well as to
any advances made thereunder and to all renewals, replacements, modifications
and extensions thereof). Notwithstanding the foregoing, Landlord and any
mortgagee and/or ground lessor of Landlord, as applicable, shall have the right
to subordinate or cause to be subordinated any or all ground or master leases or
the lien of any or all mortgages or deeds of trust to this Lease. In the event
that any ground or master lease terminates for any reason or any mortgage or
deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for
any reason, at the election of Landlord's successor in interest, Tenant shall
attorn to and become
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the tenant of such successor. Tenant hereby waives its rights under any current
of future law which gives or purports to give Tenant any right to terminate or
otherwise adversely affect this Lease and the obligations of Tenant hereunder in
the event of any such foreclosure proceeding or sale. Tenant covenants and
agrees to execute and deliver to Landlord within ten (10) days after receipt of
written demand by Landlord and in the form reasonably required by Landlord, any
additional documents evidencing the priority or subordination of this Lease with
respect to any such ground or master lease or the lien of any such mortgage or
deed of trust. Should Tenant fail to sign and return any such documents within
said ten day period, Tenant shall be in default hereunder without the benefit of
any additional notice or cure periods specified in Section 23.1 above. Landlord
agrees to use commercially reasonable efforts to cause the mortgagee existing as
of the date hereof to provide Tenant with a commercially reasonable
nondisturbance agreement within sixty (60) days after the date hereof.
26. ESTOPPEL CERTIFICATE.
26.1 TENANT'S OBLIGATIONS. Within ten (10) business days following written
request, each party shall execute and deliver to the other an estoppel
certificate, in a form substantially similar to the form of Exhibit "F" attached
hereto, certifying: (a) the Commencement Date of this Lease; (b) that this Lease
is unmodified and in full force and effect (or, if modified, that this Lease is
in full force and effect as modified, and stating the date and nature of such
modifications); (c) the date to which the rent and other sums payable under this
Lease have been paid; (d) that there are not, to the best of the responding
party's knowledge, any defaults under this Lease by either Landlord or Tenant,
except as specified in such certificate; and (e) such other matters as are
reasonably requested by the requesting party. Any such estoppel certificate
delivered pursuant to this Section 26.1 may be relied upon by any mortgagee,
beneficiary, purchaser or prospective purchaser of any portion of the Site, as
well as their assignees.
26.2 TENANT'S FAILURE TO DELIVER. Tenant's failure to deliver such estoppel
certificate within such time shall be conclusive upon Tenant that: (a) this
Lease is in full force and effect without modification, except as may be
represented by Landlord; (b) there are no uncured defaults in Landlord's or
Tenant's performance; and (c) not more than one (1) month's rental has been paid
in advance. Tenant shall indemnify, defend (with counsel reasonably approved by
Landlord in writing) and hold Landlord harmless from and against any and all
claims, judgments, suits, causes of action, damages, losses, liabilities and
expenses (including attorneys' fees and court costs) attributable to any failure
by Tenant to timely deliver any such estoppel certificate to Landlord pursuant
to Section 26.1 above.
27. [INTENTIONALLY DELETED].
28. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS.
28.1 MODIFICATIONS. If, in connection with Landlord's obtaining or entering into
any financing or ground lease for any portion of the Building or Site, the
lender or ground lessor shall request modifications to this Lease, Tenant shall,
within fifteen (15) days after request therefor, execute an amendment to this
Lease including such modifications, provided such modifications are reasonable,
do not increase the obligations of Tenant hereunder, or adversely affect the
leasehold estate created hereby or Tenant's rights hereunder. Without limiting
the generality of the foregoing, no such modification shall: (i) increase the
amount or frequency of payment of rent or other monetary obligations of Tenant;
(ii) reduce, enlarge or change the location of the Premises; (iii) reduce
Tenant's signage rights; (iv) eliminate or restrict any options granted to
Tenant; or (v) eliminate or modify Tenant's rights under Section 33.6 of this
Lease. Upon request of Tenant, Landlord shall reimburse Tenant for its
reasonable out-of-pocket legal and other costs incurred in reviewing such
amendment, not to exceed Two Hundred Fifty Dollars ($250.00).
28.2 CURE RIGHTS. In the event of any default on the part of Landlord, Tenant
will give notice by registered or certified mail to any beneficiary of a deed of
trust or mortgagee covering the Premises or ground lessor of Landlord whose
address shall have been furnished to Tenant, and shall offer such beneficiary,
mortgagee or ground lessor a reasonable opportunity to cure the default
(including with respect to any such beneficiary or mortgagee, time to obtain
possession of the Premises, subject to this Lease and Tenant's rights hereunder,
by power of sale or a judicial foreclosure, if such should prove necessary to
effect a cure).
29. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that, upon Tenant
performing all of the covenants and provisions on Tenant's part to be observed
and performed under this Lease (including payment of rent hereunder) Tenant
shall have the right to use and occupy the Premises in accordance with and
subject to the terms and conditions of this Lease.
30. TRANSFER OF LANDLORD'S INTEREST. The term "Landlord" as used in this Lease,
so far as covenants or obligations on the part of the Landlord are concerned,
shall be limited to mean and include only the owner or owners, at the time in
question, of the fee title to, or a lessee's interest in a ground lease of, the
Site. In the event of any transfer or conveyance of any such title or interest
(other than a transfer for security purposes only), the transferor shall be
automatically relieved of all covenants and obligations on the part of Landlord
contained in this Lease accruing after the date of such transfer or conveyance.
Landlord and Landlord's transferees and assignees shall have the absolute right
to transfer all or any portion of their respective title and interest in the
Site, the Building, the Premises and/or this Lease without the consent of
Tenant, and such transfer or subsequent transfer shall not be deemed a violation
on Landlord's part of any of the terms and conditions of this Lease.
31. LIMITATION ON LANDLORD'S LIABILITY. Notwithstanding anything contained in
this Lease to the contrary, the obligations of Landlord under this Lease
(including any actual or alleged breach or default by Landlord) do not
constitute personal obligations of the individual partners, directors, officers,
members or shareholders of Landlord or Landlord's partners, and Tenant shall not
seek recourse against the individual partners, directors, officers, members or
shareholders of Landlord or against Landlord's partners or any other persons or
entities having any interest in Landlord, or any of their personal assets for
satisfaction of any liability with respect to this Lease. In addition, in
consideration of the benefits accruing hereunder to Tenant and notwithstanding
anything contained in this Lease to the contrary, Tenant hereby
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covenants and agrees for itself and all of its successors and assigns that the
liability of Landlord for its obligations under this Lease (including any
liability as a result of any actual or alleged failure, breach or default
hereunder by Landlord), shall be limited solely to, and Tenant's and its
successors' and assigns' sole and exclusive remedy shall be against, Landlord's
interest in the Building and proceeds therefrom, and no other assets of
Landlord.
32. MISCELLANEOUS.
32.1 GOVERNING LAW. This Lease shall be governed by, and construed pursuant to,
the laws of the state in which the Building is located.
32.2 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 30 above, and
except as otherwise provided in this Lease, all of the covenants, conditions and
provisions of this Lease shall be binding upon, and shall inure to the benefit
of, the parties hereto and their respective heirs, personal representatives and
permitted successors and assigns; provided, however, no rights shall inure to
the benefit of any Transferee of Tenant unless the Transfer to such Transferee
is made in compliance with the provisions of Section 14, and no options or other
rights which are expressly made personal to the original Tenant hereunder or in
any rider attached hereto shall be assignable to or exercisable by anyone other
than the original Tenant under this Lease.
32.3 NO MERGER. The voluntary or other surrender of this Lease by Tenant or a
mutual termination thereof shall not work as a merger and shall, at the option
of Landlord, either (a) terminate all or any existing subleases, or (b) operate
as an assignment to Landlord of Tenant's interest under any or all such
subleases.
32.4 PROFESSIONAL FEES. If either Landlord or Tenant should bring suit against
the other with respect to this Lease, including for unlawful detainer or any
other relief against the other hereunder, then all reasonable, actual costs and
expenses incurred by the prevailing party therein (including, without
limitation, its actual appraisers', accountants', attorneys' and other
professional fees and court costs), shall be paid by the other party.
32.5 WAIVER. The waiver by either party of any breach by the other party of any
term, covenant or condition herein contained shall not be deemed to be a waiver
of any subsequent breach of the same or any other term, covenant and condition
herein contained, nor shall any custom or practice which may become established
between the parties in the administration of the terms hereof be deemed a waiver
of, or in any way affect, the right of any party to insist upon the performance
by the other in strict accordance with said terms. No waiver of any default of
either party hereunder shall be implied from any acceptance by Landlord or
delivery by Tenant (as the case may be) of any rent or other payments due
hereunder or any omission by the non-defaulting party to take any action on
account of such default if such default persists or is repeated, and no express
waiver shall affect defaults other than as specified in said waiver. The
subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a
waiver of any preceding breach by Tenant of any term, covenant or condition of
this Lease other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent.
32.6 TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in any gender include
other genders. The Section headings of this Lease are not a part of this Lease
and shall have no effect upon the construction or interpretation of any part
hereof.
32.7 TIME. Time is of the essence with respect to performance of every provision
of this Lease in which time or performance is a factor. All references in this
Lease to "DAYS" shall mean calendar days unless specifically modified herein to
be "business" days.
32.8 PRIOR AGREEMENTS; AMENDMENTS. This Lease (and the Exhibits and Riders
attached hereto) contain all of the covenants, provisions, agreements,
conditions and understandings between Landlord and Tenant concerning the
Premises and any other matter covered or mentioned in this Lease, and no prior
agreement or understanding, oral or written, express or implied, pertaining to
the Premises or any such other matter shall be effective for any purpose. No
provision of this Lease may be amended or added to except by an agreement in
writing signed by the parties hereto or their respective successors in interest.
The parties acknowledge that all prior agreements, representations and
negotiations are deemed superseded by the execution of this Lease to the extent
they are not expressly incorporated herein.
32.9 SEPARABILITY. The invalidity or unenforceability of any provision of this
Lease; (except for Tenant's obligation to pay Monthly Basic Rent and Excess
Expenses under Sections 4 and 5 hereof) shall in no way affect, impair or
invalidate any other provision hereof, and such other provisions shall remain
valid and in full force and effect to the fullest extent permitted by law.
32.10 RECORDING. Neither Landlord nor Tenant shall record this Lease. In
addition, neither party shall record a short form memorandum of this Lease
without the prior written consent (and signature on the memorandum) of the
other, and provided that prior to recordation Tenant executes and delivers to
Landlord, in recordable form, a properly acknowledged quitclaim deed or other
instrument extinguishing all of the Tenant's rights and interest in and to the
Site, Building and Premises, and designating Landlord as the transferee, which
deed or other instrument shall be held by Landlord and may be recorded by
Landlord once the Lease terminates or expires (but not prior thereto). If such
short form memorandum is recorded in accordance with the foregoing, the party
requesting the recording shall pay for all costs of or related to such
recording, including, but not limited to, recording charges and documentary
transfer taxes.
32.11 EXHIBITS AND RIDERS. All Exhibits and Riders attached to this Lease are
hereby incorporated in this Lease as though set forth at length herein.
32.12 ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of a
lesser amount than the rent payment herein stipulated shall be deemed to be
other than on account of the rent, nor shall any endorsement or
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<PAGE> 31
statement on any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy provided in this Lease. Tenant agrees that each
of the foregoing covenants and agreements shall be applicable to any covenant or
agreement either expressly contained in this Lease or imposed by any statute or
at common law.
32.13 FINANCIAL STATEMENTS. Upon ten (10) days prior written request from
Landlord (which Landlord may make at any time during the Term but no more often
that two (2) times in any calendar year), Tenant shall deliver to Landlord (a) a
current financial statement of Tenant and any guarantor of this Lease, and (b)
financial statements of Tenant and such guarantor for the two (2) years prior to
the current financial statement year. Such statements shall be prepared in
accordance with generally acceptable accounting principles and certified as true
in all material respects by Tenant (if Tenant is an individual) or by an
authorized officer or general partner of Tenant (if Tenant is a corporation or
partnership, respectively).
32.14 NO PARTNERSHIP. Landlord does not, in any way or for any purpose, become a
partner of Tenant in the conduct of its business, or otherwise, or joint
venturer or a member of a joint enterprise with Tenant by reason of this Lease.
The provisions of this Lease relating to Percentage Rent payable hereunder, if
any, are included solely for the purpose of providing a method whereby rent is
to be measured and ascertained.
32.15 FORCE MAJEURE. In the event that either party hereto shall be delayed or
hindered in or prevented from the performance of any act required hereunder by
reason of strikes, lock-outs, labor troubles, inability to procure materials,
failure of power, governmental moratorium or other governmental action or
inaction (including failure, refusal or delay in issuing permits, approvals
and/or authorizations), injunction or court order, riots, insurrection, war,
fire, earthquake, flood or other natural disaster or other reason of a like
nature not the fault of the party delaying in performing work or doing acts
required under the terms of this Lease (but excluding delays due to financial
inability) (herein collectively, "FORCE MAJEURE DELAYS"), then performance of
such act shall be excused for the period of the delay and the period for the
performance of any such act shall be extended for a period equivalent to the
period of such delay. The provisions of this Section 32.15 shall not apply to
nor operate to excuse Tenant from the payment of Monthly Basic Rent, Project
Operating Expenses, additional rent or any other payments strictly in accordance
with the terms of this Lease.
32.16 COUNTERPARTS. This Lease may be executed in one or more counterparts, each
of which shall constitute an original and all of which shall be one and the same
agreement.
32.17 NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and agrees that the
terms of this Lease are confidential and constitute proprietary information of
Landlord. Disclosure of the terms could adversely affect the ability of Landlord
to negotiate other leases and impair Landlord's relationship with other tenants.
Accordingly, Tenant agrees that it, and its partners, officers, directors,
employees, agents and attorneys, shall not intentionally and voluntarily
disclose the terms and conditions of this Lease to any newspaper or other
publication or any other tenant or apparent prospective tenant of the Building
or other portion of the Project, or real estate agent, either directly or
indirectly, without the prior written consent of Landlord, provided, however,
that Tenant may disclose the terms (i) to prospective subtenants or assignees
under this Lease or (ii) as part of Tenant's disclosure requirements under
applicable law.
32.18 NON-DISCRIMINATION. Tenant acknowledges and agrees that there shall be no
discrimination against, or segregation of, any person, group of persons, or
entity on the basis of race, color, creed, religion, age, sex, marital status,
national origin, or ancestry in the leasing, subleasing, transferring,
assignment, occupancy, tenure, use, or enjoyment of the Premises, or any portion
thereof.
33. LEASE EXECUTION.
33.1 TENANT'S AUTHORITY. If Tenant executes this Lease as a partnership or
corporation, then Tenant and the persons and/or entities executing this Lease on
behalf of Tenant represent and warrant that: (a) Tenant is a duly authorized and
existing partnership or corporation, as the case may be, and is qualified to do
business in the state in which the Building is located; (b) such persons and/or
entities executing this Lease are duly authorized to execute and deliver this
Lease on Tenant's behalf in accordance with the Tenant's partnership agreement
(if Tenant is a partnership), or a duly adopted resolution of Tenant's board of
directors and the Tenant's by-laws (if Tenant is a corporation); and (c) this
Lease is binding upon Tenant in accordance with its terms.
33.2 JOINT AND SEVERAL LIABILITY. If more than one person or entity executes
this Lease as Tenant: (a) each of them is and shall be jointly and severally
liable for the covenants, conditions, provisions and agreements of this Lease to
be kept, observed and performed by Tenant; and (b) the act or signature of, or
notice from or to, any one or more of them with respect to this Lease shall be
binding upon each and all of the persons and entities executing this Lease as
Tenant with the same force and effect as if each and all of them had so acted or
signed, or given or received such notice.
33.3 [INTENTIONALLY DELETED].
33.4 NO OPTION. The submission of this Lease for examination or execution by
Tenant does not constitute a reservation of or option for the Premises and this
Lease shall not become effective as a Lease until it has been executed by
Landlord and delivered to Tenant.
33.5 ANTENNAS/COMMUNICATIONS. Subject to the terms hereof, and subject to the
approval by all governmental authorities, the Original Tenant shall have the
right, at its sole cost and expense and in compliance with all applicable laws,
to install an antenna, microwave or other transmission equipment (the
"COMMUNICATIONS EQUIPMENT") approved by Landlord on the roof of the Building.
Tenant shall submit the proposed location(s) for such Communications Equipment
to Landlord for Landlord's approval, which approval shall not be unreasonably
withheld. Landlord may require Tenant, at Tenant's sole cost and expense, to
screen from view any such Communications Equipment. Tenant shall be
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<PAGE> 32
responsible to repair all damage to the Project resulting from the installation
of such Communications Equipment and shall maintain such Communications
Equipment in good condition. The installation of such Communications Equipment
shall be performed in accordance with the requirements of Section 12. Upon the
expiration or earlier termination of this Lease, Tenant shall, at Landlord's
request, remove all such Communications Equipment and repair all damage
resulting from such removal. Tenant agrees to reimburse Landlord, upon demand,
for any additional cost of insurance attributed to the installation or existence
of such Communications Equipment. Tenant shall arrange for its liability and
property insurance required to be maintained by Tenant under the Lease to
include coverage for the Communications Equipment and for all activities upon
the roof of the Building by Tenant or any Tenant Parties. In addition, Tenant's
indemnification of Landlord under Section 17 of the Lease shall apply to any
acts of Tenant or any Tenant Parties upon the roof of the Building or otherwise
with respect to the Communications Equipment. Tenant shall pay for all utilities
hook-up charges necessary For the installation of the Communications Equipment,
and shall pay for the maintenance and service of said utilities. To the extent
feasible (at Landlord's discretion), Landlord shall allow Tenant, at Tenant's
sole cost, to hook up the Communications Equipment to the Building electrical
system in accordance with the provisions of the Lease and under the supervision
of Landlord. Landlord may also require that the utilities serving the
Communications Equipment be separately metered at Tenant's sole cost and
expense. Tenant shall indemnify, defend, protect and hold harmless Landlord
against and from any and all claims arising from or relating to (i) the
Communications Equipment and its related improvements and the installation,
operation, maintenance and repair thereof, and (ii) electrical power
interruptions or interruptions with communication facilities of other Building
tenants. For the purposes hereof, "CLAIMS" shall be defined to include without
limitation, obligations, liabilities, claims, liens, encumbrances, actions,
causes of action, losses, damages, costs, expenses and attorneys' fees and
costs; and in case any action or proceeding be brought against Landlord by
reason of any such claim, Tenant, upon notice from Landlord, shall defend the
same at Tenant's expense by counsel reasonably satisfactory to Landlord. Tenant,
as a material part of the consideration to Landlord, hereby assumes all risk of
damage to property or injury to person in, upon or about the Building relative
to the Communications Equipment from any cause whatsoever except to the extent
of the sole gross negligence or willful misconduct of Landlord.
33.6 TENANT'S LIMITED RIGHT TO TERMINATE LEASE. Landlord and Tenant acknowledge
and agree that, as a material inducement to Tenant entering into this Lease and
notwithstanding the existence of this Lease, Tenant desires to either (a) enter
into a build-to-suit lease transaction with Landlord for a minimum of 100,000
square feet of office/manufacturing space in a building to be constructed by
Landlord (or that Landlord will cause to be constructed) in the greater San
Diego area substantially similar in quality and geographic environment to the
Premises for a minimum lease term of ten (10) years (the "BUILD-TO-SUIT
TRANSACTION"), or (b) relocate to another project owned by Landlord in the
greater San Diego area substantially similar in quality and geographic
environment to the Premises for a minimum square footage requirement of at least
one hundred twenty-five percent (125%) of the Premises then being leased by
Tenant hereunder for a minimum lease term of ten (10) years (the "RELOCATION
TRANSACTION"). The Build-to-Suit Transaction and the Relocation Transaction are
collectively referred to herein as the "NEW LEASE TRANSACTIONS". As soon as
reasonably practicable after the execution and delivery of this Lease by
Landlord and Tenant, but in no event later than the first annual anniversary of
the Commencement Date, Landlord and Tenant covenant that they will negotiate in
good faith either the Build-to-Suit Transaction or the Relocation Transaction.
Without limiting the generality of the foregoing, Tenant covenants to Landlord
that Tenant will execute a lease with Landlord for a New Lease Transaction to
the extent the New Lease Transaction is based on a lease containing commercially
reasonable market-based economic and legal terms and provisions; provided,
however, that Landlord and Tenant agree that the legal terms and provisions of
the New Lease Transaction shall be deemed to be commercially reasonable to the
extent the New Lease Transaction contains substantial the same legal terms and
provisions as this Lease. In the event that a New Lease Transaction is not
consummated by Landlord and Tenant by the second (2nd) annual anniversary of the
Commencement Date and provided Tenant fully and completely satisfies each of the
conditions set forth in this Section 33.6, Tenant shall have a one-time option
("TERMINATION OPTION") to terminate this Lease exercisable at any time after the
second (2nd) annual anniversary of the Commencement Date effective at the end of
any of months thirty-six (36) through forty-two (42) of the Term of this Lease
as set forth in Tenant's Termination Notice (as defined below) (the "TERMINATION
DATE"); provided, however, that Landlord and Tenant agree that in the
negotiation and documentation of the New Lease Transaction, Landlord and Tenant
shall act reasonably and in good faith and take no action which might result in
a frustration of the reasonable expectations of a sophisticated landlord or
tenant concerning the benefits to be enjoyed under the New Lease Transaction. In
order to exercise the Termination Option and subject to all of the other terms
and conditions in this Section 33.6, Tenant must fully and completely satisfy
each and every one of the following conditions:
(a) Tenant must give Landlord written notice ("TERMINATION NOTICE") of its
intention to terminate this Lease, which Termination Notice must be
delivered to Landlord at least six (6) months prior to the Termination
Date;
(b) At the time of the Termination Notice, Tenant shall not be in default
under this Lease after the expiration of the applicable notice and cure
periods;
(c) Concurrently with Tenant's delivery of the Termination Notice to
Landlord, Tenant shall pay to Landlord an amount equal to the sum of
(i) the unamortized balance, as of the Termination Date, of (1) the
Tenant Improvement Allowance actually utilized by Tenant, (2) the real
estate brokerage commissions paid by Landlord in connection with this
Lease, and (3) Tenant's free rent for months 2-7 of the Lease Term,
plus (ii) an amount equal to one (1) months' Monthly Basic Rent
calculated at the rate payable at the time of Termination Notice.
Amortization pursuant to this Section 33.6 shall be calculated on a
sixty-six (66) month amortization schedule commencing as of the
Commencement Date based upon equal monthly payments of principal and
interest, with interest imputed on the outstanding principal balance at
the rate of ten percent (10%) per annum.
Upon Tenant's compliance with the provisions of Subsections (a), (b) and (c)
above, Landlord agrees to promptly execute and deliver to Tenant an
acknowledgment that the Lease terminates as of the Termination Date, except for
those rights and obligations in this Lease which expressly survive its
expiration. Notwithstanding anything contained in this Section 33.6 to the
contrary, Landlord and Tenant acknowledge and agree that it is the intent of
Landlord and Tenant that Tenant shall (subject to this Section 33.6) only have
the right to terminate this Lease so long as Landlord is unable to
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<PAGE> 33
accommodate Tenant on a New Lease Transaction and, in this regard, Tenant
acknowledges and agrees that Tenant shall not utilize the Termination Option as
a subterfuge to avoid Tenant's obligations under this Lease.
33.7 [INTENTIONALLY DELETED].
34. ARBITRATION. In the event of any dispute by Landlord of Tenant's audit of
Operating Expenses as set forth in Section 4.9 or in the event of a dispute
under Section 24 concerning Tenant's right to offset, such dispute shall be
resolved through binding arbitration pursuant to this Section 34. If demand for
arbitration is timely made as provided in Subsection (a) below, such arbitration
shall be conducted in accordance with Title 9 of the California Code of Civil
Procedure, Section 1280, et seq., unless otherwise specified herein. The
arbitrator shall be selected from the Commercial Arbitration panel of the
American Arbitration Association and shall have commercial real estate leasing
and, with respect to a dispute under Section 4.9 hereof, accounting expertise.
Any such arbitration shall be held and conducted, within thirty (30) days after
the selection of an arbitrator, in Los Angeles County, California. The
provisions of the Commercial Arbitration Rules of the American Arbitration
Association shall apply and govern such arbitration, subject, however, to the
following:
(a) Any demand for arbitration shall be in writing and must be made and
served on Tenant within a reasonable time after the claim, dispute or
other matter in questions has arisen and in no event shall the demand
for arbitration be made after the date that institution of legal or
equitable proceedings based on such claim, dispute, or other matter
would be barred by the applicable statute of limitations.
(b) All proceedings involving the parties shall be reported by a certified
shorthand court reporter and written transcripts of the proceedings
shall be prepared and made available to the parties.
(c) A party can require the arbitrator to make specific rulings on
specific items or questions of fact. The arbitrator shall be bound by
the provisions of this Lease, and shall not add to, subtract from or
otherwise modify such provisions.
(d) Final decision by the arbitrator must be provided to the parties within
thirty (30) days from the date on which the matter is submitted to the
arbitrator.
(e) The prevailing party (as defined below) shall be awarded reasonable
attorneys' fees, expert and nonexpert witness costs and expenses
(including without limitation the fees and costs of the court reporter
described in Subsection (c) above), and other costs and expenses
incurred in connection with the arbitration, unless the arbitrator for
good cause determines otherwise.
(f) As used herein, the term "prevailing party" shall mean the party, if
any, that the arbitrator determines is "clearly the prevailing party."
(g) Costs and fees of the arbitrator shall be borne by the nonprevailing
party, unless the arbitrator for good cause determines otherwise. If
there is no prevailing party, the parties shall bear their own fees and
costs and split the fees and costs of the arbitrator and court
reporter.
(h) The award or decision of the arbitrator, which may include equitable
relief, shall be final and judgment may be entered on it in accordance
with applicable law in any court having jurisdiction over the matter.
The provisions of this Section 34 are not intended to alter the
applicable provisions of law which provide the grounds on which a court
may vacate an arbitration award.
(i) The provisions of this Section 34 are not intended to require (1)
Landlord to arbitrate any matters relating to any monetary default by
Tenant under this Lease, which matters shall, at the election of
Landlord, be governed by the applicable provisions of this Lease and/or
applicable law, or (2) either party to arbitrate any matters arising
under this Lease which are not described in the first sentence of this
Section 34.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and year
first above written.
TENANT: LANDLORD:
MAXWELL TECHNOLOGIES, INC., AEW/LBA ACQUISITION COMPANY II, LLC, a
a Delaware corporation California limited liability company
By: LBA, Inc., a California corporation,
By: /s/ Gary Davidson Its: Agent
------------------------------
Print Name: Gary Davidson
-------------------
Print Title: CFO
----------------- By: /s/ [NAME ILLEGIBLE]
---------------------------------
Print Name:
----------------------
Its: Authorized Signatory
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<PAGE> 34
EXHIBIT "A"
SITE PLAN
[METROPOLITAN OFFICE PARK MAP]
EXHIBIT "A"
<PAGE> 35
EXHIBIT "B"
FLOOR PLAN
[FLOOR PLAN MAP]
EXHIBIT "B"
<PAGE> 36
EXHIBIT "C"
[INTENTIONALLY DELETED]
EXHIBIT "C"
<PAGE> 37
EXHIBIT "D"
SAMPLE FORM OF NOTICE OF LEASE TERM DATES
To: _______________________________ Date: __________________________
Re: Office Lease dated ___________________________,1997 between AEW/LBA
ACQUISITION COMPANY II, LLC, a California limited liability company,
Landlord, and MAXWELL TECHNOLOGIES, INC., a Delaware corporation,
Tenant, concerning Suite 400 ("PREMISES") located at 9275 Skypark
Court, San Diego, California 92123.
Gentlemen:
In accordance with the above-referenced Lease, we wish to advise and/or confirm
as follows:
1. That the Premises have been accepted by Tenant as being substantially
complete in accordance with the Lease, and that there is no deficiency
in construction.
2. That Tenant has accepted and is in possession of the Premises, and
acknowledges that under the provisions of the Lease, the Term of the
Lease is for ________________(__) years, with __________________(__)
options to renew for __________________(__) years each, and commenced
upon the Commencement Date of _________________, 19__ and is currently
scheduled to expire on _________________, 19__, subject to earlier
termination as provided in the Lease.
3. That in accordance with the Lease, rental payment has commenced (or
shall commence) on _____________________, 19__.
4. If the Commencement Date of the Lease is other than the first day of
the month, the first billing will contain a pro rata adjustment. Each
billing thereafter, with the exception of the final billing, shall be
for the full amount of the monthly installment as provided for in the
Lease.
5. Rent is due and payable in advance on the first day of each and every
month during the Term of the Lease. Your rent checks should be made
payable to ___________________________ at __________________________.
6. The exact number of rentable square feet within the Premises is
___________ square feet. The exact number of usable square feet within
the Premises is _____________ square feet.
7. Tenant's Percentage, as adjusted based upon the exact number of
Rentable Square Feet within the Premises, is _________%
AGREED AND ACCEPTED
TENANT: LANDLORD:
MAXWELL TECHNOLOGIES, INC., AEW/LBA ACQUISITION COMPANY II, LLC, a
a Delaware corporation California limited liability company
By: LBA, Inc., a California corporation,
By: _____________________________ Its: Agent
Print Name:__________________
Print Title:_________________
By: _______________________________
Print Name:____________________
By: _____________________________ Its: Authorized Signatory
Print Name:__________________
Print Title:_________________
SAMPLE ONLY (NOT FOR EXECUTION]
EXHIBIT "D"
<PAGE> 38
EXHIBIT "E"
RULES AND REGULATIONS
1. No sign, advertisement, name or notice shall be installed or displayed on any
part of the outside or inside of the Building without the prior written consent
of Landlord. Landlord shall have the right to remove, at Tenant's expense and
without notice, any sign installed or displayed in violation of this rule. All
approved signs or lettering on doors and walls shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved by Landlord,
using materials and in a style and format approved by Landlord.
2. Tenant shall not place anything or allow anything to be placed near the glass
of any window, door, partition or wall which may appear unsightly from outside
the Premises. No awnings or other projection shall be attached to the outside
walls of the Building without the prior written consent of Landlord. No
curtains, blinds, shades or screens shall be attached to or hung in, or used in
connection with, any window or door of the Premises, other than Building
standard materials, without the prior written consent of Landlord.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances,
elevators, escalators or stairways of the Building. The halls, passages, exits,
entrances, elevators, escalators and stairways are not for the general public,
and Landlord shall in all cases retain the right to control and prevent access
thereto of all persons whose presence in the judgment of Landlord would be
prejudicial to the safety, character, reputation and interests of the Building
and its tenants; provided, that nothing herein contained shall be construed to
prevent such access to persons with whom any tenant normally deals in the
ordinary course of its business, unless such persons are engaged in illegal
activities. Except as expressly provided in Section 33.5 of the Lease, Tenant
and no employee, invitee, agent, licensee or contractor of Tenant shall go upon
or be entitled to use any portion of the roof of the Building.
4. [INTENTIONALLY DELETED].
5. All cleaning and janitorial services for the Building and the Premises shall
be provided exclusively through Landlord or Landlord's janitorial contractors in
accordance with the provisions of Section 18.1(d) of the Lease. No person or
persons other than those approved by Landlord shall be employed by Tenant or
permitted to enter the Building for the purpose of cleaning the same. Tenant
shall not cause any unnecessary labor by carelessness or indifference to the
good order and cleanliness of the Premises.
6. Landlord will furnish Tenant, free of charge, with two keys to each door lock
in the Premises. Landlord may impose a reasonable charge for any additional
keys. Tenant may not make or have made additional keys, and Tenant shall not,
except as otherwise expressly provided in Section 15 of the Lease, alter any
lock or install a new additional lock or bolt on any door or window of its
Premises. Tenant, upon termination of its tenancy, shall deliver to Landlord the
keys of all doors which have been furnished to, or otherwise procured by Tenant,
and, in the event of loss of any keys, shall pay Landlord the cost of replacing
the same or of changing the lock or locks opened by such lost key if Landlord
shall deem it necessary to make such change.
7. Electric wires, telephones, telegraphs, burglar alarms or other similar
apparatus shall not be installed in the Premises except with the approval and
under the direction of Landlord. The location of telephones, call boxes and any
other equipment affixed to the Premises shall be subject to the approval of
Landlord. Any installation of telephones, telegraphs, electric wires or other
electric apparatus made without permission shall be removed by Tenant at
Tenant's own expense. Except for machines for the use contemplated by Section
1.5 of this Lease, no machines other than standard office machines, such as
typewriters and calculators, photo copiers, personal computers and word
processors, and vending machines permitted by the Lease, shall be used in the
Premises without the approval of Landlord.
8. No furniture, freight, or equipment of any kind shall be brought into the
Building without prior notice to Landlord and all moving of the same into or out
of the Building shall be done at such time and in such manner as Landlord shall
designate. No furniture, equipment or merchandise shall be received in the
Building or carried up or down in the elevator, except between such hours as
shall be reasonably designated by Landlord; provided, however, that Tenant shall
be allowed to move into the Premises during the Business Hours for the Building
so long as such move-in does not, in Landlord's reasonable discretion, interfere
with Landlord's operation of the Building or the business operations of any
occupant of the Building and provided further that Tenant complies with
Landlord's reasonable directives regarding such move-in during the Business
Hours of the Building. Deliveries during normal office hours shall be limited to
normal office supplies and other small items. No deliveries shall be made which
impede or interfere with other tenants or the operation of the Building.
9. Tenant shall not place a load upon any floor of the Premises which exceeds
the load per square foot which such floor was designed to carry and which is
allowed by law. Landlord shall have the right to prescribe the weight, size and
position of all equipment, materials, furniture or other property brought into
the Building. Heavy objects, if such objects are considered necessary by Tenant,
as determined by Landlord, shall stand on such platforms as determined by
Landlord to be necessary to properly distribute the weight. Business machines
and mechanical equipment which cause noise or vibration that may be transmitted
to the structure of the Building or to any space therein to such a degree as to
be objectionable to Landlord or to any tenants in the Building, shall be placed
and maintained by Tenant, at Tenant's expense, on vibration eliminators or other
devices sufficient to eliminate noise or vibration. Landlord will not be
responsible for loss of, or damage to, any such equipment or other property from
any cause, and all damage done to the Building by maintaining or moving such
equipment or other property shall be repaired at the expense of Tenant.
10. Tenant shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment, Tenant shall
EXHIBIT "E"
<PAGE> 39
not use or permit to be used in the Premises any foul or noxious gas or
substance, or permit or allow the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Project by
reason of noise, odors or vibrations, nor shall Tenant bring into or keep in or
about the Premises any birds or animals.
11. Tenant shall not use any method of heating or air-conditioning other than
that supplied by Landlord unless approved by Landlord in Landlord's reasonable
discretion.
12. Tenant shall not waste electricity, water or air-conditioning and agrees to
cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air-conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Tenant has actual notice, and
shall not adjust controls other than room thermostats installed for Tenant's
use. Tenant shall keep corridor doors closed.
13. Landlord reserves the right from time to time, in Landlord's sole and
absolute discretion, exercisable without prior notice and without liability to
Tenant, to: (a) name or change the name of the Building, Site or Project; (b)
change the address of the Building or Project, and/or (c) install, replace or
change any signs in, on or about the Common Areas, the Building or Site (except
for Tenant's signs, if any, which are expressly permitted by the Lease).
14. Landlord reserves the right to exclude from the Building between the hours
of 6:00 p.m. and 7:00 a.m., or such other hours as may be established from time
to time by Landlord, and on legal holidays, any person unless that person is
known to the person or employee in charge of the Building and has a pass or is
properly identified. Landlord shall not be liable for damages for any error with
regard to the admission to or exclusion from the Building of any person. Tenant
shall be responsible for all persons for whom it requests passes and shall be
liable to Landlord for all acts of such persons. Landlord reserves the right to
prevent access to the Building in case of invasion, mob, riot, public excitement
or other commotion by closing the doors or by other appropriate action.
15. Tenant shall close and lock all doors of its Premises and entirely shut off
all water faucets or other water apparatus, and, except with regard to Tenant's
computers and other equipment which reasonably require electricity on a 24-hour
basis, all electricity, gas or air outlets before Tenant and its employees leave
the Premises. Tenant shall be responsible for any damage or injuries sustained
by other tenants or occupants of the Building or by Landlord for noncompliance
with this rule.
16. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed, and no
foreign substances of any kind whatsoever shall be thrown therein.
17. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets, or any other goods or merchandise to
the general public in or on the Premises. Tenant shall not make any room-to-room
solicitation of business from other tenants in the Project. Tenant shall not use
the Premises for any business or activity other than that specifically provided
for in the Lease.
18. Except as expressly provided in Section 33.5 of the Lease, Tenant shall not
install any radio or television antenna, loudspeaker or other device on the roof
or exterior walls of the Building. Tenant shall not interfere with radio or
television broadcasting or reception from or in the Building or elsewhere.
19. Except as expressly permitted in the Lease, Tenant shall not mark, drive
nails, screw or drill into the partitions, window mullions, woodwork or plaster,
or in any way deface the Premises or any part thereof, except to install normal
wall hangings. Tenant shall repair any damage resulting from noncompliance under
this rule.
20. Except for the primary use by Tenant's employees, Tenant shall not install,
maintain or operate upon the Premises any vending machines without the prior
written consent of Landlord, which shall not be unreasonably withheld.
21. Canvassing, soliciting and distribution of handbills or any other written
material, and peddling in and around the Project or the Building are expressly
prohibited, and each tenant shall cooperate to prevent same.
22. Landlord reserves the right to exclude or expel from the Project and/or the
Building any person who, in Landlord's judgment, is intoxicated or under the
influence of liquor or drugs or who is in violation of any of the Rules and
Regulations of the Project or Building.
23. Tenant shall store all its trash and garbage within its Premises. Tenant
shall not place in any trash box or receptacle any material which cannot be
disposed of in the ordinary and customary manner of trash and garbage disposal.
All garbage and refuse disposal shall be made in accordance with directions
reasonably issued from time to time by Landlord.
24. The Premises shall not be used for the storage of merchandise held for sale
to the general public, or for lodging or for manufacturing of any kind. No
cooking shall be done or permitted by Tenant on the Premises, except that use by
Tenant of Underwriters' Laboratory-approved equipment for brewing coffee, tea,
hot chocolate and similar beverages shall be permitted and the use of a
microwave as well as other equipment to the extent such other equipment is
typically found in office space comparable to the Premises in buildings
comparable to the Building, shall be permitted, provided that all such equipment
and use is in accordance with all applicable federal, state, county and city
laws, codes, ordinances, rules and regulations.
25. Tenant shall not use in any space, or in the public halls of the Building,
any hand trucks except those equipped with rubber tires and side guards, or such
other material-handling equipment as Landlord may approve. Tenant shall not
bring any other vehicles of any kind into the Building.
E-2
<PAGE> 40
26. Tenant shall not use the name of the Project or Building in connection with,
or in promoting or advertising, the business of Tenant, except for Tenant's
address.
27. Tenant agrees that it shall comply with all fire and security regulations
that may be issued from time to time by Landlord, and Tenant also shall provide
Landlord with the name of a designated responsible employee to represent Tenant
in all matters pertaining to such fire or security regulations. Tenant shall
cooperate fully with Landlord in all matters concerning fire and other emergency
procedures.
28. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage. Such responsibility shall include keeping doors
locked and other means of entry to the Premises closed.
29. Landlord agrees that the Rules and Regulations shall be enforced in a
non-discriminatory manner.
30. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Project or Building.
31. Landlord reserves the right to make such other and reasonable
non-discriminatory Rules and Regulations as, in its judgment, may from time to
time be needed for safety, security, care and cleanliness of the Project and/or
Building and for the preservation of good order therein. Tenant agrees to abide
by all such Rules and Regulations hereinabove stated and any additional
reasonable and non-discriminatory rules and regulations which are adopted.
32. Tenant shall be responsible for the observance of all of the foregoing rules
by Tenant's employees, agents, clients, customers, invitees or guests.
33. Tenant shall not lay linoleum, tile, carpet or other similar floor covering
so that the same shall be affixed to the floor of the Premises in any manner
except by a paste, or other material which may easily be removed with water, the
use of cement or other similar adhesive materials being expressly prohibited.
The method of affixing any such linoleum, tile, carpet or other similar floor
covering shall be subject to the approval of Landlord. The expense of repairing
any damage resulting from a violation of this rule shall be borne by Tenant.
PARKING RULES AND REGULATIONS
In addition to the parking provisions contained in the Lease to which this
Exhibit "E" is attached, the following rules and regulations shall apply with
respect to the use of the Building's parking facilities.
1. Every parker is required to park and lock his/her own vehicle. All
responsibility for damage to or loss of vehicles is assumed by the parker and
Landlord shall not be responsible for any such damage or loss by water, fire,
defective brakes, the act or omissions of others, theft, or for any other cause.
2. Tenant shall not park or permit its employees to park in any parking areas
designated by Landlord as areas for parking by visitors to the Project. Tenant
shall not leave vehicles in the parking areas overnight nor park any vehicles in
the parking areas other than automobiles, motorcycles, motor driven or non-motor
driven bicycles or four wheeled trucks.
3. Parking stickers or any other device or form of identification supplied by
Landlord as a condition of use of the parking facilities shall remain the
property of Landlord. Such parking identification device must be displayed as
requested and may not be mutilated in any manner. The serial number of the
parking identification device may not be obliterated. Devices are not
transferable and any device in the possession of an unauthorized holder will be
void.
4. No overnight or extended term storage of vehicles shall be permitted.
5. Vehicles must be parked entirely within painted stall lines of a single
parking stall.
6. All directional signs and arrows must be observed.
7. The speed limit within all parking areas shall be five (5) miles per hour.
8. Parking is prohibited: (a) in areas not striped for parking; (b) in aisles;
(c) where "no parking" signs are posted; (d) on ramps; (e) in cross-hatched
areas; and (f) in reserved spaces and in such other areas as may be designated
by Landlord or Landlord's parking operator.
9. Loss or theft of parking identification devices must be reported to the
Management Office immediately, and a lost or stolen report must be filed by the
Tenant or user of such parking identification device at the time. Landlord has
the right to exclude any vehicle from the parking facilities that does not have
an identification device.
10. Any parking identification devices reported lost or stolen found on any
unauthorized car will be confiscated and the illegal holder will be subject to
prosecution.
11. Washing, waxing, cleaning or servicing of any vehicle in any area not
specifically reserved for such purpose is prohibited.
12. The parking operators, managers or attendants are not authorized to make or
allow any exceptions to these rules and regulations.
E-3
<PAGE> 41
13. Tenant's continued right to park in the parking facilities is conditioned
upon Tenant abiding by these rules and regulations and those contained in this
Lease. Further, if the Lease terminates for any reason whatsoever, Tenant's
right to park in the parking facilities shall terminate concurrently therewith.
14. Tenant agrees to sign a parking agreement with Landlord or Landlord's
parking operator within five (5) days of request, which agreement shall be
consistent with the Lease and these parking rules and regulations.
15. Landlord reserves the right to refuse the sale or use of monthly stickers or
other parking identification devices to any tenant or person who willfully
refuse to comply with these rules and regulations and all city, state or federal
ordinances, laws or agreements.
16. Landlord reserves the right to establish and to modify and/or adopt such
other reasonable and non-discriminatory rules and regulations for the parking
facilities as it deems necessary for the operation of the parking facilities so
long as Tenant's parking rights under the Lease are not adversely affected.
Landlord may refuse to permit any person who violates these rules to park in the
parking facilities, and any violation of the rules shall subject the vehicle to
removal, at such vehicle owner's expense
E-4
<PAGE> 42
EXHIBIT "F"
SAMPLE FORM OF TENANT ESTOPPEL CERTIFICATE
The undersigned ("TENANT") hereby certifies to AEW/LBA ACQUISITION COMPANY II,
LLC, a California limited liability company ("LANDLORD") as follows:
1. Attached hereto is a true, correct and complete copy of that certain Office
Lease dated ___________________, 19__ between Landlord and Tenant (the "LEASE"),
which demises Premises which are located at _________________________________.
The Lease is now in full force and effect and has not been amended, modified or
supplemented, except as set forth in Section 6 below.
2. The term of the Lease commenced on ________________, 19__.
3. The term of the Lease is currently scheduled to expire on ____________, 19__.
4. Tenant has no option to renew or extend the Term of the Lease except: _______
_______________________________________________________________________________.
5. Tenant has no preferential right to purchase the Premises or any portion of
the Building or Site upon which the Premises are located, and Tenant has no
rights or options to expand into other space in the Building except:
_______________________________________________________________________________.
6. The Lease has: (Initial One)
( ) not been amended, modified, supplemented, extended, renewed or assigned.
( ) been amended, modified, supplemented, extended, renewed or assigned by
the following described agreements, copies of which are attached hereto:
_________________________________________________________________________
________________________________________________________________________.
7. Tenant has accepted and is now in possession of the Premises and has not
sublet, assigned or encumbered the Lease, the Premises or any portion thereof
except as follows: _____________________________________________________________
_______________________________________________________________________________.
8. The current Monthly Basic Rent is $_____________; and current monthly parking
charges are $________________.
9. Tenant's Percentage is ___________%, and Tenant's Percentage of Operating
Expenses currently payable by Tenant is $______________ per month, which amount
is Landlord's current estimate of Tenant's Percentage of Operating Expenses in
excess of:
(Complete One) $________________ per year (expense stop), or
the Operating Expenses incurred in calendar year________.
10. The amount of security deposit (if any) is $________. No other security
deposits have been made.
11. All rental payments payable by Tenant have been paid in full as of the date
hereof. No rent under the Lease has been paid for more than thirty (30) days in
advance of its due date.
12. All work required to be performed by Landlord under the Lease has been
completed and has been accepted by Tenant, and all tenant improvement allowances
have been paid in full.
13. To the best of Tenant's knowledge, as of the date hereof, there are no
defaults on the part of Landlord or Tenant under the Lease.
14. Tenant has no defense as to its obligations under the Lease and claims no
set-off or counterclaim against Landlord.
15. Tenant has no right to any concession (rental or otherwise) or similar
compensation in connection with renting the space it occupies, except as
expressly provided in the Lease.
16. All insurance required of Tenant under the Lease has been provided by Tenant
and all premiums have been paid.
17. There has not been filed by or against Tenant a petition in bankruptcy,
voluntary or otherwise, any assignment of creditors, any petition seeking
reorganization or arrangement under the bankruptcy laws of the United States or
any state thereof, or any other action brought pursuant to such bankruptcy laws
with respect to Tenant.
18. Tenant pays rent due Landlord under the Lease to Landlord and does not have
any knowledge of any other person who has any right to such rents by collateral
assignment or otherwise.
EXHIBIT "F"
<PAGE> 43
The foregoing certification is made with the knowledge that is about to [fund a
loan to Landlord or purchase the Building from Landlord], and that is relying
upon the representations herein made in [funding such loan or purchasing the
Building].
Dated: ______________, 19 __.
"TENANT" MAXWELL TECHNOLOGIES, INC.,
a Delaware corporation
By: ______________________________
Print Name: _______________________
Its: ______________________________
F-2
<PAGE> 1
EXHIBIT 10.32
[MAXWELL TECHNOLOGIES LOGO]
EXECUTIVE BONUS
PLAN
FY 1998
Company Confidential
<PAGE> 2
OBJECTIVE:
- --------------------------------------------------------------------------------
- - To drive the maximization of company-wide growth, financial performance
and shareholder value.
Company Confidential 2
<PAGE> 3
ELIGIBILITY:
- --------------------------------------------------------------------------------
- - The CEO recommends participants and their participation levels (i.e.
target bonus.)
- - Participants must be actively employed on the last day of the
performance period to be eligible for any award.
Company Confidential 3
<PAGE> 4
BONUS OPPORTUNITY:
- --------------------------------------------------------------------------------
- The bonus opportunity is based on a participant's assigned
target, and expressed as a percent of base salary at the time
of the payout.
- Participants will have targets that vary from 20% to 50% of
base salary as set by the CEO.
Company Confidential 4
<PAGE> 5
TIMING AND FORM OF BONUS
PAYMENT:
- --------------------------------------------------------------------------------
- - The bonus will be paid to participants in cash following year end
results.
- - $.60 eps must be achieved for an payout to occur.
Company Confidential 5
<PAGE> 6
BONUS CALCULATION:
- --------------------------------------------------------------------------------
Two weighted factors: sales and eps
Sales x 1/3
eps x 2/3
Minimum Bonus Participation = 25%
$100M sales/$.60 eps
Maximum Bonus Participation = 200%
$135M sales/$1.00 eps
Company Confidential 6
<PAGE> 7
BONUS CALCULATION: (continued)
- --------------------------------------------------------------------------------
Eps would be calculated after Profit Sharing payments.
The exact percentage for each participant will be determined by the CEO and is
based on each individual's performance goals.
Company Confidential 7
<PAGE> 8
CALCULATION IF MINIMUM
SURPASSED:
- --------------------------------------------------------------------------------
BONUS FORMULA EXAMPLES
100% + [5%*(REVENUE-115M*(1/3)+400%*(EPS -.75*(2/3)]
<TABLE>
<CAPTION>
REVENUE EPS BONUS PERCENTAGE
------- --- -----------------
<S> <C> <C>
100 0.60 25.00%
110 0.70 78.33%
115 0.75 100.00%
125 0.90 156.67%
135 1.00 200.00%
</TABLE>
Company Confidential 8
<PAGE> 1
EXHIBIT 10.34
MAXWELL FEDERAL DIVISION, INC.
1996 STOCK OPTION PLAN
1. Purpose. The 1996 Stock Option Plan (the "Plan") is intended to
advance the interests of Maxwell Federal Division, Inc. (the "Company"), and its
shareholders by encouraging and enabling selected "key employees" (as defined
below) to acquire and retain a proprietary interest in the Company by ownership
of its stock. For purposes of this Plan, the term "key employee" shall include
employees of the Company, its parent corporation, Maxwell Technologies, Inc.,
and any majority-owned subsidiaries of Maxwell Technologies, Inc., upon whose
judgment, initiative and effort the Company is dependent for success in the
conduct of its business. Selected employees of the Company's parent corporation
and subsidiaries of the parent corporation are included within the definition of
"key employee" in recognition that the Company's success depends in part on the
success of the combined corporate enterprise which includes the Company. 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 (the "Code") and
options which do not so qualify ("non-qualified stock options").
2. Definitions.
(a) "Affiliate" means Maxwell Technologies, Inc. and each
corporation in which such entity owns, directly or indirectly, more than 50% of
the voting equity interests.
(b) "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.
(c) "Board" means the Board of Directors of the Company.
(d) "Committee" means the Stock Option Committee (the members
of which shall be appointed by the Board from among the directors of the
Company) of the Board. If no such committee has been appointed by the Board,
then the term "Committee" shall refer to the entire Board.
(e) "Common Stock" means the Company's common stock.
(f) "Date of Grant" means the date on which an option under
the Plan is approved by the Committee.
-1-
<PAGE> 2
(g) "Option" means an option granted under the Plan.
(h) "Optionee" means a person to whom an option, which has not
expired, has been granted under the Plan.
(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 which shall report all action taken by it to the Board. 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.
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 750,000. 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
Affiliate.
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:
-2-
<PAGE> 3
(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 option granted to an individual
who, on the grant date, is the holder of stock representing more than 10% of the
voting equity of the Company or any Affiliate (hereinafter a "10% Holder"), the
option price for such option shall be no less than 110% of such fair market
value. 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 upon any 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, such
expiration date shall not be more than ten years from the Date of Grant or, with
respect to a 10% Holder, five 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.
(e) Payment of Option Price. Upon exercise of an option, the
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
-3-
<PAGE> 4
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 Paragraph 6(a) 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.
(e) 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 all Affiliates 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 to 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 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 Affiliate, 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.
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<PAGE> 5
(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, and if such event results in Maxwell Technologies, Inc.
ceasing to own, directly or indirectly, more than 50% of the voting equity of
the Company, each such adjusted option shall be fully vested and exercisable as
to all shares thereunder regardless of an otherwise insufficient passage of
time; 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. The aggregate fair
market value (determined as of the Date of Grant) of the Common Stock with
respect to which incentive stock options are exercisable for the first time by
any individual during any calendar year (under the Plan and all other stock
option plans of the Company or any Affiliate) shall not exceed $100,000.
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 its
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,
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<PAGE> 6
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 amendment, suspension or
termination of the Plan shall, without an Optionee's consent, alter or impair
any of the right 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; provided,
however, that in the event that shareholder approval of the Plan is not secured
on or before the date which is twelve (12) months from the date of approval by
the Board, the Plan shall thereupon terminate. Any options granted prior to the
aforesaid shareholder approval being secured shall be subject to such approval
being secured.
MAXWELL FEDERAL DIVISION, INC.
By: /s/ Donald M. Roberts
----------------------------
Donald M. Roberts, Secretary
Date: 11/1/96
--------------------------
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<PAGE> 1
EXHIBIT 10.35
MAXWELL ENERGY PRODUCTS, INC.
1996 STOCK OPTION PLAN
1. Purpose. The 1996 Stock Option Plan (the "Plan") is intended to
advance the interests of Maxwell Energy Products, Inc. (the "Company"), and its
shareholders by encouraging and enabling selected "key employees" (as defined
below) to acquire and retain a proprietary interest in the Company by ownership
of its stock. For purposes of this Plan, the term "key employee" shall include
employees of the Company, its parent corporation, Maxwell Technologies, Inc.,
and any majority-owned subsidiaries of Maxwell Technologies, Inc., upon whose
judgment, initiative and effort the Company is dependent for success in the
conduct of its business. Selected employees of the Company's parent corporation
and subsidiaries of the parent corporation are included within the definition of
"key employee" in recognition that the Company's success depends in part on the
success of the combined corporate enterprise which includes the Company. 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 (the "Code") and
options which do not so qualify ("non-qualified stock options").
2. Definitions.
(a) "Affiliate" means Maxwell Technologies, Inc. and each
corporation in which such entity owns, directly or indirectly, more than 50% of
the voting equity interests.
(b) "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.
(c) "Board" means the Board of Directors of the Company.
(d) "Committee" means the Stock Option Committee (the members
of which shall be appointed by the Board from among the directors of the
Company) of the Board. If no such committee has been appointed by the Board,
then the term "Committee" shall refer to the entire Board.
(e) "Common Stock" means the Company's common stock.
(f) "Date of Grant" means the date on which an option under
the Plan is approved by the Committee.
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<PAGE> 2
(g) "Option" means an option granted under the Plan.
(h)"Optionee" means a person to whom an option, which has not
expired, has been granted under the Plan.
(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 which shall report all action taken by it to the Board. 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.
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 750,000. 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
Affiliate.
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:
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<PAGE> 3
(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 option granted to an individual
who, on the grant date, is the holder of stock representing more than 10% of the
voting equity of the Company or any Affiliate (hereinafter a "10% Holder"), the
option price for such option shall be no less than 110% of such fair market
value. 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 upon any 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, such
expiration date shall not be more than ten years from the Date of Grant or, with
respect to a 10% Holder, five 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.
(e) Payment of Option Price. Upon exercise of an option, the
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
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<PAGE> 4
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 Paragraph 6(a) 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.
(e) 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 all Affiliates 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 to 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 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 Affiliate, 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.
-4-
<PAGE> 5
(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, and if such event results in Maxwell Technologies, Inc.
ceasing to own, directly or indirectly, more than 50% of the voting equity of
the Company, each such adjusted option shall be fully vested and exercisable as
to all shares thereunder regardless of an otherwise insufficient passage of
time; 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. The aggregate fair
market value (determined as of the Date of Grant) of the Common Stock with
respect to which incentive stock options are exercisable for the first time by
any individual during any calendar year (under the Plan and all other stock
option plans of the Company or any Affiliate) shall not exceed $100,000.
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 its
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,
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<PAGE> 6
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 amendment, suspension or
termination of the Plan shall, without an Optionee's consent, alter or impair
any of the right 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; provided,
however, that in the event that shareholder approval of the Plan is not secured
on or before the date which is twelve (12) months from the date of approval by
the Board, the Plan shall thereupon terminate. Any options granted prior to the
aforesaid shareholder approval being secured shall be subject to such approval
being secured.
MAXWELL ENERGY PRODUCTS, INC.
By: /s/ Donald M. Roberts
----------------------------
Donald M. Roberts, Secretary
Date: 11/1/96
---------------------------
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<PAGE> 1
EXHIBIT 10.36
I-BUS, INC.
1996 STOCK OPTION PLAN
1. Purpose. The 1996 Stock Option Plan (the "Plan") is intended to
advance the interests of I-Bus, Inc. (the "Company"), and its shareholders by
encouraging and enabling selected "key employees" (as defined below) to acquire
and retain a proprietary interest in the Company by ownership of its stock. For
purposes of this Plan, the term "key employee" shall include employees of the
Company, its parent corporation, Maxwell Technologies, Inc., and any
majority-owned subsidiaries of Maxwell Technologies, Inc., upon whose judgment,
initiative and effort the Company is dependent for success in the conduct of its
business. Selected employees of the Company's parent corporation and
subsidiaries of the parent corporation are included within the definition of
"key employee" in recognition that the Company's success depends in part on the
success of the combined corporate enterprise which includes the Company. 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 (the "Code") and
options which do not so qualify ("non-qualified stock options").
2. Definitions.
(a) "Affiliate" means Maxwell Technologies, Inc. and each
corporation in which such entity owns, directly or indirectly, more than 50% of
the voting equity interests.
(b) "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.
(c) "Board" means the Board of Directors of the Company.
(d) "Committee" means the Stock Option Committee (the members
of which shall be appointed by the Board from among the directors of the
Company) of the Board. If no such committee has been appointed by the Board,
then the term "Committee" shall refer to the entire Board.
(e) "Common Stock" means the Company's common stock.
(f) "Date of Grant" means the date on which an option under
the Plan is approved by the Committee.
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<PAGE> 2
(g) "Option" means an option granted under the Plan.
(h) "Optionee" means a person to whom an option, which has not
expired, has been granted under the Plan.
(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 which shall report all action taken by it to the Board. 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.
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 750,000. 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
Affiliate.
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:
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<PAGE> 3
(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 option granted to an individual
who, on the grant date, is the holder of stock representing more than 10% of the
voting equity of the Company or any Affiliate (hereinafter a "10% Holder"), the
option price for such option shall be no less than 110% of such fair market
value. 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 upon any 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, such
expiration date shall not be more than ten years from the Date of Grant or, with
respect to a 10% Holder, five 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.
(e) Payment of Option Price. Upon exercise of an option, the
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
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<PAGE> 4
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 Paragraph 6(a) 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 all Affiliates 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 to 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 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 Affiliate, 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.
-4-
<PAGE> 5
(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, and if such event results in Maxwell Technologies, Inc.
ceasing to own, directly or indirectly, more than 50% of the voting equity of
the Company, each such adjusted option shall be fully vested and exercisable as
to all shares thereunder regardless of an otherwise insufficient passage of
time; 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. The aggregate fair
market value (determined as of the Date of Grant) of the Common Stock with
respect to which incentive stock options are exercisable for the first time by
any individual during any calendar year (under the Plan and all other stock
option plans of the Company or any Affiliate) shall not exceed $100,000.
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 its
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,
-5-
<PAGE> 6
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 amendment, suspension or
termination of the Plan shall, without an Optionee's consent, alter or impair
any of the right 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; provided,
however, that in the event that shareholder approval of the Plan is not secured
on or before the date which is twelve (12) months from the date of approval by
the Board, the Plan shall thereupon terminate. Any options granted prior to the
aforesaid shareholder approval being secured shall be subject to such approval
being secured.
I-BUS, INC.
By: /s/ Donald M. Roberts
----------------------------
Donald M. Roberts, Secretary
Date: 11/1/96
---------------------------
-6-
<PAGE> 1
EXHIBIT 10.37
MAXWELL INFORMATION SYSTEMS, INC.
1996 STOCK OPTION PLAN
1. Purpose. The 1996 Stock Option Plan (the "Plan") is intended to
advance the interests of Maxwell Information Systems, Inc. (the "Company"), and
its shareholders by encouraging and enabling selected "key employees" (as
defined below) to acquire and retain a proprietary interest in the Company by
ownership of its stock. For purposes of this Plan, the term "key employee" shall
include employees of the Company, its parent corporation, Maxwell Technologies,
Inc., and any majority-owned subsidiaries of Maxwell Technologies, Inc., upon
whose judgment, initiative and effort the Company is dependent for success in
the conduct of its business. Selected employees of the Company's parent
corporation and subsidiaries of the parent corporation are included within the
definition of "key employee" in recognition that the Company's success depends
in part on the success of the combined corporate enterprise which includes the
Company. 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 (the
"Code") and options which do not so qualify ("non-qualified stock options").
2. Definitions.
(a) "Affiliate" means Maxwell Technologies, Inc. and each
corporation in which such entity owns, directly or indirectly, more than 50% of
the voting equity interests.
(b) "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.
(c) "Board" means the Board of Directors of the Company.
(d) "Committee" means the Stock Option Committee (the members
of which shall be appointed by the Board from among the directors of the
Company) of the Board. If no such committee has been appointed by the Board,
then the term "Committee" shall refer to the entire Board.
(e) "Common Stock" means the Company's common stock.
(f) "Date of Grant" means the date on which an option under
the Plan is approved by the Committee.
-1-
<PAGE> 2
(g) "Option" means an option granted under the Plan.
(h)"Optionee" means a person to whom an option, which has not
expired, has been granted under the Plan.
(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 which shall report all action taken by it to the Board. 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.
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 750,000. 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
Affiliate.
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:
-2-
<PAGE> 3
(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 option granted to an individual
who, on the grant date, is the holder of stock representing more than 10% of the
voting equity of the Company or any Affiliate (hereinafter a "10% Holder"), the
option price for such option shall be no less than 110% of such fair market
value. 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 upon any 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, such
expiration date shall not be more than ten years from the Date of Grant or, with
respect to a 10% Holder, five 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.
(e) Payment of Option Price. Upon exercise of an option, the
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
-3-
<PAGE> 4
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 Paragraph 6(a) 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.
(e) 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 all Affiliates 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 to 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 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 Affiliate, 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.
-4-
<PAGE> 5
(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, and if such event results in Maxwell Technologies, Inc.
ceasing to own, directly or indirectly, more than 50% of the voting equity of
the Company, each such adjusted option shall be fully vested and exercisable as
to all shares thereunder regardless of an otherwise insufficient passage of
time; 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. The aggregate fair
market value (determined as of the Date of Grant) of the Common Stock with
respect to which incentive stock options are exercisable for the first time by
any individual during any calendar year (under the Plan and all other stock
option plans of the Company or any Affiliate) shall not exceed $100,000.
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 its
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,
-5-
<PAGE> 6
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 amendment, suspension or
termination of the Plan shall, without an Optionee's consent, alter or impair
any of the right 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; provided,
however, that in the event that shareholder approval of the Plan is not secured
on or before the date which is twelve (12) months from the date of approval by
the Board, the Plan shall thereupon terminate. Any options granted prior to the
aforesaid shareholder approval being secured shall be subject to such approval
being secured.
Maxwell Information Systems, Inc.
By: /s/ Donald M. Roberts
----------------------------
Donald M. Roberts, Secretary
Date: 11/1/96
---------------------------
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<PAGE> 1
EXHIBIT 10.38
AMENDMENT NUMBER ONE
TO THE
MAXWELL LABORATORIES, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
The Maxwell Laboratories, Inc. 1994 Employee Stock Purchase
Plan (the "Plan"), is hereby amended in the following respects:
1. Elimination of Six (6) Month Eligibility Period.
Section 4(a), under Eligibility, is hereby deleted in its
entirety; and
Section 6, Participation in the Plan, is hereby amended to
delete "after satisfying the eligibility requirements" in the first sentence
thereof and is hereby amended to delete "after becoming eligible to participate
in such Offering Period under the Plan" in the second sentence thereof.
2. Name of Plan.
The name of the Plan is hereby changed to Maxwell Technologies,
Inc. 1994 Employee Stock Purchase Plan.
3. Effective Date.
This Amendment Number One to the Plan shall be effective as of
April 30, 1997.
4. Ratification and Re-Affirmation.
Except as specifically amended hereby, the Plan, as heretofore
amended to date shall remain in full force and effect in accordance with its
terms.
MAXWELL TECHNOLOGIES, INC.
By: /s/ Donald M. Roberts
----------------------------
Donald M. Roberts, Secretary
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
ENTITY STATE OF INCORPORATION
Maxwell Technologies, Inc. Delaware
PurePulse Technologies, Inc. Delaware
Maxwell Business Systems, Inc. California
Maxwell IJIS, Inc. California
Maxwell Federal Division, Inc. California
Maxwell Information Systems, Inc. California
Maxwell Energy Products, Inc. California
I-BUS, Inc. California
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8) of Maxwell Technologies, Inc. of our report dated September 12,
1997, with respect to the consolidated financial statements of Maxwell
Technologies, Inc. included in the Annual Report (Form 10-K) for the year ended
July 31, 1997.
ERNST & YOUNG LLP
San Diego, California
September 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS, CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH S-3.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 826,000
<SECURITIES> 0
<RECEIVABLES> 9,391,000
<ALLOWANCES> 350,000
<INVENTORY> 8,722,000
<CURRENT-ASSETS> 29,524,000
<PP&E> 49,042,000
<DEPRECIATION> 32,113,000
<TOTAL-ASSETS> 47,120,000
<CURRENT-LIABILITIES> 18,616,000
<BONDS> 0
0
0
<COMMON> 614,000
<OTHER-SE> 26,796,000
<TOTAL-LIABILITY-AND-EQUITY> 47,120,000
<SALES> 101,411,000
<TOTAL-REVENUES> 101,411,000
<CGS> 70,107,000
<TOTAL-COSTS> 70,107,000
<OTHER-EXPENSES> 27,203,000
<LOSS-PROVISION> 184,000
<INTEREST-EXPENSE> 173,000
<INCOME-PRETAX> 4,078,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,078,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,024,000
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
