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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________TO___________
COMMISSION FILE NUMBER 0-10964
MAXWELL TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-2390133
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 30, 1998, based on the closing
price at which the Common Stock was sold on Nasdaq as of September 30, 1998, was
$170,678,592.
The number of shares of the Registrant's Common Stock outstanding as of
September 30, 1998 was 8,456,096 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the 1998 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, 1998
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PART I
Item 1. Business...................................................................................... 1
Item 2. Properties.................................................................................... 22
Item 3. Legal Proceedings............................................................................. 23
Item 4. Submission of Matters to a Vote of Security Holders........................................... 23
Item 4.1 Executive Officers of the Registrant ......................................................... 23
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................... 24
Item 6. Selected Financial Data....................................................................... 25
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 25
Item 8. Financial Statements and Supplementary Data................................................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 25
PART III
Item 10. Directors and Executive Officers of the Registrant............................................ 25
Item 11. Executive Compensation........................................................................ 25
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 25
Item 13. Certain Relationships and Related Transactions................................................ 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................. 26
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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
Technologies Systems Division Inc., Maxwell Energy Products, Inc,. PurePulse
Technologies, Inc. and Phoenix Power Systems, 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. Share or per share 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.
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 and as standard
catalogue products in the computer telephony, broadcasting, 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.
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 management team to drive the commercialization of Maxwell's
portfolio of core technologies and market penetration of the resulting products.
PRODUCTS
Ultracapacitors
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 store significant energy per unit volume and discharge that
energy at low voltages. Like traditional capacitors, ultracapacitors store and
discharge that electrical energy rapidly, provide large bursts of power, 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.
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Maxwell's PowerCache(TM) 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
sub-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 is initially targeting the consumer electronics, power
quality and automotive markets for its ultracapacitors.
In fiscal 1998 the Company entered into a broad-based agreement with Siemens
Matsushita Components GmbH, which is a joint venture of Siemens AG and
Matsushita Electrical Industries in the field of passive electrical components.
The agreement provides for the transfer of Maxwell's ultracapacitor technology,
sharing of ongoing product development by both parties and the non-exclusive
licensing right for Siemens Matsushita to manufacture products based on
Maxwell's ultracapacitor technology and to sell such products in all countries
of the world except the United States, Canada and Mexico. Siemens Matsushita
will target the full range of applications for the Company's ultracapacitor. The
Company will receive initial license fees and on-going royalties under the
agreement.
Also during fiscal 1998, the Company acquired Tekna Seal, Inc., a
manufacturer of glass-to-metal and glass-to- ceramic seals. Tekna Seal's current
product line consists of custom designed and highly engineered seals, primarily
for industrial and military applications. The PowerCache ultracapacitor product
requires an effective glass-to-metal seal to insulate the terminal from the
case, and the technology and engineering skills of Tekna Seal are being applied
to satisfy this requirement.
Consumer Electronics. The Company has identified a wide range of
applications in consumer electronics for its PowerCache ultracapacitor,
including wireless communication devices such as two-way pagers, modems, global
satellite telephones and locator beacons and other devices such as power tools,
toys, buoys, laptop computers, emergency lights, PDA's and scanners. In wireless
communication devices, PowerCache ultracapacitors increase signal strength and
significantly extend battery life for devices that transmit in sequences of
bursts. The Company's ultracapacitors are being designed into next generation
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. During fiscal 1998, the Company significantly
expanded its manufacturing facility for volume production to meet anticipated
demands in these markets and is in the process of automating such facility.
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 assisting in the marketing of
ultracapacitor systems to its own and other 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 has manufactured additional modules and banks for
demonstration and application purposes, including a 170-volt bank specifically
intended to address the power quality requirements of semiconductor
manufacturers and a 650-volt system for power quality applications for
industrial computers. 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 potential applications in catalytic converter
pre-heating, air bag deployment, seat belt tightening and engine starting. 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
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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 power for acceleration, 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. The Company is working with
substantially all of the world's major automobile, truck and bus manufacturers
and major automotive component manufacturers in connection with the evaluation
of ultracapacitors for use in vehicle subsystems and in electric and hybrid
electric vehicles.
Purification Systems
The Company's PureBright(R) and CoolPure(R) 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 and viruses in water and
pharmaceuticals, and on food, food packaging and medical products. The CoolPure
system uses pulsed electrical fields to kill microorganisms in liquids and
liquid foods, such as juices, dairy products and sauces.
Water Quality. In a strategic partnership with an international restaurant
chain, the Company has developed a PureBright system for water treatment in
hotels, restaurants, laboratories and similar establishments. The PureBright
water treatment system designed for this use is a four-gallon per minute
wall-mounted unit that plugs into standard electrical power outlets and treats
the water at the point of entry into the establishment. The restaurant partner
has purchased several systems for use in restaurants in the San Diego and
Tijuana, Mexico area. The Company is marketing the system to restaurant
operators in the U.S. and other countries. The Company is evaluating the
development of a smaller, point-of-use water treatment system suitable for under
the counter residential or other point of use applications. The Company believes
PureBright technology will be particularly useful in developing nations because
of uneven water quality levels found in some of those countries, and that
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.
During fiscal 1998, the Company signed an agreement with Pall Corporation to
develop and test a PureBright system for treating ultra high purity water used
in semiconductor manufacturing. Upon successful testing of a prototype 250
gallon per minute system, the Company and Pall expect to conclude a license
under which the PureBright system will be integrated into Pall's line of water
treatment products for semiconductor applications. Beta site testing is expected
to be completed in fiscal 1999.
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, 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 relationship 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. Upon successful completion of field tests, Tetra
Pak will incorporate PureBright as an option in its next generation of container
filling machines. The Company's relationship with Tetra Pak prohibits the
Company from pursuing additional customers in most food packaging
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applications, but permits it to pursue additional customers in cup, lid, bottle
cap, certain large bottles 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 can 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 National Center for Food Safety and Technology and an
international food products company. The prototype CoolPure systems are composed
of 89" x 68" x 84" pulsed power units, linked to smaller treatment chambers with
electrodes applying the electrical pulses.
EMI Filters
The Company designs, manufactures and sells a line of filters to absorb the
electromagnetic fields and signals generated by electronic devices which
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. The Company's product 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.
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 a supply agreement with one of the largest
manufacturers of implantable medical devices, CPI/Guidant, whose implantable
defibrillators use the Company's filters, and is supplying its filters and
capacitors to other device manufacturers for both defibrillator and pacemaker
applications. The Company continues to work with several other major medical
device manufacturers to qualify its EMI filters for use with implantable
defibrillators and pacemakers and has begun work with two companies on hearing
aid applications of its EMI filter. The Company also 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
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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 significantly expanded its capabilities in power protection
products by the acquisition in fiscal 1998 of San Diego-based Phoenix Power
Systems, Inc. Phoenix Power is a manufacturer of power distribution units,
uninterruptable power supplies, power conditioners and inverters, and other
power protection products which are sold either under the Company's name or
under private label agreements for medical, telecommunications, industrial and
commercial applications. Phoenix Power has recently begun manufacturing and
selling a power conditioning product for a medical application which uses the
Company's PowerCache ultracapacitor as an energy storage device.
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.
During fiscal 1998 the Company acquired the electromagnetic systems
operation of Primex Physics International ("Physics International") a unit of
Primex Technologies, Inc., substantially enhancing the Company's pulsed power
systems and simulation capabilities. Along with Maxwell, Physics International
is a leader in pulsed power technology and operates five systems at its San
Leandro, California, site for the generation of x-rays and electromagnetic
pulses used in high energy weapons simulation tests. Physics International is
also engaged in the design, development and manufacture of advanced pulsed power
systems with applications complementary to those pursued in the Company's San
Diego-based operations.
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Industrial Computers and Subsystems
Through its industrial computers and subsystems business, 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 boards and
backplanes to fully integrated and highly customized computer systems. The
Company's product line primarily employs passive backplane architecture,
complemented by the Company's recent development of its first CompactPCI
products.
The Company's custom and semi-custom components and systems are
design-intensive applications. All of the Company's products are based on
Intel's x86 and Pentium architectures 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 broadcasting, 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).
The Company's products 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,
CompactPCI, SCSI Bus and IDE and microprocessors in the Intel family up to the
Pentium II and support operating systems including Windows 95, Windows NT and
Solaris.
The Company substantially broadened its product offering and geographic
scope through the acquisition of Tri-MAP International, a United Kingdom-based
supplier of industrial computers and subsystems. Tri-MAP is a leading supplier
in the U.K. market of standard products sold primarily through product
catalogues. After integrating the product offering of Tri-MAP, the Company now
offers a full range of products from design-intensive, high-end OEM systems to
off-the-shelf standard systems and components, enhancing its penetration into
European markets as well as the domestic U.S. market. Shortly after the end of
fiscal 1998, the Company opened an integration and sales facility in France,
and is taking preliminary steps to open a similar facility in Germany.
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 primarily provides software-related products
and services for cost accounting and management information systems. The Company
is marketing these products, which incorporate sophisticated job-cost and
activity-based accounting capabilities, to large contractors and others
interested in tracking costs by
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job, activity or cost center. The software is sold under the JAMIS(R) (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,
payroll, contracts and purchasing. Development continued in fiscal 1998 on a
new, open platform, graphical user interface based version of this software. The
Company 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.
In fiscal 1998 the Company discontinued a portion of its software related
business and reorganized other software related businesses. The wide area and
local area network and software integration services previously offered by the
Company were discontinued, as was the Company's business involving criminal
justice information systems. The Company continues to perform services under two
multi-year contracts in the criminal justice information business, which
contracts are expected to be completed substantially in the current fiscal year.
As a result of these actions, the Company no longer reports results in an
information products and services business segment.
STRATEGIC PARTNERSHIPS
In recent years the Company has formed or expanded several strategic
partnerships. Through these alliances, Maxwell may obtain an enhanced
understanding of market demands and needs, access to funding for continued
development and commercialization of products, or 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 some of Tetra
Pak's next generation food packaging machinery. Tetra Pak has an exclusive
license for PureBright in most aseptic food packaging applications. In similar
fashion, the Company has received funding from Pall Corporation for development
and testing of a prototype 250 gallon per minute PureBright water treatment
system for high purity water used in semiconductor manufacturing. Successful
testing of the prototype could lead to a commercialization agreement for that
market, which will include exclusive rights for Pall Corporation for a period of
time. For CoolPure, an international food products company is providing product
development funding and is currently evaluating prototype units, and in
exchange, 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 early-stage product analysis, development and testing of ultracapacitors in
power quality applications and has provided an additional $7 million in funding
for product development, preferred access to the technology, royalty rights and
an equity investment in the Company's subsidiary, Maxwell Energy Products, Inc.
The Company has signed a broad-based licensing agreement relating to
ultracapacitors with Siemens Matsushita Components, GmbH, providing for
technology transfer, joint product improvement and non-exclusive rights for
Siemens Matsushita to manufacture ultracapacitor products and to sell such
products in all countries of the world other than the U.S., Canada and Mexico.
SALES AND MARKETING
The Company's commercial products sales teams consist of sales personnel
based in its operating 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. During fiscal 1998 the
Company hired a president for European operations who is now located in London,
England. Marketing of the Company's products in Europe
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will be overseen by such individual. In the case of industrial computers and
subsystems, products are also being assembled and sold through the U.K. and
French facilities. 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 web-sites
on the Internet.
Emerging technologies require customer acceptance of new and different
technical approaches, and the sales effort for new products, particularly in the
power conversion products business segment, 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.
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 three principal competitors in ultracapacitor
products, Panasonic, a division of Matsushita Electric Industries, Ltd., SAFT, a
unit of the Alcatel-Alsthom Group and a prominent international battery
supplier, and Polystor, a manufacturer of batteries and ultracapacitors. 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 broad spectrum light to treat water,
decontaminate food packaging, or sterilize medical or pharmaceutical
products. Pulsed light 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, their speed in providing treatment, and their ability to
be integrated directly into processing lines rather than providing treatment
after the product comes off the line, and their capability to provide treatment
without producing hazardous wastes.
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
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Company believes its patent for mounting of the filter at 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 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 their 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.
The Company's primary competition in its passive backplane target markets
include Texas Microsystems, Diversified Technology, Advantech, the Industrial
Computer Source division of Dynatech, Teknor and Trenton, among others,
resulting in a highly fragmented market in which no one entrant is dominant. In
addition, there are industrial computers and subsystems divisions within several
large OEM operations. 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 surrounding CompactPCI are very
similar to passive backplane systems; however, traditional VME manufacturers
such as Motorola and Force are entering the market.
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 its ability to make
competitive bids to secure contracts. In commercial software, the JAMIS
accounting system competes principally with one similar government contract
based software application produced by Deltek Systems, as well as with numerous
customized and several off-the-shelf accounting software products. The Company
relies on superior performance and an attractive price point to secure market
share.
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 pulsed power components and EMI
filters. It performs primarily design, assembly and system integration in its
industrial computer and subsystems operation. The Company has several
manufacturing and assembly facilities in the United States and the United
Kingdom. Three facilities in San Diego have obtained ISO 9001 certification and
one of the United Kingdom facilities is ISO 9002 certified. The Company is
currently 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. 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 some power supplies.
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 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 or design and
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manufacture the component itself. 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 production equipment or both
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."
RESEARCH AND DEVELOPMENT
The Company conducts internally-funded engineering, research and development
to refine and expand its products and services. Approximately 18% 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 1998, 1997, and 1996, expenditures for
internally-funded research and development were approximately $8,206,000,
$5,303,000, and $5,081,000 respectively. In addition, the Company performs
substantial research and development work funded by customers, including
agencies of the U.S. Government and commercial companies under strategic
partnership arrangements.
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 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
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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
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, 1998 and 1997 amounted to
approximately $41 million and $39 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 $34 million and $23 million at July 31, 1998 and 1997,
respectively.
GOVERNMENT BUSINESS
A substantial portion of the Company's sales (approximately 32% in fiscal
1998, 33% in fiscal 1997 and 40% in fiscal 1996) 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 in the 1990's has adversely 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 in San Diego 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. The Company
currently continues to provide testing and analysis on the fourth simulation
facility and on the simulation facilities now operated by Maxwell Physics
International in San Leandro, California.
The Company's government contracts are typically performable over a one-year
or multi-year period, with funding provided in increments of one year or less.
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 1994. 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,
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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 87% and 77% of sales were derived from
cost-plus contracts in fiscal 1998 and 1997, respectively, and the balance of
sales in such years were derived from fixed-price contracts. See "Risk Factors
- -- Risks Associated with Government Business."
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 pre-clinical 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 for 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 11 of Notes to
Consolidated Financial Statements incorporated herein by reference. The Company
currently operates in three business segments: Power Conversion Products
(includes design, development and manufacture of electrical components, systems
and subsystems,
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including products that capitalize on pulsed power such as ultracapacitors,
microbial purification systems, high voltage capacitors and other electrical
components, power supplies and power conditioning systems 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) and Technology Programs and Systems
(includes research and development and 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 computer software
services and products). The Company's operating subsidiaries are Maxwell Energy
Products, Inc. (Power Conversion Products), Phoenix Power Systems, Inc. (Power
Conversion Products), PurePulse Technologies, Inc. (Power Conversion Products),
I-Bus, Inc. (Industrial Computers and Subsystems), Maxwell Technologies Systems
Division, Inc. (Technology Programs and Systems), and Maxwell Business Systems,
Inc. (Technology Programs and Systems). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
EMPLOYEES
At July 31, 1998, the Company had 837 employees, including 55 employees with
Ph.D. degrees and 67 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."
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 or are new technologies providing new capabilities not
presently found in the marketplace. 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 for
commercial markets. The Company's success in this regard will depend upon a
number of factors, including the Company's ability to develop and produce
products at a commercially viable cost, 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 these objectives would have a material adverse
effect on the Company's business, results of operations and financial condition.
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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, for purification systems, Tetra Pak, a
leading food packaging machinery and products company, and Pall Corporation, a
leading provider of filters, membranes and other separation devices for
healthcare, aeropower and fluid processing markets, and in the ultracapacitor
business area, PacifiCorp, a leading utility holding company, and Siemens
Matsushita Components, a joint venture of two of the world's leading
technology-oriented companies.
The loss of certain of its strategic relationships could have a material
adverse effect on the Company's sales and 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 the
Company's strategic partners will not seek to manufacture jointly developed
products themselves or obtain them from alternative sources. See "Business --
Strategic Partnerships."
FLUCTUATIONS IN OPERATING RESULTS; HISTORY OF LOSSES
Although the Company had net income in fiscal 1997 and in fiscal 1998
(before acquired in-process R&D and other acquisition-related charges), 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 incorporated by
reference 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 structure and timing
of new strategic relationships; 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
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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."
LIMITED VOLUME MANUFACTURING EXPERIENCE
The Company has limited experience with volume manufacturing of commercial
products. To date, the Company has not manufactured in substantial 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
continue to expand its current facilities or obtain additional facilities in
order to manufacture a substantial quantity of its ultracapacitor, and
purification 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 sell 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 and selling 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.
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. During
fiscal 1998, the Company acquired four businesses with strategic importance to
four different areas of the Company's operations. These acquisitions are
geographically dispersed, with two located in California, one in Minnesota and
the other in the United Kingdom. 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, including
acquired in process R&D meeting certain criteria, such as charges that were
taken in connection with two acquisitions in fiscal 1998, 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
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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.
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 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.
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, acquisition candidates 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
16
<PAGE> 19
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.
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."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
An increasing portion of the Company's revenues are derived from sales to
customers located outside of the United States, and in fiscal 1998, the Company
acquired an industrial computer company in the U.K. and took the first steps
toward opening an industrial computer facility in France. The Company expects
sales outside of the United States to continue to represent a significant and
increasing portion of its future revenues. As a result, the Company's business
will continue to be subject to certain risks generally associated with doing
business abroad, such as foreign government regulations and export controls, as
well as changes in tax laws, tax treaties, tariffs and freight rates. As the
Company's international operations continue to grow, more management resources
will be required to focus on the operation and expansion of the Company's
worldwide business and to manage cultural, language and legal differences
inherent in international operations. To the extent that political, economic and
other conditions in these countries result in any prolonged work stoppages or
other inability of the Company to obtain components or finished products, the
Company's business, results of operations and financial condition could be
materially adversely affected. Moreover, changes in the mix of income from the
Company's foreign subsidiaries,
17
<PAGE> 20
expiration of tax holidays and changes in tax laws and regulations could result
in increased tax rates for the Company.
COMPETITION
The markets in which the Company sells commercial products are highly
competitive, rapidly changing and significantly affected by the cost and pricing
of products, by new product introductions and other market activities of
industry participants. 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 with respect to the
Company's purification systems.
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 produce
products that can be competitively priced, and 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 markets. See "Business --
Competition."
RISKS ASSOCIATED WITH GOVERNMENT BUSINESS
A substantial portion of the Company's sales (approximately 32% in fiscal
1998, 33% in fiscal 1997, 40% in fiscal 1996) 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 in the 1990's has adversely affected the Company's business,
particularly in the area of system survivability products and services, such as
weapons effects simulation and testing. Several years ago, the Company
experienced significant reductions in this business as the Department of Defense
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 various
other 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 prime 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 march-in rights or confirmatory licenses 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
18
<PAGE> 21
Company's participation insuch 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. There can be no assurance that the
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 Company'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.
YEAR 2000 COMPLIANCE
A significant percentage of the software that runs most computers relies on
two digit date codes to perform a number of computation and decision making
functions. As the year 2000 approaches, these computer programs may fail from an
inability to interpret data codes properly, misreading "00" for the year 1900
instead of 2000.
The Company believes that its major computer systems are in compliance with
Year 2000 criteria or will be brought into compliance on a timely basis, though
there can be no assurance in that regard and the Company may experience problems
with its application software programs, including its financial accounting,
billing, payroll, manufacturing, and engineering software programs, among
others. The Company has taken steps to bring any of its products which could be
impacted by Year 2000 software problems into compliance, but no assurance can be
given that all such products previously sold can be brought into compliance or
that customers and end users will implement corrective action recommended by the
Company or that such corrective action will effectively address the problem.
Additionally, the Company's customers or third-party component suppliers and
vendors may also experience business disruptions in connection with the Year
2000 software problem. The Company's business, operating results and financial
condition could be materially adversely affected by Year 2000 problems with its
own systems and products or if any of these customers, vendors or other
third-party entities experience such a business disruption as a result of Year
2000 problems. See "Management's Discussion and Analysis of 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 at prices which will facilitate cost competitive products for the
Company. The Company manufactures most of its products using a large number of
components or sub-assemblies,
19
<PAGE> 22
many of which are 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. The current sole domestic source
of a component of the Company's EMI filter has indicated it 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 believes it could replace this supplier with another vendor or with a
component manufactured by the Company. 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 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 employee stock option plans at each of its four
principal operating subsidiaries providing for the issuance of incentive and
nonqualified stock options to purchase common stock of these companies. In
addition, employee stock options are outstanding in a fifth subsidiary which is
not currently conducting any active business operations. 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
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<PAGE> 23
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 12% at each of the Company's principal
operating subsidiaries (15% at one subsidiary). In addition, certain key
employees of one of the Company's subsidiaries, Maxwell Business Systems, Inc.,
which markets the JAMIS accounting software package, 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 pre-clinical 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.
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.
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<PAGE> 24
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 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 acquirer 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 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 30, 1998 averaged 55,625
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, in the United States and
worldwide, 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 2. PROPERTIES
The Company owns a 45,600 square foot engineering and administrative support
facility, a 22,000 square foot manufacturing facility and a 35,000 square foot
office and laboratory building situated on approximately 8.9 acres of land
located in San Diego, California. The 35,000 square foot building is currently
unoccupied and on the market for sale or lease. In addition, the Company owns a
25,000 square foot manufacturing facility on 2.6 acres of land located in Carson
City, Nevada. The Company leases six other facilities in the San Diego area and
a 240,000 square foot facility in San Leandro, California, of which 45,000
square feet is subleased to a third party. The Company also leases a 8,200
square foot facility in Minneapolis, Minnesota, three facilities totaling 30,000
square feet in the United Kingdom and 4,500 square foot facility in Nice,
France. The Company leases office space in Virginia; Albuquerque, New Mexico;
and Mission Viejo, California. The Company's leased facilities are leased for
varying terms and some of them contain options permiting the Company to extend
the lease term. The Company utilizes its facilities in the following manner:
corporate, sales and administrative (122,000 sq. ft.); manufacturing, assembly
and testing, research and development laboratories and engineering (470,000 sq.
ft.) The Company also
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utilizes on a rent free basis 22,000 square feet at Kirkland 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 3.3%, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive officers of the Company are set forth below. The
Company's officers serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Kenneth F. Potashner 41 Chairman of the Board, President and Chief
Executive Officer. Mr. Potashner has
served Maxwell as Chairman of the Board
since April 1997, and all other capacities
since April of 1996. From 1991 through
1994 he was Vice President, Product
Engineering, for Quantum Corporation. From
1994 to April of 1996, he served as
Executive Vice President, Operations,
Conner Peripherals.
Gary J. Davidson 43 Vice President - Finance and
Administration, Treasurer and CFO. 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 the Company,
Mr. Davidson was a manager with the
international accounting firm of Ernst &
Young, serving in both audit and tax
capacities.
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
<S> <C> <C>
Thomas J. Horgan 38 Vice President and Director. Mr. Horgan is
Corporate Vice President and in September
1998 was named President of Advanced
Energy Products. Previously, he served as
Corporate Vice President, Business
Development, and was elected to the Board
of Directors of the Company in January
1997. Prior to joining Maxwell in June of
1996, Mr. Horgan served from 1991 through
1993 as European Information Security
Center Manager for Digital Equipment. In
1993 he joined Quantum Corporation and
until 1995 served as Director, Customer
Service. From 1995 until joining Maxwell,
he was Vice President, Customer Service,
for Conner Peripherals.
Gregg McKee 55 Vice President. Mr. McKee became Corporate
Vice President and President of Maxwell
Energy Products, Inc. in September of
1996. From 1990 until joining Maxwell he
served Quantum Corporation in various
capacities. From 1990 to January 1993 he
was Director of the Customer Service
Group; from February 1993 to December
1995, he served as Corporate Director of
Malaysian Operations; and from January of
1995 until joining Maxwell he was
President, Quantum Malaysia.
Donald M. Roberts 50 General Counsel and Secretary. Mr. Roberts
has served as General Counsel since
joining the Company 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 the Company as outside legal
advisor for more than ten years.
Walter P. Robertson 56 Vice President. Mr. Robertson was named
Corporate Vice President and President of
Maxwell Technologies Systems Division,
Inc. in August of 1996. Prior to that he
served General Dynamics as Vice President,
Aircraft Production from 1991 through 1992
and as Vice President and General Manager,
Space Magnetics from 1992 through 1994.
From May 1994 through November 1994, Mr.
Robertson was Transition Director for
Martin Marietta. In April of 1995 and
until joining Maxwell, he served
BioSolutions Technologies, a start-up
company, as President and Chief Executive
Officer.
Ted Toch 50 Vice President. Mr. Toch joined the
Company in June 1998, as Corporate Vice
President and President of PurePulse
Technologies, Inc. Prior to joining
PurePulse Technologies he was Vice
President of Marketing and Sales for
Johnson&Johnson's Advanced Sterilization
Products Division from 1993 to 1998 with
earlier experience as Vice-President and
General Manager of the Instrument's
Division of Nellcor, Inc.
John D. Werderman 52 Vice President. Mr. Werderman was named
Corporate Vice President and President of
I-Bus, Inc. in July 1997. Previously, Mr.
Werderman served as Chief Operating
Officer of Maxwell Technologies Systems
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.
</TABLE>
24
<PAGE> 27
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 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
FISCAL YEAR 1998
Quarter ended October 31, 1997...................... $38-1/2 $ 21-3/4
Quarter ended January 31, 1998...................... 36-3/8 21
Quarter ended April 30, 1998........................ 32-5/16 25
Quarter ended July 31, 1998......................... 28-7/8 22
</TABLE>
The last reported sale price of the Common Stock on the Nasdaq National
Market on October 23, 1998 was $25-1/4 per share. As of September 30, 1998,
there were 512 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.
ITEM 6. SELECTED FINANCIAL DATA
See the Index included at "Item 14. Exhibits Financial Statement
Schedules, and Reports on Form 8-K."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See the Index included at "Item 14. Exhibits Financial Statement
Schedules, and Reports on Form 8-K."
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
ITEMS 10 THROUGH 13
The information required under Item 10 (Directors and Executive
Officers of the Registrant), Item 11, (Executive Compensation), Item 12
(Security Ownership of Certain Beneficial Owners and Management) and Item 13
(Certain Relationships and Related Transactions) will be reported in the
Company's Proxy Statement for the 1998 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A as
follows and is incorporated herein by reference:
25
<PAGE> 28
<TABLE>
<CAPTION>
Item Number Heading in Proxy Statement
- ----------- --------------------------
<S> <C>
10........ "ELECTION OF DIRECTORS"
11........ "EXECUTIVE COMPENSATION"
12 ....... "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT"
13........ "EXECUTIVE COMPENSATION"
</TABLE>
(See also Item 4.1 - "Executive Officers of the Registrant," Part I, supra)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
1. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... F-2
2. Selected Consolidated Financial Data................................. F-11
3. Report of Ernst & Young LLP, Independent Auditors.................... F-12
4. Consolidated Balance Sheets at July 31, 1997 and 1998................ F-13
5. Consolidated Statement of Operations for the Years Ended
July 31, 1996, 1997 and 1998....................................... F-14
6. Consolidated Statement of Stockholders' Equity for the Three Years
Ended July 31, 1998............................................... F-15
7. Consolidated Statement of Cash Flows for the Years Ended
July 31, 1996, 1997 and 1998 ..................................... F-16
8. Notes to Consolidated Financial Statements........................... F-17
</TABLE>
(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>
<S> <C>
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 --
Exhibit 3.2 to the Registrant's 1997 Form 10-K Annual Report
for the year ended July 31, 1997 ("1997 Form 10-K") is
incorporated by reference.
3.3 Bylaws of the Registrant as amended to date -- Exhibit 3.2
to the 1987 Form 10-K is incorporated by reference.
</TABLE>
26
<PAGE> 29
<TABLE>
<S> <C>
3.4 Revised Article IV of the Bylaws of the Registrant --
Exhibit 3.4 to the 1997 Form 10-K is incorporated by
reference.
4.1 Form of Rights Certificate -- Exhibit 1 to the Registrant's
Form 8-A filed June 30, 1989 is hereby incorporated by
reference.
4.2 Amendment to Form of Rights Certificate, dated April 2,
1997 -- Exhibit 4.2 to the 1997 Form 10-K is incorporated by
reference.
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 -- Exhibit 10.2 to
the 1997 Form 10-K is incorporated by reference
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 Amendment Number One to Maxwell Laboratories, Inc. 1995
Stock Option Plan, dated March 19, 1997-- Exhibit 10.6 to
the 1997 Form 10-K is incorporated by reference.
10.6+ Amendment Number Two to Maxwell Technologies, Inc. 1995
Stock Option Plan, dated January 28, 1998.
10.7 Maxwell Laboratories, Inc. 1994 Employee Stock Purchase
Plan -- Exhibit 10.4 to the 1995 Form 10-K is incorporated by
reference.
10.8 Maxwell Laboratories, Inc. 1994 Director Stock Purchase
Plan-- Exhibit 10.5 to the 1995 Form 10-K is incorporated by
reference.
10.9 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.
10.10 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 -- Exhibit 10.11 to the 1997 Form 10-K
is incorporated by reference.
10.12+ Maxwell Technologies, Inc. Officer and Director Stock
Repurchase Policy.
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 Registrant's Form 10-K Annual Report for the year ended
July 31, 1988 ("1988 Form 10-K") is incorporated by
reference.
</TABLE>
27
<PAGE> 30
<TABLE>
<S> <C>
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 Registrant's Form 10-K Annual Report for the year ended
July 31, 1996 ("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. -- Exhibit 10.16 to the 1997
Form 10-K is incorporated by reference.
10.17+ Maxwell Laboratories, Inc. Executive Deferred Compensation
Plan, dated September 1, 1998.
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 -- Exhibit 10.21 to the 1997 Form 10-K
is incorporated by reference.
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 -- Exhibit 10.23 to the 1997 Form 10-K is
incorporated by reference.
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 -- Exhibit 10.25 to the 1997 Form 10-K is
incorporated by reference.
10.26+ Line of Credit Agreement dated March 4, 1998, between the
Registrant and Sanwa Bank California and First Amendment
dated May 29, 1998 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 --
Exhibit 10.29 to the 1997 Form 10-K is incorporated by
reference.
10.30+ Executive Bonus Plan for Fiscal 1999.
</TABLE>
28
<PAGE> 31
<TABLE>
<S> <C>
10.31 PurePulse Technologies, Inc. 1994 Stock Option Plan --
Exhibit 10.26 to the 1996 Form 10-K is incorporated by
reference.
10.32 Maxwell Federal Division, Inc. 1996 Stock Option Plan --
Exhibit 10.34 to the 1997 Form 10-K is incorporated by
reference.
10.33 Maxwell Energy Products, Inc. 1996 Stock Option Plan --
Exhibit 10.35 to the 1997 Form 10-K is incorporated by
reference.
10.34 I-Bus, Inc. 1996 Stock Option Plan -- Exhibit 10.36 to the
1997 Form 10-K is incorporated by reference.
10.35 Maxwell Information Systems, Inc. 1996 Stock Option Plan --
Exhibit 10.37 to the 1997 Form 10-K is incorporated by
reference.
10.36 Amendment Number One to the Maxwell Laboratories, Inc. 1994
Employee Stock Purchase Plan, effective as of April 30, 1997
-- Exhibit 10.38 to the 1997 Form 10-K is incorporated by
reference.
10.37+ Lease dated March 1, 1998, between Hassan H. Yarpezeshkan
and Maryam Yarpezeshkan, as Lessor and the Registrant, as
Lessee.
10.38 Stock Purchase Agreement among Maxwell Technologies, Inc.,
Maxwell Energy Products, Inc., and PacifiCorp Energy
Ventures, Inc., dated October 30, 1997. Exhibit 10 to the
Registrant's October 31, 1997 Form 10-Q is incorporated by
reference.
10.39 Amended and Restated Agreement of Purchase and Sale of
Assets, dated as of March 29, 1998, among the Company,
Maxwell Technologies Systems Division, Inc., Primex
Technologies, Inc. and Primex Physics International Company
-- Exhibit 2.1 to the Registrant's Form 8-K filed April 29,
1998 is hereby incorporated by reference.
10.40+ Assignment and Assumption Agreement (Facility Lease) dated
April 15, 1998, by and between Primex Physics International
Company, as assignor and Maxwell Technologies Systems
Division, Inc., as assignee.
10.41+ Assignment and Assumption Agreement (Ground Lease) dated
April 15, 1998, by and between Primex Physics International
Company, as assignor and Maxwell Technologies Systems
Division, Inc., as assignee.
10.42+ Underlease dated March 6, 1997 by and between Pegasus
Airwave Limited, as Lessor and I-Bus UK, Limited (formerly
Tri-MAP International, Limited), as Lessee.
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.
On June 29, 1998, the Registrant filed a Form 8-K/A amendment to the Current
Report on Form 8-K filed on April 29, 1998, reporting the acquisition of the
assets and assumption of certain liabilities of the electromagnetic systems
groups of Primex Physics International. The amendment provided certain
historical and pro-forma financial information of said group.
- ----------
+ Filed herewith.
29
<PAGE> 32
<TABLE>
<CAPTION>
MAXWELL TECHNOLOGIES, INC.
INDEX TO FINANCIAL INFORMATION
PAGE
----
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations............ F-2
Selected Consolidated Financial Data............................................................. F-11
Report of Ernst & Young LLP, Independent Auditors................................................ F-12
Consolidated Balance Sheets at July 31, 1997 and 1998............................................ F-13
Consolidated Statement of Operations for the Years Ended July 31, 1996, 1997 and 1998............ F-14
Consolidated Statement of Stockholders' Equity for the Three Years Ended July 31, 1998........... F-15
Consolidated Statement of Cash Flows for the Years Ended July 31, 1996, 1997 and 1998............ F-16
Notes to Consolidated Financial Statements....................................................... F-17
</TABLE>
F-1
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Two years ago Maxwell implemented a business reorganization that became
effective August 1, 1996 (the "Reorganization"). In the Reorganization, the
Company was recast into distinct business and operating units, and new senior
management was put in place. While commercial business opportunities underlay
the Reorganization, the Company continues to perform research and development,
primarily in its core pulsed power and advanced software areas for the United
States Department of Defense ("DOD"). These activities have produced a suite of
innovative products, technologies and research and development capabilities.
Entering fiscal 1998, the new senior management team focused on utilizing these
resources to lay the foundation for a global, commercially-focused enterprise.
To this end, the following major steps were taken during the year.
- Completed a follow-on offering of common stock, raising approximately
$47 million in equity capital.
- Placed a strong focus on the PowerCache(TM) ultracapacitor product line,
including build-up of infrastructure and manufacturing capability, and
direct-line organizational reporting.
- Hired a senior executive with international expertise, Claude Barathon,
as President of European Operations with an initial emphasis on sales
and marketing for Europe.
- Acquired three domestic companies related to the Company's core business
areas of pulsed power products, systems and R&D.
- Acquired a United Kingdom-based company which both complements Maxwell's
line of industrial PC's and provides a strong base of operations
overseas.
- Discontinued the separate operation of the primarily software-related
Information Products and Services business segment; the Company is now
organized in three business segments, and effective with the third
quarter of fiscal 1998, is reporting its results accordingly.
Primarily due to the acquisitions mentioned above, the Company incurred
special charges during the year of $8.9 million, including costs of acquired
in-process research and development meeting certain criteria. Excluding these
special charges, net income for fiscal 1998 was $8.2 million, or more than
double the $4.0 million of 1997. After special charges, the Company incurred a
net loss of $769,000. See "Special Charges" below, and Note 9 of Notes to
Consolidated Financial Statements.
The net loss of $15.2 million in fiscal 1996 included $14.4 million of
charges related to the Reorganization, adoption of new accounting standards, a
valuation allowance for net deferred income tax assets and other charges.
See Note 9 of Notes to Consolidated Financial Statements.
The Company's business segments are as follows:
- Power Conversion Products: Includes design, development and manufacture
of electrical components, systems and subsystems, including products
that capitalize on pulsed power such as ultracapacitors, microbial
purification systems, high voltage capacitors and other electrical
components, power supplies and power conditioning systems and
electromagnetic interference 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.
F-2
<PAGE> 34
- 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.
As mentioned above, the Company reorganized the operations within the
Information Products and Services business segment, including a refocusing of
certain operations along the lines of other of the Company's existing business
segments and the discontinuation of certain businesses. Therefore, effective as
of the beginning of the fiscal 1998 third quarter, the Company no longer
operates or reports in the Information Products and Services segment.
Partial-year results from that segment, covering the first six months of fiscal
1998, are included in the Company's segment reporting.
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,
---------------------------------
1996 1997 1998
------ ----- -----
<S> <C> <C> <C>
Sales ...................................................... 100.0% 100.0% 100.0%
Cost of sales .............................................. 81.4 69.1 66.6
----- ----- -----
Gross profit ............................................. 18.6 30.9 33.4
Operating expenses:
Selling, general and administrative expenses ............. 19.3 21.6 21.1
Research and development expenses ........................ 6.3 5.2 6.5
Acquired in-process R&D and other special charges ........ -- -- 7.1
Restructure and asset impairment losses .................. 7.0 -- --
----- ----- -----
Total operating expenses .............................. 32.6 26.8 34.7
----- ----- -----
Operating income (loss) .................................... (14.0) 4.1 (1.3)
Interest expense ........................................... 0.4 0.2 0.2
Other-net .................................................. (0.5) (0.2) (1.1)
----- ----- -----
Income (loss) before income taxes, minority interest
and loss from cumulative effect of change in accounting
principle ................................................ (13.9) 4.1 (0.4)
Income tax expense ......................................... 1.6 -- 0.2
Minority interest in net income of subsidiaries ............ 0.1 0.1 --
Loss from cumulative effect of change in accounting
principle ................................................ 3.2 -- --
----- ----- -----
Net income (loss) ........................................ (18.8)% 4.0% (0.6)%
===== ===== =====
</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,
------------------------------------
1996 1997 1998
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Power Conversion Products:
Sales............................................... $ 16,448 $27,039 $39,312
Gross profit..................................... 3,887 10,142 16,226
Gross profit as a percentage of sales............ 23.6% 37.5% 41.3%
Industrial Computers and Subsystems:
Sales............................................... $ 26,131 $34,259 $40,864
Gross profit..................................... 7,633 11,537 14,210
Gross profit as a percentage of sales............ 29.2% 33.7% 34.8%
Technology Programs and Systems:
Sales............................................... $ 30,198 $31,087 $40,446
Gross profit..................................... 5,659 6,246 9,107
Gross profit as a percentage of sales............ 18.7% 20.1% 22.5%
Information Products and Services:
Sales............................................... $ 8,134 $ 9,026 $ 4,666
Gross profit..................................... (2,161) 3,379 2,306
Gross profit as a percentage of sales............ (26.6)% 37.4% 49.4%
</TABLE>
F-3
<PAGE> 35
Sales
In fiscal 1998, the Company's total sales increased $23.9 million, or 23.6%,
to $125.3 million from $101.4 million in fiscal 1997. In fiscal 1997, sales
increased $20.5 million, or 25.3%, to $101.4 million from $80.9 million in
fiscal 1996. International sales totaled $19.6 million in fiscal 1998, $12.6
million in fiscal 1997 and $7.6 million in fiscal 1996. The increase in
international sales in fiscal 1998 over fiscal 1997 was primarily due to
revenues from the expansion of the Company's industrial computer business into
Europe. The increase in these sales in fiscal 1997 over fiscal 1996 was
primarily attributable to increased international revenues from customer funded
development in the Power Conversion Products business segment.
Power Conversion Products. In fiscal 1998, Power Conversion Products sales
increased $12.3 million, or 45.4%, to $39.3 million from $27.0 million in fiscal
1997. Power Conversion Products exhibited sales growth in nearly all product
areas; in particular, a switch component for a National Laboratory pulsed power
project; the ultracapacitor business area, which included marketing and
technology access rights with two new strategic partners during the fiscal year,
Siemens Matshusita Components and PacifiCorp; electromagnetic interference
("EMI") filters for implantable medical products and aerospace applications; as
well as two newly acquired business areas for the Company involving power
systems and glass-to-metal seals, both of which have application to the
ultracapacitor product line, all contributed to the increase in sales.
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.
Industrial Computers and Subsystems. In fiscal 1998, Industrial Computers
and Subsystems sales increased $6.6 million, or 19.3%, to $40.9 million from
$34.3 million in fiscal 1997. 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 product. In fiscal
1998, the Company expanded its product offering and marketing strategy with the
acquisition of an United Kingdom-based company that offers standard products to
OEMs primarily via catalogs. The Company expects to be selling standard products
in the U.S. in fiscal 1999, and to leverage leads from catalog sales into
additional OEM design-ins going forward. Sales to a long-standing OEM customer
under a major multi-year program were completed during fiscal 1998. Other OEM
projects as well as the expansion into the standard product area more than
offset the major program completion, and resulted in the increase in sales for
the year.
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. 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 under a program that
was concluded in the subsequent fiscal year, as described above.
Technology Programs and Systems. In fiscal 1998, sales in the Technology
Programs and Systems segment increased $9.4 million, or 30.2%, to $40.5 million
from $31.1 million in fiscal 1997. The Company had an increase in revenues in
its core, Government-funded pulsed power research and development activities,
including revenue in this business area from the Physics International
acquisition. In addition, the Company's job-cost accounting software business,
which is primarily focused on Government contractors, was shifted to this
segment during the third quarter of the year when the commercial
software-oriented business segment was reorganized.
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 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.
F-4
<PAGE> 36
Revenues for fiscal 1997 and a portion of fiscal 1998 include amounts
related to the closure of three DOD pulsed power simulation facilities operated
by the Company for many years in San Diego. The closure activities were
concluded in the first half of fiscal 1998. The Company continues to perform
services under long-term contracts with the DOD, including both research for
next-generation pulsed power technology for x-ray simulators as well as
conducting experiments using existing simulators at the newly acquired Physics
International facility. 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.
Information Products and Services. As previously discussed, the Information
Products and Services business was operated as a segment only for the first six
months of fiscal 1998. During this six-month period, sales of Information
Products and Services decreased $4.3 million, or 48.3%, to $4.7 million from
$9.0 million for the full twelve months of fiscal 1997. This decrease reflects
both the partial-year of operations and the wind-down and near completion of two
large multi-year software development contracts for criminal justice information
systems (the "CJIS Contracts").
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 the CJIS Contracts.
Gross Profit
In fiscal 1998, the Company's gross profit was $41.8 million, or 33.4% of
sales, compared to $31.3 million, or 30.9% of sales, in fiscal 1997. 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 in each year was primarily due to the increases
in overall sales, resulting in improved overhead absorption, and the mix of
products and services, particularly in the Power Conversion Products business
segment. In addition, the lower gross profit margin in fiscal 1996 reflects the
portion of the $14.4 million charge taken in that year that was recorded in
costs of sales.
Power Conversion Products. In fiscal 1998, Power Conversion Products gross
profit increased $6.1 million to $16.2 million from $10.1 million in fiscal
1997. As a percentage of sales, gross profit increased to 41.3% in fiscal 1998
from 37.5% in fiscal 1997. This increase in gross profit as a percentage of
sales reflected improved overhead absorption on the higher level of sales, and a
higher margin mix of products and services, including switch components for a
National Laboratory pulsed power system and increased funded development and
related marketing and technology access rights associated with strategic
partnering arrangements.
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 a more favorable mix of products and services, including
higher sales of EMI filters for implantable medical devices and greater revenues
from funded research and development. Also, the gross profit margin was lower in
fiscal 1996 due to a portion of the $14.4 million charge taken in that year that
was recorded in cost of sales.
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.
F-5
<PAGE> 37
Industrial Computers and Subsystems. In fiscal 1998, Industrial Computers
and Subsystems gross profit increased $2.7 million, or 23.2%, to $14.2 million
from $11.5 million in fiscal 1997. As a percentage of sales, gross profit
increased to 34.8% in fiscal 1998 from 33.7% in fiscal 1997. This increase in
gross profit as a percentage of sales was primarily due to increased sales
during the first half of fiscal 1998 of certain higher margin customized OEM
products to a long-standing customer under a program that was completed during
the second quarter of the year. As a result of the completion of this program,
as well as the Company's entry into the lower-price standard product arena,
gross profit margins were higher in the first half of fiscal 1998 than in the
second half in this business area.
The Company won several major contracts with large OEMs during fiscal 1998
and believes it will continue to win OEM projects and that its distribution of
catalogs with new lower-price standard products will provide access to a larger
number of OEM opportunities. The competition for such programs, however, is
beginning to include more foreign competitors, including Asian companies. In
addition, consolidations and other market trends can adversely impact projected
volumes under contracts previously awarded, as happened in fiscal 1998 when
Compaq's acquisition of Digital Equipment Corporation curtailed a Company
project. Further, a new form factor, CompactPCI, is beginning to gain favor in
the marketplace. While the Company has developed its own line of CompactPCI
products and believes it is well positioned to gain market share in this product
area, the impact of these factors on the Company's business is not yet
predictable.
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.
Technology Programs and Systems. Technology Programs and Systems gross
profit was $9.1 million, $6.2 million and $5.7 million in fiscal years 1998,
1997 and 1996, respectively. As a percentage of sales, gross profit remained
relatively constant at 22.5% in fiscal 1998, 20.1% in fiscal 1997 and 18.7% in
fiscal 1996. There is a base of business in this segment with relatively stable
gross profit margins due to the predominance of government cost-plus contracts
in this business segment. This base of cost-plus business was the major factor
in the comparability of gross profit as a percentage of sales in fiscal years
1997 and 1996. The increase in gross profit, both as a dollar amount and as a
percentage of sales, in fiscal 1998 as compared to fiscal 1997 was primarily due
to the addition of Physics International and reorganization of the software
businesses late in the fiscal year, as previously described, and to work on a
commercial pulsed power systems contract won during fiscal 1998. This systems
contract was substantially complete as of fiscal year-end.
Information Products and Services. As discussed above, operation of the
Information Products and Services business as a separate segment was
discontinued as of the beginning of the third quarter of fiscal 1998; therefore,
on 48% lower revenue, segment gross profit decreased in fiscal 1998 by $1.1
million, or 32%, to $2.3 million from $3.4 million in fiscal 1997. As a
percentage of sales, gross profit increased to 49.4% in fiscal 1998 from 37.4%
in fiscal 1997.
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 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 included a
write-off of certain capitalized software development costs.
Selling, General and Administrative Expenses
In fiscal 1998, the Company's selling, general and administrative expenses
increased $4.5 million, or 20.5%, to $26.4 million from $21.9 million in fiscal
1997. As a percentage of total sales, selling, general and administrative
expenses decreased slightly to 21.1% in fiscal 1998 from 21.6% in fiscal 1997.
The increase in the dollar amount of these expenses is primarily in support of
the Company's growth during the year, as well as a continued ramp-up of the
organizational structure and selling efforts for the ultracapacitor business
area.
F-6
<PAGE> 38
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.
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 $8.2 million,
$5.3 million and $5.1 million for fiscal 1998, 1997 and 1996, respectively. As a
percentage of sales, research and development expenses were 6.5% in fiscal 1998,
5.2% in fiscal 1997, and 6.3% in fiscal 1996. 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. The increase in internally funded research and development in fiscal
1998 over the level expended in fiscal 1997 and 1996 reflects the Company's
focus on new commercial product areas, and is primarily due to ultracapacitor
and other power conversion products and power electronics systems development,
and Compact PCI and continued product development for major new programs in the
Industrial Computers and Subsystems business segment.
Special Charges
During the third quarter of fiscal 1998, the Company completed the
acquisition of three businesses. In acquiring these businesses, the Company
acquired certain intangible assets. Some of these intangible assets have been
capitalized and will be amortized over their estimated economic lives; the
acquired in-process research and development meeting certain criteria, however,
was expensed during the quarter as the technology had no alternative future use
and the ultimate recovery of the acquired value was not assured. In addition,
certain costs of acquisitions, as well as certain charges related to the
discontinued business segment, were also charged to operations. The total amount
of all such charges was $8.9 million and has been classified as "Acquired
in-process research and development and other special charges" in the
consolidated statement of operations. Approximately $6.3 million of the charge
is acquisition related, and approximately $2.6 million relates to the
Information Products and Services business segment. See Notes 8 and 9 of Notes
to Consolidated Financial Statements.
Interest Expense
Interest expense was $214,000 and $173,000 in fiscal years 1998 and 1997,
respectively, compared to $329,000 in fiscal 1996. The decrease from fiscal 1996
is a result of lower average borrowings in the two more recent fiscal years. The
Company completed a follow-on stock offering in fiscal 1998, and used a portion
of the proceeds from that offering to pay off an outstanding balance on the bank
line of credit and the remaining balance on a bank term loan.
Other-net
In fiscal 1998, other-net was $1.4 million, compared to $150,000 in fiscal
1997 and $398,000 in fiscal 1996. The increase in other-net is primarily
attributable to interest income from the investment of the net cash proceeds of
the Company's follow-on offering which was completed in November 1997. In
addition, fiscal 1996 other-net 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. Fiscal 1996
other-net included $379,000 of such income, while none is included in subsequent
fiscal years.
F-7
<PAGE> 39
Income Tax Expense
The Company had net operating loss carryforwards which offset the Company's
provision for U.S. income taxes in both fiscal years 1998 and 1997. Fiscal 1998
income tax expense is primarily due to foreign taxes on the profits of the
Company's U.K. subsidiary that was acquired during the year. Fiscal 1996 income
tax expense was primarily due to the establishment of a valuation allowance of
$1.1 million for the net deferred income tax assets of the Company.
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 years 1998 and 1997, the Company
received approximately $2.3 million and $2.5 million, respectively, from the
exercise of stock options and purchases under employee stock purchase plans. In
November 1997, the Company completed a follow-on public offering of 1.5 million
shares of its Common Stock, and received net proceeds of approximately $47
million. A portion of the proceeds was used to repay an outstanding balance on
the bank line of credit and the remaining balance on a bank term loan.
Approximately $12 million of cash was used in fiscal 1998 in completing the
acquisitions discussed in Results of Operations above.
Cash used in operations in fiscal 1998 was $5.0 million, primarily
attributable to increases in accounts receivable and inventory, due both to
acquired businesses and in support of the higher fiscal 1998 sales.
The Company's capital expenditures in fiscal 1998, excluding acquired
businesses, increased to $7.0 million from $4.7 million in fiscal 1997,
primarily for facility expansion and production equipment and other assets
needed to support growth of the Company's business units, principally in the
Power Conversion Products business segment. The Company has currently budgeted
capital expenditures of $8.7 million for fiscal 1999, including commitments for
capital expenditures to support volume manufacturing of ultracapacitors in its
existing facilities. The Company will continue to assess its capital needs in
this area; alternatively, it may consider leasing facilities or manufacturing
equipment or both or may satisfy high-volume manufacturing requirements through
outsourcing or under licensing arrangements with third parties. If the Company
decides to internally finance construction of additional facilities, a
significant amount of capital would be required.
The Company re-negotiated its unsecured bank line of credit during fiscal
1998, increasing the amount available to $20.0 million from its previous level
of $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, 1998, there were no outstanding borrowings
under the line of credit.
The Company believes that funds on hand, together with cash generated from
operations and funds available under its bank line of credit, will be sufficient
to finance its operations and capital expenditures through fiscal 1999. In
addition to addressing the need for high-volume manufacturing of its
ultracapacitor products, the Company may continue from time-to-time to 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.
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.
F-8
<PAGE> 40
SOFTWARE COMPATIBILITY WITH YEAR 2000 DATE PROCESSING
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Computer
systems utilizing such programs may be unable to interpret dates beyond the year
1999, which could cause a system failure or other computer errors, leading to
disruptions in operations. In 1998, the Company developed a three-phase program
for Y2K information systems compliance. Phase 1 is to identify and solve Y2K
issues in the Company's significant information systems infrastructure and
enterprise business applications, including telecommunications and networking
systems as well as accounting and manufacturing software. Phase 2 is to identify
and plan for Y2K issues that are specific to the Company's business units,
including local software, product matters, facilities related systems and vendor
and key partner concerns. Phase 3 is the final testing of each major area of
exposure to ensure compliance, and the development of contingency plans for
unsolved Y2K deficiencies, such as key vendors failing to adequately address
their Y2K problems. The Company has identified four major areas determined to be
critical for successful Y2K compliance: (1) networking and telecommunications,
(2) financial and manufacturing informational systems applications, (3) products
and (4) third-party relationships.
In Phase 1 of the program, the Company has completed its review of
company-wide and large systems, several of which have been identified as being
Y2K compliant due to their recent implementation or upgrade. Such installations
were unrelated to the Y2K concern, but rather were needed as part of the
ordinary course of business. For certain accounting and manufacturing systems,
upgrades are needed. These upgrades are available from the third party
suppliers, and are in the process of being evaluated. Implementation of the
updated systems is expected by calendar year end. Remaining upgrades of system
infrastructure have been identified and planned. Final testing and documentation
under Phase 1 is currently anticipated in the January 1999 time frame. Under
Phase 2, the Company is currently identifying and evaluating business unit
exposures. In the third-party area, the Company is in the process of contacting
its significant third parties, primarily key vendors and customers, regarding
their Y2K readiness. As to products, preliminary findings indicate that most
Company products appear to be Y2K compliant. For several of those that are not,
the Company has made upgrades available via the Company's Internet web site. For
other products, the Company is still completing its evaluation process. The
testing and contingency plan development under Phase 3 will begin in early 1999,
and is expected to be completed in mid-1999.
The Company believes it will cost approximately $100,000 to complete the
replacement of network and telecommunication infrastructure requiring Y2K
upgrades. The Company has yet to determine what costs, if any, will be incurred
in connection with local software, facilities, products and the third party
area.
The anticipated costs relating to resolving Y2K issues are based on
estimates which were derived utilizing assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and, as
additional Y2K remediation activities are developed and planned, that actual
results will not differ materially from those in the current estimate. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the completion
of the Company's Y2K investigations, the ability to locate and correct all
relevant computer codes, and similar uncertainties. In addition, there can be no
assurance that Y2K compliance problems will not be revealed in the future which
could have a material adverse affect on the Company's business, financial
condition and results of operations. Many of the Company's customers and
suppliers may be affected by Y2K issues that may require them to expend
significant resources to modify or replace their existing systems, which may
result in those customers having reduced funds to purchase the Company's
products or those suppliers experiencing difficulties in producing or shipping
key components to the Company on a timely basis or at all. Such third party
issues could have a material adverse affect on the Company's business, financial
condition and results of operations. This discussion of the Company's Y2K status
constitutes a "Year 2000 Readiness Disclosure" as that item is defined in the
Year 2000 Information and Readiness Disclosure Act, and also contains
forward-looking statements (see "Forward-Looking Statements " below).
F-9
<PAGE> 41
ACCOUNTING PRINCIPLES
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, and Statement No. 131, Disclosures About Segments of an Enterprise and
Related Information, both of which are effective for fiscal periods beginning
after December 15, 1997. The Company believes the statements, which will be
adopted in fiscal 1999, will not have a material effect on its financial
statements.
FORWARD-LOOKING STATEMENTS
To the extent that the above discussion goes beyond historical information
and indicates results or developments which the Company plans or expects to
achieve, these forward-looking statements are identified by the use of terms
such as "expected," "anticipates," "plans," and the like. Readers are cautioned
that such statements are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are subject to a
number of risks and uncertainties. Actual results in the future could differ
materially from those described in any forward-looking statements as a result of
various risk factors. The Company undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements that may be made
to reflect any future events or circumstances. Readers are referred to item 1 of
the Company's Annual Report on Form 10-K for fiscal 1998 for a discussion of
certain of those factors.
F-10
<PAGE> 42
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the
fiscal years ended July 31, 1996, 1997 and 1998, and consolidated balance sheet
data at July 31, 1997 and 1998 are derived from the Consolidated Financial
Statements of the Company and Notes thereto, which have been audited by Ernst &
Young LLP, independent auditors. The following selected consolidated statement
of operations data for the years ended July 31, 1994 and 1995 and consolidated
balance sheet data at July 31, 1994, 1995 and 1996 are derived from audited
consolidated financial statements of the Company not included in this Appendix.
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 Appendix.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------------
1994 1995 1996 1997 1998
-----------------------------------------------------------------
( IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Sales .......................................... $ 85,463 $ 75,004 $ 80,911 $ 101,411 $ 125,308
Cost of sales .................................. 68,555 56,447 65,893 70,107 83,459
--------- --------- --------- --------- ---------
Gross profit ................................. 16,908 18,557 15,018 31,304 41,849
Operating expenses:
Selling, general and administrative expenses . 14,068 13,636 15,564 21,900 26,391
Research and development expenses ............ 4,794 5,038 5,081 5,303 8,206
Acquired in-process R&D and other
special charges (1) ....................... -- -- -- -- 8,942
Restructure and asset impairment losses(1) ... -- -- 5,703 -- --
Loss on closing of Brobeck division .......... 1,018 -- -- -- --
--------- --------- --------- --------- ---------
Total operating expenses .................. 19,880 18,674 26,348 27,203 43,539
--------- --------- --------- --------- ---------
Operating income (loss) ........................ (2,972) (117) (11,330) 4,101 (1,690)
Interest expense ............................... 252 315 329 173 214
Other-net ...................................... (589) (848) (398) (150) (1,441)
--------- --------- --------- --------- ---------
Income (loss) before income taxes, minority
interest and loss from cumulative effect
of change in accounting principle ......... (2,635) 416 (11,261) 4,078 (463)
Income tax expense (benefit) ................... (1,028) 15 1,296 -- 226
Minority interest in net income of
subsidiaries .............................. 80 86 50 54 80
Loss from cumulative effect of change
in accounting principle (1) ............... -- -- 2,569 -- --
--------- --------- --------- --------- ---------
Net income (loss) .............................. $ (1,687) $ 315 $ (15,176) $ 4,024 $ (769)
========= ========= ========= ========= =========
Basic income (loss) per share:
Basic income (loss) per share before
cumulative effect of change in
accounting principle ...................... $ (0.32) $ 0.06 $ (2.29) $ 0.68 $ (0.10)
Basic income (loss) per share: ............... $ (0.32) $ 0.06 $ (2.76) $ 0.68 $ (0.10)
========= ========= ========= ========= =========
Diluted income (loss) per share:
Diluted income (loss) per share before
cumulative effect of change in
accounting principle ...................... $ (0.32) $ 0.06 $ (2.29) $ 0.60 $ (0.10)
Diluted income (loss) per share: ............. $ (0.32) $ 0.06 $ (2.76) $ 0.60 $ (0.10)
========= ========= ========= ========= =========
Shares used in computing:
Basic income (loss) per share: ............ 5,350 5,351 5,494 5,949 7,677
========= ========= ========= ========= =========
Diluted income (loss) per share: .......... 5,350 5,356 5,494 6,644 7,677
========= ========= ========= ========= =========
JULY 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
------------------------------------------------------------------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents ................... $ 4,579 $ 4,053 $ 1,465 $ 826 $ 21,224
Working capital ............................. 18,091 17,855 7,288 10,908 48,132
Total assets ................................ 54,322 52,370 40,724 47,120 105,065
Long-term debt, excluding current portion.... 2,797 1,928 1,018 465 361
Total stockholders' equity .................. 34,960 35,364 20,745 27,410 75,838
</TABLE>
- ----------
(1) See Note 9 of Notes to Consolidated Financial Statements.
F-11
<PAGE> 43
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, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended July 31, 1998. 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, 1997 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended July 31, 1998, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Diego, California
September 15, 1998
F-12
<PAGE> 44
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 31,
-----------------------------
1997 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 826 $ 21,224
Accounts receivable:
Trade and other, less allowance for doubtful accounts of $350
and $950 at July 31, 1997 and 1998, respectively............ 9,391 23,339
Long-term contracts........................................... 9,221 12,723
------------ -------------
18,612 36,062
Inventories...................................................... 8,722 15,823
Prepaid expenses................................................. 1,203 2,016
Deferred income taxes............................................ 161 161
------------ -------------
Total current assets.......................................... 29,524 75,286
Property, plant and equipment, net................................. 16,929 23,276
Goodwill and other non-current assets.............................. 667 6,503
------------ -------------
$ 47,120 $ 105,065
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 13,640 $ 20,680
Accrued employee compensation.................................... 4,465 6,353
Current portion of long-term debt................................ 511 121
------------ -------------
Total current liabilities..................................... 18,616 27,154
Long-term debt..................................................... 465 361
Minority interest.................................................. 629 1,712
Commitments and contingencies (Notes 6 and 10)
Stockholders' equity:
Common stock, $0.10 par value, 40,000 shares authorized, 6,143
and 8,384 shares issued and outstanding at July 31, 1997 and
1998, respectively............................................. 614 838
Additional paid-in capital....................................... 22,364 70,926
Deferred compensation............................................ (622) (413)
Retained earnings................................................ 5,054 4,487
------------ -------------
Total stockholders' equity.................................... 27,410 75,838
------------ -------------
$ 47,120 $ 105,065
============ =============
</TABLE>
See accompanying notes.
F-13
<PAGE> 45
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Sales .................................................. $ 80,911 $ 101,411 $ 125,308
Cost of sales .......................................... 65,893 70,107 83,459
--------- --------- ---------
Gross profit ......................................... 15,018 31,304 41,849
Operating expenses:
Selling, general and administrative expenses ......... 15,564 21,900 26,391
Research and development expenses .................... 5,081 5,303 8,206
Acquired in-process R&D and other special charges .... -- -- 8,942
Restructure and asset impairment losses .............. 5,703 -- --
--------- --------- ---------
Total operating expenses .......................... 26,348 27,203 43,539
--------- --------- ---------
Operating income (loss) ................................ (11,330) 4,101 (1,690)
Interest expense ....................................... 329 173 214
Other-net .............................................. (398) (150) (1,441)
--------- --------- ---------
Income (loss) before income taxes, minority interest and
loss from Cumulative effect of change in
accounting principle ................................. (11,261) 4,078 (463)
Income tax expense ..................................... 1,296 -- 226
Minority interest in net income of subsidiaries ........ 50 54 80
Loss from cumulative effect of change in accounting
principle ............................................ 2,569 -- --
--------- --------- ---------
Net income (loss) ...................................... $ (15,176) $ 4,024 $ (769)
========= ========= =========
Basic income (loss) per share:
Basic income (loss) per share before cumulative
effect of change in accounting principle ........ $ (2.29) $ 0.68 $ (0.10)
========= ========= =========
Basic income (loss) per share: .................... $ (2.76) $ 0.68 $ (0.10)
========= ========= =========
Diluted income (loss) per share:
Diluted income (loss) per share before cumulative
effect of change in accounting principle ........ $ (2.29) $ 0.60 $ (0.10)
========= ========= =========
Diluted income (loss) per share: .................. $ (2.76) $ 0.60 $ (0.10)
========= ========= =========
Shares used in computing:
Basic income (loss) per share ..................... 5,494 5,949 7,677
========= ========= =========
Diluted income (loss) per share ................... 5,494 6,644 7,677
========= ========= =========
</TABLE>
See accompanying notes.
F-14
<PAGE> 46
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE YEARS ENDED JULY 31, 1998
-------------------------------------------------------------------------------
ADDITIONAL TOTAL
COMMON PAID-IN DEFERRED RETAINED STOCKHOLDERS'
STOCK CAPITAL COMPENSATION EARNINGS EQUITY
-------- --------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at August 1, 1995 ................... $ 537 $ 18,621 $ -- $ 16,206 $ 35,364
Issuance of 130,796 shares under stock
purchase and option plans .............. 13 504 -- -- 517
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 445,785 shares under stock
purchase and option plans ............. 45 2,423 -- -- 2,468
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
Issuance of 1,500,000 shares in a follow-on
public stock offering, net of offering
costs of $3.9 million ................. 150 46,967 -- -- 47,117
Issuance of 356,240 shares under stock
purchase and option plans ............. 36 2,302 -- -- 2,338
Issuance of 544,785 shares in connection
with acquisitions ..................... 54 3,270 -- 609 3,933
Repurchase of 162,073 shares for cash
under repurchase program ............. (16) (3,977) -- -- (3,993)
Amortization of deferred compensation ..... -- -- 209 -- 209
Dividends paid to shareholders of
subchapter S corporation prior to
acquisition ........................... -- -- -- (407) (407)
Net loss for the year ..................... -- -- -- (769) (769)
-------- -------- -------- -------- --------
Balance at July 31, 1998 .................... $ 838 $ 70,926 $ (413) $ 4,487 $ 75,838
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-15
<PAGE> 47
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income (loss) .............................................. $(15,176) $ 4,024 $ (769)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization .......................... 2,128 2,587 3,781
Restructure and asset impairment losses ................ 5,960 -- --
Acquired in-process R&D and other special charges ...... -- -- 7,450
Loss from cumulative effect of change in accounting
principle ........................................... 2,569 -- --
Provision for losses on accounts receivable ............ 105 184 534
Loss on sales of property and equipment ................ 118 10 50
Deferred income taxes .................................. 1,124 -- --
Minority interest in net income of subsidiaries ........ 50 54 80
Deferred compensation .................................. 40 173 209
Changes in operating assets and liabilities:
Accounts receivable .................................. 252 (3,223) (12,534)
Inventories .......................................... (469) (1,914) (4,708)
Prepaid expenses and other ........................... 614 (702) (1,115)
Accounts payable ..................................... 2,153 (683) 909
Accrued employee compensation ........................ 185 1,599 1,139
Income taxes payable/recoverable ..................... 121 832 (45)
-------- -------- --------
Net cash provided by (used in) operating
activities ..................................... (226) 2,941 (5,019)
Investing activities:
Purchases of property, plant and equipment ..................... (1,976) (4,725) (7,026)
Business acquisitions under purchase accounting, net of cash
acquired ................................................. -- -- (11,481)
Proceeds from sales of property and equipment .................. 6 8 149
-------- -------- --------
Net cash used in investing activities ............. (1,970) (4,717) (18,358)
Financing activities:
Principal payments on long-term debt ........................... (909) (952) (2,336)
Proceeds from issuance of Company and subsidiary stock ......... 517 2,502 50,518
Repurchase of Company and subsidiary stock ..................... -- (413) (4,000)
Dividends paid to shareholders of Subchapter S corporation prior
to acquisition ............................................. -- -- (407)
-------- -------- --------
Net cash provided by (used in) financing
activities ..................................... (392) 1,137 43,775
-------- -------- --------
Increase (decrease) in cash and cash equivalents .. (2,588) (639) 20,398
Cash and cash equivalents at beginning of year ................... 4,053 1,465 826
-------- -------- --------
Cash and cash equivalents at end of year .......... $ 1,465 $ 826 $ 21,224
======== ======== ========
</TABLE>
See accompanying notes.
F-16
<PAGE> 48
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF 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 and are generally
depreciated using the straight-line method. Depreciation and amortization are
provided over the estimated useful lives of the related assets (three to thirty
years). Depreciation and amortization of property, plant and equipment amounted
to $2,507,000, $2,587,000 and $3,745,000 in fiscal 1996, 1997 and 1998,
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 and license 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.
Foreign Currency
In March 1998, the Company acquired a United Kingdom-based subsidiary (see
Note 8 - Business Combinations). The assets and liabilities of this foreign
subsidiary are translated to U.S. dollars at year-end exchange rates, and
revenues and expenses are translated at average rates prevailing during the
year. There have been no material effects of foreign currency translation during
the year ended July 31, 1998.
Income (Loss) Per Share
Effective November 1, 1997, the Company adopted Financial Accounting
Standards Board ("FASB") Statement No. 128, Earnings Per Share. Statement No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic earnings per share is
calculated using the weighted average number of common shares outstanding.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share, and is calculated on the basis of the weighted
average number of common shares outstanding plus the dilutive effect of
outstanding stock options assuming their exercise using the "treasury stock"
method and the outstanding preferred shares in the Maxwell Energy Products
subsidiary assuming
F-17
<PAGE> 49
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
their conversion. Earnings per share amounts for all prior periods have been
restated as necessary to conform to Statement No. 128 requirements. For the
years ended July 31, 1996 and 1998, all potentially dilutive common shares have
been excluded from the calculation of diluted loss per share as their inclusion
would have been antidilutive.
The following table sets forth the computation of basic and diluted income
per share:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Basic:
Net income (loss) ............................. $(15,176) $ 4,024 $ (769)
======== ======== ========
Weighted average shares ....................... 5,494 5,949 7,677
-------- -------- --------
Basic income (loss) per share ................. $ (2.76) $ 0.68 $ (0.10)
======== ======== ========
Diluted:
Net income (loss) ............................. $(15,176) $ 4,024 $ (769)
Effect of majority-owned subsidiaries'
dilutive securities ........................ -- (12) --
-------- -------- --------
Income (loss) available to common shareholders,
as adjusted................................. $(15,176) $ 4,012 $ (769)
======== ======== ========
Weighted average shares ....................... 5,494 5,949 7,677
Effect of dilutive stock options .............. -- 695 --
-------- -------- --------
Weighted average shares, as adjusted .......... 5,494 6,644 7,677
-------- -------- --------
Diluted income (loss) per share ............... $ (2.76) $ 0.60 $ (0.10)
======== ======== ========
</TABLE>
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 and 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, income (loss) per share and weighted average number of share
amounts from prior periods have been restated to reflect the stock split.
New Accounting Standards
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, and Statement No. 131, Disclosures About Segments of an Enterprise and
Related Information, both of which are effective for fiscal periods beginning
after December 15, 1997. The Company believes the statements, which will be
adopted in fiscal 1999, will not have a material effect on its financial
statements.
F-18
<PAGE> 50
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- ACCOUNTS RECEIVABLE
The following tabulation shows the component elements of accounts receivable
from long-term contracts at July 31:
<TABLE>
<CAPTION>
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
U.S. Government:
Amounts billed ............................ $ 2,108 $ 7,248
Amounts unbilled .......................... 1,326 3,024
Retainage due upon completion of contracts 287 --
Commercial customers:
Amounts billed ............................ 2,693 905
Amounts unbilled .......................... 2,681 1,546
Retainage due upon completion of contracts 126 --
------- -------
$ 9,221 $12,723
======= =======
</TABLE>
The balances billed but not paid by customers pursuant to retainage
provisions under long-term contracts will be due upon completion of the
contracts and acceptance by the customers. Substantially all unbilled
receivables at July 31, 1998 are expected to become due and payable within the
next year.
NOTE 3 -- CREDIT AGREEMENT
The Company has an unsecured two-year bank line of credit agreement dated
March 1998, under which the Company may borrow up to $20 million at the bank's
prime rate, or at LIBOR plus 1.75%. At July 31, 1998, 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 ACTIVITY AND STOCK PLANS
Follow-on Public Stock Offering
In November 1997, the Company issued 1,500,000 shares of its common stock in
a follow-on public offering at $34.00 per share. Proceeds to the Company (net of
offering costs of $1.1 million and underwriters' commissions of $2.8 million)
totaled approximately $47 million, and are intended for general corporate
purposes, including working capital and capital expenditures, as well as
acquisitions.
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
and January 1998, an additional 300,000 and 490,000 shares, respectively, were
reserved for future issuance under the plan. 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. Options granted under these plans are for the
purchase of Common Stock of the Company at not less than the stock's fair market
value at the date of grant. Employee options are generally exercisable in
cumulative annual installments of 20 - 30 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-19
<PAGE> 51
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- STOCK ACTIVITY AND STOCK PLANS (CONTINUED)
The following table summarizes Company stock option activity for the three
years ended July 31, 1998.
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance at August 1, 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
---------
Balance at July 31, 1997 ................ 1,054,680 $ 8.60
Granted ............................... 591,500 $25.23
Exercised ............................. (324,825) $ 5.49
Expired or forfeited .................. (56,200) $18.57
---------
Outstanding at July 31, 1998 ............ 1,265,155 $16.73
=========
Available for future grant under the 1995
Stock Option Plan ..................... 35,460
=========
Available for future grant under the
Director Option Plan .................. 85,074
=========
</TABLE>
The following table summarizes information concerning outstanding and
exercisable Company stock options at July 31, 1998.
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF EXERCISE OPTIONS EXERCISE CONTRACTUAL OPTIONS EXERCISE
PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
----------------- ----------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 3.56 - 5.00 307,659 $ 4.04 4.4 years 150,825 $ 4.17
$ 5.12 - 7.25 125,696 $ 6.72 2.7 years 61,082 $ 6.41
$ 11.00 - 20.63 259,300 $17.90 4.9 years 69,810 $19.14
$ 21.75 - 24.75 279,000 $23.63 9.7 years -- $ --
$ 25.88 - 28.88 293,500 $26.71 9.2 years 1,250 $27.50
------------ --------
1,265,155 282,967
============ ========
</TABLE>
In addition, the Company has established separate stock option plans for
four of its principal operating subsidiaries. Options to purchase shares of
subsidiary stock were granted primarily during fiscal 1997. Options outstanding
at July 31, 1998 total from 8% to 15% of such various subsidiaries' outstanding
common stock.
The Company has adopted the disclosure-only provisions of FASB 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 expense has been recognized for stock options
granted in 1996, 1997 or 1998. If the Company had elected to recognize
compensation cost 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 1998
--------------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss)
As reported............ $(15,176) $ 4,024 $ (769)
Pro forma.............. (15,305) 3,405 (4,102)
Net income (loss) per share
As reported............ $ (2.76) $ 0.60 $ (0.10)
Pro forma.............. (2.78) 0.51 (0.53)
</TABLE>
F-20
<PAGE> 52
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- STOCK ACTIVITY AND STOCK PLANS (CONTINUED)
The impact of outstanding non-vested stock options granted prior to 1996 has
been excluded from the pro forma calculations; accordingly, the 1996, 1997 and
1998 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 the date of grant was estimated using the
Black-Scholes option-pricing model with assumptions as follows: 1998 - risk-free
interest rate of 5.5%; dividend yield of 0%; volatility factor of 54%; and a
weighted-average expected term of 4 years; 1996 and 1997 - 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 the 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, 1997 and 1998 was $1.74, $7.33 and $12.09 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 1997 and 1998, 39,129 and
40,795 shares were issued under the two plans for an aggregate of $442,000 and
$759,000, respectively. At July 31, 1998, 298,540 shares are reserved for future
issuance under these plans.
Stock Repurchase Program
In January 1998, the Company adopted a common stock repurchase program
whereby up to 600,000 shares of common stock could be repurchased during a
two-year period. In fiscal year 1998, 162,000 shares were repurchased at an
aggregate cost of approximately $4.0 million.
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.
Deferred Compensation
In 1996 and 1997, an executive officer of the Company was granted shares of
the Company's Common Stock subject to certain restrictions. The shares granted
vest ratably over a four year period, and at the grant dates, the shares had a
fair value of approximately $645,000 and $190,000, respectively. Those values,
net of accumulated amortization, are shown as deferred compensation in the
Consolidated Balance Sheet and Consolidated Statement of Stockholders' Equity.
The deferred compensation is being amortized to expense over the four year
vesting periods, and such amortization totaled $40,000, $173,000 and $209,000 in
fiscal 1996, 1997 and 1998, respectively.
F-21
<PAGE> 53
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- INCOME TAXES
Income taxes are as follows for the years ended July 31:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current....................... $ 128 $ -- $ --
Deferred...................... 814 -- --
------ ------ ------
942 -- --
State and foreign:
Current....................... 44 -- 200
Deferred...................... 310 -- 26
------ ------ ------
354 -- 226
------ ------ ------
$1,296 $ -- $ 226
====== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components of
the Company's deferred tax assets and liabilities are as follows at July 31:
<TABLE>
<CAPTION>
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Uniform capitalization, contract and inventory-related
reserves.......................................... $1,465 $1,527
Environmental and restructure reserves................ 1,195 1,430
Asset write-downs under FASB Statement No. 121........ 943 1,112
Acquired in-process R&D............................... -- 959
Accrued vacation...................................... 594 733
Allowance for doubtful accounts....................... 321 371
Other................................................. 313 373
NOL carryforwards..................................... 1,800 1,300
Valuation allowance................................... (5,814) (6,735)
------ ------
Total deferred tax assets..................... 817 1,070
------ ------
Deferred tax liabilities:
Tax over book depreciation............................ 656 686
R&D expense tax over book............................. -- 223
------ ------
Total deferred tax liabilities................ 656 909
------ ------
Net deferred tax assets....................... $ 161 $ 161
====== ======
</TABLE>
As the Company cannot carry losses back to prior years, and had a loss in
the current year, a valuation allowance is provided on the net operating loss
carryforwards and net deferred income tax assets of the Company. The valuation
allowance at July 31, 1998 includes approximately $2,000,000 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. Income
tax expense in fiscal year 1998 was primarily due to foreign taxes on the
profits of the Company's newly acquired United Kingdom subsidiary.
As of July 31, 1998, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $3,000,000 and
$3,500,000, respectively. The federal loss carryforward expires in fiscal year
2011, while the state loss carryforwards expire in fiscal years 1999 through
2001.
F-22
<PAGE> 54
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- INCOME TAXES (CONTINUED)
The provisions for income taxes in the accompanying statements of operations
differ from the tax provision calculated by applying the statutory income tax
rate of 35% to income (loss) before income taxes and minority interest. The
primary components of such difference are as follows for the years ended
July 31:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at federal statutory rate ............................................ $(3,941) $ 1,427 $ (162)
State taxes, net of federal benefit ...................................... (674) 246 58
Effect of foreign subsidiary ............................................. -- -- (47)
Impact of asset basis difference in acquisitions ......................... -- -- 1,237
Utilization of net operating loss carryforwards .......................... -- (700) (500)
Amortization of minority interest ........................................ (129) -- --
Valuation allowance and other items ...................................... 6,040 (973) (360)
------- ------- -------
$ 1,296 $ -- $ 226
======= ======= =======
</TABLE>
NOTE 6 -- LEASES
Rental expense amounted to $1,992,000, $1,831,000 and $3,303,000 in fiscal
1996, 1997 and 1998, respectively, and was incurred primarily for facility
rental. Future minimum rental commitments as of July 31, 1998, are as follows
(in thousands):
<TABLE>
<S> <C>
1999.......................................................... $ 4,799
2000.......................................................... 4,377
2001.......................................................... 4,158
2002.......................................................... 3,583
2003.......................................................... 2,973
Thereafter.................................................... 7,583
--------
$ 27,473
========
</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.
The Company also subleases certain of its leased facilities under
non-cancellable subleases ranging from one to five years. Future amounts due to
the Company under such subleases for the next five years are as follows: 1999 -
$371,000; 2000 - $392,000; 2001 - $404,000; 2002 - $168,000; 2003 - None.
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 $541,000,
$592,000 and $749,000 in fiscal 1996, 1997 and 1998, respectively.
NOTE 8 -- BUSINESS COMBINATIONS
In January 1998, the Company acquired Tekna Seal, Inc., a privately-held
manufacturer of glass-to-metal seals for a variety of industrial applications,
in a stock-for-stock exchange accounted for as a pooling of interests. Under the
terms of the agreement, Maxwell purchased all of the outstanding stock of Tekna
Seal for an aggregate of 154,000 shares of Maxwell common stock with a fair
market value of approximately $4 million. The Company incurred direct
transaction costs of approximately $85,000, which were charged to operations
during the quarter ended January 31, 1998. The historical results of operations
for Tekna Seal are not material in relation to those of Maxwell and financial
information for prior periods has not been restated to reflect the merger.
Retained earnings as of November 1, 1997, was restated to reflect Tekna Seal's
accumulated earnings of approximately $1.3 million as of such date.
F-23
<PAGE> 55
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- BUSINESS COMBINATIONS (CONTINUED)
In March 1998, the Company acquired Phoenix Power Systems, Inc. ("Phoenix
Power"), a privately-held company with leading products for power electronics
and power conditioning applications in the telecommunications, broadcasting,
semiconductor manufacturing, medical, and biotechnology markets. Under the terms
of the agreement, Maxwell purchased all of the outstanding stock of Phoenix
Power for approximately $4 million ($1.3 million in cash and 100,679 shares of
Maxwell common stock valued at approximately $2.7 million). Direct acquisition
costs were approximately $95,000. The purchase price was allocated to the
estimated fair values of the net tangible and intangible assets acquired,
approximately $3 million of which was charged to acquired in-process R&D in the
three months ended April 30, 1998. The value assigned to other intangible assets
is $1.6 million, and is being amortized on a straight-line basis over the
estimated economic lives. The aggregate purchase price of Phoenix Power could
increase to as much as $13 million dependent upon the financial performance of
Phoenix Power over the next two years.
Also in March 1998, the Company acquired Tri-MAP International, Ltd.
("Tri-MAP"), a privately-held, United Kingdom-based manufacturer of
industrial-grade PC-compatible computer systems. Tri-MAP was acquired in a
stock-for-stock exchange accounted for as a pooling of interests for an
aggregate of 290,000 shares of Maxwell common stock valued at approximately $7.0
million. The Company incurred direct transaction costs of approximately
$625,000, which were charged to operations during the quarter ended April 30,
1998. The historical results of operations for Tri-MAP were not material in
relation to those of Maxwell and financial information for prior periods has not
been restated to reflect the merger. Retained earnings as of February 1, 1998
was restated to reflect Tri-MAP's accumulated deficit of approximately $660,000
as of such date.
In April 1998, the Company acquired the majority of the assets of the
Electromagnetic Systems Group of Primex Physics International Company ("Physics
International"), for cash of $10 million, assumption of certain liabilities and
direct acquisition costs of $175,000. Physics International specializes in
high-energy pulsed power technology, primarily performing research and
development for the U.S. government. The acquired assets consisted primarily of
intangible assets and intellectual property, fixed assets, existing customer
contracts and accounts receivable. The liabilities assumed consisted primarily
of the majority of Physics International's current liabilities, and obligations
under acquired customer contracts. The purchase price was allocated to the
estimated fair values of the net assets acquired, of which approximately $2.5
million was charged to acquired in-process R&D during the quarter ended April
30, 1998. The value assigned to the other intangible assets is $3.7 million, and
is being amortized on a straight-line basis over the estimated economic lives.
Pro forma results of operations, as if the Physics International acquisition
had occurred at the beginning of fiscal years 1997 and 1998, are as follows
(after eliminating all significant intercompany transactions and excluding the
charge for acquired in-process R&D):
<TABLE>
<CAPTION>
PHYSICS
MAXWELL INTERNATIONAL COMBINED
--------- ------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Year ended July 31, 1997:
Sales.................... $101,411 $ 16,383 $117,794
Net income (loss)........ 4,024 (1,574) 2,450
Basic income per share... $ 0.68 -- $ 0.41
Diluted income per share. $ 0.60 -- $ 0.37
Year ended July 31, 1998:
Sales.................... $125,308 $ 11,267 $136,575
Net income............... 1,681 (1,240) 441
Basic income per share... $ 0.22 -- $ 0.06
Diluted income per share. $ 0.20 -- $ 0.05
</TABLE>
F-24
<PAGE> 56
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- BUSINESS COMBINATIONS (CONTINUED)
Shares used in computing pro forma basic and diluted income per share are
5,949,000 and 6,644,000 in fiscal 1997, and 7,677,000 and 8,356,000 in fiscal
1998.
The pro forma information is presented as an illustration only and does not
necessarily indicate the operating results that would have occurred had the
acquisition been completed as of the beginning of the years indicated, nor does
it necessarily indicate future operating results. Pro forma results for Phoenix
Power are not presented as the acquisition was not material to the Company.
NOTE 9 -- LOSSES, RESTRUCTURING AND OTHER SPECIAL CHARGES
Primarily due to the acquisition of three businesses during the quarter,
the Company recorded an $8.9 million pre-tax charge in the third quarter of
fiscal 1998. Approximately $6.3 million of the charge related to the
acquisitions, including transaction costs for business combinations accounted
for as a pooling of interests and the appraised amount of acquired in-process
research and development for the two purchase business combinations. Also during
the fiscal 1998 third quarter, the Company reorganized the operations within the
Information Products and Services business segment, including a refocusing of
certain operations along the lines of other business segments and the
discontinuation of certain businesses. Charges related to this discontinued
business segment amounted to $2.6 million, of which approximately $1.3 million
remained to be paid as of July 31, 1998. The majority of the remaining charge is
expected to be incurred by the end of the second quarter of fiscal 1999.
In fiscal 1996, the Company recorded $14.4 million of pre-tax charges. 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. An additional $4.9 million
charge was recorded in the third quarter primarily for costs associated with
management changes and a restructuring of the Company's business units.
NOTE 10 -- 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 3.3%, 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
consolidated financial statements.
NOTE 11 -- 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, systems and subsystems, including products that
capitalize on pulsed power such as ultracapacitors, microbial purification
systems, high voltage capacitors and other electrical components, power
supplies and power conditioning systems and eltromagnetic interface 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.
F-25
<PAGE> 57
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- BUSINESS SEGMENTS (CONTINUED)
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.
In fiscal 1998, the Company reorganized the operations within the
Information Products and Services business segment, including a refocusing
of certain operations along the lines of other business segments and the
discontinuation of certain businesses. Effective as of the beginning of the
fiscal third quarter, the Company no longer operates or reports in the
Information Products and Services business segment.
Business segment financial data, including partial-year results for
fiscal 1998 for the Information Products and Services segment prior to it
discontinuance, for the three years ended July 31 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales:
Power Conversion Products ................................... $ 16,448 $ 27,039 $ 39,312
Industrial Computers and Subsystems ......................... 26,131 34,259 40,864
Technology Programs and Systems ............................. 30,198 31,087 40,466
Information Products and Services ........................... 8,134 9,026 4,666
--------- --------- ---------
Consolidated total .................................. $ 80,911 $ 101,411 $ 125,308
========= ========= =========
Operating profit (loss):
Power Conversion Products ................................... $ (752) $ 2,482 $ 4,358
Industrial Computers and Subsystems ......................... 1,078 2,417 3,149
Technology Programs and Systems ............................. 2,131 1,804 (1,383)
Information Products and Services ........................... (3,680) (2,886) (488)
--------- --------- ---------
Total operating profit (loss) ....................... (1,223) 3,817 5,636
Corporate expenses and revenues ............................. (9,709) 434 (5,885)
Interest expense ............................................ (329) (173) (214)
--------- --------- ---------
Income (loss) before income taxes,
minority interest and cumulative
effect of change in accounting
principle ......................................... $ (11,261) $ 4,078 $ (463)
========= ========= =========
Identifiable assets:
Power Conversion Products ................................... $ 11,253 $ 12,299 $ 27,690
Industrial Computers and Subsystems ......................... 9,166 12,167 19,180
Technology Programs and Systems ............................. 7,586 8,298 31,531
Information Products and Services ........................... 3,136 5,920 --
Corporate ................................................... 9,583 8,436 26,664
--------- --------- ---------
Consolidated total .................................. $ 40,724 $ 47,120 $ 105,065
========= ========= =========
Depreciation and amortization:
Power Conversion Products ................................... $ 763 $ 887 $ 1,182
Industrial Computers and Subsystems ......................... 316 469 667
Technology Programs and Systems ............................. 994 647 1,413
Information Products and Services ........................... 162 258 157
Corporate ................................................... 272 326 326
--------- --------- ---------
Consolidated total .................................. $ 2,507 $ 2,587 $ 3,745
========= ========= =========
Capital expenditures:
Power Conversion Products ................................... $ 670 $ 1,768 $ 3,520
Industrial Computers and Subsystems ......................... 529 992 810
Technology Programs and Systems ............................. 240 424 1,581
Information Products and Services ........................... 482 1,231 166
Corporate ................................................... 55 310 949
--------- --------- ---------
Consolidated total .................................. $ 1,976 $ 4,725 $ 7,026
========= ========= =========
</TABLE>
F-26
<PAGE> 58
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- BUSINESS SEGMENTS (CONTINUED)
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 fiscal 1998 charges for acquired
in-process R&D, and in fiscal 1996 include certain restructuring costs and asset
write-downs relating to the adoption of FASB Statement No. 121. 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, the telecommunications, centralized computers
and networking equipment of the Company, as well as the assets of the Corporate
information systems function.
Sales under United States government contracts and subcontracts are
primarily in the Technology Programs and Systems business segment, and
aggregated $32,622,000 and $33,526,000, and $40,332,000 in fiscal 1996, 1997,
and 1998, respectively. The portion of such sales to the United States Air Force
amounted to 14% and 10% of Company sales fiscal years 1997 and 1998,
respectively. A customer of the Industrial Computers and Subsystems business
segment represented 12% of sales of the Company in fiscal 1997.
International sales amounted to $7,555,000, $12,609,000 and $19,558,000 in
fiscal 1996, 1997, and 1998, respectively, principally to countries in Europe
and the Pacific Rim.
NOTE 12 -- FINANCIAL STATEMENT DETAILS
Inventories are classified as follows at July 31:
<TABLE>
<CAPTION>
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods......................................... $ 1,793 $ 1,019
Work in process........................................ 882 2,254
Raw materials and purchased parts...................... 6,047 12,550
------- -------
$ 8,722 $15,823
======= =======
</TABLE>
Property, plant and equipment consist of the following at July 31:
<TABLE>
<CAPTION>
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements............................. $ 3,470 $ 3,470
Buildings and building improvements.................... 7,581 8,442
Machinery and equipment................................ 25,939 29,946
Office furniture and equipment......................... 7,861 11,109
Leasehold improvements................................. 3,462 5,292
------- -------
48,313 58,259
Less allowances for depreciation and
amortization........................................ 32,113 36,137
------- -------
16,200 22,122
Construction in progress............................... 729 1,154
------- -------
$16,929 $23,276
======= =======
</TABLE>
Goodwill and other non-current assets consist of the following at July 31:
<TABLE>
<CAPTION>
1997 1998
------- --------
(IN THOUSANDS)
<S> <C> <C>
Goodwill and other acquired intangible assets, net of
accumulated amortization......................... $ -- $ 5,280
Deposits and other..................................... 667 1,223
------- --------
$ 667 $ 6,503
======= ========
</TABLE>
F-27
<PAGE> 59
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- FINANCIAL STATEMENT DETAILS (CONTINUED)
Accounts payable consist of the following at July 31:
<TABLE>
<CAPTION>
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable and accrued expenses.................. $10,516 $18,853
Environmental reserves................................. 1,252 1,152
Customer advances...................................... 1,872 675
------- -------
$13,640 $20,680
======= =======
</TABLE>
Included in Other-net in fiscal 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 $379,000 in that year. Also included in Other-net is interest income
of $128,000, $147,000 and $1,545,000 in fiscal 1996, 1997 and 1998,
respectively. The increase in interest income in fiscal 1998 is due to the
investment of net cash proceeds from the Company's follow-on public stock
offering completed in November 1997.
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>
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid (refunded) for:
Interest ............................... $ 329 $ 173 $ 214
Income taxes ........................... $ 152 $(831) $ 45
Non-cash activities:
Issuance of Common Stock in connection
with Deferred compensation agreement $ 645 $ 190 $ --
</TABLE>
<PAGE> 60
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 28th day of October, 1998.
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
--------- ----- ----
<S> <C> <C>
/s/ KENNETH F. POTASHNER Chairman, Chief Executive October 28, 1998
- --------------------------------------- Officer, President and Director
Kenneth F. Potashner (Principal Executive Officer)
/s/ GARY J. DAVIDSON Vice President-Finance and October 28, 1998
- --------------------------------------- Administration, Treasurer
Gary J. Davidson and Chief Financial Officer
(Principal Financial and Accounting
Officer)
/s/ CARLTON EIBL Director October 28, 1998
- ---------------------------------------
Carlton Eibl
/s/ THOMAS L. HORGAN Director October 28, 1998
- ---------------------------------------
Thomas L. Horgan
/s/ ALAN C. KOLB Director October 28, 1998
- ---------------------------------------
Alan C. Kolb
/s/ MARK ROSSI Director October 28, 1998
- ---------------------------------------
Mark Rossi
/s/ KARL M. SAMUELIAN Director October 28, 1998
- ----------------------------------------
Karl M. Samuelian
</TABLE>
II-1
<PAGE> 1
EXHIBIT 10.6
1995 STOCK OPTION PLAN
(INCLUDING AMENDMENT NO. TWO)
The Board of Directors has adopted an amendment to the Maxwell
Technologies, Inc. 1995 Stock Option Plan (the "1995 Plan") which authorizes an
increase of 490,000 shares in the number of shares of the Company's Common Stock
authorized for the granting of options to purchase such shares to key employees
of the Company and its subsidiaries, including officers and directors who are
also employees. After this amendment, the maximum number of shares authorized
under the 1995 Plan for grant of options is 1,290,000. Under the proposed
amendment, the maximum number of options to purchase shares of Common Stock that
may be granted to any one eligible individual is the total number of shares
authorized for grant of options under the Plan. However, the Committee has in
the past and plans to continue in the future to spread available options among
key employees both at the corporate level and at the Company's operating units.
The Board of Directors of the Company believes that the Company's ability
to grant stock options to key employees assists the Company in attracting and
retaining key employees by affording them an opportunity to acquire a
proprietary interest in the Company. In particular, the Company, during fiscal
years 1996 and 1997, underwent a significant change in senior management,
including a new chief executive officer and several new corporate officers and
operating unit presidents, as well as new key employees in positions critical to
the commercialization of the Company's products and technologies. Many of these
individuals joined the Company from prior employers which were larger and paid
greater cash compensation than the Company. The Board believes that the
Company's ability to offer equity incentives is crucial to its ability to
attract and retain such individuals.
On November 13, 1997, the date on which the Board of Directors adopted the
proposed amendment, only 60,300 shares remained available for grant under the
1995 Plan. On that date the Board amended the Plan, subject to shareholder
approval, to add 490,000 shares authorized for the grant of options.
TERMS AND CONDITIONS OF THE PLAN
The 1995 Plan authorizes the granting to key employees during the period
commencing on October 24, 1995, the date of adoption of the 1995 Plan by the
Board of Directors of the Company, and concluding on the tenth anniversary
thereof, of stock options to purchase shares of the Company's Common Stock.
Prior to the proposed amendment, the maximum number of shares available for
options granted under the 1995 Plan was 800,000 shares. The 1995 Plan provides
the flexibility for the grant of options intended to qualify as "incentive stock
options" under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and options which do not so qualify, referred to as "non-qualified stock
options."
The 1995 Plan is administered by the Board of Directors of the Company or,
at the discretion of the Board, by a Stock Option Committee appointed by the
Board (the "Committee"). The Board of Directors of the Company has delegated the
authority to administer the 1995 Plan to such a Committee. Subject to the
provisions of the 1995 Plan, the Committee has the authority to determine the
employees to whom and the times at which options are granted, the price and
terms of and the number of shares covered by each option, and whether it is
intended to be an incentive stock option or a non-qualified stock option.
<PAGE> 2
The number of shares subject to incentive stock options which may become
exercisable by any one individual for any calendar year is limited to a dollar
value of $100,000 (measured by the fair market value of the shares on the date
of grant). Any options becoming exercisable in excess of such limit in any
calendar year will be non-qualified stock options.
The purchase price of shares with respect to which an option is granted
under the 1995 Plan and the terms covering payment of such purchase price are
determined by the Committee in its sole discretion, but such price may not be
less than 100% of the fair market value of the shares on the date the option is
granted, as such fair market value is determined in good faith. In the event,
however, that an incentive stock option is granted to an employee who, at the
time the option is granted, owns stock representing more than ten percent of the
total combined voting power of all classes of stock of the Company or any
subsidiary, the purchase price of shares with respect to which such option is
granted must be at least 110% of the fair market value of the shares on the date
of grant.
Options granted under the 1995 Plan are exercisable in such increments and
at such times as the Committee shall specify, provided that no incentive stock
option may be exercised after the expiration of ten years from the date of
grant, or five years from the date of grant with respect to options granted to
an employee who owns more than 10% of the outstanding shares of the Company's
stock. No non-qualified stock option may be exercised more than eleven years
after the date of grant. Shares covered by the unexercised portion of any
terminated or expired option may again be the subject of further options under
the 1995 Plan.
Upon any exercise of an option granted under the 1995 Plan, the purchase
price of the shares purchased upon such exercise shall be paid in full (i) in
cash, (ii) by delivery to the Company of shares of its Common Stock having a
fair market value equal to the purchase price or (iii) by a combination of cash
and stock. The fair market value of shares of the Company's Common Stock
delivered in full or partial payment of the exercise price of an option will be
determined by the Committee as of the date of exercise in the same manner by
which the fair market value of shares of the Company's Common Stock is
determined on the date of grant of an option.
The Company will receive no consideration upon the grant of any option
under the 1995 Plan. Cash proceeds received by the Company from the sale of
Common Stock pursuant to the exercise of options granted under the 1995 Plan
will constitute general funds of the Company which may be used for general
corporate purposes.
Under the 1995 Plan, if an optionee's employment with the Company is
terminated for any reason, the number of shares purchasable under any option
granted thereunder held by such optionee is limited to the number of shares
which are purchasable by him at the date of such termination. If termination of
employment occurs for any reason other than such optionee's death, the option
will expire unless exercised by him within sixty days after the date of such
termination. If termination of employment occurs by reason of death, the option
will expire unless exercised by the optionee's successor within one year after
the date of death.
Options granted under the 1995 Plan are exercisable only by the optionee
during his lifetime and are not transferable except by will or the laws of
descent and distribution.
In the event of any change in the Common Stock by reason of
recapitalization, reclassification, stock split, combination of shares, stock
dividend, or like capital adjustment,
<PAGE> 3
the 1995 Plan provides that the Board of Directors shall make appropriate
adjustments in the aggregate number, class and kind of shares available for
option grants under the 1995 Plan or subject to outstanding options thereunder
and also make appropriate adjustments in the per share exercise price of
outstanding options.
In the event of the merger, consolidation or other reorganization of the
Company, or in the event of any dissolution or liquidation of the Company, the
1995 Plan provides that the Board of Directors shall elect either to (i)
appropriately adjust the number, class, kind and exercise price of shares
subject to all outstanding options thereunder and shares which may become
subject to options granted thereafter, or (ii) terminate the 1995 Plan and any
options theretofore granted thereunder, subject to the right of optionees under
the 1995 Plan to exercise, in whole or in part (including the portions of
options which may not otherwise have been exercisable due to any insufficient
passage of time), their options during a period of not less than thirty days
following notification by the Company of the event causing such termination.
The 1995 Plan may be amended, suspended or terminated by the Board of
Directors of the Company at any time, except that no amendment, suspension or
termination may affect, without his consent, any right or obligation of an
optionee under an option theretofore granted to him, and except that no
amendment made without shareholder approval shall (i) increase the maximum
number of shares for which options may be granted (except pursuant to
adjustments of the types described above), (ii) change the provisions relating
to the expiration dates of options, (iii) change the provisions relating to the
establishment of the option price (except pursuant to adjustments of the types
described above), or (iv) change the expiration date of Plan. No options may be
granted under the 1995 Plan after its termination on October 24, 2005.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. No federal income tax consequences result from
the grant of an incentive stock option, and generally the exercise of an
incentive stock option will not result in the recognition of income by an
optionee. If an optionee satisfies certain holding period requirements for
shares acquired upon the exercise of an incentive stock option, the full amount
of his gain upon the sale of such shares (measured by the difference between the
amount of his proceeds of sale less the exercise price) will normally be treated
as long-term capital gain. The Company will not be entitled to any deduction
under such circumstances.
Non-Qualified Options. No federal income tax consequences result from the
grant of a non-qualified stock option. Generally, an optionee will recognize
ordinary income upon exercise of a non-qualified stock option in an amount equal
to the difference between the fair market value on the date of exercise of the
shares acquired upon exercise of the option and the aggregate exercise price for
such shares. The Company will be entitled to an income tax deduction equal to
the amount of ordinary income recognized by an optionee as a result of the
exercise of a non-qualified stock option.
The preceding discussion under the heading "Federal Income Tax
Consequences" is based on federal tax laws and regulations as in effect on the
date of this Proxy Statement and does not purport to be a complete description
of the federal income tax aspects of the 1995 Plan.
<PAGE> 1
EXHIBIT 10.12
MAXWELL TECHNOLOGIES, INC
OFFICER AND DIRECTOR STOCK REPURCHASE POLICY
PURPOSE:
To facilitate the Company's ability to buy back its shares at favorable prices
and without commissions and to facilitate periodic stock sales by officers and
directors.
CONDITIONS:
The trading window under the Company's stock trading policy must be open.
Repurchases will be at the discretion of the Company. There will be no advance
commitment by the Company on any given repurchase date to buy back shares, and
if the Company does so repurchase, there will be no advance commitment as to the
number of shares which may be repurchased. Repurchases will not be made from any
officer or director if such repurchase will give rise to an accounting charge
for the Company. This policy may be amended or terminated by the Board of
Directors at any time.
TIMING OF REPURCHASE:
Repurchases may be made at the close of business on Thursday of each week during
an open trading window.
PRICE:
Shares will be repurchased at a price of $.25 per share below the closing
trading price for shares on the repurchase day.
NUMBER OF SHARES REPURCHASED:
The aggregate number of shares bought back on any given repurchase date will be
determined by the members of the Compensation Committee of the Board. Officers
and directors may tender no less than 1000 shares on any given repurchase date;
the exact number of shares repurchased from each such officer or director
tendering shares shall be determined by management. No officer or director shall
be permitted to sell to the Company under this policy a number of shares during
the time period of this policy, in excess of fifty (50%) percent of (i) the
shares owned (plus vested options) on the commencement of this policy, plus (ii)
additional shares acquired (and additional options vested) during the period in
which this policy is in effect.
<PAGE> 1
EXHIBIT 10.17
MAXWELL TECHNOLOGIES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
The Board of Directors of Maxwell Technologies, Inc., a corporation,
("Company") has adopted this Executive Deferred Compensation Plan ("Plan")
effective September 1, 1998.
1. PURPOSE
The primary purpose of the Plan is to provide deferred compensation to a
select group of management and highly compensated employees through an unfunded
"top hat" arrangement exempt from the fiduciary, funding, vesting, and plan
termination insurance provisions of Title I and Title IV of the Employee
Retirement Income Security Act ("ERISA"). More specifically, the Company has
adopted this Plan to provide Employees with the opportunity to defer
Compensation and to receive the Company Contributions they are unable to defer
or receive under the Company's tax qualified cash or deferred compensation plan
("Qualified Plan"), because of limits imposed by Sections 401(a)(4), 401(k),
401(m) and 402(g) of the Internal Revenue Code ("Code") on plans to which those
sections of the Code apply.
2. DEFINITIONS AND CAPITALIZED TERMS
The capitalized terms, set forth in alphabetical order defined below, are
used throughout the Plan.
(a) "Account" refers to the bookkeeping entries established and
maintained by the Company or the Committee for the purpose of recording (i) the
amounts of Compensation deferred by an Employee and Company Contributions made
by the Company under this Plan, (ii) any interest earnings or losses with
respect to those amounts, and (iii) any distributions to an Employee or
Beneficiary.
(b) "Affiliate" refers to a company or companies which Maxwell
Technologies, Inc. owns and or controls at least 50% (Fifty Percent) of the
voting stock.
(c) "Beneficiary" refers to the person or entity selected to receive
any portion of an Employee's Account that has not been distributed from the Plan
at the time of the Employee's death. Such designation shall be on a form
provided or approved by the Plan Administrator. In the event a married Employee
designates someone other than his or her spouse as sole, primary Beneficiary,
such initial designation or subsequent change shall be invalid unless the spouse
consents in a writing which names the designated Beneficiary. If an Employee
fails to designate a Beneficiary or no designated Beneficiary survives the
Employee, the Plan Administrator shall direct payment of benefits to the
following person or persons in the order given below:
the Employee's:
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(i) spouse, or
(ii) estate of the Participant.
(d) "Board" or "Board of Directors" refers to the Board of Directors
of Maxwell Technologies, Inc.
(e) "Change in Control" means the occurrence of any one of the
following:
(i) any transaction or series of transactions (as a result of
a tender offer, merger, consolidation or otherwise) that results in any person,
entity or group acting in concert, acquiring "beneficial ownership" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of such percentage of the aggregate voting power of all classes of
common equity stock of the Company as shall exceed 50% of such aggregate voting
power, or
(ii) a merger or consolidation of the Company other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the voting power represented by the voting
securities of the Company or such entity outstanding immediately after such
merger or consolidation, or
(iii) the shareholders approve a plan of complete liquidation
of the Company or an agreement for the sale of disposition by the Company of
all, or substantially all, of the Company's assets (other than in connection
with a sale or disposition to subsidiaries of the Company or in connection with
a reorganization or restructuring of the Company), or
(iv) there occurs a change in the composition of the Board of
Directors of the Company as a result of which fewer than a majority of the
directors are Incumbent Directors (as hereinafter defined). "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the date hereof or (B)are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the Incumbent Directors
casting votes at the time of such election or nomination.
(f) "Code" refers to the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" or "Advisory Committee" refers to the same
individuals who shall from time to time comprise the Advisory Committee of the
Maxwell Technologies, Inc. 401(k) Savings Plan and who shall also act on behalf
of the Company in discharging the Company's duties as Plan Administrator under
this Plan. Since this Plan is designed to be a "top hat" arrangement, the extent
permitted by ERISA, the Committee shall not be subject to the
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duties imposed by the provisions of Part 4 of Title I of ERISA with respect to
this Plan.
(h) "Company," "Corporation" or "Employer" refers to Maxwell
Technologies, Inc., a Delaware corporation and its affiliates.
(i) "Company Contributions" refers to amounts described in Section
5.6(a) below.
(j) "Compensation" refers to an Employee's gross salary, including
bonuses payable by the Company after an Employee first becomes eligible to
participate in the Plan and during the period through which such participation
continues.
(k) "Disabled" or "Disability" refers to a physical or mental
condition of an Employee which (i) occurs after an Employee first defers
Compensation under this Plan, (ii) results from an injury, disease or disorder,
and (iii) renders the Employee totally and permanently incapable of continuing
in his or her customary employment with the Company. In determining whether an
Employee is disabled, the Committee may rely upon the conclusions of any
insurance carrier that has issued a policy of disability income insurance
covering the Employee or upon the conclusions of any physician acceptable to the
Committee. An Employee automatically will satisfy the requirements under this
Plan, with respect to submission of evidence of disability, throughout the
period that he or she remains qualified for Social Security disability benefits.
Any Employee who believes that he or she is entitled to any advantage, benefit,
or other consideration under the Plan as a result of being Disabled shall apply
to the Committee for such consideration and shall provide any evidence of
Disability which the Committee in its discretion may request in a manner
consistent with the Americans with Disabilities Act of 1990 and other relevant
laws. All determinations made by the Committee with respect to the existence,
extent, or nature of any Disability shall be binding on the Employee.
(l) "Effective Date" refers to September 1, 1998 with respect to
Compensation first earned, determined or payable after that date.
(m) "Employee" refers to any employee, within the meaning of Section
3121(d) of the Code, who is among a select group of highly compensated employees
or members of management and is selected by the Committee to participate in this
Plan. The Committee shall determine whether an employee is to be considered
highly compensated. Where the Plan Administrator considers appropriate in
applying the provisions of this Plan, the term Employee shall include only
persons who are Participants or Inactive Participants under Plan.
(n) "ERISA" refers to the Employee Retirement Income Security Act of
1974, as amended from time to time.
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(o) "Hardship" refers to an Employee's immediate and heavy financial
need caused by an unforeseeable emergency, as described in Treasury Regulations
Section 1.457-2(h)(4) and (5). In general, but without limitation, the Plan
Administrator may approve a Hardship withdrawal from an Employee's Account if
the reduction does not exceed the amount needed to pay for the following
unreimbursed expenses: (i) medical expenses defined in Code Section 213(d) and
incurred (or to be incurred) during the calendar year by the Employee, or his or
her spouse or dependents (as described in Code Section 152) as a result of a
sudden or unexpected illness or accident; (ii) loss of a participant's property
as a result of a casualty or other extraordinary, unforeseeable circumstances
attributable to forces beyond the participant's control; and (iii) other costs
recognized by the Plan Administrator to pose an immediate and heavy financial
need on the Employee as a result of an unforeseeable emergency or other factors
beyond an Employee's control.
(p) "Inactive Participant" refers to an Employee who deferred
Compensation under the Plan during a previous Plan Year but who does not defer
any Compensation payable during the current Plan Year.
(q) "Normal Retirement Age" refers to fifty (50) years of age.
(r) "Participant" refers to an eligible Employee who elects to defer
under the Plan part or all of his or her Compensation payable during the current
Plan Year.
(s) "Plan Administrator" refers to the Company.
(t) "Plan Year" refers to the period of 12 consecutive months
commencing on the first day of January of each year. The initial plan year shall
commence on the Effective Date of the Plan and end on the final day of December.
(u) "Qualified Plan" refers to the Company's tax qualified
individual account cash or deferred compensation plan subject to the limits
imposed by Code Sections 401(a)(4), 401(k), 401(m), 402(g) and 415.
(v) "Service" and "Years of Service" have the meanings specified in
Code Section 411(a)(4) and (5)(A) and the regulations thereunder.
(w) "Termination of Employment" refers to an Employee's (i)
separation from service with the Company before normal retirement age, or (ii)
separation from service on or after normal retirement age with the company for
cause including, but not limited to, job performance issues.
(x) "Trust" refers to a rabbi trust intended to satisfy the
requirements of Revenue Procedures 92-64 and 92-65 of which a financial
institution selected by the Company serves as
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<PAGE> 5
trustee. The term "Trustee" shall include such financial institution and any
successor Trustee under the Trust instrument.
3. ELIGIBILITY
The Committee may, from time to time, designate by name those Employees of
the Company who are eligible to participate in the Plan for one or more Plan
Years and the date upon which each such Employee's participation may commence.
All designated Employees shall be notified by the Board or the Committee of
their eligibility to participate. The committee may, at its sole discretion,
notify a plan participant that he or she is no longer eligible to participate in
the Plan for one or more Plan years. An Employee shall not be eligible to
participate in the Plan during the Plan Year immediately following the Plan Year
in which the Employee takes a Hardship withdrawal from the Plan. The effective
date of any such ineligibility under the preceding two sentences shall be the
first day of the Plan Year coinciding with or next following the date on which
the Board or Committee provides the Employee with written notice of revocation
of eligibility. An Employee's eligibility to participate in the Plan does not
confer upon the Employee any right to any award, bonus or other remuneration of
any kind.
4. DEFERRAL OF COMPENSATION
4.1 Election to Defer
An Employee who is eligible to participate in the Plan may elect to
defer the receipt of Compensation by completing an Election of Deferral in the
form set forth in Exhibit A, Part 1, Page 1 or otherwise approved by the
Committee. Pursuant to the Election of Deferral form, an eligible Employee may
elect to defer any whole percentage or fixed dollar amount of his or her
Compensation. An Employee who elects to participate in the Plan must defer at
least one percent (1%) but no more than one hundred percent (100%) of total
Compensation for each Plan Year in which he or she remains eligible to
participate. Such election shall be for the deferral of Compensation for payment
to the Employee commencing at the earlier of the Employee's Termination of
Employment, Disability, Death, Retirement, or if the Employee elects, the
earlier date specified in Exhibit A, Part 2. Such election for the deferral of
Compensation to the earlier specified date shall be irrevocable as to the
amounts deferred while such election is in place and may be modified only
prospectively under a subsequent annual election as permitted in Section 4.4.
Amounts of Compensation deferred to such an earlier specified date shall be
credited separately from all other amounts deferred hereunder and deemed
investment gains or losses or interest thereon shall also be credited
separately.
4.2 Date of Deferral
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An eligible Employee must submit his or her deferral election form
to the Committee no later than the last day of the deferral election period. The
last day of the deferral election period shall be (a) the last day preceding the
calendar year in which the eligible Employee will render the services for which
he or she will receive any part of the Compensation payable to the Employee
during that year or (b) in the first year in which the Company implements the
Plan or in which an Employee first becomes eligible to participate, the Employee
may make his or her election within the first 30 days after the later of (i) the
date the Plan becomes effective or (ii) the date the Employee becomes eligible
to participate.
4.3 Multiple Elections
An election to defer Compensation shall be effective on the date an
eligible Employee delivers a completed deferral election form to the Committee;
provided, however, that, if the eligible Employee delivers another properly
completed Election of Deferral form to the Committee prior to the close of the
deferral election period described in Section 4.2, the deferral election on the
form bearing the latest date shall control. After the last day of the election
period, the controlling election made prior to the close of the period shall be
irrevocable.
4.4 Annual Elections
In order to defer any portion of Compensation earned in any calendar
year, an eligible Employee must submit at least one completed Election of
Deferral form during the one-month period immediately preceding the start of
that calendar year, except as permitted in 4.2(b). If an Employee fails to make
such a submission, the Employee will be deemed to have elected to continue
deferring the same percentage of Compensation that the Employee deferred in the
preceding calendar year. The employee also will be considered to have selected
the same method of distribution chosen the preceding calendar year.
4.5 No Hardship Adjustments
After an annual election has taken effect for any Plan Year, a
Participant may not increase or decrease the percentage or amount of
Compensation to be deferred during that Plan Year; except that an Employee has
the option to cease all deferrals under the Plan during the Plan Year if such
cessation would relieve the Employee of one or more Hardships without any
withdrawals under this Plan.
5. DEFERRED COMPENSATION ACCOUNTS
5.1 Maintenance of Accounts
The Plan Administrator shall maintain one or more Accounts with
respect to any Compensation deferred by an eligible
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<PAGE> 7
Employee under Section 4 above. The Plan Administrator shall credit the Account
with the full amount of Compensation deferred in any monthly period. If the
Compensation deferred is subject to federal or state employment taxes (e.g.
taxes under the Federal Insurance Contributions Act or Federal Unemployment Tax
Act), said taxes shall be withheld and deducted from a portion of the Employee's
Compensation not deferred under this Plan. A Participant or Inactive Participant
shall be fully vested at all times in amounts deferred under Section 4 above, as
adjusted for any earnings, losses, interest accruals, administrative expenses or
distributions as described below.
5.2 Investment Elections
In accordance with rules, procedures and options established by the
Committee, a Participant shall have the right to suggest the investment of his
or her Account, except for any period of time during which the Company limits
Account earnings to interest accruals under Section 5.4 below. Although the
Company shall give due consideration to Participant's investment suggestions and
desires, the Company may invest assets which are deemed allocable to the
Participant's Accounts in any manner, in any amount and for any period of time
which the Company in its sole discretion may select; but the Company will to the
extent reasonably practicable credit or charge the Participant's Accounts with
the same earnings, gains or losses that the Participant would have incurred if
the Company had invested such assets in the specific investments, in the
specific amounts and for the specific periods suggested by the Participant. In
accordance with procedures established by the Plan Administrator, a Participant
may change his or her investment suggestions effective as of the first day of
any calendar quarter. Such changes may be made in a writing delivered to the
Company or the Committee no fewer than 15 days preceding the effective date of
the change. If the Participant fails to provide any investment suggestions, the
Participant's Account will be credited with interest deemed earned on the
Participant's Account in the manner provided for in Section 5.4. If this Plan is
determined to be subject to the fiduciary provisions of Part 4 of Title I of
ERISA, this Plan shall be treated as a Plan described in Section 404(c) of ERISA
and Title 29 of the Code of Federal Regulations Section 2550.404c-1, in which
Plan fiduciaries may be relieved of liability for any losses which are the
direct and necessary result of investment instructions given by a Participant or
Beneficiary.
5.3 Investment Earnings or Losses
Except for any period of time during which the Company limits
Account earnings to interest accruals under Section 5.4 below, any amounts
credited to the Account of a Participant or Inactive Participant as a result of
the deferral of all or part of his or her Compensation may increase or decrease
as a result of the Company's deemed investment of such amounts during the Plan
Year, as described in Section 5.2 above. A ratable share of Plan investment
earnings or losses under this Section 5.3 shall be credited to the Account of a
Participant or Inactive Participant,
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as determined in good faith by the Committee. At the sole discretion of the
Committee, for any Plan Year, the Committee may allocate to the Participant's
Account either (i) the full amount of the Participant's share of deemed Plan
investment earnings or losses or (ii) the full amount of such share adjusted for
any federal, state or local income or employment tax consequences attributable
to such earnings or losses. If the full amount of such investment earnings or
losses are allocated to a Participant's Account, any federal, state or local
income or employment tax consequences attributable to such earnings or losses
under this Section 5.3 shall be borne by or inure to the benefit of the Company.
The Participant and his or her Beneficiary understand and agree that they assume
all risk in connection with any decrease in the value of the Compensation
deferred under the Plan and deemed invested in accordance with these Sections
5.2 and 5.3.
5.4 Interest Accruals
Prior to the start of any Plan Year, the Company may inform
Participants and Inactive Participants in writing that, during the Plan Year,
the balance reflected in the Employee's account not be deemed invested as
described in Sections 5.2 and 5.3 above. Rather, any amounts credited to the
Account of a Participant or Inactive Participant as a result of the deferral of
all or part of his or her Compensation and Matching Contributions shall be
credited as if it accrued interest compounded annually, as consideration for the
use or forbearance of money. The deemed accrual of interest begins and the
compounding of interest occurs on the first day of each Plan Year or, if later,
the date on which an eligible Employee first defers Compensation under the Plan.
The rate at which interest is deemed to accrue shall equal the prime rate, plus
one percent, offered to borrowers by a commercial bank in California on the last
day of the preceding Plan Year. The Committee shall select the commercial bank
before the first day of the Plan Year during which the accrual occurs. At the
sole discretion of the Company, for any Plan Year (i) the full amount of such
accrued deemed interest may be allocated to a Participant's Account or (ii)
adjusted for any federal, state or local income or employment tax consequences
attributable to such deemed interest, prior to allocating such deemed interest
to a Participant's Account. If the full amount of such deemed interest accruals
are allocated to a Participant's Account, any federal, state or local income or
employment tax consequences attributable to deemed interest accruals under this
Section 5.4 shall be borne by or inure to the benefit of the Company.
5.5 Investment of Unpaid Balances
The unpaid balance of all Accounts payable under the Plan shall
continue to be credited with the deemed investment earnings or losses described
in Sections 5.2 and 5.3 above or, at the election of the Company or Committee,
continued deemed accruals of interest as described in Section 5.4 above.
5.6 Company Contributions
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a. Company Discretionary Contributions
Apart from Compensation deferrals, the Company shall
retain the right to make discretionary contributions for any Participant under
this Plan.
b. Adjustments to Company Contributions
Once credited to an Employee's Accounts under this Plan,
the amounts described in Section 5.6 shall accrue the interest or investment
return described in Section 5.2, 5.3, 5.4 and 5.5 above, and shall be paid in
accord with Section 7 below.
c. Vesting in Company Contributions
Subject to the provisions of Section 5.6(d) below, an
Employee shall vest in amounts allocated to his or her Account as described in
Section 5.6 above. The below vesting percentage shall apply to each Company
Contribution and shall be initiated beginning with the date of full-time
employment with the Company.
<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C>
1 but fewer than 2 20%
2 but fewer than 3 40%
3 but fewer than 4 60%
4 but fewer than 5 80%
5 or more 100%
</TABLE>
Additionally, except as provided in Section 5.6(d) below, an Employee shall be
100% vested if, prior to his or her Termination of Employment, the Employee
attains Normal Retirement Age, dies, becomes Disabled, or a Change in Control
occurs.
d. Forfeitures for Misconduct
Without regard to the number of Years of Service an
Employee has completed with the Company and without regard to an Employee's age,
Disability or death, if an Employee separates from service with the Company as a
result of the Employee's gross misconduct, within the meaning of Part 6 of Title
I of ERISA, regarding group health continuation coverage, or if the Employee
engages in unlawful business competition with the Company, the Employee shall
forfeit all amounts allocated to his or her Accounts under Section 5.6(a) and
5.6(c) above. Such forfeitures shall be retained by the Company.
5.7 Company's General Assets
Participant understands and agrees that all Compensation deferred
under the Plan and all amounts credited to a
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Participant's Account under the Plan (a) are the general assets of the Company,
(b) may be used in the operation of the Company's business or in any other
manner permitted by law, and (c) remain subject to the claims of the Company's
general unsecured creditors. Participant agrees, on behalf of Participant and
his or her Beneficiary, that (i) title to any amounts deferred under the Plan or
credited to a Participant's Account remains in the Company and (ii) neither
Participant nor his or her Beneficiary has any property interests whatsoever in
said amounts, except as general creditors of the Company.
6. EFFECT ON EMPLOYEE BENEFITS
Amounts deferred under this Plan or distributed pursuant to the terms of
this Plan are not taken into account in the calculation of an Employee's
benefits under any employee pension or welfare benefit program or under any
other compensation practice maintained by the Company, except to the extent
provided in such program or practice.
7. PAYMENT OF DEFERRED COMPENSATION ACCOUNTS
7.1 Income Tax Obligations
If an Employee is assessed federal, state or local income taxes by
reason of, and computed on the basis of, his or her undistributed deferred
Compensation or undistributed interest accrued on his or her Account, the
Employee shall notify the Committee in writing of such assessment and there
shall be distributed from the Employee's Account deferred Compensation or
accrued interest in an amount equal to such tax assessment, together with any
interest due and penalties assessed thereupon within 30 days following such
notice; provided however, that if the Committee determines that such assessment
is improper, it may request that the Employee contest the assessment, at the
expense of the Company (which expense shall include all costs of appeal and
litigation, including legal and accounting fees, and any additional interest
assessed on the deficiency from and after the date of the Employee's notice to
the Committee); and during the period such contest is pending, the sums
otherwise distributable pursuant to this Section 7.1 shall not be distributed.
7.2 Hardship Withdrawals
If at any time following the first anniversary of initial
participation in the Plan, an Employee incurs a Hardship, as described in
Section 2(n) above, the Employee may, by written notice to the Committee,
request that all or any specified part of his or her Account but not less than
$1,000 per withdrawal be paid to the Employee; and such distribution, if
approved by the Company, shall be made in a lump sum within 30 days following
the Company's receipt of such notice. The Committee shall determine the amount,
if any, reasonably necessary to
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satisfy such Hardship and shall not distribute an amount to the Employee greater
than that necessary to satisfy such Hardship. The Company shall have exclusive
authority to determine whether to make a Hardship distribution from an
Employee's Account and the amount thereof but shall not unreasonably deny a
request for such a distribution. The Company's decision shall be final and
binding on all parties. Any Hardship withdrawals from an Account shall reduce
the amount available for subsequent distributions from the Account, as the
Company in good faith may determine.
7.3 Termination of Employment
Upon Termination of employment of a Participant or Inactive
Participant, the Committee shall distribute his or her Account under the Plan in
a lump sum. The payment from the Account shall occur or commence within 90 days
following the date in which the termination of employment occurs.
7.4 Disability
Upon the Disability of a Participant or Inactive Participant prior
to termination of employment, the Committee shall distribute his or her Account
under the Plan, as elected by the Participant or Inactive Participant in the
form set forth in Exhibit A, Part 1, Page 2, in a lump sum or in 60 or more (but
not more than 180) substantially equal monthly installments. In the absence of
such election, the Participant or Inactive Participant shall be distributed his
or her Account under the plan in 180 substantially equal monthly installments.
The payment from the Account shall occur or commence on the first day of the
second month following the date in which the Disability results in the
Employee's termination of employment. Prior to the death of the Participant or
Inactive Participant, during any period in which a Participant or Inactive
Participant remains Disabled, he or she (or his or her legal representative) may
request Hardship withdrawals from any undistributed portion of his or her
Account. Any such Hardship withdrawals shall reduce the amount available for
subsequent distributions from the Account, as the Company in good faith may
determine.
7.5 Retirement
Upon the Participant or Inactive Participant reaching Norma
Retirement Age, and terminating employment, the Committee shall distribute his
or her Account under the Plan, as elected by the Participant or Inactive
Participant in the form set forth in Exhibit A, Part 1, Page 2, in a lump sum or
in 60 or more (but not more than 180) substantially equal monthly installments.
In the absence of such election, the Participant or Inactive Participant shall
be distributed his or her Account under the plan in 180 substantially equal
monthly installments such that the Account depletes. The initial payment from
the Account shall occur or commence on the first day of the second month
following the date
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in which the Retirement results in the Employee's termination of employment.
7.6 Death Prior to Commencement of Distributions
Upon the death of a Participant or Inactive Participant prior
to the commencement of any distribution under Sections 7.4 or 7.5 above, the
greater of (i) the vested Account balance of such Participant or Inactive
Participant, or (ii) the stated Survivor Benefit, as determined by the
committee, shall be distributed to his or her Beneficiary, in a lump sum. The
payment from the Account shall occur or commence on the first day of the month
following the date in which the death of the Participant or Inactive Participant
occurs. During the period between the death of the Participant or Inactive
Participant and the commencement of distributions to the Beneficiary, the
Beneficiary may request Hardship withdrawals from any undistributed portion of
his or her Account. Any such Hardship withdrawals shall reduce the amount
available for subsequent distributions from the Plan, as the Company in good
faith may determine.
7.7 Death After Commencement of Distributions
Upon the death of a Participant or Inactive Participant after the
commencement of any distribution in accordance with Sections 7.4 or 7.5 above,
the balance remaining in the Account of such Participant or Inactive Participant
shall be distributed to his or her Beneficiary in accordance with the terms
elected by the Participant or Inactive Participant under Sections 7.4 or 7.5.
7.8 Payments of Deferrals Elected to a Specified Date
Unless payments shall have commenced to be paid to the
Participant or Inactive Participant pursuant to Section 7.3, 7.4, 7.5, 7.6 or
7.7, in the event that the Participant or Inactive Participant elected to defer
Compensation to a specified date as provided in Exhibit A, Part 3 and pursuant
to Section 4.1, the Committee shall distribute in a lump sum all amounts of his
or her Account relating to the amounts covered by such election to defer to the
specified date, including any deemed investment gains, earnings or interest and
less any deemed investment losses thereon. The payment to the Participant or
Inactive Participant shall commence within 90 days following the date to which
he or she elected to have his or her Compensation deferred.
7.9 Withholding and Other Tax Consequences
From any payments made under this Plan, the Company shall withhold
any taxes or other amounts which federal, state or local law requires the
Company to deduct, withhold and deposit. The Company's determination of the type
and amount of taxes to be
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withheld from any payment shall be final and binding on all persons having or
claiming to have an interest in this Plan or in any Account under this Plan.
8. FUNDING
All amounts deferred under this Plan remain or become general assets of
the Company. All payments under this Plan shall come from the general assets of
the Company. The amounts credited to an Employee's Account are not secured by
any specific assets of the Company. This Plan shall not be construed to require
the Company to fund any of the benefits provided hereunder or to establish a
trust or purchase an insurance policy or other product for such purpose. The
Company may make such arrangements as it desires to provide for the payment of
benefits. Neither an Employee, Participant or Inactive Participant nor his or
her Beneficiary or estate shall have any rights against the Company with respect
to any portion of any Account under the Plan except as general unsecured
creditors. No Employee, Participant, Inactive Participant, Beneficiary or estate
has an interest in any Account under this Plan until the Employee, Participant,
Inactive Participant, Beneficiary or estate actually receives payment from the
Account.
9. SUSPENSION OF PAYMENTS UPON COMPANY'S INSOLVENCY
At all times during the continuance of any trust established in
connection with this Plan ("Trust"), if the Plan Administrator determines that
the Company's financial condition is likely to result in the suspension of
benefit payments from the Trust, the Plan Administrator shall advise
Participants, Inactive Participants and Beneficiaries that payments from the
Trust shall be suspended during the Company's insolvency. If the Trustee
subsequently resumes such payments, the Administrator shall advise Participants,
Inactive Participants and Beneficiaries that, if Trust assets are sufficient,
the first payment following such discontinuance shall include the aggregate
amount of all payments due to Participants, Inactive Participants and
Beneficiaries under the terms of the Plan for the period of such discontinuance,
less the aggregate amount of any payments made directly by the Company during
any period of discontinuance. No insufficiency of Trust assets shall relieve the
Company of its obligation to make payments when due under the Plan.
10. NON-ALIENATION OF BENEFITS
The interest of any Employee, Participant, Inactive Participant or
Beneficiary shall not be subject to sale, assignment, transfer, conveyance,
hypothecation, encumbrance, garnishment, attachment, anticipation, pledge,
alienation or other disposition prior to actual distribution from the Plan; and
any attempt to effect such disposition shall be void. No portion of
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any Account shall, prior to receipt thereof, be subject to the debts, contracts,
liabilities, or engagements of any Employee, Participant, Inactive Participant
or Beneficiary. Nothing in the preceding sentence shall prohibit the Company
from recovering from an Employee, Participant, Inactive Participant or
Beneficiary any payments to which he or she was not entitled under the Plan.
11. LIMITATION OF RIGHTS
Nothing in this Plan document or in any related instrument shall
cause this Plan to be treated as a contract of employment within the meaning of
the Federal Arbitration Act, 9 U.S.C. 1 et seq., or shall be construed as
evidence of any agreement or understanding, express or implied, that the Company
(a) will employ any person in any particular position or level of Compensation,
(b) will offer any person initial or continued participation or awards in any
commission, bonus or other compensation program, or (c) will continue any
person's employment with the Company. Any participant's employment by the
company continues to be at will.
12. BEST PAYMENTS
(a) If the gross amount of any payment or benefit under this Plan,
either separately or in combination with any other payment or benefit payable by
the Company or any of its affiliates or pursuant to a plan of the Company or an
affiliate, would constitute a parachute payment within the meaning of the Code
Section 280G, then the total payments and benefits accrued and payable under
this Plan shall not exceed the amount necessary to maximize the amount
receivable by the Employee after payment of all employment, income and excise
taxes imposed on the Employee with respect to such payments or benefits.
(b) The Employee may elect by written notice which items of
compensation, if any, shall be reduced so as to meet the requirements of Section
12(a) above. If there is a dispute between the Company and the Employee
regarding (i) the extent, if any, to which any payments or benefits to the
Employee are parachute payments or excess parachute payments, under Code Section
280G, or (ii) the base amount of such Employee's Compensation under Code Section
280G, or (iii) the status of such Employee as a disqualified individual, under
Code Section 280G, such dispute shall be resolved in the same manner as a claim
for benefits under this Plan.
(c) Within 60 days of a Change in Control or, if later, within 30
days of the Employee's receiving notice of termination of employment from the
Company or the Company's receiving notice of termination of employment from the
Employee, either the Employee or the Company may request (i) a determination of
the amount of any parachute payment, excess parachute payment, or base amount of
compensation, or (ii) a determination of the reduction necessary to
14
<PAGE> 15
maximize the net receipts of the Employee as described in Section 12(a) above.
Any fees, costs or expenses incurred by the Employee in connection with such
determinations shall be paid equally by the Employee and the Company.
13. NOTICE UNDER WARN
(a) Any amounts paid (i) to any Employee under the Worker Adjustment
and Retraining Notification Act of 1988 ("WARN") or under any other laws
regarding termination of employment, or (ii) to any third party for the benefit
of said Employee or for the benefit of his or her dependents shall not be offset
or reduced by any amounts paid or determined to be payable by the Company to
said Employee or to his or her dependents under this Plan.
(b) Subsequent to a Change in Control, the Company may amend, modify
or terminate the Plan; provided, however, that no such amendment, modification
or termination of the Plan will affect the right of a Participant or Beneficiary
with respect to his or her Account as of the day prior to the date of the
amendment, modification or termination. Such Account will continue to be subject
to and governed by the terms of the Plan as set forth in the Plan document on
the day prior to the date of the amendment, modification or termination. In
addition, subsequent to a Change in Control, no change may be made to: (i) the
investment options that were available to Participants and Beneficiaries under
Section 5.2 of the Plan on the day prior to the Change in Control or (ii) the
method of allocation selected by the Company pursuant to the third sentence of
Section 5.3 of the Plan, as of the day prior to the Change in Control.
Notwithstanding the foregoing, subsequent to a Change in Control, the Company
may distribute the entire value of all Accounts in lump sum payments to all
Participants and Beneficiaries.
14. AMENDMENT OR TERMINATION OF PLAN
(a) Prior to a Change in Control, the Committee may modify, suspend
or terminate the Plan in any manner that does not (i) reduce any benefits
accrued under this Plan or (ii) constitute a forfeiture of any benefits vested
under this Plan.
(b) In modifying, suspending or terminating the Plan, or in taking
any other action with respect to the implementation, operation, maintenance or
administration of the Plan, the Board of Directors may act by a resolution of
the full Board or by a resolution of the Compensation Committee of the Board.
(c) This Plan shall terminate immediately if a court of competent
jurisdiction determines that this Plan is not exempt from the fiduciary
provisions of Part 4 of Title I of ERISA. The Plan shall terminate as of the
date it ceased to be exempt.
15
<PAGE> 16
(d) Upon termination of the Plan, the Plan Administrator shall
distribute all Accounts, as determined by the Plan Administrator (i) in a lump
sum to all Participants or (ii) in accordance with the method designated by
Participants at the time of their deferrals.
15. ADMINISTRATIVE PROCEDURES AND DISPUTE RESOLUTION
15.1 Plan Administrator
The Plan Administrator shall be the Company. The Advisory
Committee, as defined in Section 2(f), shall, to the extent determined by the
Board of Directors of the Company, administer the Plan and discharge the duties
of the Company in connection therewith. No Advisory Committee member who is a
full-time officer or employee of the Company shall receive compensation with
respect to his or her service on the Advisory Committee.
15.2 Committee Organization and Procedures
(a) The Chief Financial Officer of the Company ("CFO") or
related officer of the Company may designate a chairperson from the members of
the Advisory Committee. The Advisory Committee may appoint a secretary, who may
or may not be a member of the Advisory Committee. The secretary shall have the
primary responsibility for keeping a record of all meetings and acts of the
Advisory Committee and shall have custody of all documents, the preservation of
which shall be necessary or convenient to the efficient functioning of the
Advisory Committee. All reports required by law may be signed by the Chairperson
or another member of the Advisory Committee, as designated by the Chairperson,
on behalf of the Company.
(b) The Advisory Committee shall act by a majority of its
members in office and may adopt such rules and regulations as it deems desirable
for the conduct of its affairs. If the Company, the Plan, any Participant or
Inactive Participant is or becomes subject to any rules of the Securities and
Exchange Commission or any national or regional securities exchange, the Company
and the members of the Advisory Committee shall take any actions which are
necessary or desirable for the maintenance, modification or operation of the
Plan in accordance with those rules.
15.3 Administrative Authority
The Company and the Committee have discretionary authority to
perform all functions necessary or appropriate to the operation of the Plan,
including without limitation authority to
16
<PAGE> 17
(a) construe and interpret the provisions of the Plan document and any related
instrument and determine any question arising under the Plan document or related
instrument, or in connection with the administration or operation thereof; (b)
determine in its sole discretion all facts and relevant considerations affecting
the eligibility of any Employee to be or become a Participant; (c) decide
eligibility for, and the amount of, benefits for any Participant, Inactive
Participant or Beneficiary; (d) authorize and direct all disbursements under the
Plan; and (e) employ and engage such persons, counsel and agents and to obtain
such administrative, clerical, medical, legal, audit and actuarial services as
it may deem necessary in carrying out the provisions of the Plan. The Company
shall be the "administrator" as defined in Section 3(16)(A) of ERISA for
purposes of the reporting and disclosure requirements of ERISA and the Code. The
CFO or related officer of the Company shall be the agent for service of process
on the Plan.
15.4 Expenses
All reasonable expenses which are necessary to operate and
administer the Plan shall be paid directly by the Company. All reasonable costs
incurred by a Committee member in the discharge of the Company's or his or her
duties under the Plan shall be paid or reimbursed by the Company. Such costs
shall include fees or expenses arising from the Committee's retention, with the
consent of the Company, of any attorneys, accountants, actuaries, consultants or
recordkeepers required by the Committee to discharge its duties under the Plan.
Nothing in the preceding two sentences or in any other provisions of the Plan
shall require the Company to pay or reimburse any Committee member or any other
person for any cost, liability, loss, fee or expense incurred by the Committee
member or other person in any dispute with the Company; nor may any Committee
member or other person reimburse himself, herself or itself from any Plan
contributions or from the principal or income of investment or funding vehicle
for the Plan for any such cost, liability, loss, fee or expense.
15.5 Insurance
The Company may, but need not, obtain liability insurance to
protect its directors, officers, employees or representatives against loss in
the discharge of their responsibility in the operation of the Plan.
15.6 Claims Procedure
(a) A claim for benefits shall be considered filed only when
actually received by the Plan Administrator.
(b) Any time a claim for benefits is wholly or partially
denied, the Participant, Inactive Participant or Beneficiary (hereinafter
"Claimant") shall be given written notice
17
<PAGE> 18
of such denial within 30 days after the claim is filed, unless special
circumstances require an extension of time for processing the claim. If there is
an extension, the Claimant shall be notified of the extension and the reason for
the extension within the initial 30 day period. The extension shall expire
within 60 days after the claim is filed. Such notice will indicate the reason
for denial, the pertinent provisions of the Plan on which the denial is based,
an explanation of the claims appeal procedure set forth herein, and a
description of any additional material or information necessary to perfect the
claim and an explanation of why such material or information is necessary.
15.7 Appeal Procedures
(a) Any person who has had a claim for benefits denied by the
Plan Administrator, or is otherwise adversely affected by the action or inaction
of the Plan Administrator, shall have the right to request review by the Plan
Administrator. Such request must be in writing, and must be received by the Plan
Administrator within 60 days after such person receives notice of the Plan
Administrator's action. If written request for review is not made within such
60-day period, the Claimant shall forfeit his or her right to review. The
Claimant or a duly authorized representative of the Claimant may review all
pertinent documents and submit issues and comments in writing.
(b) The Plan Administrator shall then review the claim. The
Plan Administrator may issue a written decision reaffirming, modifying or
setting aside its former action within 30 days after receipt of the written
request for review, or 60 days if special circumstances require an extension.
The Claimant shall be notified in writing of any such extension within 30 days
following the request for review. An original or copy of the decision shall be
furnished to the Claimant. The decision shall set forth the reasons and
pertinent plan provisions or relevant laws on which the decision rests. The
decision shall be final and binding upon the Claimant and the Plan Administrator
and all other persons having or claiming to have an interest in the Plan or in
any Account established under the Plan.
15.8 Arbitration
(a) Any Participant's, Inactive Participant's or Beneficiary's
claim remaining unresolved after exhaustion of the procedures in Section 15.6
and 15.7 (and to the extent permitted by law any dispute concerning any breach
or claimed breach of duty regarding the Plan) shall be settled solely by binding
arbitration at the Employer's principal place of business at the time of the
arbitration, in accordance with the Employment Claims Rules of the American
Arbitration Association. Judgment on any award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. Each party to any dispute
regarding the Plan shall pay the fees and costs of presenting his, her or its
case in arbitration. All other costs of arbitration, including the costs
18
<PAGE> 19
of any transcript of the proceedings, administrative fees, and the arbitrator's
fees shall be borne equally by the parties.
(b) Except as otherwise specifically provided in this Plan,
the provisions of this Section 15.8 shall be absolutely exclusive for any and
all purposes and fully applicable to each and every dispute regarding the Plan
including any claim which, if pursued through any state or federal court or
administrative proceeding, would arise at law, in equity or pursuant to
statutory, regulatory or common law rules, regardless of whether such claim
would arise in contract, tort or under any other legal or equitable theory or
basis. The arbitrator who hears or decides any claim under the Plan shall have
jurisdiction and authority to award only Plan benefits and prejudgment interest;
and apart from such benefits and interest, the arbitrator shall not have any
authority or jurisdiction to make any award of any kind including, without
limitation, compensatory damages, punitive damages, foreseeable or unforeseeable
economic damages, damages for pain and suffering or emotional distress, adverse
tax consequences or any other kind or form of damages. The remedy, if any,
awarded by such arbitrator shall be the sole and exclusive remedy for each and
every claim which is subject to arbitration pursuant to this Section 15.8. Any
limitations on the relief that can be awarded by the arbitrator are in no way
intended (i) to create rights or claims that can be asserted outside arbitration
or (ii) in any other way to reduce the exclusivity of arbitration as the sole
dispute resolution mechanism with respect to this Plan.
(c) The Plan and the Company will be the necessary parties to
any action or proceeding involving the Plan. No person employed by the Company,
no Participant, Inactive Participant or Beneficiary or any other person having
or claiming to have an interest in the Plan will be entitled to any notice or
process, unless such person is a named party to the action or proceeding. In any
arbitration proceeding all relevant statutes of limitation shall apply. Any
final judgment or decision that may be entered in any such action or proceeding
will be binding and conclusive on all persons having or claiming to have any
interest in the Plan.
15.9 Notices
Any notice from the Company or the Committee to an Employee,
Participant, Inactive Participant or Beneficiary regarding this Plan may be
addressed to the last known residence of said person as indicated in the records
of the Company. Any notice to, or any service of process upon, the Company or
the Committee with respect to this Plan may addressed as
follows:
Chief Financial Officer
Maxwell Technologies, Inc.
9275 Sky Park Court
San Diego, CA 92123
19
<PAGE> 20
15.10 Indemnification
To the extent permitted by law, the Company shall, and hereby
does, indemnify and hold harmless any director, officer or employee of the
Company who is or may be deemed to be responsible for the operation of the Plan,
from and against any and all losses, claims, damages or liabilities (including
attorneys' fees and amounts paid, with the approval of the Board, in settlement
of any claim) arising out of or resulting from a duty, act, omission or decision
with respect to the Plan, so long as such duty, act, omission or decision does
not involve gross negligence or willful misconduct on the part of such director,
officer or employee. Any individual so indemnified shall, within 10 days after
receipt of notice of any action, suit or proceeding, notify the CFO of the
Company and offer in writing to the CFO the opportunity, at the Company's
expense, to handle and defend such action, suit or proceeding, and the Company
shall have the right, but not the obligation, to conduct the defense in any such
action, suit or proceeding. An individual's failure to give the CFO such notice
and opportunity shall relieve the Company of any liability to said individual
under this Section 15.10. The Company may satisfy its obligations under this
provision (in whole or in part) by the purchase of insurance. Any payment by an
insurance carrier to or on behalf of such individual shall, to the extent of
such payment, discharge any obligation of the Company to the individual under
this indemnification.
16. MISCELLANEOUS
16.1 Alternative Acts and Times
If it becomes impossible or burdensome for the Company or the
Committee to perform a specific act at a specific time required by this Plan,
the Company or Committee may perform such alternative act which most nearly
carries out the intent and purpose of this Plan and may perform such required or
alternative act at a time as close as administratively feasible to the time
specified in this Plan for such performance. Nothing in the preceding sentence
shall allow the Company or Committee to accelerate or defer any payments to
Participants or Inactive Participants under this Plan, except as otherwise
expressly permitted herein.
16.2 Masculine and Feminine, Singular and Plural
Whenever used herein, pronouns shall include both genders, and the
singular shall include the plural, and the plural shall include the singular,
whenever the context shall plainly so require.
16.3 Governing Law and Severability
This Plan shall be construed in accordance with the laws of the
State of California (exclusive of its rules
20
<PAGE> 21
repgarding conflicts of law) to the extent that such laws are not preempted by
ERISA or other federal laws. If any provision of this Plan shall be held illegal
or invalid for any reason, such determination shall not affect the remaining
provisions of this Plan which shall be construed as if said illegal or invalid
provision had never been included.
16.4 Facility of Payment
If the Plan Administrator, in its sole discretion, determines that
any Employee, Participant, Inactive Participant or Beneficiary by reason of
infirmity, minority or other disability, is physically, mentally or legally
incapable of giving a valid receipt for any payment due him or her or is
incapable of handling his or her own affairs and if the Plan Administrator is
not aware, after appropriate due diligence, of any legal representative
appointed on his or her behalf, then the Plan Administrator, in its sole
discretion, may direct (a) payment to or for the benefit of the Employee,
Participant, Inactive Participant or Beneficiary; (b) payment to any person or
institution maintaining custody of the Employee, Participant, Inactive
Participant or Beneficiary; or (c) payment to any other person selected by the
Plan Administrator to receive, manage and disburse such payment for the benefit
of the Employee, Participant, Inactive Participant or Beneficiary. The receipt
by any such person of any such payment shall be a complete acquittance therefor;
and any such payment, to the extent thereof, shall discharge the liability of
the Company, the Committee, and the Plan for any amounts owed to the Employee,
Participant, Inactive Participant or Beneficiary hereunder. In the event of any
controversy or uncertainty regarding who should receive or whom the Plan
Administrator should select to receive any payment under this Plan, the Plan
Administrator may seek instruction from a court of proper jurisdiction or may
place the payment (or entire Account) into such court with final distribution to
be determined by such court.
16.5 Correction of Errors
Any crediting of Compensation or interest accruals to the Account
of any Employee, Participant, Inactive Participant or Beneficiary under a
mistake of fact or law shall be returned to the Company. If an Employee,
Participant, Inactive Participant or Beneficiary in an application for a benefit
or in response to any request by the Company or the Plan Administrator for
information, makes any erroneous statement, omits any material fact, or fails to
correct any information previously furnished incorrectly to the Company or the
Plan Administrator, or if the Plan Administrator makes an error in determining
the amount payable to an Employee, Participant, Inactive Participant or
Beneficiary, the Company or the Plan Administrator may correct its error and
adjust any payment on the basis of correct facts. The amount of any overpayment
or underpayment may be deducted from or added to the next succeeding payments,
as directed by the Plan Administrator. The Plan Administrator and the Company
reserve the right to maintain any
21
<PAGE> 22
action, suit or proceeding to recover any amounts improperly or incorrectly paid
to any person under the Plan or in settlement of a claim or satisfaction of a
judgment involving the Plan.
16.6 Missing Persons
In the event a distribution of part or all of an Account is
required to be made from the Plan to an Employee, Participant, Inactive
Participant or Beneficiary, and such person cannot be located, the relevant
portion of the Account shall escheat in accordance with the laws of the State of
California. If the affected Employee, Participant, Inactive Participant or
Beneficiary later contacts the Company, his or her portion of the Account shall
be reinstated and distributed as soon as administratively feasible. The Company
shall reinstate the amount forfeited by reclaiming such amount from the State of
California, and allocating it to the Account of the affected Employee,
Participant, Inactive Participant or Beneficiary. Prior to forfeiting any
Account, the Company shall attempt to contact the Employee, Participant,
Inactive Participant or Beneficiary by return receipt mail (or other carrier) at
his or her last known address according to the Company's records, and, where
practical, by letter-forwarding services offered through the Internal Revenue
Service, or the Social Security Administration, or such other means as the Plan
Administrator deems appropriate.
16.7 Status of Participants
In accordance with Revenue Procedure 92-65 Section 3.01(d), this
Plan hereby provides:
a. Employees, Participants and Inactive Participants under
this Plan shall have the status of general unsecured creditors of the Company;
b. This Plan constitutes a mere promise by the Company to make
benefit payments in the future;
c. Any trust to which this Plan refers (i.e. any trust created
by the Company and any assets held by the trust to assist the Company in meeting
its obligations under the Plan) shall conform to the terms of the model trust
described in Revenue Procedure 92-64; and
d. It is the intention of the parties that the arrangements
under this Plan shall be unfunded for tax purposes and for purposes of Title I
of ERISA.
16.8 Employee and Spouse Acknowledgment
By executing this Plan document or related enrollment or election
form, the undersigned Employee and, if Employee is married, Employee's spouse
hereby acknowledge that each of them has read and understood this Plan document.
Employee and his or her spouse also acknowledge that they knowingly and
22
<PAGE> 23
voluntarily agree to be bound by the provisions of the Plan, as amended from
time to time, including those Plan provisions which require the resolution of
disputes by binding out-of-court arbitration. Employee and his or her spouse
further acknowledge that they have had the opportunity to consult with counsel
of their own choosing with respect to all of the financial, tax and legal
consequences of participating in this Plan, including in particular the effects
of participation on any community property or other interest which the
Employee's spouse may have in the Compensation deferred under this Executive
Deferred Compensation Plan.
23
<PAGE> 24
IN WITNESS WHEREOF, each of the undersigned has executed this
document on the date set forth adjacent to his or her signature below.
MAXWELL TECHNOLOGIES, INC.
A Delaware corporation
Dated: By
-------------- ------------------------------------------
Title_________________________________________
EMPLOYEE
Dated:
-------------- ----------------------------------------------
Employee's Signature
----------------------------------------------
Employee's Printed Name
EMPLOYEE'S SPOUSE
Dated:
-------------- ----------------------------------------------
Spouse's Signature
----------------------------------------------
Spouse's Printed Name
24
<PAGE> 25
MAXWELL TECHNOLOGIES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. PURPOSE................................................................1
2. DEFINITIONS AND CAPITALIZED TERMS......................................1
3. ELIGIBILITY............................................................5
4. DEFERRAL OF COMPENSATION...............................................5
4.1 Election to Defer...............................................5
4.2 Date of Deferral................................................5
4.3 Multiple Elections..............................................6
4.4 Annual Elections................................................6
4.5 No Hardship Adjustments.........................................6
5. DEFERRED COMPENSATION ACCOUNTS.........................................6
5.1 Maintenance of Accounts.........................................6
5.2 Investment Elections............................................7
5.3 Investment Earnings or Losses...................................7
5.4 Interest Accruals...............................................8
5.5 Investment of Unpaid Balances...................................8
5.6 Company Contributions...........................................8
5.7 Company's General Assets........................................9
6. EFFECT ON EMPLOYEE BENEFITS...........................................10
7. PAYMENT OF DEFERRED COMPENSATION ACCOUNTS.............................10
7.1 Income Tax Obligations.........................................10
7.2 In-Service Withdrawals.........................................10
7.3 Termination of Employment......................................11
7.4 Disability.....................................................11
7.5 Retirement.....................................................11
7.6 Death Prior to Commencement of Distributions...................12
7.7 Death After Commencement of Distributions......................12
7.8 Payments of Deferrals Elected to a Specified Date..............12
7.9 Withholding and Other Tax Consequences.........................15
8. FUNDING...............................................................13
9. SUSPENSION OF PAYMENTS UPON COMPANY'S INSOLVENCY......................13
10. NON-ALIENATION OF BENEFITS...........................................13
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
<S> <C>
11. LIMITATION OF RIGHTS.................................................14
12. BEST PAYMENTS........................................................14
13. NOTICE UNDER WARN....................................................15
14. AMENDMENT OR TERMINATION OF PLAN.....................................15
15. ADMINISTRATIVE PROCEDURES AND DISPUTE RESOLUTION.....................16
15.1 Plan Administrator............................................16
15.2 Committee Organization and Procedures.........................16
15.3 Administrative Authority......................................16
15.4 Expenses......................................................17
15.5 Insurance.....................................................17
15.6 Claims Procedure..............................................17
15.7 Appeal Procedures.............................................18
15.8 Arbitration...................................................18
15.9 Notices.......................................................19
15.10 Indemnification..............................................20
16. MISCELLANEOUS........................................................20
16.1 Alternative Acts and Times....................................20
16.2 Masculine and Feminine, Singular and Plural...................20
16.3 Governing Law and Severability................................20
16.4 Facility of Payment...........................................21
16.5 Correction of Errors..........................................21
16.6 Missing Persons...............................................22
16.7 Status of Participants........................................22
16.8 Employee and Spouse Acknowledgment............................22
EXECUTION...........................................................27
</TABLE>
<PAGE> 27
MAXWELL TECHNOLOGIES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
----------------------------------
Effective September 1, 1998
<PAGE> 28
MAXWELL TECHNOLOGIES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
SCHEDULE 1, CALCULATION ASSETS
- ------------------------------------------------------------------------------
The Company agrees that it will credit deferred Compensation and Company
Contributions in the Employee's Account with earnings or losses from and after
dates deferred amounts are credited to the Employee's Account. In determining
the interest calculation under the Plan, the Company will utilize the following
Calculation Assets, subject to the terms of the Plan.
<TABLE>
<CAPTION>
---------------------------------------------------------------
FUND PERCENTAGE
---------------------------------------------------------------
<S> <C>
Neuberger & Berman Growth Portfolio
---------------------------------------------------------------
Neuberger & Berman Partners' Portfolio %
---------------------------------------------------------------
Van Eck Worldwide Bond Fund %
---------------------------------------------------------------
Van Eck Worldwide Emerging Markets Fund %
---------------------------------------------------------------
Van Eck Worldwide Real Estate Fund %
---------------------------------------------------------------
Investco Industrial Income Portfolio %
---------------------------------------------------------------
Investco High Yield Portfolio %
---------------------------------------------------------------
Investco Total Return Portfolio %
---------------------------------------------------------------
Investco Utilities Portfolio %
---------------------------------------------------------------
Investco Small Company Growth Portfolio %
---------------------------------------------------------------
Alger American Growth Portfolio %
---------------------------------------------------------------
Alger American Mid-Cap Growth Portfolio %
---------------------------------------------------------------
Fidelity Money Market Portfolio %
---------------------------------------------------------------
Fidelity Investment Grade Bond Portfolio %
---------------------------------------------------------------
Fidelity Index 500 Portfolio %
---------------------------------------------------------------
Fidelity Growth Opportunities Portfolio %
---------------------------------------------------------------
Fidelity Balanced Portfolio %
---------------------------------------------------------------
Fidelity Overseas Portfolio %
---------------------------------------------------------------
100%
----------
</TABLE>
PARTICIPANT(PRINT NAME)____________________________
SIGNATURE______________________________
DATE____________________
<PAGE> 29
- ------------------------------------------------------------------------------
MAXWELL TECHNOLOGIES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
EXHIBIT A (PART 1, PAGE 1 OF 2) - ELECTION OF DEFERRAL
- ------------------------------------------------------------------------------
1. I acknowledge that the terms and conditions of the Maxwell Technologies, Inc.
EXECUTIVE DEFERRED COMPENSATION PLAN have been explained to me, including the
tax consequences of my decision to participate in the Plan.
2. I agree to defer a portion of my current compensation, and to have that
income paid to me at a later date pursuant to the terms and conditions of the
Plan, which is incorporated by reference, in its entirety, in this Election of
Deferral Form.
3. I understand that this Election Form is not an employment agreement, does not
guarantee that I will receive any predetermined amount of compensation, and does
not guarantee that I will receive any bonus, or incentive compensation.
4. I understand that any compensation I defer will be held as an asset of
Maxwell Technologies, Inc., and will remain subject to the claims of the general
creditors of Maxwell Technologies, Inc.
ELECTION TO DEFER COMPENSATION
I hereby elect to defer the following amount from each of my paychecks:
_____% and/or $_______ of my salary paid in calendar year 19____.
_____% and/or $_______ of my bonus paid in calendar year 19____.
I understand that I may discontinue deferral of future compensation at any time
during the Plan Year. I also understand that if I discontinue deferral of future
compensation during the year, I cannot restart deferral until the beginning of
the succeeding calendar year. The foregoing Election is voluntarily made by me
after reviewing the terms of the Plan and with knowledge that this Election is
irrevocable until changed in accordance with the terms of the Plan.
<PAGE> 30
- ------------------------------------------------------------------------------
MAXWELL TECHNOLOGIES, INC.
EXHIBIT A (PART 1, PAGE 2 OF 2) - ELECTION OF DEFERRAL
- ------------------------------------------------------------------------------
RETIREMENT BENEFIT DISTRIBUTION REQUEST
The following supersedes any previous distribution request and applies to all
amounts deferred and Company Discretionary Contributions during the current and
future calendar years, adjusted for earnings, losses, and administrative
expenses credited to or charged against the Employee's Account. This election
cannot be changed retroactively as to prior deferrals, without the consent of
the Corporation which may be withheld at its sole discretion.
In the event of either:
1. Retirement at the Normal Retirement Age, or
2. Disability.
I wish to receive my current and future deferrals in the following form: IF YOU
CHECK (ii), YOU MUST INDICATE THE NUMBER OF YEARS OVER WHICH INSTALLMENT
DISTRIBUTIONS SHOULD CONTINUE.
IF NONE OF THE FOLLOWING TWO REQUESTS APPLY, THE RETIREMENT BENEFIT WILL BE
PAYABLE, AS DESCRIBED AT PARAGRAPH 7.4 OR 7.5, IN 180 MONTHLY INSTALLMENTS
BEGINNING UPON THE LATER OF THE RETIREMENT DATE OR ACTUAL TERMINATION OF
EMPLOYMENT.
____ (i) lump sum;
____ (ii) in _______ substantially equal monthly installments. (at least 60
but not to exceed 180 months)
This Election of Deferral is executed and Agreed:
__________________________________ _________________________(Election Date)
(Signature) (Date)
- ---------------------------------
(Print Name)
- ----------------------------------
(Social Security Number)
AGREED:
MAXWELL TECHNOLOGIES, INC.
By:__________________________
- ---------------
(Date)
<PAGE> 31
MAXWELL TECHNOLOGIES, INC.
EXHIBIT A (PART 2) - DEFERRAL TO SPECIFIED DATE
In lieu of the deferral of my Compensation elected on Exhibit A,
Page 1, to such later date permitted by the Plan (i.e. the date of my
Termination of Employment, Disability or Death), I hereby elect to defer such
Compensation to the following distribution date unless the amount of my
Compensation so deferred would under the terms of the Plan become payable to me
at an earlier date:
DISTRIBUTION DATE:__________________ (At least 12 months after the date
hereof).
I understand that the amount of Compensation deferred by me to the
Distribution Date, plus deemed investment gains, earnings or interest and less
deemed investment losses thereon, which remains undistributed as of such
Distribution Date, shall be distributed to me in a lump sum within 90 days after
such Distribution Date.
Dated: _________________________
- -------------------------------- ------------------------
Signature of Employee Witness
<PAGE> 32
MAXWELL TECHNOLOGIES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
EXHIBIT B - BENEFICIARY DESIGNATION
I. _________________________ (Insert Employee's name as it appears in the
Agreement.)
==============================================================================
II. The above-named Employee's Revocable Beneficiary under the EXECUTIVE
DEFERRED COMPENSATION PLAN is set forth below:
<TABLE>
<S> <C> <C>
Primary Beneficiary(ies): ____________________ ____________________
Relationship: ____________________ ____________________
Address: ____________________ ____________________
-------------------- --------------------
Social Security Number: ____________________ ____________________
Contingent Beneficiary(ies): ____________________ ____________________
Relationship: ____________________ ____________________
Address: ____________________ ____________________
-------------------- --------------------
Social Security Number: ____________________ ____________________
</TABLE>
==============================================================================
III. If no individual beneficiary named is living at the Employee's death, the
Beneficiary shall be the executor(s) or administrator(s) of the Employee.
IV. This Designation of Beneficiary revokes all prior designations and shall be
effective as of the date it is filed with the Company. The Employee retains the
right to revoke this Designation of Beneficiary.
Dated at _______________, State of _______________, on _______________, 19__.
- ------------------------- ------------------------
Signature of Employee Witness
<PAGE> 33
CONSENT OF SPOUSE
(Required in Community Property States)
I hereby consent to the designation of the above beneficiary (ies) to
receive the benefits payable under the MAXWELL TECHNOLOGIES, INC., EXECUTIVE
DEFERRED COMPENSATION PLAN as the result of the death of the above Employee and
waive any and all rights necessary to provide the payment of such benefits to
such beneficiary (ies).
Dated at ____________,
State of__________, on _______________, 19____.
- -----------------------------
(Signature of Spouse)
Witness:
- -----------------------------
FILING ACKNOWLEDGMENT
Filed with the records of the Company this ___ day of _______________, 19____.
By___________________________
- ------------------------------
Title
<PAGE> 1
EXHIBIT 10.26
LINE OF CREDIT AGREEMENT
THIS LINE OF CREDIT AGREEMENT (the "Agreement") is made and entered into as
of this 4th day of March, 1998 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 not more than $20,000,000 (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.
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 "Interest
Period"] for Advances in the minimum amount of $100,000. Such interest rate
shall be a percentage approximately equivalent to 1.25% 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".
3. A fixed rate quoted by the Bank for 1, 2, 3, or 6 months 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 "LIBOR
Interest Period"] for Advances in the minimum amount of $100,000. Such interest
rate shall be a percentage approximately equivalent to 1.25% in excess of the
Bank's LIBOR Rate which is that rate determined by the Bank's Treasury Desk as
being the arithmetic mean (rounded upwards, if necessary, to the nearest whole
multiple of one-sixteenth of one percent (1/16%)) of the U.S. dollar London
Interbank Offered Rates for such period appearing on page 3750 (or such other
page as may replace page 3750 of the Telerate screen at or about 11:00 a.m.
(London time) on the second Business Day prior to the first days of such period
(adjusted for any and all assessments, surcharges and reserve requirements) [the
"LIBOR Rate"]. An Advance based upon the LIBOR Rate is hereinafter referred to
as a "LIBOR 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 or LIBOR Advance with an
Interest Period or LIBOR Interest Period of 90 days or less on the last day of
the relevant Interest Period or LIBOR Interest Period. The Borrower further
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<PAGE> 2
promises and agrees to pay the Bank interest on any Eurodollar Advance or LIBOR
Advance with an Interest Period or LIBOR 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
Interest Period or LIBOR Interest Period) and on the last day of the relevant
Interest Period or LIBOR 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.
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 or LIBOR Advance. Notice of any
Eurodollar Advance or LIBOR 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 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 or LIBOR 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 or LIBOR Rate.
2. That interest on a Eurodollar Advance or LIBOR Advance shall
continue to accrue at a newly quoted Eurodollar Rate or LIBOR Rate or shall be
adjusted to commerce 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 or LIBOR Advance. If the Bank shall not have received notice (as
prescribed herein) of the Borrower's election that interest on any Eurodollar
Advance or LIBOR Advance shall continue to accrue at the newly quoted Eurodollar
Rate or LIBOR 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 relevant 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 the interest is accruing on any Advance on the basis
of the Eurodollar Rate or LIBOR Rate, no prepayment shall be made on any
Advance bearing interest at the Eurodollar Rate or LIBOR Rate except on a day
which is the last day of the relevant Interest Period pertaining thereto. If
the whole or any part of any Eurodollar Advance or LIBOR 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 Advance 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 OR LIBOR RATE COSTS: During
any period of time in which interest on any Advance is accruing on the basis of
the Eurodollar Rate or LIBOR 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 to funds used by the Bank in quoting and determining the
Eurodollar rate or LIBOR Rate.
G. CONVERSION FROM EURODOLLAR RATE OR LIBOR RATE TO VARIABLE RATE: In
the event that the Bank shall at
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<PAGE> 3
any time determine that the accrual of interest on the basis of the Eurodollar
Rate or LIBOR rate (i) is infeasible because the Bank is unable to determine the
Eurodollar Rate or LIBOR 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 or LIBOR Rate shall be deemed to be a Variable Rate Advance and
interest shall thereupon immediately accrue at the Variable Rate.
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,
2000 (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 debts 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 letters of
credit of up to $5,000,000 and standby letters of credit of up to $20,000,000
(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 standby
Letters of Credit outstanding and 50% of all commercial Letters of Credit
outstanding, less any partial draws paid by the Bank, exceed the sum of
$20,000,000 and, together with the total principal amount of all Advances 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
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<PAGE> 4
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 standby Letter of
Credit shall expire on a date which is 365 days after the Expiration Date
and no commercial Letter of Credit shall expire on a date which is 90 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 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 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 $750,000 as determined by Bank at the time of entering into
each Foreign Exchange Contract.
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 more than 365 days 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.
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<PAGE> 5
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.
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 an 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
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<PAGE> 6
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.
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 complied
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
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<PAGE> 7
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 other than acquisitions of up to $5,000,000 per
acquisition and $15,000,000 in the aggregate and acquisitions of companies that
are payable solely in stock issued by the Borrower or a combination of stock
and up to 30% cash per acquisition but in no event more than $15,000,000 cash
in the aggregate, provided however that cash acquisitions may not be made with
borrowed funds; 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 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, the
annual consolidating 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; except up to $25,000,000
of repurchased stock in the aggregate during calendar year 1998 and 1999.
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)
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<PAGE> 8
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 $3,000,000 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 and except loans of up
to $250,000 per transaction and $1,000,000 in the aggregate.
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 and
except for purchase money security interests securing indebtedness of up to
$3,000,000.
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.
4.13 FINANCIAL CONDITION. Maintain at all times:
A. NET WORTH. A minimum effective tangible net worth of not less
than $73,000,000.00 as such amount may be reduced by (i) stock repurchases as
provided for in Section 4.06 hereof and (ii) non-cash charges in connection
with acquisitions.
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. CURRENT RATIO. A ratio of current assets to current liabilities
of not less than 1.5 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 $10,000,000 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.
-8-
<PAGE> 9
C. At all times indemnify and old 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.
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 20% of the issued and
outstanding capital stock of the Borrower.
-9-
<PAGE> 10
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 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 1 -- Mediation: At the request of any party to the dispute,
claim or controversy of the matter shall be
-10-
<PAGE> 11
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 ll - Unsecured Contracts - Arbitration: Should any dispute,
claim or controversy remain unresolved at the conclusion of the Step l
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, but shall not otherwise serve to abate,
stay or suspend the arbitration proceedings.
c) Step ll - 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 l
mediation, them 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(1) or any
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 this 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 exercise 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,
-11-
<PAGE> 12
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.
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 deferred 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.
-12-
<PAGE> 13
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: By: /s/ GARY DAVIDSON
------------------------------ -----------------------------------
VP Finance & Admin./CFO
- --------------------------------- --------------------------------------
(Name/Title) (Name/Title)
Address: By:
------------------------- ---------------------------------------
- --------------------------------- ---------------------------------------
(Name/Title)
- ---------------------------------
Address:
-------------------------------
---------------------------------------
---------------------------------------
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<PAGE> 14
FIRST AMENDMENT TO LINE OF CREDIT AGREEMENT
This First Amendment to Line of Credit Agreement (the "Amendment") is made
and entered into this 29th day of May, 1998, 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 March 4, 1998, 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. MODIFICATION OF PROFITABILITY. Section 4.13C. of the Agreement is
deleted in its entirety and the following is substituted in lieu thereof:
C. PROFITABILITY. A minimum net profit after tax of at least $1.00 at
the end of each fiscal quarter, to be determined without regard to non-cash
charges as the result of corporate acquisitions.
2. REPRESENTATIONS AND WARRANTIES. The Borrower hereby reaffirms the
representations and warranties contained in the Agreement and represents that no
event, which with notice or lapse of time, could become an Event of Default, has
occurred or is continuing.
3. 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 [and the Deed of Trust] 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 this Agreement, as hereby amended.
4. GOVERNING LAW. This Amendment shall be governed and construed in
accordance with the laws of the State of California to which jurisdiction the
parties hereto hereby consent and submit.
5. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
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/ RICK YOUNG /s/ JOSEPH C. STUMPS
------------------ ----------------------------------
Vice President Vice President, Financial Planning
- ---------------------- ----------------------------------
Name/Title Name/Title
By: /s/ GARY DAVIDSON
------------------ ----------------------------------
CFO
- ---------------------- ----------------------------------
Name/Title Name/Title
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<PAGE> 15
May 22, 1998
Mr. Gary Davidson
Chief Financial Officer
MAXWELL TECHNOLOGIES, INC.
9275 Sky Park Court
San Diego, CA 92123
RE: Loan Agreement Amendment dated May 29, 1998.
Dear Mr. Davidson:
In reviewing your financial statements each quarter, additional information
will be required in order to monitor compliance with the proposed change to
section 4.13C of the loan agreement as it relates to maintaining "A minimum net
profit after tax of at least $1.00 at the end of each fiscal quarter, to be
determined without regard to non-cash charges as the result of corporate
acquisitions."
Therefore, the Bank would like to request (as stipulated under section 4.05E.
Other Information) that you provide a quarterly report, not later than 45 days
after the end of each fiscal quarter, detailing 1) all non-recurring charges
for the quarter, including but not limited to, the dollar amount of the charge
and the reason for the charge and 2) non-cash charges for the quarter as the
result of acquisition(s), including but not limited to, the company name(s) of
the acquisition(s), the dollar amount of the charge(s) and the reason for the
charge(s).
This information will be extremely helpful to us and insure strong
communication as it relates to the financial performance of the company.
If you agree to the above, please sign below as evidence of your acknowledgment
and acceptance.
Sincerely,
/s/ Rick Young
- -----------------
Rick Young
Vice President
Acknowledged and Accepted this 29th of May, 1998.
/s/ Gary Davidson
-----------------------
Gary Davidson
Chief Financial Officer
<PAGE> 1
Exhibit 10.30
Maxwell Technologies, Inc.
Executive Bonus Plan
FY99
<PAGE> 2
Objective
- - To drive the maximization of company-wide growth, financial performance and
shareholder value.
<PAGE> 3
Eligibility
- - The CEO recommends participants and their participation levels (ie:
Target Bonus)
- - Participants must be actively employed on the last day of the performance
period to be eligible for any award.
- - Participants who do not complete a full plan year will have pro-rated
eligibility.
<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.
<PAGE> 5
Bonus Calculation
- - Two weighted factors; Sales and EPS
Up to 100% Target
- 50% Sales
- 50% EPS
- - Above 100%
- 1/3 Sales
- 2/3 EPS
<PAGE> 6
Bonus Calculation
- - EPS is calculated after Profit Sharing payments and Bonus expense.
- - The exact percentage for each participant is determined by the CEO and is
based on each individual's goal achievement and leadership performance.
<PAGE> 7
Bonus Calculation
- - Minimum requirement of $135M revenue and $.96 EPS
- - Between minimum level and formula threshold, target bonus would be
discretionary in the 25% to 75% range.
<TABLE>
<CAPTION>
Revenues EPS Target Bonus Factor
----------- ----- ------------
<S> <C> <C>
135 0.96 25.00%
145 1.01 50.00%
150 1.05 100.00%
165 1.19 162.00%
175 1.27 200.00%
</TABLE>
* Appropriate adjustments to the bonus plan will be made for extraordinary
events.
<PAGE> 8
Timing and Form of Bonus Payment
- - The bonus will be paid to participants in cash, following the year end
results.
- - $ 0.96 EPS must be achieved for any payout to occur.
<PAGE> 1
EXHIBIT 10.37
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
March 1, 1998, is made by and between Hassan Y. Yarpezeshkan and Maryam
Yarpezeshkan ("Lessor") and Maxwell Technologies, Inc., a Delaware corporation
("Lessee"), (collectively the "Parties," or individually a "Party").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 10547 Viper Way, San Diego, located in the County of San Diego, State
of California, and generally described as (describe briefly the nature of the
property and, if applicable, the "Project", if the property is located within a
Project) that approximate 32,184 square foot building located at the address
referenced herein ("PREMISES"). (See also Paragraph 2).
1.3 TERM: Five (5) years and 0 months ("ORIGINAL TERM") commencing March
1, 1998 ("COMMENCEMENT DATE") and ending February 28, 2003 ("EXPIRATION DATE").
(See also Paragraph 3) Lessee shall have the right to terminate the Lease
("TERMINATION RIGHT") upon providing one hundred twenty (120) days' prior
notice of its intent to exercise such Termination Right. In no event, however,
may Lessee terminate the Lease prior to the thirty seventh (37th) month of the
Lease Term.
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See also Paragraphs
3.2 and 3.3)
1.5 BASE RENT: $24,138.00 per month ("BASE RENT"), payable on the first
(1st) day of each month commencing March 1, 1998 (See also Paragraph 4)
[X] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $24,138.00 as Base Rent for the period
March 1, 1998 - March 31, 1998.
1.7 SECURITY DEPOSIT: $24,138.00 ("SECURITY DEPOSIT"). (See also
Paragraph 5)
1.8 AGREED USE: Administrative offices and manufacturing facility and
related uses. (See also Paragraph 6)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction (check
applicable boxes):
[ ] N/A represents Lessor exclusively ("LESSOR'S BROKER");
[ ] N/A represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] N/A represents both Lessor and Lessee ("DUAL AGENCY")
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by
both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement (or if there is no such agreement, the sum of N/A%
of the total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDS AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 51 and Exhibits N/A, all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may
have been used in calculating rental, is an approximation which the Parties
agree is reasonable and the rental based thereon is not subject to revision
whether or not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean
and free of debris on the Commencement Date or the Early Possession Date,
whichever first occurs ("START DATE"), and, so long as the required service
contracts described in Paragraph 7.1(b) below are obtained by Lessee within
thirty (30) days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), loading doors, if any, and all other such
elements in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"BUILDING") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, as Lessor's sole obligation
with respect to such matter, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises
comply with all applicable laws, covenants or restrictions of record, building
codes, regulations and ordinances and all applicable laws ("APPLICABLE
REQUIREMENTS") in effect on the Start Date. Said warranty does not apply to the
use to which Lessee will put the Premises or to any Alterations or Utility
Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee.
NOTE: Lessee is responsible for determining whether or not the zoning is
appropriate for Lessee's intended use, and acknowledges that past uses of the
Premises may no longer be allowed. If the Premises do not comply with said
warranty, Lessor shall, except as otherwise provided, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If the Applicable
Requirements are hereafter changed (as opposed to being in existence at the
Start Date, which is addressed in Paragraph 6.2(e) below) so as to require
during the term of this Lease the construction of an addition to or an
alteration of the Building, the remediation of any Hazardous Substance, or the
reinforcement or other physical modification of the Building ("CAPITAL
EXPENDITURE"), Lessor and Lessee shall allocate the cost of such work as
follows:
Initials______
PAGE 1
(R)1996 - American Industrial Real Estate Association
<PAGE> 2
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the specific and unique use of the Premises by
Lessee as compared with uses by tenants in general, Leases shall be fully
responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the
cost thereof exceeds six (6) months' Base Rent, Lessee may instead terminate
this Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall immediately cease
the use of the Premises which require such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific and
unique use of the Premises by Lessee (such as, governmentally mandated seismic
modifications), then Lessor and Lessee shall allocate the obligation to pay for
such costs pursuant to the provisions of Paragraph 7.1(o); provided, however,
that if such Capital Expenditure is required during the last two years of this
Lease or if Lessor reasonably determines that it is not economically feasible to
pay its share thereof, Lessor shall have the option to terminate this Lease upon
ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor,
in writing, within ten (10) days after receipt of Lessor's termination notice
that Lessee will pay for such Capital Expenditure. If Lessor does not elect to
terminate, and fails to tender its share of any such Capital Expenditure, Lessee
may advance such funds and deduct same, with interest, from Rent until Lessor's
share of such costs have been fully paid. If Lessee is unable to finance
Lessor's share, or if the balance of the Rent due and payable for the remainder
of this Lease is not sufficient to fully reimburse Lessee on an offset basis,
Lessee shall have the right to terminate this Lease upon thirty (30) days
written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised by
Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements), and their suitability for Lessee's intended use, (b) Lessee has
made such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relate to its occupancy of the
Premises, and (c) neither Lessor, Lessor's agents, nor any Broker has made any
oral or written representations or warrants with respect to said matters other
than as set forth in this Lease. In addition, Lessor acknowledges that: (a)
Broker has made no representations, promises or warranties concerning Lessee's
ability to honor the Lease or suitability to occupy the Premises, and (b) it is
Lessor's sole responsibility to investigate the financial capability and/or
suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this Lease
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall, however, be in effect
during such period. Any such early possession shall not affect the Expiration
Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee when required and Lessee does
not terminate this Lease, as aforesaid, any period of rent abatement that Lessee
would otherwise have enjoyed shall run from the date of delivery of possession
and continue for a period equal to what Lessee would otherwise have enjoyed
under the terms hereof, but minus any days of delay caused by the acts or
omissions of Lessee. If possession of the Premises is not delivered within four
(4) months after the Commencement Date, this Lease shall terminate unless other
agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession
of the Premises to Lessee until Lessee complies with its obligations to provide
evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee
shall be required to perform all of its obligations under this Lease from and
after the Start Date, including the payment of Rent, notwithstanding Lessor's
election to withhold possession pending receipt of such evidence of insurance.
Further, if Lessee is required to perform any other conditions prior to or
concurrent with the Start Date, the Start Date shall occur but Lessor may elect
to withhold possession until such conditions are satisfied.
4. RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of Lease (except for the Security Deposit) are deemed to be rent ("RENT").
4.2 PAYMENT. Lessees shall cause payment of Rent to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due. Rent for any period during the term hereof which is
for less than one (1) full calendar month shall be prorated based upon the
actual number of days of said month. Payment of Rent shall be made to Lessor at
its address stated herein or to such other persons or place as Lessor may from
time to time designate in writing. Acceptance of a payment which is less than
the amount than due shall not be a waiver of Lessors rights to the balance of
such Rent, regardless of Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. Should the Agreed Use be
amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or termination
of this Lease, if Lessor elects to apply the Security Deposit only to unpaid
Rent, and otherwise within thirty (30) days after the Premises have been vacated
pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the
Security Deposit not used or applied by Lessor. No part of the Security Deposit
shall be considered to be held in trust, to bear interest or to be prepayment
for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use,
or any other legal use which is reasonably comparable thereto, and for no other
purpose. Lessee shall not use or permit the use of the Premises in a manner that
is unlawful, creates damage, waste or a nuisance, or that disturbs owners
and/or occupants of, or causes damage to neighboring properties. Lessor shall
not unreasonably withhold
PAGE 2 Initials___ ___
<PAGE> 3
or delay its consent to any written request for a modification of the Agreed
Use, so long as the same will not impair the structural integrity of the
improvements on the Premises or the mechanical or electrical systems therein,
is not significantly more burdensome to the Premises. If Lessor elects to
withhold consent, Lessor shall within the five (5) business days after such
request give written notification of same, which notice shall include an
explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, or waste whose
presence, use, manufacture, disposal, transportation, or release, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substances shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, and/or crude oil or any products,
by-products or fractions thereof. Lessee shall not engage in any activity in or
on the Premises, which constitutes a Reportable Use of Hazardous Substances
without the express prior written consent of Lessor and timely compliance (at
Lessee's expense) with all Applicable Requirements. "REPORTABLE USE" shall mean
(i) the installation of use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority, and/or (iii) the presence at the Premises of a
Hazardous Substance with respect to which any Applicable Requirements requires
that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may use any
ordinary and customary materials reasonably required to be used in the normal
course of the Agreed Use, so long as such use is in compliance with all
Applicable Requirements, is not a Reportable Use, and does not expose the
Premises or neighboring property to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may
condition its consent to any Reportable Use upon receiving such additional
assurances as Lessor reasonably deems necessary to protect itself, the public,
the Premises and/or the environment against damage, contamination, injury
and/or liability, including, but not limited to, the installation (and removal
on or before Lease expiration or termination) of protective modifications (such
as concrete encasements) and/or increasing the Security Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Reportable Use has come to be in, on, under or about the
Premises, other than as previously consented to by Lessor, Lessee shall
immediately give written notice of such fact to Lessor, and provide Lessor with
a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Except for claims arising out of the
negligence or the acts or omissions of Lessor or its agents, Lessee shall
indemnify, defend and hold Lessor, its agents, employees, lenders and ground
lessor, if any, harmless from and against any and all loss of rents and/or
damages, liabilities, judgments, claims, expenses, penalties, and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee, or any third party (provided, however, that
Lessee shall have no liability under this Lease with respect to underground
migration of any Hazardous Substance under the Premises from adjacent
properties). Lessee's obligations shall include, but not be limited to, the
effects of any contamination or injury to person, property or the environment
created or suffered by Lessee, and the cost of investigation, removal,
remediation, restoration and/or abatement, and shall survive the expiration or
termination of this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT
ENTERED INTO BY LESSOR AND LESSEE SHALL RELEASE LESSEE FROM ITS OBLIGATIONS
UNDER THIS LEASE WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO
AGREED BY LESSOR IN WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages which existed as a
result of Hazardous Substances on the Premises prior to the Start Date or which
are caused by the gross negligence, or intentional acts of Lessor, its agents or
employees. Lessor's obligations, as and when required by the Applicable
Requirements, shall include, but not be limited to, the cost of investigation,
removal, remediation, restoration and/or abatement, and shall survive the
expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date. Lessee shall
cooperate fully in any such activities at the request of Lessor, including
allowing Lessor and Lessor's agents to have reasonable access to the Premises at
reasonable times in order to carry out Lessor's investigative and remedial
responsibilities.
(g) LANDLORD TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefore (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater, give written notice to Lessee, within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise
provided in this Lease, Lessee, shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to Lessee's specific use of the Premises, without
regard to whether said requirements are now in effect or become effective after
the Start Date. Lessee shall, within ten (10) days after receipt of Lessor's
written request, provide Lessor with copies of all permits and other documents,
and other information evidencing Lessee's compliance with any Applicable
Requirements specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving the failure of Lessee or the premises to comply with any Applicable
Requirements.
6.4 INSPECTION COMPLIANCE. Lessor and Lessor's Lender and consultants
shall have the right to enter into Premises at any time, in the case of an
emergency, and otherwise at reasonable times and upon 24 hours prior written
notice, for the purpose of inspecting the condition of the Premises and for
verifying compliance by Lessee with this Lease. The cost of any such
inspections shall be paid by Lessor, unless a violation of Applicable
Requirements, or a contamination is found to exist or be imminent, or the
inspection is requested or ordered by a governmental authority. In such case,
Lessee shall upon request reimburse Lessor for the cost of such inspections, so
long as such inspection is reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS
7.1 LESSEE'S OBLIGATIONS
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep
Page 3 Initials___ ___
<PAGE> 4
the non-structural portions of the Premises. Utility installations, and
Alterations in good order, condition and repair, ordinary wear and tear and
damage by casualty excepted whether or not the portion of the Premises requiring
repairs or the means of repairing the same, are reasonably or readily accessible
to Lessee, and whether or not the need for such repairs occurs as a result of
Lessee's use, any prior use, the elements or the age of such portion of the
Premises) including, but not limited to, all equipment or facilities, such as
plumbing, HVAC, electrical, lighting facilities boilers, pressure vessels, fire
protection system, fixtures, walls (interior), ceilings, roofs, floors, windows,
doors, plate glass, skylights in the Premises. Lessee, in keeping the Premises
in good order, condition and repair shall exercise and perform good maintenance
practices, specifically including the procurement and maintenance of the service
contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair, ordinary wear and tear and damage by casualty excepted. Lessee shall,
during the term of this Lease, keep the exterior appearance of the Building in a
first-class condition consistent with the exterior appearance of other similar
facilities of comparable age and size in the vicinity, including, when
necessary, the exterior repainting at the Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements. ("BASIC ELEMENTS"), if
any, as and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and
pressure vessels, (iii) fire protection systems, (iv) roof covering and drains,
and (v) clarifiers and (vi) any other equipment, if reasonably required by
Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of
replacing such Basic Elements, then such Basic Elements shall be replaced by
Lessor, and the cost thereof shall be prorated between the Parties and Lessee
shall only be obligated to pay, each month during the remainder of the term of
this Lease, on the date on which Base Rent is due, an amount equal to the
product of multiplying the cost of such replacement by a fraction, the
numerator of which is one, and the denominator of which is the number of months
of the useful life of such replacement as such useful life is specified
pursuant to Federal income tax regulations or guidelines for depreciation
thereof (including interest on the unamortized balance as is then commercially
reasonable in the judgment of Lessor's accountants), with Lessee reserving the
right to prepay its obligation at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14
(Condemnation), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, or
the equipment therein, all of which obligations are intended to be that of the
Lessee; provided, however, Lessor shall be required to maintain all portions of
the Premises which are not the obligation of Lessee under this Lease and Lessor
shall also be responsible for the repair of any damage which arises as a result
of the negligence or the acts or omissions of Lessor or its agents. It is the
intention of the Parties that the terms of this Lease govern the respective
obligations of the Parties as to maintenance and repair of the Premises, and
they expressly waive the benefit of any statute now or hereafter in effect to
the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems, communication systems,
lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.
The term "TRADE FIXTURES" shall mean LESSEE'S machinery and equipment that can
be removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor pursuant
to Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations to the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without such consent but upon notice to Lessor, as
long as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, and the cumulative cost
thereof during this Lease as extended does not exceed $50,000 in the aggregate
or $10,000 in per alteration.
(b) CONSENT. Any Alteration or Utility Installations the Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be
deemed conditioned upon Lessee's: (i) acquiring all applicable governmental
permits, (ii) furnishing Lessor with copies of both the permits and the plans
and specifications prior to commencement of the work, and (iii) compliance with
all conditions of said permits and other Applicable Requirements in a prompt
and expeditious manner. Any Alterations or Utility Installations shall be
performed in a workmanlike manner with good and sufficient materials. Lessee
shall promptly upon completion furnish Lessor with as-built plans and
specifications. For work which costs and amount equal to the greater of one
month's Base Rent, or $10,000, Lessor may condition its consent upon Lessee
providing a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such Alteration or Utility Installation and/or upon
Lessee's posting an additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement or any work in, on or about the Premises, and Lessor shall have
the right to post notices of non-responsibility. If Lessee shall contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof. If Lessor shall require, Lessee shall furnish a
surety bond in an amount equal to one and one-half times the amount of such
contested lien, claim or demand, indemnifying Lessor against liability for the
same. If Lessor elects to participate in any such action, Lessee shall pay
Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or elect
ownership as hereinafter provided, all Alterations and Utility Installations
made by Lessee shall be the property of Lessee, but considered a part of the
Premises. All Lessee Owned Alterations and Utility Installations shall, at the
expiration or termination of this Lease, become the property of Lessor and be
surrendered by Lessee with the Premises.
(b) REMOVAL. Lessor may require the removal at any time of all or
any part of any Lessee Owned Alterations or Utility Alterations or Utility
Installations made without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice.
Lessee shall repair any damage occasioned by the installation, maintenance or
removal of Trade Fixtures, furnishings, and equipment as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or groundwater contaminated by Lessee. Trade
Fixtures shall remain the property of Lessee and shall be removed by Lessee.
The failure by Lessee to timely vacate the Premises pursuant to this Paragraph
7.4(c) without the express written consent of Lessor shall constitute ???
holdover under the provisions of Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required
under Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per
occurrence. Premiums for policy periods commencing prior to or extending beyond
the Lease term shall be prorated to correspond to the Lease term. Payment shall
be made by Lessee to Lessor within ten (10) days following receipt of an
invoice.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee
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and Lessor against claims for bodily injury, personal injury and property
damage based upon or arising out of the ownership, use, occupancy or maintenance
of the Premises and all areas appurtenant thereto. Such insurance shall be on
an occurrence basis providing single limit coverage in an amount not less than
$2,000,000 per occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF
PREMISES ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION
ENDORSEMENT" for damage caused by heat, smoke or fumes from a hostile fire. The
Policy shall not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability assumed under
this Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance shall not, however,
limit the liability of Lessee nor relieve Lessee of any obligation hereunder.
All insurance carried by Lessee shall be primary to and not contributory with
any similar insurance carried by Lessor, whose insurance shall be considered
excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as
described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an additional
insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force a policy or policies in the name of Lessor, with loss payable to
Lessor and to any Lender insuring loss or damage to the Premises. The amount of
such insurance shall be equal to the full replacement cost of the Premises, as
the same shall exist from time to time, or the amount required by any Lenders,
but in no event more than the commercially reasonable and available insurable
value thereof. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations, Trade Fixtures, and Lessee's personal
property shall be insured by Lessee Under Paragraph 8.4 rather than by Lessor.
If the coverage is available and commercially appropriate, such policy or
policies shall insure against all risks of direct physical loss or damage
(except the perils of flood, including coverage for debris removal and the
enforcement of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result of a
covered loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $10,000 per occurrence, and Lessee shall
be liable for such deductible amount in the event of an Insured Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor with loss payable to Lessor and
any Lender, insuring the loss of the full Rent for one (1) year. Said insurance
shall provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide for
one full year's loss of Rent from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance clause,
and the amount of coverage shall be adjusted annually to reflect the projected
Rent otherwise payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or of a group of buildings owned by Lessor which are adjacent to the Premises,
the Lessee shall pay for any increase in the premiums for the property insurance
of such building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property. Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $10,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. If reasonably available, and if Lessor
requests Lessee to do so in writing, Lessee shall obtain and maintain loss of
income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
by prudent lessees in the business of Lessee or attributable to prevention of
access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representations that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies
duly licensed or admitted to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, as set forth in the most current issued of "Best's
Insurance Guide", or such other ratings may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidates the required
insurance policies. Lessee shall, prior to the Start date, deliver to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and change the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, which is less. If
either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages against the other, for loss of or damage to its
property arising out of or incident to the perils required to be insured against
herein. The effect of such releases and waivers is not limited by the amount of
insurance carried or required, or by any deductibles applicable hereto. The
Parties agree to have their respective property damage insurance carriers waive
any right to subrogation that such companies may have against Lessor or Lessee,
as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's sole negligence, Lessee shall
indemnify, protect, defend and hold harmless the Premises, Lessor and its
agents, Lessor's master or ground lessor, partners and Lenders, from and
against any and all claims, loss of rents and/or damages, liens, judgments,
penalties, attorneys' and consultants' fees, expenses and/or liabilities
arising out of, involving, or in connection with, the use and/or occupancy of
the Premises by Lessee. If any action or proceeding is brought against Lessor
by reason of any of the foregoing matters, Lessee shall upon notice defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be defended or indemnified. Except for Lessee's
sole negligence, Lessor shall indemnify, protect, defend and hold harmless
Lessee and its agents, partners and lenders, from and against any and all
claims and/or damages, liens, judgments, penalties, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with the negligence, acts or omissions by Lessor and/or in connection with any
conditions existing at the Building or the Premises. If any action or
proceeding is brought against Lessee by reason of any of the foregoing matters,
Lessor shall upon notice defend the same at Lessor's expense by counsel
reasonably satisfactory to Lessee and Lessee shall cooperate with Lessor in
such defense. Lessee need not have first paid any such claim in order to be
defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except for claims arising out of
the negligence or the acts or omissions of Lessor or its agents, Lessor shall
not be liable for injury or damage to the person or goods, wares, merchandise or
other property of Lessee, Lessee's employees, contractors, invitees, customers,
or any other person in or about the Premises, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which Premises are a part, or
from other sources or places. Lessor shall not be liable for any damages arising
from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which can reasonably be repaired in six (6) months or less from
the date of the damage or destruction. Lessor shall notify Lessee in writing
within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(c) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations,
which cannot reasonably be repaired in six (6) months or less from the date of
the damage or destruction. Lessor shall notify Lessee in writing within thirty
(30) days from the date of the damage or destruction as to whether or not the
damage is Partial or Total.
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(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations
and Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of Applicable Requirements and without
deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence of
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE -- INSURED LOSS. If a Premises partial Damage that
is an Insured Loss occurs, than Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds (except as to
the deductible which is Lessee's responsibility) as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect. If such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to: (i) make
such restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall
not be entitled to reimbursement of any funds contributed by Lessee to repair
any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 notwithstanding that there may be
some insurance coverage, but the net proceeds of any such insurance shall be
made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense) Lessor
may either: (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) terminate this Lease by giving written notice to Lessee within thirty (30)
days after receipt by Lessor of knowledge of the occurrence of such damage. Such
termination shall be effective sixty (60) days following the date of such
notice. In the event Lessor elects to terminate this Lease, Lessee shall have
the right within ten (10) days after receipt of the termination notice to give
written notice to Lessor of Lessee's commitment to pay for the repair of such
damage without reimbursement from Lessor. Lessee shall provide Lessor with said
funds or satisfactory assurance thereof within thirty (30) days after making
such commitment. In such event this Lease shall continue in full force and
effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate sixty (60) days
following such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee except as provided in Paragraph 8.5.
Notwithstanding anything to the contrary in this Lease, if any damage or
destruction to the Premises cannot be, or is not, repaired within ninety (90)
days of the date of such damage or destruction, then Lessee shall have the right
to terminate this Lease upon written notice to Lessor.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, either party may
terminate this Lease effective sixty (60) days following the date of occurrence
of such damage by giving a written termination notice to the other party with in
thirty (30) days after the date of occurrence of such damage. Notwithstanding
the foregoing, if Lessee at that time has an exercisable option to extend this
Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a)
exercising such option on or before the earlier of (i) the date which is ten
days after Lessee's receipt of Lessor's written notice purporting to terminate
this Lease, or (ii) the day prior to the date upon which such option expires. If
Lessee duly exercises such option during such period to cover any shortage in
insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense,
repair such damage as soon as reasonably possible and this Lease shall continue
in full force and effect. If Lessee fails to exercise such option during such
period, then this Lease shall terminate on the date specified in the termination
notice and Lessee's option shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES
(a) ABATEMENT. In the event of any condition described in Paragraph
9 for which Lessee is not responsible under this Lease, the Rent payable by
Lessee for the period required for the repair, remediation or restoration of
such damage shall be abated in proportion to the degree to which Lessee's use of
the Premises is impaired, but not to exceed the proceeds received from the
Rental Value insurance. All other obligations of Lessee hereunder shall be
performed by Lessee, and Lessor shall have no liability for any such damage,
destruction, remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such repair
or restoration within (90) days after such obligation shall accrue, Lessee may,
at any time prior to the commencement of such repair or restoration, give
written notice to Lessor and to any Lenders of which Lessee has actual notice,
of Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice and such
repair or restoration is not commenced within thirty (30) days thereafter, this
Lease shall terminate as of the date specified in said notice. If the repair or
restoration is commenced within said thirty (30) days, this Lease shall continue
in full force and effect. "COMMENCE" shall mean either the unconditional
authorization of the preparation of the required plans, or the beginning of the
actual work on the Premises, whichever first occurs.
9.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein the term "REAL
PROPERTY TAXES" shall include any form of assessment: real estate, general,
special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, but shall include a change in the ownership of the
Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or
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termination of this Lease, Lessee's share of such taxes shall be prorated to
cover only that portion of the tax bill applicable to the period that this Lease
is in effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee
shall fail to pay any required Real Property Taxes, Lessor shall have the right
to pay the same, and Lessee shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any
Rent payment, Lessor may, at Lessor's option, estimate the current Real
Property Taxes, and require that such taxes be paid in advance to lessor by
Lessee, either: (i) in a lump sum amount equal to the installment due, at least
twenty (20) days prior to the applicable delinquency date, or (ii) monthly in
advance with the payment of the Base Rent. If Lessor elects to require payment
monthly in advance, the monthly payment shall be an amount equal to the amount
of the estimated installment of taxes divided by the number of months remaining
before the month in which said installment becomes delinquent. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payments shall be adjusted as required to provide the funds needed to
pay the applicable taxes. If the amount collected by Lessor is insufficient to
pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand,
such additional sums as are necessary to pay such obligations. All moneys paid
to Lessor under this Paragraph may be intermingled with other moneys of Lessor
and shall not bear interest. In the event of a Breach by Lessee in the
performance of its obligations under this Lease, then any balance of funds paid
to Lessor under the provisions of this Paragraph may at the option of Lessor,
be treated as an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. UTILITIES. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "assign or assignment") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
Notwithstanding anything to the contrary contained in this Lease,
Lessee shall have the right to sublet or assign all or any part of its interests
in this Lease or in the Premises, to any person or entity which (i) controls, is
controlled by, or is under common control with Lessor, or (ii) acquires all or
substantially all of the assets of Lessee.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to an assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any
assignee or sublessee, without first exhausting Lessor's remedies against any
other person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a fee of $1,000 or
ten percent (10%) of the current monthly Base Rent applicable to the portion of
the Premises which is the subject of the proposed assignment or sublease,
whichever is greater, as consideration of Lessor's considering and processing
said request. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested.
(f) Any assignee of, this Lease shall, by reason of accepting such
assignment be deemed to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment, other than such
obligations as are contrary to or inconsistent with provisions of an assignment
to which Lessor has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases under
this Lessee whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease; provided, however,
that until a Breach shall occur in the performance of Lessee's obligations,
Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or
any assignment of such sublease, nor by reason of the collection of Rent, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice
from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor all Rent due and to become due
under the sublease. Sublessee shall rely upon any such notice from Lessor and
shall pay Rents to Lessor without any obligation or right to inquire as to
whether such Breach exists, notwithstanding any claim from Lessee to the
contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of the sublessor under such sublease from the time of the
exercise of said option to the expiration of such sublease; provided, however,
Lessor shall not be liable for any prepaid rents or security deposit paid by
such sublessee to such sublessor or for any prior Defaults or Breaches of such
sublessor.
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(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "Default" is defined as a failure by the Lessee to
comply with or perform any of the terms, covenants, conditions or rules under
this Lease. A "Breach" is defined as the occurrence of one or more of the
following Defaults, and the failure of Lessee to cure such Default within any
applicable grace period:
(a) The abandonment of the Premises; or the vacating of the Premises
without providing a commercially reasonable level of security, or where the
coverage of the property insurance described in Paragraph 8.3 is jeopardized as
a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any other
monetary payment required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence
of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more
than thirty (30) days are reasonably required for its cure, then it shall not
be deemed to be a Breach if Lessee commences such cure within said thirty (30)
day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of
any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor statute
thereto (unless, in the case of a petition filed against Lessee, the same is
dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory basis, and
Lessee's failure, within sixty (60) days following written notice of any such
event, to provide written alternative assurance or security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at
the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties
or obligations, within ten (10) days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses,
permits or approvals. The costs and expenses of any such performance by Lessor
shall be due and payable by Lessee upon receipt of invoice therefor. If any
check given to Lessor by Lessee shall not be honored by the bank upon which it
is drawn, Lessor, at its option, may require all future payments to be made by
Lessee to be by cashier's check. In the event of a Breach; Lessor may, with or
without further notice or demand, and without limiting Lessor in the exercise of
any right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which has been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and that portion of any leasing commission paid by Lessor in connection
with this Lease applicable to the unexpired term of this Lease. The worth at
the time of award of the amount referred to in provision (iii) of the
immediately preceding sentence shall be computed by discounting such amount at
the discount rate of the Federal Reserve Bank of the District within which the
Premises are located at the time of award plus one percent (1%). Efforts by
Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not
waive Lessor's right to recover damages under Paragraph 12. If termination of
this Lease is obtained through the provisional remedy of unlawful detainer,
Lessor shall have the right to recover in such proceeding any unpaid Rent and
damages as are recoverable therein, or Lessor may reserve the right to recover
all or any part thereof in a separate suit. If a notice and grace period
required under Paragraph 13.1 was not privately given, a notice to pay rent or
quit, or to perform or quit given to Lessee under the unlawful detainer statute
shall also constitute the notice required by Paragraph 13.1, in such case, the
applicable grace period required by Paragraph 13.1 and the unlawful detainer
statute shall run concurrently, and the failure of Lessee to cure the Default
within the greater of the two such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in the Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and recover
the Rent as it become due, in which event Lessee may sublet or assign, subject
only to reasonable limitations. Acts of maintenance, efforts to relet, and/or
the appointment of a receiver to protect the Lessor's interests, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws
or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's
right to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other
charges, or for the giving or paying by Lessor to or for Lessee of any cash or
other bonus, inducement or consideration for Lessee's entering into this Lease,
all of which concessions are hereinafter referred to as "INDUCEMENT
PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful
performance of all of the terms, covenants and conditions of this Lease. Upon
Breach of this Lease by Lessee, any such Inducement Provision shall
automatically be deemed deleted from this Lease and of no further force or
affect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement Provision
shall be immediately due and payable by Lessee to Lessor, notwithstanding any
subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or
the cure of the Breach which initiated the operation of this paragraph shall not
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<PAGE> 9
be deemed a waiver by Lessor of the provisions of this paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
of Rent 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 upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to ten percent (10%) of each 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 such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of Base Rent, then notwithstanding any
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor within thirty (30) days following the date on
which it was due, shall bear Interest from the thirty-first (31st) day after it
was due. The interest ("INTEREST") charged shall be equal to the prime rate
charged by the largest state chartered bank in the which the Premises are
located plus 4%, but shall not exceed the maximum rate allowed by law. Interest
is payable in addition to the potential late charge provided for in Paragraph
13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and any Lender whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days are reasonably
required for its performance, then Lessor shall not be in breach if performance
is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "CONDEMNATION"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than ten percent (10%) of any building, or more than
twenty-five percent (25%) of the land area not occupied by any building, is
taken by Condemnation, Lessee may, at Lessee's option, to be exercised in
writing within ten (10) days after Lessor shall have given Lessee written notice
of such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of the
date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the Base Rent shall be reduced in proportion to the reduction in utility of
the Premises caused by such Condemnation. Condemnation awards and/or payments
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold, the value of the part
taken, or for severance damages; provided, however, that Lessee shall be
entitled to any compensation for Lessee's relocation expenses, loss of business
goodwill and/or Trade Fixtures, without regard to whether or not this Lease is
terminated pursuant to the provisions of this Paragraph. All Alterations and
Utility Installations made to the Premises by Lessee, for purposes of
Condemnation only, shall be considered the property of the Lessee and Lessee
shall be entitled to any and all compensation which is payable therefor. In the
event that this Lease is not terminated by reason of the Condemnation, Lessor
shall repair any damage to the Premises caused by such Condemnation.
15. BROKERS' FEE.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant to
Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercise any Option, (b) if Lessee
acquires any rights to the Premises or other premises owned by Lessor and
located within the same Project, if any, within which the Premises is located,
(c) if Lessee remains in possession of the Premises, with the consent of
Lessor, after the expiration of this Lease, or (d) if Base Rent is increased,
whether by agreement or operation of an escalation clause herein, then, Lessor
shall pay Brokers a fee in accordance with the schedule of said Brokers in
effect at the time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and
Lessor each represent and warrant to the other that it has had no dealings with
any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the Indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
16. TENANCY STATEMENT/ESTOPPEL CERTIFICATE.
16.1 Each Party (as "RESPONDING PARTY") shall within then (10) days after
written notice from the other Party (the "REQUESTED PARTY") execute, acknowledge
and deliver to the Requesting Party an estoppel certificate in writing, in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, or any
part thereof, Lessee and all Guarantors shall deliver to any potential lender or
purchaser designated by Lessor such financial statements as may be reasonably
required by such lender or purchaser, including but not limited to Lessee's
financial statements for the past three (3) years. All such financial statements
shall be received by Lessor and such lender or purchaser in accordance and shall
be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises of this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligation
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligation and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined. Notwithstanding the above, the original Lessor under this Lease, and
all subsequent holders of the Lessor's interest in this Lease shall remain
liable and responsible with regard to the potential duties and liabilities of
Lessor pertaining to Hazardous Substances as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
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19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Except with respect to Lessor's fraud, gross
negligence or willful misconduct, the obligations of Lessor under this Lease
shall not constitute personal obligations of Lessor, the individual partners of
Lessor or its or their individual partners, directors, officers or shareholders,
and Lessee shall look to the Premises, and to no other assets of Lessor, for the
satisfaction of any liability of Lessor with respect to this Lease, and shall
not seek recourse against the individual partners of Lessor, or its or their
individual partners, directors, officers or shareholders, or any of their
personal assets for such satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be
effective, Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises. Brokers
have no responsibility with respect thereto or with respect to any default or
breach hereof by either Party. The liability (including court costs and
Attorneys' fees), of any Broker with respect to negotiation, execution,
delivery or performance by either Lessor or Lessee under this Lease or any
amendment or modification hereto shall be limited to an amount up to the fee
received by such Broker pursuant to this Lease; provided, however, that the
foregoing limitation on each Broker's liability shall not be applicable to any
gross negligence or willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by courier) or
may be sent by regular, certified or registered mail or U.S. Postage Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notices. Either Party may by written
notice to the other specify a different address for notice, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown
on the receipt card, or if no delivery date is shown, the postmark thereon. If
sent by regular mail the notice shall be deemed given forty-eight (48) hours
after the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar means shall be deemed delivered upon
telephone confirmation of receipt, provided a copy is also delivered via
delivery of mail. If notices is received on a Saturday, Sunday or legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor
at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this
Lease. In the event that Lessee holds over, then the Base Rent shall be
increased to one hundred fifty percent (150%) of the Base Rent applicable
during the month immediately preceding the expiration or termination. Nothing
contained herein shall be construed as consent by Lessor to any holding over by
Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
parties, but rather according to its fair meaning as a whole, as if both
parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the
security thereof, and to all renewals, modifications, and extensions thereof.
Lessee agrees that the holders of any such Security Devices shall have no
liability or obligation to perform any of the obligations of Lessor under this
Lease. Any Lender may elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device by giving written notice thereof to
Lessee, this Lease and such Options shall be deemed prior to such Security
Device, notwithstanding the relative dates of the documentation or recordation
thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership; (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so
long as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within sixty (60) days after the execution of this Lease,
Lessor shall obtain a Non-Disturbance Agreement from the holder of any
pre-existing Security Device which is secured by the Premises. In the event
that Lessor is unable to provide the Non-Disturbance Agreement within said
sixty (60) days, then Lessee may, at Lessee's option, directly contact Lessor's
lender and attempt to negotiate for the execution and delivery of a
Non-Disturbance Agreement. Notwithstanding anything to the contrary contained
herein, no later than _________, 1998, Lessor shall obtain and deliver to
Lessee a Non-Disturbance Agreement from all parties holding a Security Device
as of the date hereof.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursed to decision or
PAGE 10 Initials ______, _______.
<PAGE> 11
judgment. The term, "Prevailing Party" shall include, without limitation, a
Party or Broker who substantially obtains or defeats the relief sought, as the
case may be, whether by compromise, settlement, judgment, or the abandonment by
the other Party or Broker of its claim or defense. The attorneys' fees award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. In
addition, Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in the preparation and service of notices of Default and consultations
in connection therewith, whether or not a legal action is subsequently
commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times and upon twenty-four (24) hours
written notice for the purpose of showing the same to prospective purchasers,
lenders, or lessees, and making such alterations, repairs, improvements or
additions to the Premises as Lessor may deem necessary. All such activities
shall be without abatement of rent or liability to Lessee. Lessor may at any
time place on the Premises any ordinary "For Sale" signs and Lessor may during
the last six (6) months of the term hereof place on the Premises any ordinary
"For Lease" signs. Lessee may at any time place on or about the Premises any
ordinary "For Sublease" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, that Lessor may elect to continue any one
or all existing subtenancies. Lessor's failure within ten (10) days following
any such event to elect to the contrary by written notice to the holder of any
such lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed, Lessor's actual
reasonable costs and expenses (including but not limited to architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent
shall not preclude the imposition by Lessor at the time of consent of such
further or other conditions as are then reasonable with reference to the
particular matter for which consent is being given. In the event that either
Party disagrees with any determination made by the other hereunder and
reasonably requests the reasons for such determination, the determining party
shall furnish its reasons in writing and in reasonable detail within ten (10)
business days following such request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty in
the form most recently published by the American industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any Guarantor
fails or refuses, upon request to provide: (a) evidence of the execution of the
guaranty, including the authority of the party signing on Guarantor's behalf to
obligate Guarantor, and in the case of a corporate Guarantor, a certified copy
of a resolution of its board of directors authorizing the making of such
guaranty, (b) current financial statements, (c) a Tenancy Statement, or (d)
written confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance
of all of the covenants, conditions and provisions on Lessee's part to be
observed and performed under this Lease, Lessee shall have quiet possession and
quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "Option" shall mean: (a) the right to extend the term of
or renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during the
period commencing with the giving of any notice of Default and continuing until
said Default is cured, (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee), (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given three (3) or more notices of Default, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect,
notwithstanding Lessee's due and timely exercise of the Option. If, after such
exercise and prior to the commencement of the extended term, (i) Lessee fails
to pay Rent for a period of thirty (30) days after such Rent becomes due
(without any necessity of Lessor to give notice thereof), (ii) Lessor gives to
Lessee three (3) or more notices of separate Default during any twelve (12)
month period, whether or not the Defaults are cured, or (iii) If Lessee commits
a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises. Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
Initials_____________
PAGE 11 FORM 304N-R-6/96
<PAGE> 12
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers
arising out of this Lease / / IS / / IS NOT attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
- --------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THE LEASE OR THE TRANSACTION
TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
- --------------------------------------------------------------------------------
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Executed at:
---------------------------- ----------------------
on: on:
------------------------------------- -------------------------------
by LESSOR: By LESSEE:
Hassan H. Yarpezeshkan and Maxwell Technologies, Inc.
- ---------------------------------------- ----------------------------------
Maryam Yarpezeshkan a Delaware corporation
- ---------------------------------------- ----------------------------------
By: By:
------------------------------------- -------------------------------
Name Printed: Hassan H. Yarpezeshkan Name Printed:
--------------------------- ---------------------
Title: Title:
---------------------------------- ----------------------------
By: By:
------------------------------------- -------------------------------
Name Printed: Maryam Yarpezeshkan Name Printed:
--------------------------- ---------------------
Title: Title:
---------------------------------- ----------------------------
Address: 2810 Inverness Drive Address:
-------------------------------- --------------------------
San Diego, California
-------------------------------- ----------------------------------
Telephone: (619) 587-2595 Telephone: ( )
------------------------------ ----------------------
Facsimile: ( ) Facsimile: ( )
------------------------ ------------------
Federal ID No. Federal ID No.
-------------------------- --------------------
BROKER: BROKER:
- ---------------------------------------- ----------------------------------
Executed at: Executed at:
---------------------------- ----------------------
on: on:
------------------------------------- -------------------------------
By: By:
------------------------------------- -------------------------------
Name Printed: Name Printed:
--------------------------- ---------------------
Title: Title:
---------------------------------- ----------------------------
Address: Address:
-------------------------------- --------------------------
- ---------------------------------------- ----------------------------------
Telephone: ( ) Telephone: ( )
------------------------ ------------------
Facsimile: ( ) Facsimile: ( )
------------------------ ------------------
Federal ID No. Federal ID No.
-------------------------- --------------------
NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So.
Flower Street, Suite 600, Los Angeles, California 90017. (213) 687-8777.
Fax No. (213) 687-8616.
PAGE 12 FORM 204N-R-5/96
(c) Copyright 1996 - By American Industrial Real Estate Association. All rights
reserved. No part of these works may be reproduced in any form without
permission in writing.
<PAGE> 13
RENT ADJUSTMENT(S)
ADDENDUM TO
STANDARD LEASE
DATED March 1, 1998
------------------------------------------------------------------
BY AND BETWEEN (LESSOR) Hassan H. Yarpezeshkan and Maryam Yarpezeshkan
------------------------------------------------
(LESSEE) Maxwell Technologies, Inc.
------------------------------------------------
PROPERTY ADDRESS: 10547 Viper Way, San Diego, California
-------------------------------------------------------
Paragraph 50
------
A. RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified
below shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[X] I. COST OF LIVING ADJUSTMENT(S) (COL)
(a) On (Fill in COL Adjustment Date(s): March 1, 1999; March 1, 2000;
March 1, 2001; March 1, 2002; and March 1, 2003 the monthly rent payable under
paragraph 1.5 ("Base Rent") of the attached Lease shall be adjusted by the
change, if any, from the Base Month specified below, in the Consumer Price
Index of the Bureau of Labor Statistics of the U.S. Department of Labor for
(select one): [ ] CPIW (Urban Wage Earners and Clerical Workers) or [X] CPIU
(All Urban Consumers) for (Fill in Urban Area): Los Angeles -- Anaheim --
Riverside. All items (1982-1984 = 100) herein referred to as "C.P.I." Cost of
Living Adjustments shall not exceed four percent (4%) of the then existing Base
Rent.
(b) The monthly rent payable in accordance with Paragraph A1(a) of this
Addendum shall be calculated as follows: the Base Rent set forth in paragraph
1.5 of the attached Lease, shall be multiplied by a fraction the numerator of
which shall be the C.P.I. of the calendar month 2 (two) months prior to the
month(s) specified in paragraph A1(a) above during which the adjustment is to
take effect, and the denominator of which shall be the C.P.I. of the calendar
month which is two (2) months prior to (select one): [X] the first month of the
term of this Lease as set forth in paragraph 1.3 ("Base Month") or [ ] (Fill in
Other "Base Month"): ____________. The sum so calculated shall constitute the
new monthly rent hereunder, but in no event, shall any such new monthly rent be
less than the rent payable for the month immediately preceding the date for rent
adjustment.
(c) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I. shall
be used to make such calculation. In the event that Lessor and Lessee cannot
agree on such alternative index, then the matter shall be submitted for
decision to the American Arbitration Association in accordance with the then
rules of said association and the decision of the arbitrators shall be binding
upon the parties. The cost of said Arbitrators shall be paid equally by Lessor
and Lessee.
[ ] II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV)
(a) On (Fill in MRV Adjustment Date(s): _________________________________
_______________________________________________________________________________
the monthly rent payable under paragraph 1.5 ("Base Rent") of the attached
Lease shall be adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to the Market Rental Value (MRV) Adjustment Date(s)
described above, Lessor and Lessee shall meet to establish an agreed upon new
MRV for the specified term. If agreement cannot be reached, then:
i) Lessor and Lessee shall immediately appoint a mutually acceptable
appraiser or broker to establish the new MRV within the next 30 days. Any
associated costs will be split equally between the parties, or
ii) Both Lessor and Lessee shall each immediately select and pay the
appraiser or broker of their choice to establish a MRV within the next 30 days.
If, for any reason, either one of the appraisals is not completed within the
next 30 days, as stipulated, then the appraisal that is completed at that time
shall automatically become the new MRV. If both appraisals are completed and
the two appraisers/brokers cannot agree on a reasonable average MRV then they
shall immediately select a third mutually acceptable appraiser/broker to
establish a third MRV within the next 30 days. The average of the two
appraisals closest in value shall then become the new MRV. The costs of the
third appraisal will be split equally between the parties.
Initials:____ Initials:____
____ ____
RENT ADJUSTMENT(S)
Page 1 of 2
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 700 So. Flower St., Ste. 600, Los Angeles, CA 90017.
(213) 687-8777. Fax No. (213) 687-8616.
(c) 1991 American Industrial Real Estate Association.
<PAGE> 14
2) In any event, the new MRV shall not be less than the rent
payable for the month immediately preceding the date for rent adjustment.
(b) Upon the establishment of each New Market Rental Value as described
in paragraph AII:
1) the monthly rental sum so calculated for each term as specified
in paragraph AII(a) will become the new "Base Rent" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
AI(a) above and
2) the first month of each Market Rental Value term as specified in
paragraph AII(a) shall become the new "Base Month" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
AI(b).
[ ] III. FIXED RENTAL ADJUSTMENT(S)(FRA)
The monthly rent payable under paragraph 1.5 ("Base Rent") of the attached
Lease shall be increased to the following amounts on the dates set forth below:
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:
____________________________________ $________________________________
____________________________________ $________________________________
____________________________________ $________________________________
____________________________________ $________________________________
B. NOTICE: Unless specified otherwise herein, notice of any escalations other
than Fixed Rental Adjustment(s) shall be made as specified in paragraph 23 of
the attached Lease.
C. BROKER'S FEE:
The Real Estate Brokers specified in paragraph 1.10 of the attached Lease
shall be paid a Brokerage Fee for each adjustment specified in accordance
with paragraph 15 of the attached Lease.
Initials: ________ Initials: ________
________ ________
RENT ADJUSTMENT(S)
PAGE 2 of 2
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 700 So.
Flower St., Ste. 600, Los Angeles, CA 90017. (213) 687-8777. Fax No.
(213) 687-8616.
(C) 1991 American Industrial Real Estate Association.
<PAGE> 15
OPTION(S) TO EXTEND
ADDENDUM TO
STANDARD LEASE
DATED March 1, 1998
----------------------------------------------------------------
BY AND BETWEEN (LESSOR) Hassan H. Yarpezeshkan and Maryam Yarpezeshkan
-----------------------------------------------
(LESSEE) Maxwell Technologies, Inc.
-----------------------------------------------
PROPERTY ADDRESS: 10547 Viper Way, San Diego, California
-----------------------------------------------------
Paragraph 51
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this Lease
for 2 additional 36 month period(s) commencing when the prior term expires upon
each and all of the following terms and conditions:
(i) Lessee gives to Lessor, and Lessor actually receives on a date which is
prior to the date that the option period would commence (if exercised) by at
least 3 and not more than 12 months, a written notice of the exercise of the
option(s) to extend this Lease for said additional term(s), time being of
essence. If said notification of the exercise of said option(s) is (are) not so
given and received, the option(s) shall automatically expire; said option(s) may
(if more than one) only be exercised consecutively;
(ii) The provisions of paragraph 39, including the provision relating to default
of Lessee set forth in paragraph 39.4 of this Lease are conditions of this
Option;
(iii) All of the terms and conditions of this Lease except where specifically
modified by this option shall apply:
(iv) The monthly rent for each month of the option period shall be calculated as
follows, using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
/ / 1. COST OF LIVING ADJUSTMENT(S) (COL)
(a) On (Fill in COL Adjustment Date(s):___________________________________
_________________________________________________________________________the
monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease
shall be adjusted by the change, if any, from the Base Month specified below. In
the Consumer Price index of the Bureau of Labor Statistics of the U.S.
Department of Labor for (select one): / / CPI W (Urban Wage Earners and Clerical
Workers) or / / CPI U (All Urban Consumers), for (Fill in Urban
Area):________________________. All items (1982-1984 - 100), herein referred to
as "C.P.I."
(b) The monthly rent payable in accordance with paragraph A1(a) of this
Addendum shall be calculated as follows: the Base Rent set forth in paragraph
1.5 of the attached Lease, shall be multiplied by a fraction the numerator of
which shall be the C.P.I. of the calendar month 2 (two) months prior to the
month(s) specified in paragraph A1(a) above during which the adjustment is to
take effect, and the denominator of which shall be the C.P.I. of the calendar
month which is two (2) months prior to (select one): / / the first of the term
of this Lease as set forth in paragraph 1.3 ("Base Month") or / / (Fill in Other
"Base Month"): ______________________. The sum so calculated shall constitute
the new monthly rent hereunder, but in no event, shall any such new monthly rent
be less than the rent payable for the month immediately preceding the date for
rent adjustment.
(c) In the event the compilation and/or publication of the C.P.I. shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the C.P.I. shall be used to
make such calculation. In the event that Lessor and Lessee cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
/X/ II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV)
(a) On (Fill in MRV Adjustment Date(s): the date of commencement of each
Option term.__________________________________________ the monthly rent payable
under paragraph 1.5 ("Base Rent") of the attached Lease shall be adjusted to the
"Market Rental Value" of the property as follows:
1) Four months prior to the Market Rental Value (MRV) Adjustment
Date(s) described above, Lessor and Lessee shall meet to establish an agreed
upon new MRV for the specified term. If agreement cannot be reached, then:
Initials: ____________ Initials: _________
____________ _________
OPTION(S) TO EXTEND
Page 1 of 2
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association, 865 South Figueroa
Street, Suite M-1, Los Angeles, CA 90071, (213) 687-8777, Fax No. (213)
867-8618.
(c) 1991 American Industrial Real Estate Association.
<PAGE> 16
i) Lessor and Lessee shall immediately appoint a mutually
acceptable appraiser or broker to establish the new MRV within the next 30
days. Any associated costs will be split equally between the parties, or
ii) Both Lessor and Lessee shall each immediately select and pay the
appraiser or broker of their choice to establish a MRV within the next 30 days.
If, for any reason, either one of the appraisals is not completed within the
next 30 days, as stipulated, then the appraisal that is completed at that time
shall automatically become the new MRV. If both appraisals are completed and
the two appraisers/brokers cannot agree on a reasonable average MRV then they
shall immediately select a third mutually acceptable appraiser/broker to
establish a third MRV within the next 30 days. The average of the two
appraisals closest in value shall then become the new MRV. The costs of the
third appraisal will be split equally between the parties.
2) In any event, the new MRV shall not be less than the rent
payable for the month immediately preceding the date for rent adjustment.
(b) Upon the establishment of each New Market Rental Value as described
in paragraph AII:
1) the monthly rental sum so calculated for each term as specified
in paragraph AII(a) will become the new "Base Rent" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
AI(a) above and
2) the first month of each Market Rental Value term as specified in
paragraph AII(a) shall become the new "Base Month" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
AI(b).
[ ] III. FIXED RENTAL ADJUSTMENT(S)(FRA)
The monthly rent payable under paragraph 1.5 ("Base Rent") of the attached
Lease shall be increased to the following amounts on the dates set forth below:
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:
____________________________________ $________________________________
____________________________________ $________________________________
____________________________________ $________________________________
____________________________________ $________________________________
B. NOTICE: Unless specified otherwise herein, notice of any escalations other
than Fixed Rental Adjustments shall be made as specified in paragraph 23 of the
attached Lease.
C. BROKER'S FEE:
The Real Estate Brokers specified in paragraph 1.10 of the attached Lease
shall be paid a Brokerage Fee for each adjustment specified in accordance
with paragraph 15 of the attached Lease.
Initials: ________ Initials: ________
________ ________
OPTION(S) TO EXTEND
PAGE 2 of 2
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777,
Fax No. (213) 687-8618.
(C) 1991 American Industrial Real Estate Association.
<PAGE> 1
Exhibit 10.40
ASSIGNMENT AND ASSUMPTION -
FACILITY LEASE
<PAGE> 2
Recording requested by, and
when recorded, return to:
Maxwell Technologies Systems Division, Inc.
9275 Sky Park Court
San Diego, CA 92123
Attention: Donald M. Roberts
ASSIGNMENT AND ASSUMPTION AGREEMENT
(FACILITY LEASE)
This Assignment and Assumption Agreement (the "Agreement") is made and
entered into this 15th day of April, 1998, by and between PRIMEX PHYSICS
INTERNATIONAL COMPANY, a California corporation (formerly known as Physics
International Company), hereinafter referred to as "Assignor," and MAXWELL
TECHNOLOGIES SYSTEMS DIVISION, INC., a California corporation, hereinafter
referred to as "Assignee," with reference to the following recitals of fact:
R E C I T A L S
WHEREAS, THE CONNECTICUT NATIONAL BANK, NOT INDIVIDUALLY BUT SOLELY AS
TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED AS OF DECEMBER 29, 1986, AMONG
THE TRUSTEE AND MERCED ASSOCIATES, A MARYLAND GENERAL PARTNERSHIP, collectively
are the Lessee (the "Lessee"), and D. HEBDEN PORTEUS, DAVID M. HAIG, FRED C.
WEYLAND AND PAUL MULLIN GANLEY, TRUSTEES UNDER THE WILL AND OF THE ESTATE OF
SAMUEL MILLS DAMON, DECEASED, collectively are the Lessor (the "Lessor"), under
the certain Ground Lease dated December 29, 1986 (the "Ground Lease"), as the
same may have been amended, for the that certain real property located in San
Leandro, California (the "Premises"), and more particularly described in
Exhibit A hereto; and
WHEREAS, Lessee subleased the Premises to Assignor, under that certain
Ground Sublease dated December 29, 1986 (the "Ground Sublease"), as the same
may have been amended; and
WHEREAS, Lessee leased the improvements situated on the Premises (the
"Building") to Assignor, under that certain Facility Lease dated December 29,
1986 and Amendment No. 1 dated as of March 9, 1997 (the "Facility Lease"), as
the same may have been amended; and
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<PAGE> 3
WHEREAS, Assignee has entered into an agreement to acquire
simultaneously from Assignor the entirety of its interests in both the Ground
Sublease and the Facility Lease; and
WHEREAS, Assignee has entered into that certain Sublease Agreement
dated April 15, 1998 ("Sublease") with Assignor, by which it has agreed to
sublease a portion of the Premises to Assignor and to construct tenant
improvements thereon; and
WHEREAS, effective as of the date on which Assignee acquires the
Facility Lease from Assignor (the "Transfer Date"), Assignor desires to assign
to Assignee, and Assignee desires to assume from Assignor, all of the rights and
obligations of Assignor under the Facility Lease; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Assignment. Effective as of the Transfer Date, except as provided
herein, Assignor hereby sells, assigns, transfers and conveys to Assignee all of
Assignor's right, title and interest in and to the Facility Lease, including,
without limitation, any extension and renewal options.
2. Assumption. Effective as of the Transfer Date, except as provided
herein, Assignee hereby assumes and agrees to perform all of the obligations of
Assignor under the Facility Lease.
3. Notices of Default. Assignee agrees to promptly deliver to
Assignor a copy of any notice of default given by Lessee under the Facility
Lease.
4. Assignor Estoppel. Assignor is the holder of lessor's interests
under the Facility Lease. Assignor confirms that the documents described above
constitute the entire Facility Lease for the Premises, including any and all
amendments and modifications, and that the Facility Lease is in full force and
effect and is the valid legal and binding obligation of Assignor. To the actual
knowledge of Assignor, no defaults or potential defaults exist with respect to
the Facility Lease.
5. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which, together, shall
constitute one and the same instrument.
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<PAGE> 4
IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of
the day and year first above written.
ASSIGNOR:
PRIMEX PHYSICS INTERNATIONAL
COMPANY, a California corporation
By: [SIG]
------------------------------------
Name: [ILLEGIBLE]
Its: Treasurer
By:
------------------------------------
Name:
Its:
ASSIGNEE:
MAXWELL TECHNOLOGIES SYSTEMS
DIVISION, INC., a California corporation
By: /s/ WALTER P. ROBERTSON
------------------------------------
Name: Walter P. Robertson
Its: President
By:
------------------------------------
Name:
Its:
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<PAGE> 5
EXHIBIT A
All buildings and improvements situated on the hereinafter described lands
situated in the City of San Leandro, County of Alameda, State of California
which are and shall remain real property.
PARCEL 1:
Beginning at a point on the northwestern line of the 66.29 acre tract of land
fifthly described in the Decree of Distribution in the Matter of the Estate of
Georges LeRoy, deceased, in the Superior Court, Contra Costa County, Probate
No. 11478, certified copy of which decree was recorded November 22, 1948, in
Book 5660 OR, page 403 (AC/88342), distant thereon north 62 degrees 30' east
631.30 feet from the northeastern line of Merced Street; thence along said line
of said 66.92 acre tract, north 62 degrees 30' east 315.65 feet; thence south
27 degrees 30' east 690 feet to the direct extension northeasterly of the
northwestern line of the land described as Parcel III in the deed from Oakland
Title Insurance Company to Southern Pacific Company, recorded March 23, 1954,
in Book 7278 OR, page 297, (AJ/23953); thence along said direct extension south
62 degrees 30' west 315.65 feet to the most northern corner of said Parcel III
in the last mentioned deed; and thence north 27 degrees 30' west 690 feet to
the point of beginning.
PARCEL 2:
Portion of the 66.92 acre tract of land fifthly described in the Decree of
Distribution in the Matter of the Estate of Georges LeRoy, deceased, in the
Superior Court of Contra Costa County, Probate No. 11478, a certified copy of
which decree was recorded November 22, 1948, in Book 5660 OR, page 403
(AC/88342), described as follows:
Beginning at the intersection of the northeastern line of Merced Street, 60
feet wide, with the northwestern line of said 66.92 acre tract, thence along the
northwestern line of said 66.92 acre tract north 62 degrees 30' east 631.30
feet; thence south 27 degrees 30' east 690 feet; thence south 62 degrees 30'
west 631.30 feet to said line of Merced Street; thence along the last named line
north 27 degrees 30' west 690 feet to the point of beginning.
Excepting therefrom that portion quitclaimed to the City of San Leandro by
instrument recorded October 10, 1957, Book 8490 OR, page 595, (AM/100857).
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<PAGE> 6
STATE OF CALIFORNIA)
) SS.
COUNTY OF SAN DIEGO)
On this 15th day of April 1998, before me a Notary Public in and for
---- -----
said County and State, personally appeared Stephen C. Curley who being duly
-----------------
sworn, deposes and says that he is Vice President & Treasurer of PRIMEX
--------------------------
TECHNOLOGIES, INC. the corporation described in the above ASSIGNMENT and that
he executed the above ASSIGNMENT as a free act on behalf of PRIMEX
TECHNOLOGIES, INC.
/s/ MYRNA R. JARO
-------------------------------
Notary Public
SEAL:
MYRNA R. JARO
Comm. #1141819
NOTARY PUBLIC-CALIFORNIA
San Diego County
My Comm. Expires June 18, 2001
<PAGE> 7
STATE OF CALIFORNIA)
) SS.
COUNTY OF SAN DIEGO)
On this 15th day of April 1998, before me a Notary Public in and for
---- -----
said County and State, personally appeared Walter P. Robertson who being duly
-------------------
sworn, deposes and says that he is President of MAXWELL TECHNOLOGIES SYSTEM
---------
DIVISION, INC. the corporation described in the above ASSIGNMENT and that he
executed the above ASSIGNMENT as a free act on behalf of MAXWELL TECHNOLOGIES
SYSTEM DIVISION, INC.
/s/ MYRNA R. JARO
-------------------------------
Notary Public
SEAL:
MYRNA R. JARO
Comm. #1141819
NOTARY PUBLIC - CALIFORNIA
San Diego County
My Comm. Expires June 18, 2001
<PAGE> 8
FACILITY LEASE
THIS FACILITY LEASE is made as of the 29th day of December, 1986, by and
between THE CONNECTICUT NATIONAL BANK, not individually but solely in its
capacity as Trustee (the "Landlord"), under that certain Trust Agreement dated
as of December 29, 1986 (the "Trust Agreement"), between Merced Associates, a
Maryland general partnership (the "Partnership"), and Connecticut National Bank
(the "Trustee"), and PHYSICS INTERNATIONAL COMPANY, a California corporation
(the "Tenant").
RECITALS
A. Landlord is the owner of certain real property as hereafter set forth
constituting the Premises as hereafter defined.
B. Tenant desires to lease the Premises from the Landlord in accordance
with the terms and conditions hereinafter set forth.
WITNESSETH
NOW, THEREFORE in consideration of the rental hereinafter agreed upon and
the performance of all the conditions and covenants hereinafter set forth on the
part of Tenant to be performed, Landlord does hereby lease unto Tenant, and the
latter does lease from the former the existing structure containing
approximately two hundred forty thousand 240,000 square feet known as 2700
Merced Street in San Leandro, California, together with improvements to the
structure to be constructed in accordance with the provisions of Paragraph 20
below (the existing structure together with the contemplated improvements are
referred to herein as the "Premises"). The lease of the Premises is subject to
the state of Landlord's title existing as of the date of the commencement of the
term hereof, including but not limited to, (i) those matters referred to in the
preliminary title report dated September 30, 1986, Order No. 106576 by Western
Title Insurance Company; (ii) any state of facts which an accurate survey or
physical inspection of the Premises might show; (iii) the Indenture (the "Ground
Lease") of even date herewith by and between Landlord and the Trustees under the
Will and of the Estate of Samuel H. Damon (the "Damon Estate"); and (iv) the
Ground Sublease (the "Ground Sublease") dated of even date herewith between
Landlord and Tenant. This Lease specifically excludes the ground beneath and
around the Premises.
EXHIBIT E-2
<PAGE> 9
1. Term. The term of this Lease shall be as follows:
1.1 Original Term. The original term of this Lease shall be for a
period of twenty (20) years commencing on December 30, 1986 and ending on
December 31, 2006.
1.2 Renewal Term. Tenant shall have the option to extend the
original term of this lease for two (2) consecutive renewal terms of ten (10)
years each on the same terms and conditions contained herein, except that the
Annual Net Rent (defined below) will be as described in Paragraph 3 below.
Tenant shall exercise each such option by providing written notice of its
exercise of such option to Landlord not less than one hundred eighty (180) days
prior to the expiration of the original term or the renewal term then in
effect; provided, however, that the exercise of each such option shall be
subject to the conditions that: (i) Tenant is not in Default under any
provisions of this Lease (including the cross default provision contained in
Paragraph 17.9 below) on the date of exercise of such option or on the date of
commencement of the renewal term; (ii) Tenant shall be and shall have been in
possession and occupancy of the Premises at all times since the effective date
of this Lease; and (iii) Tenant simultaneously exercises its option to renew
the Ground Sublease.
2. Annual Net Rent - Original Term. Tenant covenants and agrees to pay
Landlord during each year of the original term of this Lease net rental (the
"Annual Net Rent") in the amounts and on the dates as set forth on Exhibit A,
attached hereto. Unless otherwise provided on Exhibit A, Annual Net Rental
shall be due and payable in arrears on the last day of each June and December
in equal semi-annual installments.
3. Annual Net Rent - Renewal Term. Annual Net Rent for each renewal term
will be the annual fair market rental value of the Premises during each renewal
term. In the event the Landlord and the Tenant cannot agree upon the annual
fair market rental value of the Premises within ninety (90) days prior to the
expiration of the original term or of any renewal term, as the case may be,
then the Annual Net Rent for such renewal term shall be determined by three
impartial real estate appraisers, one to be appointed by each of the parties
hereto, and Landlord and Tenant shall each promptly name one such appraiser and
give written notice thereof to the other party, and in case either party shall
fail so to do within ten (10) days after appointment of the first appraiser,
the appraiser already appointed shall name a second appraiser, and the two
appraisers thus appointed in either manner shall appoint a third appraiser, and
in case of their failure so to do within ten (10) days after appointment of
the second appraiser, either party may have such third appraiser (who shall in
this case be a member of the American Institute of Real Estate Appraisers or
other similar organization, who maintains an office in the County of Alameda,
Contra Costa, Santa Clara or the city or county of San Francisco) appointed by
any
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<PAGE> 10
person then sitting as Judge of the Superior Court of the State of California
in and for the County of Alameda and the three appraisers so appointed shall
thereupon proceed to determine the matter in question, and the decision of said
appraisers or a majority of them shall be final, conclusive and binding upon
both parties. The cost of such appraisal other than attorneys' fees shall be
shared equally by the parties hereto. Until determination of such rent by
agreement or appraisal as herein provided, semi-annual installments at the same
rate payable for the preceding year shall be paid on account thereof.
4. Net Lease; Additional Rent. It is intended by Landlord and Tenant
that this Lease be a net, net, net lease and that the Annual Net Rent payable by
Tenant shall be absolutely net to the Landlord. The Tenant agrees to pay
directly any and all costs and expenses in connection with the ownership or
leasing of the Premises. The Tenant covenants and agrees to pay to Landlord as
additional rent (the "Additional Rent"), promptly after Landlord's demand, any
such costs and expenses which cannot be paid directly by Tenant, but which are
paid by Landlord. The costs and expenses for which Tenant is responsible shall
include, but not be limited to, the following:
4.1. Utilities. All costs of water rent and sewer service charges
assessed against the Premises and all costs of electricity, gas, telephone and
other utilities used or consumed in the Premises, together with all taxes,
levies or other charges with respect to any such utilities.
4.2. Real Estate Taxes. All real property taxes, water, rents,
footage assessments, excise taxes, general and special assessments,
supplemental taxes and other governmental charges and impositions of every kind
to whomsoever assessed and whether now in being or not which may be assessed
upon, or payable for, or in respect of, the Premises or any part thereof for any
period wholly or partly within the term of this Lease, or with respect to the
use, occupancy or possession of the Premises at any time during the term hereof;
provided that any imposition relating to the fiscal period of the imposing
authority falling partly within and partly without the term hereof shall be
apportioned from the beginning or to the end of the term, as the case may be.
4.3. Personal Property Taxes. All taxes or assessments levied or
assessed during the term of this Lease against any leasehold interest of Tenant
or any personal property or trade fixtures of Tenant of any kind owned by Tenant
or placed in, upon or about the Premises by Tenant.
4.4. Fees, Charges and Expenses. Any and all fees, charges and
expenses of every kind and nature which Tenant shall incur or Landlord shall pay
or become obligated to pay because of or in connection with owning, operating,
leasing, managing and maintaining of the Premises including, without limitation,
the following: (i) all supplies and materials used, and labor charges
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<PAGE> 11
incurred, in the operation, maintenance, decoration, repairing and cleaning of
the Premises; (ii) the cost of all equipment purchased or rented which is
utilized in the performance of Landlord's obligations hereunder, and the cost
of maintenance and operation of any such equipment; (iii) the cost of all
management, maintenance and service agreements for the Premises and the
equipment therein, including, without limitation, alarm service, security
service, window cleaning, and elevator maintenance; (iv) accounting costs,
including the cost of audits by certified public accountants, and legal and
engineering fees and expenses incurred in connection with the operation and
management of the Premises; (v) wages, salaries, commissions, and related
expenses of all on-site and off-site agents or employees engaged in the
operation, maintenance and security in the Premises; (vi) the cost of all
reasonable and necessary insurance coverage for the Premises; (vii) the cost of
repairs, replacements and general maintenance to the Premises, structural or
non-structural, including without limitation the mechanical, electrical and
heating ventilating and air-conditioning equipment and/or systems; (viii) any
and all exterior landscaping; (ix) cost of removal of trash, rubbish, garbage
and other refuse from the Premises as well as removal of ice and snow from the
sidewalks on or adjacent to the Premises; and (x) every other expense which
would be considered as an expense of maintaining, operating, leasing, insuring,
managing or repairing the Premises.
4.5 Fees and Expenses of the Trustee. All fees and expenses paid or
payable to the Trustee by the Partnership (including, without limitation, all
costs and expenses relating to indemnification of the Trustee) which are related
to any of the transactions or matters referred to in any of the Operative
Documents (defined below), but excluding, however, any such fees or expenses
incurred as a result of the wrong doing or gross negligence of the Partnership.
4.6 Interpretation. Nothing contained in this Paragraph 4 shall be
construed to impose any duty or obligation upon Landlord to provide any service
or benefit referred to this Paragraph. Landlord is under no duty or obligation
to provide any service or benefit other than as expressly required by the terms
of this Lease.
5. Payment of Rental. Tenant covenants and agrees to pay the rental
herein reserved and each installment thereof promptly when and as due. All
rentals shall be paid to Landlord at the address specified in Paragraph 30
hereof, or at such other place or to such appointee of Landlord, as Landlord
may from time to time designate in writing. All monies to be paid by Tenant to
Landlord hereunder, whether or not designated as rent shall be deemed to be
Additional Rent and shall be collectible as rent upon Landlord's demand.
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<PAGE> 12
6. Default Charges. In the event Tenant fails to pay Landlord when due any
rental payment or other charge or sum due hereunder, Landlord may at its option
charge Tenant a late charge equal to eighteen percent (18%) per annum (or such
lesser amount as may be permitted by law) of the payment or other charge or sum
for the period the payment or other charge or sum is overdue, which late charge
shall be collectible and shall be payable by Tenant to Landlord upon demand.
7. Advancements. If Tenant should fail to perform any of the obligations
imposed upon it under this Lease, Landlord may, but shall not be obligated to,
make advances to perform the same on behalf of Tenant and all sums so advanced
shall immediately upon demand become due and payable under this Lease. Tenant
will repay on demand all sums so advanced on Tenant's behalf, plus any expenses
or costs incurred by Landlord, including reasonable attorneys' fees, with
interest thereon at the rate of eighteen percent (18%) per annum (or such
lesser amount as may be permitted by law), accruing from the date of demand.
8. Use. Tenant covenants and agrees to use and occupy the Premises solely
for industrial and mercantile purposes. Tenant agrees to comply with all
applicable zoning, use and other laws and regulations, and provide and install
at its own expense any additional equipment or alterations required to comply
with all such laws and regulations as required from time to time.
9. Compliance with Laws. Tenant covenants and agrees that it will, at its
own expense, observe, comply with and execute all laws, orders, rules,
directions, requirements and regulations of any and all governmental
departments, bodies, bureaus, agencies and officers, and all rules, directions,
requirements and recommendations of the local board of fire underwriters and
the fire insurance rating organizations having jurisdiction over the area in
which the Premises are situated, or other bodies or agencies now or hereafter
exercising similar functions in the area in which the Premises are situated, in
any way pertaining to the Premises or the use and occupancy thereof. In the
event Tenant shall fail or neglect to comply with any of the aforesaid laws,
orders, rules, directions, requirements or recommendations, Landlord or its
agents may enter the Premises and take all such action and do all such work in
or to the Premises as may be necessary in order to cause compliance with such
laws, orders, rules, directions, requirements or recommendations.
10. Representations and Warranties of Tenant. Tenant represents and
warrants that: (a) Tenant is a corporation duly organized and validly existing
in good standing under the laws of the state of its incorporation. (b) The
execution, delivery and performance of this Lease and all related instruments
and documents: (i) have been duly authorized by all necessary corporate action
on the part of Tenant; (ii) do not require the approval of any stockholder,
trustee or holder of any obligations of Tenant except such as have been duly
obtained; and (iii) do not and will
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<PAGE> 13
not contravene any law, governmental rule, regulation or order now binding on
Tenant, or the charter or by-laws of Tenant, or contravene the provisions of, or
constitute a default under, or result in the creation of any lien or encumbrance
upon the property of Tenant under any indenture, mortgage, contract or other
agreement to which Tenant is a party or by which it or its property is bound;
provided, however, Tenant makes no such warranty or representation as to any
state or federal securities laws. (c) This Lease and all related instruments and
documents, when entered into, will constitute legal, valid and binding
obligations of Tenant enforceable against Tenant in accordance with the terms
thereof, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or others laws or equitable principals relating to or
limiting creditors rights generally, and except that the remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought. (d) Tenant is not in default under
any material obligation for the payment of borrowed money, for the deferred
purchase price of property or for the payment of any rent under any lease
agreement which, either individually or in the aggregate, would materially
adversely affect the financial condition of Tenant or the ability of Tenant to
perform its obligations hereunder. (e) All of the information contained in the
schedules now or hereafter attached hereto as Exhibit B is true and correct. (f)
All of the representations and warranties made by Tenant in the Purchase and
Assignment Agreement of even date herewith (the "Purchase and Assignment
Agreement") between Landlord and Tenant were true and correct when made.
11. Assignment and Subletting. Tenant shall have the right, upon sixty (60)
days prior written notice to Landlord, to assign this Lease and to sublet the
Premises, for a period not to exceed the original term of this Lease, provided,
however, at the time of any such assignment or subletting (1) Tenant is not in
Default hereof; and (2) Tenant simultaneously assigns the Ground Sublease or
subleases the property let thereunder, as the case may be, to the same person or
entity as is assigned this Lease or sublet these Premises. Notwithstanding any
such assignment or subletting Tenant shall not be relieved of any liability
under this Lease. Additionally, no party other than Tenant may exercise the
renewal options set forth in Paragraph 1.2 above, unless Olin Corporation
("Guarantor") provides Landlord with a Guaranty Agreement satisfactory to
Landlord, guarantying payment and performance of such parties' obligations to
Landlord during any renewal term.
12. Insurance. Tenant shall during the entire term of this Lease, and any
extensions and renewals thereof, obtain and maintain at its sole cost and
expense, and keep in full force and effect, with Tenant, Landlord and all
mortgagees, holders of
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<PAGE> 14
deeds of trust or assignees of Landlord named as insureds thereon, as their
respective interests may appear, the following insurance coverages:
12.1 Casualty Insurance. Tenant will insure the Premises against loss
by earthquake (if such insurance is commercially available at reasonably
economical premiums determined by Tenant in good faith) theft, fire, casualty
and extended coverage under insurance policies which shall be written in forms,
amounts and by companies satisfactory to the Landlord, provided, however, that
the amount of such insurance shall not be less than the full insurable value of
the Premises (and in all events not less than the amount necessary to avoid
co-insurance restrictions) as the same may increase but not decrease from time
to time. All insurance proceeds shall be payable to Landlord or Landlord's
designee.
12.2 Liability Insurance. Tenant shall obtain and maintain in full
force and effect public liability and property damage insurance in such amounts,
with such insurance companies, and upon policy forms acceptable to and approved
by Landlord, but in any event in an amount of not less than Ten Million Dollars
($10,000,000) per occurrence; provided, however, that Tenant may self-insure
not more than Eight Million Dollars ($8,000,000.00) of such required coverage
for so long as Guarantor's tangible net worth is not less than Three Hundred
Million Dollars ($300,000,000.00). As used herein, "tangible net worth" shall
mean the sum of the par or stated value of all outstanding capital stock,
additional paid in capital, surplus and undivided profits, less any amounts
attributable to good will, patents, copyrights, mailing lists, catalogs,
trademarks, bond discount and underwriting expenses, organizational expenses and
other intangibles, all as determined in accordance with generally accepted
accounting principles consistently applied.
13. Indemnification. Landlord shall not be liable to Tenant for any loss or
damage to Tenant or to any other person or to the property of Tenant
or of any other person unless such loss or damage shall be caused by
or result from the willful misconduct or gross negligence of Landlord.
Tenant shall defend and does hereby agree to indemnify and save
harmless Landlord and the Partnership, and their successors or
assigns, from all expenses, claims and demands of every kind, that may
be brought against it, them or any of them for or on account of any
damage, loss or injury to persons or property in or about the Premises
or the land on which the Premises are situated, or on account of any
damage, loss or injury resulting from or claimed to result from the
presence on the Premises of any hazardous chemical, toxic waste or
radioactive material, or arising from or out of Tenant's use or
occupancy thereof, or occasioned wholly or in part by any act or
omission of Tenant, its agents, servants, contractors, employees or
invitees, and from any and all costs and expenses, counsel fees, and
other charges which may be imposed upon
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<PAGE> 15
Landlord and/or the Partnership, and their successors and assigns, or which it
or they may be obligated to incur in consequence thereof (including, without
limitation, indemnification of the Trustee pursuant to Sections 5.03 and 7.01
of the Trust Agreement).
14. Alterations. Tenant shall not make any alterations to the Premises,
the total cost of which for any one project exceeds Fifty Thousand Dollars,
($50,000), without the prior written consent of Landlord, which shall not be
unreasonably withheld. If Tenant shall desire to make such alterations, plans
for the same shall first be submitted to and approved by Landlord, and all work
and installations shall be performed by Tenant at its own expense in accordance
with approved plans. Tenant agrees that all such work shall be done in a good
and workmanlike manner, that the structural integrity of the Premises shall not
be impaired, and that no liens shall attach to the Premises by reason thereof.
Tenant agrees to obtain at Tenant's expense, all permits required for such
alterations. If requested by Landlord, Tenant shall, prior to commencing
construction, deposit with Landlord a completion bond in at least the estimated
cost of the proposed alteration in such form and with such surety as is
satisfactory to Landlord. Landlord may also make approval contingent upon
compliance with such other reasonable conditions as Landlord may stipulate.
15. Ownership of Alterations. Unless Landlord shall elect that all or
part or any alteration made by Tenant to the Premises shall remain on the
Premises after the termination of this Lease, the Premises shall be restored to
their original condition by Tenant before the expiration of this Lease at
Tenant's sole expense. Upon such election by Landlord, any such alterations,
improvements, betterments or mechanical equipment, including but not limited
to, heating and air conditioning systems, shall become the property of Landlord
as soon as they are affixed to the Premises, and all right, title and interest
thereof of Tenant shall immediately cease, unless otherwise agreed to in
writing by Landlord. Landlord shall have the sole right to collect any
insurance for any damage of any kind to any of the improvements placed upon the
Premises by Tenant. Tenant shall promptly pay any franchise, minor privilege or
other tax or assessment resulting directly or indirectly from any alterations
or improvements made by Tenant to the Premises. Tenant shall repair promptly,
at its own expense, any damage to the Premises caused by bringing into the
Premises any property for Tenant's use, or by the installation or removal of
such property, regardless of fault or by whom such damage shall be caused.
16. Repairs and Maintenance. The Premises hereby leased are leased to
Tenant "AS IS." Landlord shall be under no liability, nor (except as provided
in Paragraph 20 below) have any obligation to do any work or make any repairs
in or to the Premises, an any work which may be necessary to outfit the
Premises for Tenant's occupancy or for the operation of Tenant's business
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<PAGE> 16
therein is the sole responsibility of Tenant and shall be performed by Tenant
at its own cost and expense. Tenant acknowledges that it has fully inspected
the Premises prior to the execution of this Lease, and Tenant further
acknowledges that Landlord has made no warranties or representations with
respect to the condition or state of repairs of the Premises. Tenant will,
during the term of this Lease, keep the Premises and appurtenances (including
windows, doors, plumbing, heating and electrical facilities and installations)
in good order and repair and will make all necessary repairs thereof at its own
expense, including all necessary repairs to the exterior walls and roof of the
Premises. Tenant shall also maintain any driveways and parking areas designated
for its exclusive use. Tenant will, at the expiration of the term of this
Lease, or at the sooner termination thereof by forfeiture or otherwise, deliver
the Premises in good order and condition, reasonable wear and tear excepted. In
the event Tenant shall not proceed promptly and diligently to make any repairs
to perform any obligations imposed upon it within forty-eight (48) hours after
receiving written notice from Landlord to make such repairs or perform such
obligation, then and in such event, Landlord may, at its option, enter the
Premises and do and perform the things specified in said notice, without
liability on the part of Landlord for any loss or damage resulting from any
such action by Landlord and Tenant agrees to pay promptly upon demand any cost
or expense incurred by Landlord in taking such action.
17. Default. Any of the following events shall constitute default (a
"Default") by Tenant:
17.1 Payment. If the rent (Annual Net Rent, or Additional Rent)
shall not be paid when and as due and shall be in arrears, in whole or in part
for a period of five (5) days after written notice from Landlord; or
17.2 Performance. If Tenant shall have failed to perform any
other term, condition, or covenant of this Lease on its part to be performed
for a period of thirty (30) days after written notice of such failure from
Landlord provided, however, if such failure cannot reasonably be remedied
within thirty (30) days then Tenant shall not be in default hereunder if Tenant
commences cure within thirty (30) days after notice and thereafter diligently
and continuously pursues cure; or
17.3 Abandonment. If the Premises are vacant, unoccupied or
deserted for a continuous period of sixty (60) days or more at any time during
the term of this Lease; or
17.4 Involuntary Bankruptcy. The entry of a decree or order for
relief by a court having jurisdiction against or with respect to Tenant in an
involuntary case under the federal bankruptcy laws or any state insolvency or
similar laws ordering the liquidation of Tenant or reorganization of Tenant or
of Tenant's business and affairs, or the appointment of a receiver,
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liquidator, assignee, custodian, trustee, or similar official for Tenant or any
of Tenant's property, including but not limited to the Premises, and the
failure to have such decree, order or appointment discharged or dismissed
within a period of ninety (90) days from the date of entry; or
17.5 Voluntary Bankruptcy. The commencement by Tenant of a
voluntary case under the Federal bankruptcy laws or any state insolvency or
similar laws or the consent by Tenant to the appointment or taking possession
by a receiver, liquidator, assignee, trustee, custodian or similar official for
Tenant or any of Tenant's property, including but not limited to the Premises,
or the making by Tenant of an assignment for the benefit of, creditors, or the
failure by Tenant generally to pay Tenant's debts as and when they become due;
17.6 Sale or Encumbrance. If Tenant's leasehold interest under
this Lease is sold under execution, attachment or decree of court to satisfy
any debt of Tenant, or if any lien (including a mechanic's lien) is filed
against Tenant's leasehold interest and is not discharged within ten (10) days
thereafter.
17.7 Failure to Maintain Insurance. If the Tenant fails to
maintain continuously in force the insurance coverages required by Paragraph 12
above, in strict conformity with the requirements of that Paragraph.
17.8 Breach of Warranty or Representation. If any warranty or
representation made by Tenant herein shall have been materially false or
misleading when made provided; however, that in the event that any of the
warranties or representations contained in Paragraph 10(e) shall have been
materially false or misleading when made, Landlord's sole remedy shall be
pursuant to Paragraph 38 below.
17.9 Cross Default. If the Tenant or Guarantor is in default
under the terms of any document, paper or agreement with Landlord or to which
Landlord is a party, including but not limited to the following documents
executed of even date herewith: the Purchase and Ground Lease Agreement among
the Damon Estate, Landlord and Tenant; the Purchase and Assignment Agreement;
the Agreement of Guaranty Nos. 1 and 2 between Guarantor and Landlord; and the
Ground Sublease (together with the Ground Lease collectively referred to as the
"Operative Documents").
18. Remedies Upon Default. In the event of the occurrence of any Default
as defined in Paragraph 17 hereof, Landlord, in addition to any and all legal
and equitable remedies it may have, shall have the following remedies:
18.1 Distrain. To distrain for any rent or additional rent in
default.
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18.2 Termination; Possession of Premises. At any time after
Default, without notice, to declare this Lease terminated and enter the
Premises with or without legal process; and in such event Landlord shall have
the benefit of all provisions of law now or hereafter in force respecting the
speedy recovery of possession from Tenant's holding over or proceedings in
forcible entry and detainer, and Tenant waives any and all provisions for
notice under such laws.
18.3 Damages. Notwithstanding such reentry and/or termination,
Tenant shall immediately be liable to Landlord for the sum of the following:
(i) all rent (whether Annual Net Rent or Additional Rent) then in arrears; (ii)
all other liabilities of Tenant and damages sustained by Landlord as a result
of Tenant's Default, including but not limited to, the reasonable costs of
reletting the Premises and any broker's commissions payable as a result
thereof; (iii) all of Landlord's costs and expenses (including reasonable
counsel fees) in connection with such Default and recovery of possession; (iv)
the difference between the rent reserved under this Lease (Net Annual Rent and
Additional Rent) for the balance of the term and the fair rental value of the
Premises for the balance of the term to be determined as of the date of
reentry; or at Landlord's option in lieu thereof, Tenant shall pay the amount
of the rent (Net Annual Rent or Additional Rent) reserved under this Lease at
the times herein stipulated for payment of such rent for the balance of the
term, less any amount received by Landlord during such period from others to
whom the Premises may be rented on such terms and conditions and at such
rentals as Landlord, in its sole discretion, shall deem proper; and (v) any
other damages recoverable by law. In the event Landlord brings any action
against Tenant to enforce compliance by Tenant with any covenant or condition
of this Lease, including the covenant to pay rent (Net Annual Rent or
Additional Rent), and it is judicially determined that Tenant has defaulted
in performing or complying with any such covenant or condition, then and in
such event, Tenant shall pay to Landlord all costs and expenses incurred by
Landlord in bringing and prosecuting such action against Tenant, including a
reasonable attorney's fee.
18.4 Liquidated Damages. In the event Landlord elects to sell
the Premises then, in lieu of Landlord's damages as set forth in Paragraph 18.3
above, Landlord shall be entitled to liquidated damages as follows: Landlord
may require Tenant to pay the Stipulated Loss Value determined as specified
below (the "Stipulated Loss Value") plus an amount equal to all rent (whether
Annual Net Rent or Additional Rent) apportioned through the date upon which the
Stipulated Loss Value is paid and all of Landlord's costs and expenses
(including reasonable attorney's fees) incurred by reason of Tenant's default.
The Stipulated Loss Value shall be calculated as the product of (a) the Total
Project Costs (defined to be the sum of all unreimbursed expenditures or
obligations made or incurred by Landlord, the Partnership or Maryland National
Leasing Corporation ("MNLC") in
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connection with the acquisition, financing, improvement, ownership or leasing of
the Premises, all personal property or fixtures therein or thereon and the real
property subject to the Ground Lease) and (b) the applicable percentage factor
set forth on the Schedule of Stipulated Loss Values on Exhibit "C" attached
hereto. The Stipulated Loss Value shall be payable on and determined as of the
next scheduled rent payment date after the date upon which Landlord gives
written notice of its election to require payment thereof. Upon payment of the
liquidated damages this Lease shall terminate.
At such time as Landlord closes on a sale of the Premises, Landlord
shall repay to Tenant so much of the amount Landlord received from Tenant on
account of the Stipulated Loss Value, pursuant to this Paragraph 18.4, as is
equal to the net proceeds of sale of the Premises less any costs or expenses
(including reasonable attorneys fees) Landlord incurred in connection with
reacquiring possession of, holding and selling the Premises. Landlord shall use
good faith efforts to maximize the net profit upon the sale of the Premises.
19. Damage or Destruction. If during the Lease term the Premises are
damaged or destroyed by fire or other casualty, Tenant shall promptly cause such
damage to be repaired or the Premises to be rebuilt. The Premises shall be
repaired or rebuilt to its condition immediately prior to the casualty. To the
extent insurance proceeds on account of such damage are made available to
Landlord and are free from the superior claim of any mortgagee or holder of any
deed of trust, Landlord shall, provided the tenant is not in Default hereof,
make such insurance proceeds available to Tenant, as reimbursement for Tenant's
expenses in connection with the repair or rebuilding. To the extent such
proceeds are insufficient to pay for the repairs or rebuilding required of
Tenant pursuant to this Paragraph 19, Tenant shall supply any and all additional
funds necessary to complete the required work. There shall be no abatement of
rent whether or not such fire or other casualty makes any portion or all of the
Premises untenantable. In the event such fire or other casualty damages or
destroys any of Tenant's leasehold improvements, alterations, betterments,
fixtures or equipment, Tenant shall cause the same to be repaired or restored at
Tenant's sole cost and expense.
20. Improvements to Premises. Landlord shall improve the Premises by the
construction of an approximately fifteen thousand (15,000) square foot
building. Tenant shall cause the construction of the building, as construction
manager for Landlord, in strict conformity with the terms and provisions of the
Purchase and Assignment Agreement. The building to be constructed shall at all
times be deemed to be part of the Premises and shall be subject to all terms
and conditions of this Lease. The building shall at all times be the property
of Landlord subject to the Tenant's rights under this Lease.
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21. Right of Entry. Landlord and its agents, servants, employees,
including any builder or contractor employed by Landlord, shall have the
absolute and unconditional right, license and permission, at any and all
reasonable times, to enter and inspect the Premises or any part thereof, and at
the option of Landlord, to make such reasonable repairs and/or changes in the
Premises as Landlord may deem necessary or proper and/or to enforce and carry
out any provision of this Lease.
22. Expiration of Term. It is agreed that the term of this Lease shall
expire and terminate at the end of the original term hereof or at the end of
any renewal term, as the case may be, without the necessity of any notice by or
to any of the parties hereto, unless otherwise provided herein. If Tenant fails
to vacate the Premises when required, Tenant shall hold the Premises as a
tenant from month to month, subject to all the other terms and conditions of
this Lease, but shall pay rent at an amount equal to double the Annual Net Rent
in effect just prior to such expiration or termination. Landlord shall, upon
such expiration or termination of this Lease, be entitled to the benefit of all
laws relating to the speedy recovery of possession of lands and tenements held
over by tenants that may be now in force or may hereafter be enacted.
23.1 Taking of a Material Part. If during the term of this Lease all
or any material part or the Premises shall be taken by or under power of
eminent domain then, at Landlords option, either (1) this Lease shall terminate
as of, and the rent (Annual Net Rent and Additional Rent) shall be apportioned
to and abate from and after, the next rent payment date following the date of
taking and the Tenant shall pay to the Landlord, on such date the Stipulated
Loss Value together with rent (Annual Net Rent and Additional Rent) accrued
until and including such date plus any other monies due Landlord and any monies
referred to in this Paragraph 23, Tenant shall be entitled to receive any award
from the condemning authority up to the amount of the Stipulated Loss Value
payment, and Landlord shall use reasonable efforts to maximize any condemnation
award; or (2) this Lease shall terminate and the rent (Annual Net Rent and
Additional Rent) shall be apportioned to and abate from and after the date
title vests in the condemning authority, and Tenant shall have no right to
participate in any award or damages for such taking and hereby assigns all of
its right, title and interest therein to Landlord.
23.2 Taking of Less than a Material Part. In the event less than a
material part of the Premises is taken, Landlord shall receive any condemnation
award and Tenant shall, at its expense, promptly make such repairs and
improvements as shall be
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necessary to make the remainder of the Premises adequate to permit Tenant to
carry on its business to substantially the same extent and with substantially
the same efficiency as before the taking. Landlord shall make available to
Tenant such condemnation proceeds as are available to Landlord and free from
the superior claim of any mortgagee or holder of any deed of trust, to defray
the cost of reconstruction or repair actually incurred by Tenant. In no event
shall Landlord be required to expend an amount in excess of the award received
by Landlord for such taking. In no event shall there be any abatement of the
rent hereunder (Annual Net Rent and Additional Rent).
23.3 Definitions. For purposes of this Paragraph, "taking" shall
include a negotiated sale or lease or transfer of possession of the Premises to
a condemning authority under bona fide threat of condemnation for public use.
For purposes of this Paragraph, "a material part of the Premises" shall mean
such part that the remainder thereof is, in Landlord's sole discretion, rendered
inadequate to be attractive to prospective tenants and support a rental stream
sufficient to provide Landlord with its required after tax return.
23.4 Tenant's Participation in Award. Nothing herein shall be deemed
to prevent Tenant from claiming and receiving from the condemning authority if
legally payable, compensation for the taking of Tenant's own tangible property
and such amount as may be payable by statute or ordinance toward Tenant's
damages for Tenant's loss of business and relocation expenses.
24. Subordination. This Lease shall be subject and subordinate to the
lien of any ground lease, mortgages and/or deeds of trust now or hereafter
placed or imposed upon the Premises, unless the ground lessor, the mortgagee of
such mortgage or the holder of such deed of trust elects to have Tenant's
interest hereunder superior to the interest of the ground lessor, mortgagee of
such mortgage or the holder of such deed of trust. This subordination provision
shall be self-operative and no further instrument of subordination shall be
required. Tenant agrees to execute any documents which are required to effect
such subordination. Tenant further hereby constitutes and appoints Landlord as
Tenant's attorney-in-fact to execute any such instrument for and on behalf of
Tenant. Upon Tenant's written request, Landlord will use reasonable efforts to
obtain from the holders of any mortgage or deed of Trust a non-disturbance
agreement, which would provide that in the event of any foreclosure sale
Tenant's possession of the Premises shall not be disturbed provided Tenant is
not in Default of this Lease.
25. Certification. Tenant shall, without charge and from time to time,
within ten (10) days following the written request of the Landlord, execute,
acknowledge and deliver a written certificate affirming, that to the best
knowledge, information and belief of the Tenant:
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(a) This Lease is unmodified and in full force and effect, or if there
have been any modifications, that the Lease is in full force and effect as
modified and stating the modifications.
(b) Whether or not there then exists any set-offs or defenses against
the enforcement of any of the agreements, terms, covenants or conditions of this
Lease and any modifications thereto upon the part of the Landlord (as
applicable) to be performed or complied with, and if so, specifying the same.
(c) The date, if any, to which the Annual Net Rent, Additional Rent
and any other charges payable hereunder has been paid in advance.
(d) The amount of the Total Project Costs through a certain date are
as set forth on Landlord's certificate.
(e) Any such other matters and facts as are reasonably requested by
Landlord.
2.6 Advertise For Rent or For Sale. During the last one hundred eighty
(180) days of the final term of this Lease (being that term following which no
renewal term exists or has been exercised by the Tenant), the Landlord may
maintain "to rent" or "for sale" signs at reasonable locations upon the exterior
of the Premises and may exhibit the Premises to any prospective tenants and
purchasers following reasonable advance notice to tenant.
27. Attornment. If Landlord assigns this Lease or the rents hereunder to
a creditor as security for a debt, Tenant shall, after notice of such assignment
and upon demand by Landlord or the assignee, pay all sums thereafter becoming
due Landlord hereunder to such assignee. Tenant shall also, upon receipt of such
notice, have all policies of insurance required hereunder endorsed so as to
protect the assignee's interest as it may appear and shall deliver such
policies, or certificates thereof, to the assignee. In the event the Premises
are sold at any foreclosure sale or sales, by virtue of any judicial proceedings
or otherwise, this Lease shall continue in full force and effect and Tenant
agrees, upon request, to attorn to and acknowledge the foreclosure purchaser or
purchasers at such sale as the Landlord hereunder.
28. Non-Waiver of Future Enforcement. The receipt of rent by Landlord with
knowledge of any breach of this Lease by Tenant, or of any default on the part
of Tenant in the observance or performance of any of the conditions or covenants
of this Lease, shall not be deemed to be a waiver of any provisions of this
Lease. No failure on the part of Landlord to enforce any covenant or provision
herein contained nor any waiver of any right hereunder by Landlord, shall
discharge or invalidate such covenant or provision or affect the right of
Landlord to enforce the same in the event of any subsequent default. The receipt
by
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Landlord of any rent or any sum of money or any other consideration hereunder
paid by Tenant after the termination, in any manner, of the term herein
demised, will not destroy, or in any manner impair the efficacy of any such
notice of termination as may have been given hereunder by Landlord to Tenant
prior to the receipt of any such sum of money or other consideration, unless so
agreed to in writing and signed by Landlord. Neither acceptance of the keys
nor any other act or thing done by Landlord or any agent or employee during the
term herein demised shall be deemed to be an acceptance of a surrender of said
Premises, excepting only an agreement in writing signed by Landlord accepting
or agreeing to accept such surrender.
29. Recordation of Lease. Tenant agrees that it will, upon Landlord's
request, execute a Memorandum of this Lease in a form suitable for recording
under applicable law. The parties shall divide equally all costs of recordation.
30. Notice. Any notice required or permitted by or in connection with
this Lease shall be in writing and made by hand delivery or by over night
delivery service or by certified mail, return receipt requested, postage
prepaid, addressed to the respective parties at the appropriate address set
forth below or to such other address as may be hereafter specified by written
notice by any party, and shall be considered given as of the date of hand
delivery or as of one (1) day after sending overnight delivery service or three
(3) days after the date of mailing, independent of the date of delivery, as the
case may be:
If to Tenant: Physics International Company
2700 Merced Street
P.O. Box 1538
San Leandro, CA 94577
Attn: J.H. Banister, Jr.
Copy to:
Olin Corporation
120 Long Ridge Road
Stamford, Connecticut 06904
Attn: Corporate Secretary
If to Landlord: The Connecticut National Bank
777 Main Street
Hartford, Connecticut 06115
Attn: Bond and Trustee Administration
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Copy to:
Maryland National Leasing Corporation
502 Washington Avenue
Towson, Maryland 21204
Attn: Vice President-Operations
Copy to:
Olin Financial Services, Inc.
120 Long Ridge Road
P.O. Box 1355
Stamford, Connecticut 06904
Attn: Corporate Secretary
Copy to:
Alan J. Mogol, Esquire
Ober, Kaler, Grimes & Shriver
1600 Maryland National Bank Building
10 Light Street
Baltimore, Maryland 21202
31. Severability. It is agreed that, for the purpose of any suit brought
or based on this Lease, this Lease shall be construed to be a divisible
contract, to the end that successive actions may be maintained thereon as
successive periodic sums shall mature or be due hereunder, and it is further
agreed that failure to include in any suit or action any sum or sums then
matured or due shall not be a bar to the maintenance of any suit or action for
the recovery of said sum or sums so omitted; and Tenant agrees that it will not
in any suit or suits brought or arising under this Lease for a matured sum for
which judgment has not previously been obtained or entered, plead, rely on or
interpose the defenses of res judicata, former recovery, extinguishment,
merger, election of remedies or other similar defense as a defense to said suit
or suits. If any term, clause or provision of this Lease is declared invalid by
a court of competent jurisdiction, the validity of the remainder of this Lease
shall not be affected thereby but shall remain in full force and effect.
32. Non-Waiver. It is understood and agreed that nothing herein shall be
construed to be a waiver of any of the terms, covenants or conditions herein
contained, unless the same shall be in writing, signed by the party to be
charged with such waiver and no waiver of the breach of any covenant herein
shall be construed as a waiver of such covenant or any subsequent breach
thereof. No mention in this Lease of any specific right or remedy shall
preclude Landlord from exercising any other right or from having any other
remedy or from maintaining any action to which it may be otherwise entitled
either at law or in equity.
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33. Successors and Assigns. Except as otherwise herein provided, this
Lease and the covenants and conditions herein contained shall inure to the
benefit of and be binding upon Landlord and Tenant and their respective,
successors and assigns. In the event Landlord's interest under this Lease is
assigns. In the event Landlord's interest under this Lease is transferred or
assigned and written notice thereof is given to Tenant, Landlord, or any
subsequent assignee or transferee of Landlord's interest under this Lease who
gives such notice to Tenant shall automatically be relieved and released from
and after the date of such transfer or conveyance from all liability hereunder.
The liability of Landlord, its successors and assigns, under this Lease shall at
all times be limited solely to Landlord's interest in the land and improvements
comprising the Premises and in the event the owner of Landlord's interest in
this Lease is at any time an individual, partnership, joint venture or
unincorporated association, Tenant agrees that such individual or the members or
partners of such partnership, joint venture or unincorporated association shall
not be personally or individually liable or responsible for the performance of
any of Landlord's obligation hereunder.
34. Captions. The captions of the various sections of this Lease are for
convenience only and are not a part of this Lease. Such captions shall not be
construed to define or limit any of the provisions of this lease.
35. Final and Entire Agreement. This Lease contains the final and entire
agreement between the parties hereto, and neither they nor their agents shall be
bound by any terms, conditions or representations not herein written.
36. Purchase and Assignment Agreement and Ground Sublease. The covenants,
duties and obligations of Tenant hereunder shall be supplemental to the
covenants, duties and obligations of the Tenant under the Purchase and
Assignment Agreement and Ground Sublease. No provision of this Lease shall ever
be construed to restrict, limit or modify any covenant, duty or obligation of
the Tenant under the Purchase and Assignment Agreement and Ground Sublease. All
of Landlord's rights and remedies hereunder shall be cumulative and supplemental
to Landlord's rights and remedies under the Ground Sublease and the Purchase and
Assignment Agreement. In the event the Landlord's rights under the Ground Lease
are terminated for any reason, then Landlord may elect to terminate this Lease
simultaneously with the termination of Landlord's rights under the Ground Lease.
37. Governing Law. The laws of the State of California shall govern the
rights and obligations of the parties to this Lease and the interpretation,
construction and enforceability thereof and any and all issues relating to the
transactions contemplated in this Lease. Tenant consents to the jurisdiction of
the courts of State of Maryland, including the jurisdiction of the United States
District Court for the District of Maryland to the extent a jurisdictional basis
exists, and agrees that venue
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shall be proper in any county in the State of Maryland, in the City of Baltimore
or in the United States District Court for the District of Maryland if suit is
filed to enforce, interpret or construe this Lease.
38. Tax Indemnification.
38.1 General. Tenant's indemnification obligations hereunder shall
not extend to changes in applicable corporate income tax rates. If by reason of
the misrepresentation of or breach by Tenant, of the warranty and representation
set forth in Section 10 (e) hereof, Landlord in computing its taxable income or
liability for tax, shall either lose, or shall not have, or shall lose the right
to claim, or there shall be disallowed or recaptured, for Federal and/or state
income tax purposes, in whole or in part, the benefit of ACRS Deductions;
hereinafter referred to as a "Loss"; then Tenant shall pay Landlord the Tax
Indemnification Payment as additional rent. As used herein, "ACRS Deductions"
shall mean the deductions under the Accelerated Cost Recovery System with
respect to the acquisition cost of any item of the Premises in accordance with
the accelerated method set forth in Section 168 (as in effect on the date such
item of the Premises is first placed in service) of the Internal Revenue Code of
1986, as now or hereafter amended, for property assigned to the depreciation
categories specified in Exhibit B attached hereto; and "Tax Indemnification
Payment" shall mean such amount as, after consideration of (i) all taxes
required to be paid by Landlord in respect of the receipt thereof under the laws
of any governmental or taxing authority in the United States, and (ii) the
amount of any interest or penalties which may be payable by Landlord in
connection with the Loss or contesting the Loss pursuant to Paragraph 38.2
hereof, shall be required to cause Landlord's after-tax net return (the "Net
Return") to be equal to, but no greater than, the Net Return contemplated
consistently with current tax laws as of the date of this Lease.
Landlord promptly shall notify Tenant in writing of such Loss and
Tenant shall pay to Landlord the Tax Indemnification Payment within thirty (30)
days of such notice unless such Loss is contested pursuant to Paragraph 38.2
hereof. For these purposes, a Loss shall occur upon the earliest of (i) the
happening of any event (such as disposition or change in use of the Premises)
which will cause such Loss; (ii) the payment by Landlord to the Internal Revenue
Service or State taxing authority of the tax increase resulting from such Loss;
(iii) the date on which the Loss is realized by Landlord; or (iv) the adjustment
of the tax return of Landlord to reflect such Loss.
The tax indemnification provided in this Section 38 is for the benefit
of the Trustee, the Partnership, Olin Financial Services, Inc. ("OFS") and MNLC.
As used in this Section 38, the
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term "Landlord" shall mean and include the Trustee, the Partnership, OFS and
MNLC, and the consolidated Federal taxpayer group of which each is a member (as
applicable).
38.2 Contest. If the Internal Revenue Service makes a claim against
Landlord which, if successful, would require Tenant to make a Tax
Indemnification Payment, Landlord agrees to contest the claim on request of
Tenant subject to the following conditions:
(a) Landlord agrees promptly after becoming aware thereof to
notify Tenant of any such claim. Tenant agrees that, in the event it desires the
claim to be contested, it shall request Landlord to contest the claim within
thirty (30) days after such notice from Landlord. Landlord agrees not to make
any payment of any tax which is the subject of the claim before it gives the
notice and during the thirty (30) day period after it gives the notice.
(b) Landlord shall consult with Tenant regarding the
commencement and prosecution of any and all administrative proceedings with the
Internal Revenue Service in contesting the claim. Landlord reserves the right to
decline to pursue administrative proceedings. If administrative proceedings are
not pursued or are not successful, Landlord shall, at the request of Tenant,
contest the claim by either paying the tax claimed and suing for a refund in the
appropriate court or contesting the claim in the United States Tax Court and, if
necessary, bring appropriate appeals.
(c) Prior to taking any such action and prior to each appeal
from any adverse determination, Landlord shall have received from Tenant an
opinion of outside tax counsel of recognized standing, which counsel is
reasonably acceptable to Landlord, to the effect that on the basis of law and
fact a meritorious defense exists to such claim or that there is a meritorious
basis for such refund claim, identifying such defense or basis, as the case may
be. Subject to the foregoing, in no event will Landlord compromise or settle the
claim or cease to contest the claim without the written consent of Tenant
(provided, however, that Landlord may so compromise, settle or cease to contest
if it waives in writing its right to an indemnity for any Loss resulting from
such claim). Tenant agrees to reimburse Landlord for all reasonable costs
incurred by Landlord as a result of contesting the claim and to pay all
reasonable costs and expenses which Landlord may incur in contesting the claim.
These costs and expenses shall include, without limitation, reasonable
attorneys' and accountants' fees and disbursements. If Tenant elects to pay the
tax claimed and sue for a refund, Tenant shall provide Landlord with sufficient
funds (as an interest free loan) to pay the tax.
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(d) If any such claim referred to above shall be made by the Internal
Revenue Service and Tenant shall have requested Landlord to contest such claim
and otherwise has complied with its obligations under this sub-part, Tenant's
liability for indemnification hereunder shall become fixed upon final
determination of the liability of Landlord. At such time, Tenant shall become
obligated for the payment of any indemnification hereunder resulting from the
outcome of such contest. If Tenant has provided funds to Landlord (as an
interest free loan) to pay the tax pursuant to the foregoing paragraph) and
Landlord subsequently receives a refund of tax in connection with such final
determination (or would have received a refund had any payment made from funds
provided by Tenant not been applied in payment of a tax liability determined to
be owing by Landlord for which Tenant is not required to make a Tax
Indemnification Payment), such refund or an amount equal to such amount so
applied, together with any interest also received (or which would have been
received) by Landlord and fairly attributable to such refund of tax or amount so
applied, will be paid over to Tenant, to the extent of Tenant's payment to
Landlord.
39. Tenant's Option to Terminate.
39.1 Exercise. So long as Tenant is not in default hereof, then in
the event Tenant in good faith determines that it is uneconomic for Tenant to
continue leasing the Premises, Tenant may terminate this Lease effective upon
any date on which the next installment of Annual Net Rent is due after December
31, 1988 (the "Tenant's Termination Date"), provided (i) Tenant gives Landlord
at least one hundred eighty (180) days' prior written notice, and (ii) Tenant
pays Landlord the Stipulated Loss Value calculated pursuant to Paragraph 39.2
hereof), plus all rent (Annual Net Rent and Additional Rent) due as of that
date and any other monies then owed Landlord by Tenant. Landlord may (at its
sole discretion) elect to sell the Premises to a third party or to determine
the fair value of the Premises and notify Tenant thereof in writing.
39.2 Adjustment for Fair Market Value. If Landlord elects to
determine the fair market value of the Premises and notify Tenant thereof in
writing and (a) if Tenant accepts Landlord's determination of fair market
value, on the Tenant's Termination Date, Tenant shall pay Landlord the amount
(if any) by which the Stipulated Loss Value exceeds the agreed fair market
value, or (b) if Tenant does not accept Landlord's determination of fair market
value, on the Tenant's Termination Date, Landlord shall convey to Tenant all
right, title and interest of Landlord in and to the Premises by grant deed upon
receipt by Landlord from Tenant of all sums due pursuant to Paragraph 39.1
hereof.
39.3 Subsequent Sale. If Landlord does not elect to determine the
fair market value and Landlord sells the Premises within two (2) years after
the Tenant's Termination Date, then at
-21-
<PAGE> 29
such time as Landlord closes on a sale of the Premises, Landlord shall apply
the net proceeds of sale of the Premises (less any costs or expenses, including
reasonable attorneys' fees, incurred by Landlord in connection with reacquiring
possession, holding and selling the Premises) to reimburse Tenant for the
amount paid by Tenant to Landlord as Stipulated Loss Value under Paragraph
39.1; solely to the extent of such Stipulated Loss Value actually received by
Landlord from Tenant. Landlord shall use its good faith efforts to maximize the
net proceeds upon any sale of the Premises.
40. Landlord's Option to Terminate.
40.1 Exercise. In the event there shall be any change in the
ownership of the capital stock or voting power of Guarantor and as a result
thereof any one or more of Guarantor's senior lenders shall call any senior
loan indebtedness, then Landlord may, upon thirty (30) days' prior written
notice, terminate this Lease and cause Tenant to pay to Landlord the Stipulated
Loss Value (or the alternative amount required pursuant to Paragraph 40.2
hereof), determined and payable as of the date upon which the next installment
of Annual Net Rent is due, plus all rent (Annual Net Rent and Additional Rent)
prorated through the date of termination (the "Landlord's Termination Date")
and any other monies then due Landlord from Tenant. Notwithstanding the payment
of the Stipulated Loss Value, Tenant shall be permitted to remain in possession
of the Premises for up to one hundred fifty (150) days from Landlord's notice,
subject to all the terms and conditions of this Lease but Tenant shall continue
to pay Annual Net Rent in the amount last due prior to Landlord's notice.
Landlord may (at its sole discretion) elect to sell the Premises to a third
party or to determine the fair market value of the Premises and notify Tenant
thereof in writing.
40.2 Adjustment for Fair Market Value. If Landlord elects to
determine the fair market value of the Premises and notify Tenant thereof in
writing and (a) if Tenant accepts Landlord's determination of fair market
value, on the Landlord's Termination Date, Tenant shall pay Landlord the amount
(if any) by which the Stipulated Loss Value exceeds the agreed fair market
value, or (b) if Tenant does not accept Landlord's determination of fair market
value, on the Landlord's Termination Date, Landlord shall convey to Tenant all
right, title and interest of Landlord in and to the Premises by grant deed upon
receipt by Landlord from Tenant of all sums due pursuant to Paragraph 40.1
hereof.
40.3 Subsequent Sale. If Landlord does not elect to determine the
fair market value and Landlord sells the Premises within two (2) years after
the Landlord's Termination Date, then at such time as Landlord closes on a sale
of the Premises, Landlord shall apply the net proceeds of sale of the Premises
(less any costs or expenses, including reasonable attorneys'
-22-
<PAGE> 30
fees, incurred by Landlord in connection with reacquiring possession, holding
and selling the Premises) to reimburse Tenant for the amount paid by Tenant to
Landlord as Stipulated Loss Value under Paragraph 40.1, solely to the extent of
such Stipulated Loss Value actually received by Landlord from Tenant. Landlord
shall use its good faith efforts to maximize the net proceeds upon any sale of
the Premises.
41. Quiet Enjoyment. Landlord covenants that, upon the payment of the
rent (Annual Net Rent and Additional Rent) herein, Tenant shall have and hold
the Premises, free from any interference from the Landlord, but subject to the
terms of this Lease, of any mortgage, deed of trust, or other security
instrument now existing or hereafter placed on the Premises or any portion
thereof.
42. Survival of Obligations. All of Tenant's duties and obligations
which accrue during the term of this Lease shall survive the expiration of
earlier termination of this Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Lease under seal
as of the day and year above written with the specific intention that this
Lease constitute an instrument under seal.
WITNESS/ATTEST: LANDLORD:
THE CONNECTICUT NATIONAL BANK,
not individually but solely in its
capacity as Trustee
By: [SEAL]
- ------------------------------- --------------------------
TENANT:
PHYSICS INTERNATIONAL COMPANY
[SIG] By: [SIG] [SEAL]
- ------------------------------- --------------------------
-23-
<PAGE> 31
ACKNOWLEDGMENTS
STATE OF ______________, CITY OF ________________, TO WIT:
I HEREBY CERTIFY that on this ___________ day of December, 1986, before me
the subscriber, a Notary Public of the State and subdivision aforesaid,
personally appeared _________________________, who acknowledged ______self to
be the _______________________ of THE CONNECTICUT NATIONAL BANK, not
individually but solely in its capacity as trustee, and that __he as such
____________________________, being so authorized to do, executed the foregoing
instrument for the purposes therein contained by signing the name of the
Trustee by _____self as __________________________ in my presence.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
-------------------------------------
NOTARY PUBLIC
My Commission Expires:
STATE OF CALIF., COUNTY OF ALAMEDA TO WIT:
I HEREBY CERTIFY that on this 29th day of December, 1986, before me the
subscriber, a Notary Public of the State and subdivision aforesaid, personally
appeared JAMES BANISTER, JR., who acknowledged himself to be the Senior Vice
President of PHYSICS' INTERNATIONAL COMPANY, a California corporation and that
he as such Senior Vice President, being so authorized to do, executed the
foregoing instrument for the purpose therein contained by signing in my
presence the name of the corporation by himself as Senior Vice President.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ JENNIFER TRUJILLO
-------------------------------------
NOTARY PUBLIC
My Commission Expires: April 7, 1987
[NOTARY PUBLIC SEAL]
-24-
<PAGE> 32
EXHIBIT "A" TO FACILITY LEASE
I. GENERAL NARRATIVE
As a condition of entering into this Facility Lease, Landlord and Tenant
have agreed that Landlord will acquire the Facility and make certain
improvements to the Facility which are required by the Tenant.
Landlord and Tenant have further agreed that the rentals to be charged for
the Facility will be established at a reasonable level at the commencement of
the Facility Lease and will be increased on a periodic basis to reflect the
increased investment in the Facility by the Landlord as the improvements are
being completed.
For portions of the facility purchased and leased in 1987, the Initial
Rentals described below will be increased based upon the cost of 1987
improvements to the Facility as described in the table below.
<TABLE>
<CAPTION>
Base Lease Term Construction Period
---------------------------------------------- --------------------------------
Daily Rent Payment
as a Percentage of
Year Property Semi-Annual Rent Payment Acquisition Cost
is Placed Type of as a Percentage of (Due on 6/30/87 & Construction
in Service Property Acquisition Cost Base Lease Period 12/31/87) Period
- -------------- -------- --------------------------- ----------------- ------------------ ------------
Payments Lease Rate Factor
-------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1987 Land Improve- 1 - 19 5.991629% December 31, 1987 0.036111% Date of Acquisition
ments 20 - 38 7.323102 through December 31, 2006 through December 31, 1987
1987 Real Estate 1 - 19 6.602842% December 31, 1987 0.036111% Date of Acquisition
70 - 38 8.070140 through December 31, 2006 through December 31, 1987
</TABLE>
Landlord and Tenant have further agreed that additional rental adjustments
will be made in order to minimize Tenant's rents. Landlord in good faith will
calculate rental adjustments periodically and in calculating this adjustment
Landlord will consider:
1. The cost or projected costs of improvements to the Facility.
2. The dates that improvements are paid for or anticipated to be paid
for and placed in service.
3. The tax benefits to be realized by the Landlord on the Facility and
on the improvements.
4. Actual rates of return available in the market to Landlord on similar
investments.
5. Transaction expenses incurred by Landlord related to the ownership or
leasing of the property.
Smith Barney will in good faith review the calculations performed by the
Landlord, and will certify to the Tenant that the adjusted rent is a "fair
market rent" based upon the costs, dates, tax benefits and market rates of
return available to Landlords on similar investments.
II. INITIAL RENTALS
The Facility rents to be paid by Tenant, prior to the adjustments referred
to above are:
For the first ten years: 20 semi-annual payments each at $240,432.73
For the second ten years: 20 semi-annual payments each at $293,862.22
III. LIMITATION OF RENTS
Landlord and Tenant further agree that in no event will net present value
of the Annual Net Rents for the Facility be greater than $10 million,
discounting the Annual Net Rents at an annual discount factor of 10%.
<PAGE> 33
EXHIBIT "B" TO FACILITY LEASE
<TABLE>
<CAPTION>
DEPRECIATION
ACQUISITION CATEGORY AND DATE PLACED
DESCRIPTION COST ACRS CLASS LIFE IN SERVICE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. All buildings and improvements $1,850,000 "Real Estate" 12/29/86
situated on lands hereinafter 19 Years
described in Exhibit B-1 attached
hereto, which lands are situated in
the City of San Leandro, County
of Alameda, State of California
which are and shall remain real
property.
2. Improvements made to the buildings $2,078,300 "Real Estate" 12/29/86
referred to above, described more 19 Years
completely in Exhibit B-2, attached
hereto.
3. Improvements made to the buildings To be determined "Real Estate" To be determined
referred to above, to be made after and reported in 31.5 Years and reported in
1986. Such improvements are generally later attachments later attachments
described in Exhibit B-3, attached. to this Exhibit B. to this Exhibit B.
4. Improvements made to the land To be determined "Land To be determined
referred to above, to be made after and reported in Improvements" and reported in
1986. Such improvements are generally later attachments 15 Years later attachments
described in Exhibit B-3, attached. to this Exhibit B. to this Exhibit B.
</TABLE>
<PAGE> 34
EXHIBIT B-1 (Page 1 of 3)
All buildings and improvements situated on the hereinafter described lands
situated in the City of San Leandro, County of Alameda, State of California
which are and shall remain real property.
PARCEL 1:
Beginning at a point on the northwestern line of the 66.29 acre tract of land
fifthly described in the Decree of Distribution in the Matter of the Estate of
Georges LeRoy, deceased, in the Superior Court, Contra Costa County, Probate
No. 11478, certified copy of which decree was recorded November 22, 1948, in
Book 5660 OR, page 403 (AC/88342), distant thereon north 62 degrees 30' east
631.30 feet from the northeastern line of Merced Street; thence along said line
of said 66.92 acre tract, north 62 degrees 30' east 315.65 feet; thence south
27 degrees 30' east 690 feet to the direct extension northeasterly of the
northwestern line of the land described as Parcel III in the deed from Oakland
Title Insurance Company to Southern Pacific Company, recorded March 23, 1954,
in Book 7278 OR, page 297, (AJ/23953); thence along said direct extension south
62 degrees 30' west 315.65 feet to the most northern corner of said Parcel III
in the last mentioned deed; and thence north 27 degrees 30' west 690 feet to
the point of beginning.
PARCEL 2:
Portion of the 66.92 acre tract of land fifthly described in the Decree of
Distribution in the Matter of the Estate of Georges LeRoy, deceased, in the
Superior Court of Contra Costa County, Probate No. 11478, a certified copy of
which decree was recorded November 22, 1948, in Book 5660 OR, page 403
(AC/88342), described as follows:
Beginning at the intersection of the northeastern line of Merced Street, 60
feet wide, with the northwestern line of said 66.92 acre tract, thence along
the northwestern line of said 66.92 acre tract north 62 degrees 30' east 631.30
feet; thence south 27 degrees 30' east 690 feet; thence south 62 degrees 30'
west 631.30 feet to said line of Merced Street; thence along the last named
line north 27 degrees 30' west 690 feet to the point of beginning.
Excepting therefrom that portion quitclaimed to the City of San Leandro by
instrument recorded October 10, 1957, Book 8490 OR, page 595, (AM/100857).
<PAGE> 35
EXHIBIT B-1 (Page 2 of 3)
[EXISTING SITE PLAN AND ANALYSIS]
<PAGE> 36
EXHIBIT B-1 (Page 3 of 3)
STRUCTURAL PLAN - MAIN BUILDING
<PAGE> 37
EXHIBIT B-3
FACILITY RENOVATION PLAN
MAJOR COST CONSTRUCTION ELEMENTS
<TABLE>
<CAPTION>
ELEMENT COST
<S> <C> <C>
1. Roofing Repair/Replacement $ 40,700
2. Seismic/Structural Improvements $ 71,500
3. HVAC System Repairs/Replacements $1,500,000
4. Interior Remodeling & Renovation $1,820,000
5. Exterior Bldg. Repairs/Modifications $ 213,500
6. Site Preparation, Landscaping
Paving, Utilities $ 710,700
7. New Building (Complete) $ 975,000
8. "Soft Costs" incl., A&E, Project
Management, Fees/Permits, etc. $ 740,300
----------
TOTAL $6,071,700
</TABLE>
<PAGE> 38
FACILITY LEASE
SCHEDULE OF STIPULATED LOSS VALUES
<TABLE>
<CAPTION>
Stipulated Loss Value
as a Percentage of
Original Acquisition Cost
-------------------------------------------
Rental Payment 1986 Real 1987 Land 1987 Real
Date Estate Improvements Estate
- -------------- --------- ------------ ---------
<S> <C> <C> <C>
Prior to First Payment 105.73% 106.02% 106.02%
June 30, 1987 109.96 106.02 106.02
December 31, 1987 110.48 106.02 106.02
June 30, 1988 109.58 106.20 105.83
December 31, 1988 109.89 106.74 105.75
June 30, 1989 110.13 107.20 105.64
December 31, 1989 110.28 107.57 105.49
June 30, 1990 110.37 107.85 105.31
December 31, 1990 110.38 108.05 105.09
June 30, 1991 110.32 108.17 104.84
December 31, 1991 110.18 108.22 104.84
June 30, 1992 109.98 108.19 104.23
December 31, 1992 109.71 108.09 103.86
June 30, 1993 109.38 107.92 103.46
December 31, 1993 108.98 107.67 103.02
June 30, 1994 108.53 107.37 102.53
December 31, 1994 108.00 106.97 102.01
June 30, 1995 107.42 106.51 101.44
December 31, 1995 106.78 105.96 100.83
June 30, 1996 106.08 105.33 100.17
December 31, 1996 105.32 104.62 99.48
June 30, 1997 103.38 103.82 98.75
December 31, 1997 101.35 101.85 96.73
June 30, 1998 99.24 99.75 94.63
December 31, 1998 97.03 97.53 92.45
June 30, 1999 94.73 95.19 90.20
December 31, 1999 92.34 92.74 87.89
June 30, 2000 89.86 90.16 85.50
December 31, 2000 87.28 87.46 83.06
June 30, 2001 84.63 84.63 80.55
December 31, 2001 81.85 81.69 77.99
June 30, 2002 79.00 78.62 75.37
December 31, 2002 76.06 75.47 72.70
June 30, 2003 73.02 72.25 69.98
December 31, 2003 69.91 69.01 67.22
June 30, 2004 66.69 65.73 64.42
December 31, 2004 63.40 62.46 61.60
June 30, 2005 60.01 59.17 58.75
December 31, 2005 56.56 55.90 55.90
June 30, 2006 53.09 52.70 53.01
December 31, 2006 50.00 50.00 50.00
If renewed, any Payment
period after December 31,
2006 50.00 50.00 50.00
</TABLE>
If, as contemplated in Exhibit A to the Lease, the Annual Net Rents are
adjusted, then Landlord may adjust the above stipulated loss values to reflect
such adjustments. In addition, any prepayment fees required on any debt used to
finance the facility shall be added to the stated stipulated loss values.
(Assuming Tenant is not in default. It is understood that Tenant has no
liability for the Stipulated Loss Values after expiration of
<PAGE> 39
FACILITY LEASE
Amendment No. 3
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 3
to Facility Lease under seal as of the day and year first above written with
specific intention that this Amendment No. 3 to Facility Lease constitute an
instrument under seal.
WITNESS/ATTEST: LANDLORD:
THE CONNECTICUT NATIONAL BANK,
not individually but solely
in its capacity as Trustee
________________________ By:__________ _____________ (SEAL)
TENANT:
PHYSICS INTERNATIONAL COMPANY
________________________ By:__________ _____________ (SEAL)
Pursuant to Section 6(b) of that certain Assignment of Lease and Agreements
from The Connecticut National Bank, not individually but solely as trustee
under the Trust Agreement with Merced Associates, to the undersigned, dated as
of March 9, 1987, the undersigned consent to the foregoing amendment to the
Facility Lease.
WITNESS/ATTEST: THE FIRST NATIONAL BANK OF
BOSTON, not individually but
solely as Trustee
________________________ By:__________ _____________ (SEAL)
________________________ ____________________________
Philip G. Kane, Jr., not
individually but solely as
Trustee
<PAGE> 41
TABLE TO EXHIBIT A
Page One
<TABLE>
<CAPTION>
1987
1986 Real Estate ---------------------------------------------------
--------------------------- Land Improvements Real Estate
% of ----------------------- ----------------------
Capitalized % of % of
Date Cost Amount Cap. Cost Amount Cap. Cost Amount
- ----------------- ----------- ----------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1987 5.47000 $214,878.01 Interim rent at .028305% per day
December 31, 1987 4.18500 $164,399.35 Interim rent at 0.28305% per day
June 30, 1988 5.47000 $214,878.01 4.384820% $24,360.44 7.291380% $111,074.72
December 31, 1988 4.18500 164,399.35 7.245606 40,253.90 5.512579 83,976.98
June 30, 1989 5.47000 214,878.01 5.143938 28,577.81 7.764448 118,281.29
December 31, 1989 4.18500 164,399.35 6.486488 36,036.53 5.039511 76,770.41
June 30, 1990 5.47000 214,878.01 5.081503 28,230.95 7.764448 118,281.29
December 31, 1990 4.18500 164,399.35 6.548910 36,383.32 5.039511 76,770.41
June 30, 1991 4.26393 167,499.96 5.013276 27,851.91 7.764448 118,281.29
December 31, 1991 5.39107 211,777.40 6.617150 36,762.43 5.039511 76,770.41
June 30, 1992 4.12892 162,196.36 4.938699 27,437.58 7.764448 118,281.29
December 31, 1992 5.52609 217,081.39 6.691727 37,176.76 5.039511 76,770.41
June 30, 1993 4.06395 159,644.15 4.857176 26,948.67 7.764448 118,281.29
December 31, 1993 5.59105 219,633.22 6.773237 37,629.60 5.039511 76,770.41
June 30, 1994 3.99294 156,854.66 4.768076 26,489.66 5.039511 76,770.41
December 31, 1994 5.66207 222,423.10 6.862338 38,124.61 7.764448 118,281.29
June 30, 1995 3.91532 153,805.52 7.887850 43,821.97 4.912807 74,840.24
December 31, 1995 6.81246 267,613.87 3.742576 20,792.37 7.891164 120,211.65
June 30, 1996 8.22670 323,169.46 8.750517 48,614.64 4.774314 72,730.47
December 31, 1996 3.57386 140,391.94 4.172178 23,179.07 8.029657 122,321.41
June 30, 1997 8.45360 332,082.77 10.329078 57,384.53 4.622936 70,424.43
December 31, 1997 3.34696 131,478.63 3.885875 21,588.48 9.603689 146,299.74
June 30, 1998 8.70264 341,865.81 10.643299 59,130.23 11.540986 175,811.95
December 31, 1998 3.09792 121,695.59 3.571654 19,842.79 4.108291 62,584.49
June 30, 1999 8.97597 352,603.03 10.988167 61,046.19 11.903470 181,333.92
December 31, 1999 2.82459 110,958.37 3.226786 17,926.83 3.745820 57,062.71
June 30, 2000 9.27596 364,387.54 11.366671 63,149.02 12.301296 187,394.29
December 31, 2000 2.52460 99,173.86 2.848281 15,824.00 3.347993 51,002.34
June 30, 2001 9.60521 377,321.46 11.782098 65,456.97 12.737933 194.045.89
December 31, 2001 2.19535 86,239.93 2.432855 13,516.04 2.911356 44,350.74
June 30, 2002 9.96657 391,516.77 12.238044 67,990.04 13.217151 201,346.14
December 31, 2002 1.83399 72,044.63 1.976921 10,983.04 2.432139 37,050.48
June 30, 2003 10.36318 407,096.80 12.738454 70,770.13 13.743102 209,358.33
December 31, 2003 1.34738 56,464.60 1.476511 8,202.95 1.906176 29,038.11
June 30, 2004 10.79847 424,196.30 13.287668 73,821.37 14.320364 218,152.17
December 31, 2004 1.00209 39,365.10 0.927284 5,151.65 1.328926 20,244.46
June 30, 2005 11.27622 442,963.75 13.890437 77,170.13 14.953933 227,803.78
December 31, 2005 0.52434 20,597.65 0.324503 1,802.82 0.695356 10,592.85
June 30, 2006 11.80056 463,561.40 7.303004 40,572.79 15.649290 238,396.63
December 31, 2006 0.00000 .00 6.911948 38,400.23 0.000000 0.00
</TABLE>
<PAGE> 42
TABLE TO EXHIBIT A
Page Two
<TABLE>
<CAPTION>
1988
----------------------------------------------------------
Land Real
Improvements Estate
-------------------------- -------------------------- Total
% of % of Rent
Date Cap. Cost. Amount Cap. Cost Amount Payments
- ------------- ---------- ---------- --------- ---------- -----------
June 30, 1988 Interim Rent at .028305% per day
<S> <C> <C> <C> <C> <C>
December 31, 1988 4.185000 $29,984.73 4.185000 $132,928.42 $451,543.38
June 30, 1989 4.860804 34,826,73 5.663903 179,902.92 576,466.76
December 31, 1989 4.185000 29,984.73 4.467571 141,903.76 449,094.78
June 30, 1990 5.547380 39,745.92 5.663903 179,902.92 581,039.09
December 31, 1990 4.142180 29,677.93 4.485429 142,470.98 449,701.99
June 30, 1991 5.590200 40,052.71 5.663903 179,902.92 533,588.79
December 31, 1991 4.074850 29,195,52 4.501168 142,970.88 497,476.64
June 30, 1992 5.657530 40,535.12 5.663903 179,902.92 528,353.27
December 31, 1992 4.001250 28,668.19 4.562589 144,921.80 504,618.55
June 30, 1993 5.731130 41,062.45 5.663903 179,902.92 525,875.48
December 31, 1993 3.920810 28,091.85 4.562589 144,921.80 507,046.88
June 30, 1994 5.811570 41,638.79 5.663903 179,902.92 481,656.44
December 31, 1994 3.832890 27,461.92 6.293226 199,892.14 606,183.06
June 30, 1995 5.899490 42,268.72 5.506573 174,905.62 489,642.07
December 31, 1995 3.736790 26,773.39 5.821234 184,900.23 620,291.51
June 30, 1996 8.158340 58,452.95 5.349242 169,908.32 672,875.84
December 31, 1996 3.531190 25,300.30 5.821234 184,900.23 496,092.95
June 30, 1997 8.363940 59,926.03 5.663903 179,902.92 699,720.68
December 31, 1997 3.306470 23,690.23 5.917619 187,961.71 511,018.79
June 30, 1998 8.588660 61,536.11 9.754500 309,832.81 948,176.91
December 31, 1998 3.060850 21,930.41 3.618605 114,937.98 340,991.26
June 30, 1999 8.834280 63,295.93 10.226492 324,824.72 983,103.79
December 31, 1999 2.792380 20,006.87 3.261680 103,600.95 309,555.73
June 30, 2000 9.102750 65,219.46 10.478221 332,820.41 1,012,970.72
December 31, 2000 2.498950 17,904.50 2.942442 93,460.98 277,365.68
June 30, 2001 9.396180 67,321.83 10.855814 344,813.93 1,048,960.08
December 31, 2001 2.178230 15,606.60 2.593521 82,378.16 242,091.47
June 30, 2002 9.716900 69,619.73 11.233408 356,807.46 1,087,280.14
December 31, 2002 1.827680 13,094.98 2.139697 67,963.33 201,136.46
June 30, 2003 10.067450 72,131.36 11.705400 371,799.37 1,131,155.99
December 31, 2003 1.444530 10,349.78 1.730637 54,970.34 159,025.78
June 30, 2004 10.450600 74,876.55 12.208858 387,790.74 1,178,837.13
December 31, 2004 1.025750 7,349.30 1.258645 39,978.43 112,088.94
June 30, 2005 10.869380 77,877.03 12.680850 402,782.65 1,228,597.34
December 31, 2005 0.568020 4,069.75 0.692255 21,988.13 59,051.20
June 30, 2006 11.327110 81,156.58 12.429121 394,786.97 1,218,474.37
December 31, 2006 1.563316 11,200.86 2.045298 64,964.94 114,566.03
</TABLE>
<PAGE> 1
Exhibit 10.41
Assignment and Assumption -
Ground Sublease
<PAGE> 2
Recording requested by, and
when recorded, return to:
Maxwell Technologies Systems Division, Inc.
9275 Sky Park Court
San Diego, CA 92123
Attention: Donald M. Roberts
ASSIGNMENT AND ASSUMPTION AGREEMENT
(Ground Sublease)
This Assignment and Assumption Agreement (the "Agreement") is
made and entered into this 15th day of April, 1998, by and between PRIMEX
PHYSICS INTERNATIONAL COMPANY, a California corporation (formerly known as
Physics International Company), hereinafter referred to as "Assignor," and
MAXWELL TECHNOLOGIES SYSTEMS DIVISION, INC., a California corporation,
hereinafter referred to as "Assignee," with reference to the following recitals
of fact:
RECITALS
WHEREAS, THE CONNECTICUT NATIONAL BANK, NOT INDIVIDUALLY BUT
SOLELY AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED AS OF DECEMBER 29,
1986, AMONG THE TRUSTEE AND MERCED ASSOCIATES, A MARYLAND GENERAL PARTNERSHIP,
collectively are the Lessee (the "Lessee"), and D. HEBDEN PORTEUS, DAVID M.
HAIG, FRED C. WEYLAND AND PAUL MULLIN GANLEY, TRUSTEES UNDER THE WILL AND OF THE
ESTATE OF SAMUEL MILLS DAMON, DECEASED, collectively are the Lessor (the
"Lessor"), under that certain Ground Lease dated December 29, 1986 (the "Ground
Lease"), as the same may have been amended, for the that certain real property
located in San Leandro, California (the "Premises"), and more particularly
described in Exhibit A hereto; and
WHEREAS, Lessee subleased the Premises to Assignor, under that
certain Ground Sublease dated December 29, 1986 (the "Ground Sublease"), as the
same may have been amended; and
WHEREAS, Lessee leased the improvements situated on the Premises
(the "Building") to Assigner, under that certain Facility Lease dated December
29, 1986 (the "Facility Lease"), as the same may have been amended; and
<PAGE> 3
WHEREAS, Assignee has entered into an agreement to acquire simultaneously
from Assignor the entirety of its interests in both the Ground Sublease and the
Facility Lease; and
WHEREAS, Assignee has entered into that certain Sublease Agreement dated
April 15, 1998 ("Sublease") with Assignor, by which it has agreed to sublease a
portion of the Premises to Assignor and to construct tenant improvements
thereon; and
WHEREAS, effective as of the date on which Assignee acquires the Ground
Sublease from Assignor (the "Transfer Date"), Assignor desires to assign to
Assignee, and Assignee desires to assume from Assignor, all of the rights and
obligations of Assignor under the Ground Sublease; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. Assignment. Effective as of the Transfer Date, except as provided
herein, Assignor hereby sells, assigns, transfers and conveys to Assignee all
of Assignor's right, title and interest in and to the Ground Sublease,
including, without limitation, any extension and renewal options.
2. Assumption. Effective as of the Transfer Date, except as provided
herein, Assignee hereby assumes and agrees to perform all of the obligations of
Assignor under the Ground Sublease.
3. Notices of Default. Assignee agrees to promptly deliver to Assignor a
copy of any notice of default given by Lessee, under the Ground Sublease.
4. Assignor Estoppel. Assignor is the holder of lessor's interests under
the Ground Sublease. Assignor confirms that the documents described above
constitute the entire Ground Sublease for the Premises, including any and all
amendments and modifications, and that the Ground Sublease is in full force and
effect and is the valid legal and binding obligation of Assignor. To the actual
knowledge of Assignor, no defaults or potential defaults exist with respect to
the Ground Sublease.
5. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which, together, shall constitute
one and the same instrument.
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have entered into this Agreement
as of the day and year first above written.
ASSIGNOR:
PRIMEX PHYSICS INTERNATIONAL
COMPANY, a California corporation
By: /s/ S. C. CURLEY
-------------------------------------
Name: S. C. Curley
Its: Treasurer
By:
-------------------------------------
Name:
Its:
ASSIGNEE:
MAXWELL TECHNOLOGIES SYSTEMS
DIVISION, INC., a California corporation
By: /s/ WALTER R. ROBERTSON
-------------------------------------
Name: Walter R. Robertson
Its: President
By:
-------------------------------------
Name:
Its:
<PAGE> 5
EXHIBIT A
LEGAL DESCRIPTION
Those parcels of land, not including any buildings or improvements, in the City
of San Leandro, County of Alameda, State of California, described as follows:
PARCEL 1:
Beginning at a point on the northwestern line of the 66.29 acre tract of land
fifthly described in the Decree of Distribution in the Matter of the Estate of
Georges LeRoy, deceased, in the Superior Court, Contra Costa County, Probate
No. 11478, certified copy of which decree was recorded November 22, 1948, in
Book 5660 OR, page 403 (AC/88342), distant thereon north 62 degrees 30' east
631.30 feet from the northeastern line of Merced Street; thence along said line
of said 66.92 acre tract, north 62 degrees 30' east 315.65 feet; thence south
27 degrees 30' east 690 feet to the direct extension northeasterly of the
northwestern line of the land described as Parcel III in the deed from Oakland
Title Insurance Company to Southern Pacific Company, recorded March 23, 1954, in
Book 7278 OR, page 297, (AJ/23953); thence along said direct extension south 62
degrees 30' west 315.65 feet to the most northern corner of said Parcel III in
the last mentioned deed; and thence north 27 degrees 30' west 690 feet to the
point of beginning.
PARCEL 2:
Portion of the 66.92 acre tract of land fifthly described in the Decree of
Distribution in the Matter of the Estate of Georges LeRoy, deceased, in the
Superior Court of Contra Costa County, Probate No. 11478, a certified copy of
which decree was recorded November 22, 1948, in Book 5660 OR, page 403
(AC/88342), described as follows:
Beginning at the intersection of the northeastern line of Merced Street, 60
feet wide, with the northwestern line of said 66.92 acre tract, thence along
the northwestern line of said 66.92 acre tract north 62 degrees 30' east
631.30 feet; thence south 27 degrees 30' east 690 feet; thence south 62 degrees
30' west 631.30 feet to said line of Merced Street; thence along the last named
line north 27 degrees 30' west 690 feet to the point of beginning.
Excepting therefrom that portion quitclaimed to the City of San Leandro by
instrument recorded October 10, 1957, Book 8490 OR, page 595, (AM/100857).
<PAGE> 6
STATE OF CALIFORNIA )
) SS.
COUNTY OF SAN DIEGO )
On this 15th day of April 1998, before me a Notary Public in and for said
County and State, personally appeared Stephen C. Currley who being duly sworn,
deposes and says that he is Vice President & Treasurer of PRIMEX
TECHNOLOGIES, INC. the corporation described in the above ASSIGNMENT and that
he executed the above ASSIGNMENT as a free act on behalf of PRIMEX
TECHNOLOGIES, INC.
/s/ MYRNA R. JARO
---------------------------------------
Notary Public
SEAL: [LOGO]
MYRNA R. JARO
Comm. # 1141819
NOTARY PUBLIC-CALIFORNIA
San Diego County
My Comm. Expires June 19, 2001
<PAGE> 7
STATE OF CALIFORNIA )
) SS.
COUNTY OF SAN DIEGO )
On this 15th day of April 1998, before me a Notary Public in and for said
County and State, personally appeared Walter P. Robertson who being duly sworn,
deposes and says that he is President of MAXWELL TECHNOLOGIES SYSTEM DIVISION,
INC. the corporation described in the above ASSIGNMENT and that he executed the
above ASSIGNMENT as a free act on behalf of MAXWELL TECHNOLOGIES SYSTEM
DIVISION, INC.
/s/ MYRNA R. JARO
---------------------------------------
Notary Public
SEAL: [LOGO]
MYRNA R. JARO
Comm. # 1141819
NOTARY PUBLIC-CALIFORNIA
San Diego County
My Comm. Expires June 19, 2001
<PAGE> 8
GROUND LEASE /s/ P. HARTON
THIS INDENTURE, made this 29th day of December, 1986, by and between D.
HEBDEN PORTEUS, DAVID M. HAIG, FRED C. WEYAND and PAUL MULLIN GANLEY, Trustees
under the Will and of the Estate of Samuel Mills Damon, deceased, hereinafter
called Lessors, and THE CONNECTICUT NATIONAL BANK, not individually but solely
as Trustee under that certain Trust Agreement dated as of December 29, 1986,
among the Trustee and MERCED ASSOCIATES, a Maryland general partnership
hereinafter called "Lessee",
WITNESSETH
That the Lessors, in consideration of the rent hereinafter reserved and of
the covenants herein contained and on the part of the Lessee to be observed and
performed, hereby demise and lease unto said Lessee, and the Lessee hereby
accepts and rents:
All of the property described in Schedule "All and attached hereto.
TO HAVE AND TO HOLD the same, together with rights, easements, privileges
and appurtenances thereunto belonging or appertaining, unto the said Lessee for
the term beginning on the 31st day of December, 1986, and ending on the 31st day
of the December, 2036 notwithstanding the earlier termination of the trust
created under the Will of Samuel M. Damon, deceased, Lessee yielding and paying
therefor unto the Lessors quarterly in four (4)
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<PAGE> 9
equal payments in advance on the 1st day of January, April, July and October in
each and every year during said term, (plus the additional payments for any
partial calendar quarter in which the term begins, as hereinafter provided)
without any deduction, all accrued payments to be made on execution hereof, net
rent as follows:
1. For any partial calendar quarter at the beginning of the term, at the
rate of $23,000 per month, paid prorated for any partial month on the basis of a
30 day month. Payment for any partial calendar quarter at the beginning of the
term shall be made in advance upon delivery of the Indenture.
2. $69,000 for each full calendar quarter in 1987.
3. $75,166.67 on the first day of January, 1988, comprising rent for the
first calendar quarter of 1988.
4. $87,500 on the first day of April 1988 and on the first day of each
thereafter succeeding calendar quarter to and including the 10th anniversary of
the last day of the month in which the term of the lease begins.
5. Reasonable rent for the second 10 years of the term of the Lease, and
for each thereafter succeeding 10 year period of the term of the lease will be
determined by agreement of Lessors and Lessee; or, failing agreement, by
appraisal as provided in Paragraph (B) hereof.
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<PAGE> 10
AND THE LESSORS hereby covenant with the Lessee that upon payment by the
Lessee of the rent as aforesaid and upon observance and performance of the
covenants by the Lessee hereinafter contained, the Lessee shall peaceably hold
and enjoy said premises for the term hereby demised without hindrance or
interruption by the Lessors or any other person or person lawfully or equitably
claiming by, through or under them except as herein expressly provided;
AND LESSEE hereby covenants with the Lessors as follows:
1. Payment of Rent. Lessee will pay said rent in lawful currency of the
United States at the office of the Lessors, or such other place in Honolulu,
Hawaii as shall be designated in writing by the Lessors, at the times and in the
manner aforesaid, without any deduction and without any notice or demand.
2. Taxes and Other Charges. Lessee will pay to Lessors as additional rent
before the same become delinquent all real property taxes and assessments and
will pay directly all impositions, conveyance taxes, duties, water rates,
charges and other outgoings of every description to which said premises or any
part thereof or improvement thereon, or the Lessors or Lessee in respect
thereof, are now or may during said term be assessed or become liable, whether
assessed to or payable by the Lessors or Lessee
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<PAGE> 11
including all assessments or other charges for any permanent benefit or
improvement of any of the premises hereby demised or any part thereof made under
any betterment law or otherwise, or any assessment or charges for sewage or
street or sidewalk improvement, or municipal or other charges for any utilities
or other services or any connections or meters therefor which may be legally
imposed upon said premises or any part thereof or to which said premises or any
part thereof, or the Lessors or Lessee in respect thereof, are now or may during
said term become liable, and with each payment of rent, real property taxes and
other charges hereunder payable by the Lessee, whether the same be actual or
constructive receipts of the Lessors, the amount of all Hawaii general excise or
other similar taxes payable by the Lessors on account of such receipt, and also
on demand, interest at the rate of one (1) percent per month or higher as may
then be permitted by law on all delinquent rent, taxes and other charges
hereunder payable by Lessee from the respective due dates thereof until fully
paid; provided, however, that with respect to any assessment made under any
betterment or improvement law which may be payable in installments, the Lessee
shall be required to pay only such installments of principal together with the
interest on unpaid balances hereof as shall become due and payable during said
term, and that real property taxes and assessments shall be prorated between the
Lessors and
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<PAGE> 12
Lessee as of the dates of commencement and expiration respectively of said term.
3. Improvements Required by Law. Lessee will at its own expense during the
whole of said term make, build, maintain and repair all fences, sewers, drains,
roads, curbs, sidewalks, and parking areas which may be required by law to be
made, built, maintained and repaired upon or adjoining and in connection with or
for the use of said premises or any part thereof, and whether same were erected
by the Lessors or in existence at the inception of this lease; and in case any
such improvements required by law shall be made, built, maintained or repaired
by the Lessors, the Lessee shall forthwith reimburse the Lessors for the cost
thereof.
4. Repair and Maintenance. Lessee will at its own expense, from time to
time and at all times during said term, well and substantially repair, maintain,
amend and keep all buildings, drainage ditches, culverts, tunnels and other
improvements now or hereafter built on the land hereby demised with all
necessary reparations and amendments whatsoever in good order and condition.
5. Inspection. Lessee will permit the Lessors and their agents, at all
reasonable times during said term, to enter said premises and examine the state
of repair and condition thereof, and will repair and make good all defects of
which notice shall be given by the Lessors
-5-
<PAGE> 13
within thirty (30) days after giving of such notice or such further time as may
be reasonably necessary to complete the same in the exercise of due diligence.
6. Laws and ordinances. Lessee will, during the whole of said term, keep
said premises in a strictly clean and sanitary condition and observe and perform
all laws, ordinances, rules and regulations for the time being applicable to
said premises or any buildings and improvements now or hereafter erected thereon
or the use thereof; and will indemnify the Lessors and the Estate and effects of
Samuel M. Damon, deceased, against all actions, suits, damages and claims by
whomsoever brought or made by reason of the nonobservance or nonperformance of
said laws, ordinances, rules and regulations or of this covenant.
7. Construction and Bond. Lessee will not construct or make on the demised
land by building or other structure, or any additions, alterations or remodeling
at a cost exceeding $5,000 to such building or structure, except in accordance
with plans and specifications therefor first approved in writing by the Lessors;
when such approval is requested by the Lessee, the review of building plans and
specifications by the Lessors will be at the expense of the Lessee; and if so
required by the Lessors in their discretion, Lessee will before commencement of
any such construction deposit with the Lessors a bond in the penal sum of at
least the cost of such construction, in form and
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<PAGE> 14
with surety satisfactory to the Lessors, guaranteeing the completion thereof
free from any mechanics' or materialmen's liens.
8. Industrial or Mercantile Use. Lessee will use or allow to be used the
premises hereby demised solely for industrial or mercantile purposes; and will
at no time during said term permit the same to be occupied as a dwelling place
without the consent of Lessors in writing. Lessee will not, without the written
consent of the Lessors, use said premises or any part thereof for the storage of
or dealing in junk, scrap, salvaged or other offensive materials of which the
Lessors shall be the sole judge; and will not make or suffer any strip or waste
or unlawful, improper or offensive use of said premises, nor overload the floors
or walls of any building thereof, nor use said premises for any purpose or in
any manner which will invalidate the insurance herein required on such
buildings; and will not, without the written consent of the Lessors, take or
remove therefrom any soil or limestone; and will not, without such consent, dig,
drill, or cause to be dug or drilled any well, whether artesian or surface, or
use or permit to be used any well on said premises; and will not, without such
consent, use said premises or any part thereof or permit the same to be used for
the manufacture or sale of any alcoholic liquor or the raising of pigs, fowl or
livestock; and will not, without such consent, assign or
-7-
<PAGE> 15
mortgage this lease except as herein provided or sublease or subdivide said
premises or any part thereof; and will not place or construct any billboard or
sign on said premises without first receiving the written approval of the
Lessors as to size, wording, style and location.
9. Boundary Setback. Lessee will not at any time during said term erect,
place or maintain on said premises any fence, wall or other improvement within
twenty (20) feet of the front or street boundaries other than a boundary fence
or wall not more than six (6) feet high.
10. Insurance. Lessee will at all times during said term keep all
buildings now or hereafter erected on said premises insured against loss or
damage by fire with extended coverage, and during war time against war damage to
the extent the same is reasonably obtainable, in the joint names of the Lessors
and the Lessee in any insurance company authorized to do business in Hawaii in
an amount equal to the maximum insurable value thereof, payable to the Lessors
in case of loss or damage, and will pay all premiums thereon at the time and
place the same are payable, and will from time to time forthwith after receiving
the same deposit with the Lessors such policies of insurance or current
certificates thereof and the receipt for every premium so paid; and all
compensation, indemnity or other moneys paid on account of any loss or damage,
other than rental value insurance, shall with all convenient
-8-
<PAGE> 16
speed be laid out by the Lessee in rebuilding, repairing or otherwise
reinstating the same buildings in a good and substantial manner according to the
plan and elevation of the building so destroyed or damaged, or according to such
modified plan as shall be previously approved by the Lessors and the Lessee in
writing, and in the event such proceeds are inadequate, the Lessee shall make up
such deficiency from its own funds; provided, however, that if the main building
on said premises shall be destroyed at any time during the last ten (10) years
of the term hereof, the Lessee may at its option within sixty (60) days after
such casualty either (a) surrender this lease, forfeiting all interest in the
proceeds of insurance and in any remaining improvement, or (b) pay to the
Lessors a sum of money equal to the then present worth of the quarterly
installments of rent payable during the remainder of said term, calculated at
compound discount at the rate of five percent (5%) per annum, and at its own
expense remove from said premises the remains of said damaged building if so
required by the Lessors, and thereupon all proceeds of such insurance shall be
payable to and be the sole property of the Lessee, and this lease shall
terminate. Lessee will procure at its own expense and keep in force during the
entire period of this lease a policy of comprehensive general liability
insurance with respect to said premises and appurtenant sidewalks in any
insurance company authorized to do business in Hawaii, naming the Lessors as
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<PAGE> 17
additional assureds, with minimum limits of not less than $300,000 for injury to
one person and not less than $1,000,000 for injury to more than one person in
any one accident or occurrence and insurance in the sum of not less than
$100,000 against claims for property damage, or such higher limits as the
Lessors may from time to time reasonably establish as prudent for their
protection in the circumstances then existing, and will from time to time
forthwith upon receiving the same deposit with the Lessors such policies of
insurance or current certificates thereof.
11. Lessor's Expenses. Lessee will pay to the Lessors on demand all costs
and expenses including reasonable attorneys' fees incurred by the Lessors in
enforcing any of the covenants herein contained, in remedying any breach by the
Lessee thereof, in recovering possession of said premises, in collecting any
delinquent rent, taxes or other charges hereunder payable by the Lessee, or in
connection with any litigation commenced by or against the Lessee (other than
condemnation proceedings) to which the Lessors without any fault on their part
shall be made parties.
12. Indemnity. Lessee will indemnify and hold the Lessors harmless from
and against all claims and demands for loss or damage, including property
damage, personal injury and wrongful death, arising out of or in connection with
the use or occupancy of said premises by
-10-
<PAGE> 18
the Lessee or any other person claiming by, through or under the Lessee, or any
accident or fire on said premises or any adjacent sidewalk or any nuisance made
or suffered thereon, or any failure by the Lessee to keep said premises or
sidewalk in a safe condition, and will reimburse the Lessors for all their costs
and expenses including reasonable attorneys' fees incurred in connection with
the defense of any such claims, and will hold all goods, materials, furniture,
fixtures, equipment, machinery and other property on said premises at the sole
risk of the Lessee and hold the Lessors harmless from liability for loss or
damage thereto by any cause whatsoever, and will indemnify and hold the Lessors
harmless from and against all loss, costs and expenses, including reasonable
attorneys' fees with respect to any attachment, judgment, lien, charge or
encumbrance whatsoever against said premises made or suffered by the Lessee.
13. Surrender. At the end of said term or other sooner determination of
this lease, the Lessee will peaceably deliver up to the Lessors possession of
the premises hereby demised; provided, however, that if the Lessee shall have
observed and performed all covenants and conditions herein contained and on its
part to be observed and performed, the Lessee shall have the privilege of
removing any building or buildings which shall have been placed on the demised
premises at its own expense or of
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<PAGE> 19
selling such to a new in-coming tenant, but if the Lessee shall remove such
building the Lessee shall clear the premises of all rubbish and debris and
restore the surface to a condition satisfactory to the Lessors, all at Lessee's
own expense.
AND IT IS HEREBY MUTUALLY AGREED by and between the parties as follows:
(A) Condemnation. If at any time or times during said term any authority
having the power of eminent domain shall take or condemn said premises or any
part thereof for public use, then and in every such case the estate and interest
of the Lessee in said premises or such part so taken or condemned shall
thereupon cease and determine, and the Lessee shall not by reason of such
condemnation be entitled to claim or receive any portion of the compensation or
damages payable or to be paid by reason of such condemnation, but the entire
amount thereof shall be the sole property of the Lessors, provided however, that
out of the proceeds of such condemnation the Lessors shall pay to the Lessee the
amount of all compensation and damages awarded for or on account of any
buildings placed on said premises at its own cost as specifically determined in
the condemnation proceedings, but deducting therefrom a reasonable portion of
the expense incurred by the Lessors in connection with such proceedings. In case
only part of
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<PAGE> 20
said premises shall be so taken or condemned, the rent herein reserved shall be
reduced in the proportion that the area of the land taken or condemned bears to
the total area of land demised, and all compensation and damages paid for or on
account of any improvements placed on said premises by Lessee at is own cost as
specifically determined in the condemnation proceedings shall be used promptly
by the Lessee as may be necessary to restore or replace such improvements on the
remaining premises according to plans first approved in writing by the parties;
provided, further, that if more than one fourth of the demised land shall be so
taken or condemned thereby rendering the remaining premises unsuitable for the
Lessee's business purposes, the Lessee may within 90 days thereafter surrender
to the Lessors this lease, subject to the Lessee's prior removal at its own
expense of all buildings on the remaining demised land if so required by the
Lessors and its restoration of said remaining land to good condition and even
grade, and the Lessee shall thereby be relieved of all further obligations
hereunder.
(B) Appraisal. In case the parties hereto shall fail to agree on the net
annual rent hereunder payable for any rental period of said term as herein
provided at least 90 days before the commencement of such period, said rent
shall be such fair and reasonable annual rent for the demised land (exclusive of
buildings) as shall be determined by three impartial real estate appraisers, one
to be
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<PAGE> 21
appointed by each of the parties hereto, and the Lessors and Lessee shall each
promptly name one such appraiser and give written notice thereof to the other
party, and in case either party shall fail so to do within ten (10) days after
appointment of the first appraiser, the appraiser already appointed shall name a
second appraiser, and the two appraisers thus appointed in either manner shall
appoint a third appraiser, and in case of their failure so to do within ten (10)
days after appointment of the second appraiser, either party may have such third
appraiser (who shall in this case be a member of the Honolulu Chapter of the
American Institute of Real Estate Appraisers or other similar organization)
appointed by any person then sitting as Judge of the Circuit Court of the First
Circuit of the State of Hawaii, and the three appraisers so appointed shall
thereupon proceed to determine the matter in question, and the decision of said
appraisers or a majority of them shall be final, conclusive and binding upon
both parties. The cost of such appraisal other than attorneys' fees shall be
shared equally by the parties hereto. Until determination of such rent by
agreement or appraisal as herein provided, quarterly installments at the same
rate payable for the preceding year shall be paid on account thereof.
(C) Forfeiture. This demise is upon the condition that if the Lessee shall
fail to pay said rent or any
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<PAGE> 22
part thereof within twenty (20) days after the same becomes due, whether the
same shall or shall not have been legally demanded, or shall fail to observe and
perform faithfully any of the covenants herein contained and on the part of the
Lessee to be observed and performed and such default shall continue for thirty
(30) days after written notice thereof given to the Lessee, or if the Lessee
shall abandon said premise, or if the Lessee then owning this lease shall
be adjudicated bankrupt or take any proceedings under the Federal Bankruptcy Act
seeking the readjustment, rearrangement, postponement, composition or reduction
of its debts, liabilities or obligations or make any assignment for the benefit
of creditors, or if this lease or any estate or interest of the Lessee hereunder
shall be taken or sold under any process of law, then and in any such case the
Lessors may at once re-enter said premises or any part thereof in the name of
the whole and, upon or without such entry, at their option, terminate this
lease, and may expel and remove from said premises the Lessee and any persons
claiming under the Lessee and their effects without being deemed guilty of any
trespass or becoming liable for any loss or damage occasioned thereby, all
without service of notice or legal process and without prejudice to any other
remedy or right of action including summary possession which the Lessors may
have for arrears of rent or for any preceding or other breach of contract.
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<PAGE> 23
(D) Mortgages. Lessee may from time to time without further consent of the
Lessors assign this lease by way of mortgage to any bank, insurance company or
other established lending institution as mortgagee, and the mortgagee may
enforce such mortgage and acquire title to the leasehold estate in any lawful
way, and pending foreclosure of such mortgage may take possession of and rent
said premises, and upon foreclosure thereof may without further consent of the
Lessors sell and assign the leasehold estate by assignment in which the assignee
shall expressly assume and agree to observe and perform all covenants of the
Lessee herein contained, and such assignee may make a purchase money mortgage of
this lease to the assignor, provided that upon the execution of any such
assignment or mortgage a true copy thereof shall be delivered promptly to the
Lessors, and that no other or further assignment of this lease for which any
provision hereof requires the written consent of the Lessors shall be made
without such consent. The mortgagee shall be liable to perform the obligations
of the Lessee hereunder only during such period as it had possession or
ownership of the leasehold estate, and the terms, covenants and conditions of
this lease shall control in case of any conflict with the provisions of such
mortgage. During the continuance in effect of any authorized mortgage of this
lease the Lessors will not terminate this lease because of any default on the
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<PAGE> 24
part of the Lessee to observe or perform any of the covenants or conditions
herein contained if the mortgagee, within sixty (60) days after the Lessors have
mailed to the mortgagee at its last known address a written notice of intention
to terminate this lease for such cause, shall cure such default, if the same can
be cured by the payment of money, or if such is not the case, shall undertake in
writing to perform all the covenants of this lease capable of performance by the
mortgagee until such time as this lease shall be sold upon foreclosure of such
mortgage. In case of such undertaking the Lessors will not terminate this lease
within such further time as may be required by the mortgagee to complete
foreclosure of such mortgage or other remedy thereunder, provided (a) that such
remedy is pursued promptly and completed with due diligence, and (b) that all
rent and other charges accruing hereunder are paid as the same become due and
all other covenants of this lease capable of performance by the Lessee are duly
performed; and upon foreclosure sale of this lease the time for performance of
any obligations of the Lessee then in default hereunder, other than the payment
of money, shall be extended by the time reasonably necessary to complete such
performance by due diligence. Any default consisting of the Lessee's failure to
discharge promptly any lien, charge or encumbrance against said premises junior
in priority to such mortgage shall be deemed to be duly cured
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<PAGE> 25
if such mortgage shall be foreclosed by appropriate action instituted within
said 60-day period and thereafter prosecuted in diligent and timely manner.
(E) Notices. Any notice or demand to either party hereto provided for or
permitted by this lease may be given sufficiently for all purposes in writing
delivered personally to such party or any corporate officer thereof, if such
party is a corporation, or mailed as registered or certified mail addressed to
such party at its address herein specified or its last address given in writing
to the other.
(F) Nonwaiver and Definitions. Acceptance of rent by the Lessors shall not
be deemed to be a waiver by them of any breach by the Lessee of any covenant
herein contained, nor of the Lessors' right to terminate this lease for breach
of covenant. The term "premises" whenever it appears herein includes and shall
be deemed or taken to include (except where such meaning would be clearly
repugnant to the context) all buildings and improvements now or any time
hereafter built on said land hereby demised; the term "Lessors" herein shall
include the Lessors, their successors in trust and assigns; and the term
"Lessee", or any pronoun used in place thereof shall indicate and include the
masculine or feminine, the singular or plural, and jointly and severally
individuals, firms or corporations, and their and each of their respective
successors,
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<PAGE> 26
executors, administrators and permitted assigns, according to the context
hereof. No approval or consent of the Lessors herein required for any action of
the Lessee shall be unreasonably withheld.
(G) Prior Lease. Physics International Company, by execution hereof,
hereby assigns and surrenders to the Lessors as of the commencement of said term
hereby demised that certain unrecorded prior lease of the said premises and of
the improvements dated October 23, 1979, and all the leasehold estate and
interest of the lessee thereunder, and the Lessors hereby accept the foregoing
surrender and release the lessee from all further obligations under the said
prior lease, subject, however, to all rights under any subsisting mortgage of
said prior lease or sublease of all or any part of said premises, made with the
written consent of the Lessors, which shall continue in full force and effect in
accordance with their respective provisions. Lessee hereby assigns this lease as
security under every such mortgage hereinbefore specified in substitution for
said prior lease, subject to the written consent of the mortgagee thereof, with
the same lien and effect as though specifically assigned and mortgaged by the
same such mortgage.
-19-
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have executed these presents as of
the day and year first above written.
THE CONNECTICUT
NATIONAL BANK, Trustee
By [SIG]
------------------------------ --------------------------------
D. Hebden Porteus, Trustee
--------------------------------
David M. Haig, Trustee
--------------------------------
Fred C. Weyand, Trustee
--------------------------------
Paul Mullin Ganley, Trustee
"Lessee" "Lessors"
PHYSICS INTERNATIONAL COMPANY executes this lease as of the day and year
first above written for the limited purpose of assigning and surrendering to
Lessors the prior lease, pursuant to Paragraph (G) hereof.
PHYSICS INTERNATIONAL COMPANY
By
-----------------------------
James H. Banister, Jr.
Senior Vice President
Corporate Director of
Administration
"Prior Lessee"
-20-
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have executed these presents as of
the day and year first above written.
THE CONNECTICUT
NATIONAL BANK, Trustee
By D. HEBDEN PORTEUS
------------------------------ --------------------------------
D. Hebden Porteus, Trustee
DAVID M. HAIG
--------------------------------
David M. Haig, Trustee
FRED C. WEYAND
--------------------------------
Fred C. Weyand, Trustee
PAUL MULLIN GANLEY
--------------------------------
Paul Mullin Ganley, Trustee
"Lessee" "Lessors"
PHYSICS INTERNATIONAL COMPANY executes this lease as of the day and year
first above written for the limited purpose of assigning and surrendering to
Lessors the prior lease, pursuant to Paragraph (G) hereof.
PHYSICS INTERNATIONAL COMPANY
By
-----------------------------
James H. Banister, Jr.
Senior Vice President
Corporate Director of
Administration
"Prior Lessee"
-20-
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed these presents as of
the day and year first above written.
THE CONNECTICUT
NATIONAL BANK, Trustee
By
------------------------------ --------------------------------
D. Hebden Porteus, Trustee
--------------------------------
David M. Haig, Trustee
--------------------------------
Fred C. Weyand, Trustee
--------------------------------
Paul Mullin Ganley, Trustee
"Lessee" "Lessors"
PHYSICS INTERNATIONAL COMPANY executes this lease as of the day and year
first above written.
PHYSICS INTERNATIONAL COMPANY
By /s/ JAMES H. BANISTER
-----------------------------
James H. Banister, Jr.
Senior Vice President
Corporate Director of
Administration
"Prior Lessee"
-20-
<PAGE> 30
These Clarifications and Interpretations are made as of this 29th day of
December, 1986 by and between D. Hebden Porteus, David M. Haig, Fred C. Weyand,
and Paul Mullen Ganley, Trustees under the Will and of Samuel Mills Damon,
deceased (Lessors); The Connecticut National Bank, not individually but solely
as Trustee under that certain Trust Agreement dated as of December 29, 1986,
among the Trustee and Merced Associates, a Maryland general partnership
(Lessee); and Physics International Company, a California corporation ("PI") to
clarify and interpret the provisions of the Indenture executed concurrently
herewith by Lessors, Lessee and PI.
The references to paragraph numbers and letters which follow are to the
designated paragraphs of the Indenture.
PARAGRAPH 2 - TAXES AND OTHER CHARGES:
1. Notwithstanding the provisions of paragraph 2, Lessee, at its sole
expense may contest taxes, assessments, governmental impositions and the like
against the premises, but as a condition of such contest, Lessors shall be
provided with copies of all documents filed with any public agency in such
contest.
PARAGRAPH 3 - IMPROVEMENTS REQUIRED BY LAW:
1. Notwithstanding the provisions of paragraph 3, Lessors shall not make
for the account of Lessee any improvements to the premises required by law until
after
-1-
<PAGE> 31
written notice from Lessors advising Lessee that the latter has defaulted in
making such improvements, and that the Lessors intend to make the improvements
for the account of Lessee.
2. Further, notwithstanding the provisions of paragraph 3, Lessee may at
its sole expense contest the action of any public authority in requiring
improvements to be made to the premises but as a condition of such contest,
Lessors shall be provided copies of all documents filed with any public agency
in such contest.
PARAGRAPH 7 - CONSTRUCTION AND BOND:
1. Notwithstanding the provisions of paragraph 7, it is the intention of
the parties that Lessee may construct structures and make additions, alterations
and remodeling at a cost up to $50,000.00 without the prior approval of Lessors.
Further, Lessors shall respond to a request by Lessee for approval of plans and
specifications within 10 working days after receipt of plans and specifications.
PARAGRAPH 8 - INDUSTRIAL OR MERCANTILE USE:
1. Notwithstanding the provisions of paragraph 8, the premises may be used
for any lawful use, other than for a dwelling place.
PARAGRAPH 9 - BOUNDARY SETBACK:
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<PAGE> 32
1. Notwithstanding the provisions of paragraph 9, Lessee need observe only
the setback requirements of the City of San Leandro, and of any other public
agency having jurisdiction over the premises.
PARAGRAPH 10 - INSURANCE
1. Notwithstanding the provisions of paragraph 10, any institutional
leasehold mortgagee shall be named as an additional insured in policies of fire
and casualty insurance. Further, the references to "Hawaii" in the last line of
Page 9 and the fifth line of Page 10 shall be to "California".
PARAGRAPH 11 - LESSORS' EXPENSES:
1. Notwithstanding the provisions of paragraph 11, the prevailing party,
whether Lessors or Lessee, in any proceeding for enforcement of the Lease, or
for a declaration of rights and duties under the Lease, shall be entitled to
recover its costs and expenses, including reasonable attorneys fees.
PARAGRAPH 12 - INDEMNITY:
1. Notwithstanding the provisions of paragraph 12, the obligations of the
Lessee to indemnify and hold Lessors harmless, and to assume the risk of damage
to and loss of property, shall not extend to liability, damage, or losses
resulting from the negligence or willful misconduct
-3-
<PAGE> 33
of Lessors.
PARAGRAPH 13 - SURRENDER:
1. Notwithstanding the provisions of paragraph 13, if (i) Lessee shall
have observed and performed all covenants and conditions herein contained and on
its part to be observed and performed or (ii) shall have within 60 days after
written notice from Lessors cured any default in the observation and performance
of such covenants and conditions, then in either such event, the Lessees at the
end of the term of this lease shall have the privilege of removing any
improvements which have been placed on the premises by Lessee or which have been
purchased from Lessors by Lessee except for plant materials in the ground,
irrigation systems, and storm or sanitary sewers; provided, however, that if
requested by Lessors, Lessee shall remove any plant materials.
2. It is contemplated and agreed between the parties hereto that the
Lessee will issue a ground sublease to PI, that the Lessor will sell the
improvements to the Property to Lessee, and that the Lessee will issue a lease
of the improvements to PI. Lessor shall give written notice to PI of any default
hereunder; PI shall have sixty (60) days after such notice to undertake in
writing to assume the Lease, and to cure any defaults thereunder. Failing such
assumption and cure by PI, the improvements shall revert to and become the
property of Lessor, upon the expiration of
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<PAGE> 34
sixty (60) days after such notice.
PARAGRAPH (A) - CONDEMNATION:
1. Notwithstanding the provisions of paragraph (A) Lessors shall pay to
Lessee the amount of all compensation and damages awarded for or on account of
any improvements placed on the premises by Lessee or any sublessee, and any
improvements which have been purchased from Lessors by Lessee or any sublessee;
provided, however, that the amount of any payment to Lessee shall be reduced by
the amount required to cure any default of Lessees under the Lease.
2. Further, notwithstanding the provisions of Paragraph (A) if any portion
of the demised land shall be taken or condemned thereby rendering the remaining
premises impossible of use for the business purposes of Lessee or any sublessee,
the Lessee within 90 days thereafter may surrender to the Lessors this Lease,
subject to the Lessee's prior removal, at its own expense of all buildings on
the remaining demised land, if so required by the Lessors and its restoration of
said remaining land to good condition and even grade, and the Lessee, its
Sublessees and guarantors shall thereby be relieved of all further obligations.
If there is a dispute as to whether a partial taking or condemnation renders
the remaining premises impossible for use for the business purposes of Lessee or
sublessee, the matter shall be submitted promptly to arbitration before and
under the rules of the American Arbitration Association at San
-5-
<PAGE> 35
Francisco, California. The decision in arbitration shall not be binding, but the
fact of the arbitration, and the testimony, findings and decision in arbitration
shall be fully admissible at the instance of any party to any subsequent
litigation, or binding arbitration, on the issue of the impossibility of use of
the premises.
PARAGRAPH (B) - APPRAISAL:
1. Notwithstanding the provisions of paragraph (B) the appointment of a
third appraiser after failure of the two appraisers appointed by the parties to
select the third shall be by any person then sitting as a Judge of the Superior
Court of the State of California in and for the County of Alameda, and the
person so appointed shall be a member of the American Institute of Real Estate
Appraisers who maintains an office in the County of Alameda, Contra Costa, Santa
Clara or in the City and County of San Francisco.
PARAGRAPH (C) - FORFEITURE:
1. Paragraph (c) of the Lease shall be interpreted as if the phrase "in
the payment of rent, or the observance and faithful performance of any other
covenant of the Lease" were inserted after the word "default" in the fifth line
of Paragraph (c).
2. Further, notwithstanding the provisions of paragraph (C), Lessee shall
not be in default for any
-6-
<PAGE> 36
non-monetary breach of the Indenture, or of these Clarifications and
Modifications to the Indenture if the breach is not susceptible of cure within
thirty (30) days, unless Lessee fails to commence the cure within thirty (30)
days of receipt of Lessors' written notice, and thereafter fails to diligently
proceed to cure said breach; provided, however, that the time for cure shall not
exceed six (6) months after receipt of Lessor's written notice.
PARAGRAPH (E) - NOTICES:
1. Notwithstanding the provisions of paragraph (E) a copy of any notice to
Lessee shall also be sent to:
Maryland National Leasing Corporation
502 Washington Avenue
Towson, MD 21204
ATTN: Vice President, Operations
Olin Financial Services, Inc.
120 Long Ridge Road
P.O. Box 1355
Stamford, CT 06904
ATTN: Corporate Secretary
Physics International Company
2700 Merced Street
P.O. Box 1538
San Leandro, CA 94577
ATTN: J.H. Banister
-7-
<PAGE> 37
SUPPLEMENTAL PROVISIONS:
1. Notwithstanding the absence of an express provision in the Indenture,
Lessors agree to provide Lessee, and any leasehold mortgagee, upon reasonable
request, estoppel certificates in the form customarily provided by Lessors.
Further, Lessors confirm that the rights of Lessee under the Lease will be
superior to the rights of any mortgagee of Lessors' reversionary interest which
is later in time than the Lease.
2. Upon the written demand of the City of San Leandro for the dedication
to it for street-widening purposes of a ten foot wide strip of the property
running along Merced Street, and totalling approximately 7,187 square feet (the
"Property to be Dedicated") Lessee or its subtenant shall have the right to
purchase from Lessor, and Lessor shall sell to Lessee or its subtenant, the
Property to the be Dedicated, on the following terms and conditions:
a. Lessee, or its subtenant, shall pay to Lessor the purchase price
of thirty thousand and no/100 dollars ($30,000.00) payable in cash at close of
escrow.
b. Lessor shall convey title to the Property to be Dedicated by quit
claim deed.
c. The written demand of the City of San Leandro shall be delivered
to Lessor on close of escrow.
d. Payment of the purchase price, delivery of the city's demand and
the quit claim deed shall be consummated by means of an escrow established at a
title company
-8-
<PAGE> 38
chosen by Lessee or its subtenant, Lessee or its subtenant to pay any and all
closing costs.
3. Notwithstanding the absence of an express provision in the Indenture,
Lessee may assign the Indenture or sublet the Property without the prior written
consent of Lessors, only (a) for a period not extending beyond the initial term
of the Ground Sublease to Physics International Company,; (b) if the guaranty of
the Ground Sublease by Olin Corporation remains in effect, and (c) the Lessee is
not released. Except as expressly provided in the preceding provisions of this
Paragraph 3, Lessee shall not assign the Indenture or sublet the Property
without the prior written consent of Lessors, which shall not be unreasonably
withheld, and which shall be given to such assignment or subletting to any
financially responsible party.
Lessors hereby grant their consent to the exercise of any renewal term of
the sublease of Physics International Company, a California corporation.
4. The foregoing clarifications and interpretations are solely for the
sole benefit of Lessee, Olin corporation, a Virginia corporation, and for the
benefit of any bank, insurance company or other established lending institution,
as mortgagee of the Indenture and for the assignee of such mortgagee expressly
assuming and agreeing to observe and perform all of the covenants of Lessee.
-9-
<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have executed these presents as of
the day and year first above written.
THE CONNECTICUT NATIONAL BANK, TRUSTEES UNDER THE WILL
Trustee ESTATE OF SAMUEL MILLS
DAMON
By [SIG]
------------------------------ --------------------------------
D. Hebden Porteus
--------------------------------
By [SIG] David M. Haig
------------------------------
"Lessee" --------------------------------
Fred C. Weyand
--------------------------------
Paul Mullin Ganley
"Lessors"
-10-
<PAGE> 40
IN WITNESS WHEREOF the parties hereto have executed these presents as of
the day and year first above written.
THE CONNECTICUT NATIONAL BANK, TRUSTEES UNDER THE WILL
Trustee ESTATE OF SAMUEL MILLS
DAMON
/s/ D. HEBDEN PORTEUS
By __________________________ -----------------------------
D. Hebden Porteus
/s/ DAVID M. HAIG
By __________________________ -----------------------------
David M. Haig
"Lessee"
/s/ FRED C. WEYAND
-----------------------------
Fred C. Weyand
/s/ PAUL MULLIN GANLEY
-----------------------------
Paul Mullin Ganley
"Lessors"
-10-
<PAGE> 41
PHYSICS INTERNATIONAL COMPANY
By /s/ E.T. MOORE, JR.
-----------------------------
E.T. Moore, Jr.
Executive Vice President
-11-
<PAGE> 42
Those parcels of land, not including any buildings or improvements, in the City
of San Leandro, County of Alameda, State of California, described as follows:
PARCEL 1:
Beginning at a point on the northwestern line of the 66.29 acre tract of land
fifthly described in the Decree of Distribution in the Matter of the Estate of
Georges LeRoy, deceased, in the Superior Court, Contra Costa County, Probate
No. 11478, certified copy of which decree was recorded November 22, 1948, in
Book 5660 OR, page 403 (AC/88342), distant thereon north 62 degrees 30'
east 631.30 feet from the northeastern line of Merced Street; thence along said
line of said 66.92 acre tract, north 62 degrees 30' east 315.65 feet; thence
south 27 degrees 30' east 690 feet to the direct extension northeasterly of
the northwestern line of the land described as Parcel III in the deed from
Oakland Title Insurance Company to Southern Pacific Company, recorded March 23,
1954, in Book 7278 OR, page 297, (AJ/23953); thence along said direct extension
south 62 degrees 30' west 315.65 feet to the most northern corner of said
Parcel III in the last mentioned deed; and thence north 27 degrees 30' west
690 feet to the point of beginning.
PARCEL 2:
Portion of the 66.92 acre tract of land fifthly described in the Decree of
Distribution in the Matter of the Estate of Georges LeRoy, deceased, in the
Superior Court of Contra Costa County, Probate No. 11478, a certified copy of
which decree was recorded November 22, 1948, in Book 5660 OR, page 403
(AC/88342), described as follows:
Beginning at the intersection of the northeastern line of Merced Street, 60 feet
wide, with the northwestern line of said 66.92 acre tract, thence along the
northwestern line of said 66.92 acre tract north 62 degrees 30' east 631.30
feet; thence south 27 degrees 30' east 690 feet; thence south 62 degrees 30'
west 631.30 feet to said line of Merced Street; thence along the last named line
north 27 degrees 30' west 690 feet to the point of beginning.
Excepting therefrom that portion quitclaimed to the City of San Leandro by
instrument recorded October 10, 1957, Book 8490 OR, page 595, (AM/100857).
Schedule A
<PAGE> 43
EXHIBIT __
GROUND SUBLEASE
THIS AGREEMENT is made as of the 29th day of December, 1986, by and
between The Connecticut National Bank, not individually but solely in its
capacity as trustee (the "Trustee") under that certain trust agreement as of
December 29, 1986 among Merced Associates, a Maryland general partnership and
the Trustee, hereinafter referred to as "Landlord", and Physics International
Company, a California corporation, hereinafter referred to as "Tenant".
A. Landlord, as lessee, entered into an indenture (the "Ground Lease")
with D. Hebden Porteus, David M. Haig, Fred C. Weyand and Paul Mullin Ganley,
Trustees under the Will and Estate of Samuel Mills Damon, decreased, as
lessors, dated as of December 29, 1986, leasing the land at 2700 Merced Street,
San Leandro, California, (the "Property") exclusive of any improvements now or
hereafter located on the premises. The Property is more particularly described
in Exhibit A-1 and incorporated herein, and a copy of the Ground Lease is
attached hereto as Exhibit A-2, and hereby incorporated herein.
B. The parties hereto desire that Landlord sublet the Property to Tenant.
NOW, THEREFORE, the parties hereto hereby covenant and agree as follows:
-1-
<PAGE> 44
1. Lease of Property. Landlord hereby leases to Tenant the Property for
a term of 20 years beginning on January 1, 1987 and ending on December 31, 2006,
unless sooner terminated in accordance herewith.
2. Renewal Term. Tenant shall have the option to extend the original
term of this Ground Sublease for two (2) consecutive renewal terms of ten (10)
years each on the terms and conditions contained herein. Tenant shall exercise
each of such options by providing written notice of its exercise of such option
to Landlord not less than one hundred eighty (180) days prior to the expiration
of the original term, or the renewal term then in effect; provided, however,
that the exercise of each such option shall be subject to the conditions that:
(i) Tenant is not in default under any provision of this Ground
Sublease on the date of exercise of such option or on the date of commencement
of the renewal term;
(ii) Tenant shall be and shall have been in possession and occupancy
of the Property at all times since the effective date of this Ground Sublease;
and
(iii) Tenant simultaneously exercises its option to renew the
Facility Lease between Landlord and Tenant of even date herewith (the "Facility
Lease").
-2-
<PAGE> 45
3. Rental Amount. Rent for the original term of this Lease, and for any
renewal term, shall be the rent for said term reserved to the Landlord under
the Ground Lease. Tenant shall pay said rent to Landlord at its office at 777
Main Street, Hartford, Connecticut 06115, or at such other place as shall be
designated in writing by the Landlord, in the amount and at the times and in
the manner as provided in the Ground Lease, without any deduction or setoff and
without any notice or demand.
4. Assignment or Subletting. During the initial term of this Ground
Sublease, Tenant shall have the right, upon sixty (60) days prior written
notice to Landlord, to assign this Ground Sublease, in whole or in part, to
sublet the Property, or any part or portion thereof for a term not to exceed
the initial term of this Ground Sublease. Notwithstanding any such assignment
or subletting, Tenant shall not be relieved of any liability under this Ground
Sublease. Additionally, no party other than Tenant may exercise the renewal
options set forth in Section 2 above, unless Olin Corporation ("Guarantor")
provides Landlord with a Guaranty Agreement satisfactory to Landlord,
guarantying payment and performance of such party's obligations to Landlord
during any renewal term.
Notwithstanding the above paragraph, (i) Tenant may not assign this Ground
Sublease during its initial term unless concurrently therewith, Tenant also
assigns the Facility Lease to the same party for the same term; and
-3-
<PAGE> 46
(ii) Tenant may not sublet the Property unless concurrently therewith, Tenant
also sublets the improvements to the Property to the same party for the same
term.
During any renewal term of this Ground Sublease, Tenant may sublet the
Property or assign this Ground Sublease upon the prior written consent of
Landlord, which shall be granted to any financially responsible sublessee or
assignee.
5. Additional Rent. If Landlord shall pay additional rent or any other
sums pursuant to the provisions of the Ground Lease, Tenant shall be liable to
repay to Landlord 100% of such additional rent or other sums. Any rent or other
sums payable by Tenant under this article shall be additional rent and payable
promptly upon Landlord's demand.
6. Subordination to Prime Lease. This Ground Sublease is subject to and
subordinate to the Ground Lease. Except as is plainly inconsistent with the
express terms hereof, all the terms, covenants and conditions in the Ground
Lease shall be applicable to this Ground Sublease with the same force and
effect as if Landlord were the lessor under the Ground Lease and Tenant were
the lessee thereunder and the Tenant shall perform each such term, covenant and
condition and shall owe to Landlord each such duty as is required to be
performed by lessee or owed by lessee to lessor under the Ground Lease and
Landlord shall
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<PAGE> 47
have all rights against Tenant as lessor has against lessee under the Ground
Lease. In the event of any breach hereof or of the Ground Lease by Tenant,
Tenant shall be in default under this Ground Sublease and Landlord shall have
all the rights against Tenant as would be available to the lessor against the
lessee under the Ground Lease if such breach were by the lessee thereunder.
7. Cross Default. It shall constitute a default by Tenant if the Tenant
or Guarantor is in default under the terms of any document, paper or agreement
with Landlord or to which Landlord is a party, including but not limited to the
following documents executed of even date herewith: the Purchase and Ground
Lease Agreement among the Damon Estate, Landlord and Tenant; the Purchase and
Assignment Agreement among Landlord, Tenant and Merced Associates, a Maryland
general partnership; the Agreement of Guaranty Nos. 1 and 2 between Guarantor
and Landlord; and the Facility Lease.
8. Indemnification. Tenant shall neither do nor permit anything to be
done which would cause the Ground Lease to be terminated or forfeited by reason
of any right of termination or forfeiture reserved or vested in the lessor under
the Ground Lease, and Tenant shall indemnify and hold Landlord (in its
individual and trust capacity) harmless from and against all claims of any kind
whatsoever by reason of any breach or default on the part of Tenant of the terms
of the Ground Lease or of this Ground Sublease.
-5-
<PAGE> 48
The duty of Tenant to indemnify Landlord shall extend to and include the
performance of every duty imposed on Landlord, as lessee, to indemnify and hold
harmless lessors by the Ground Lease, which provides as follows:
Lessee will indemnify and hold the Lessors harmless from and against
all claims and demands for loss or damage, including property damage,
personal injury and wrongful death, arising out of or in connection with
the use or occupancy of said premises by the Lessee or any other person
claiming by, through or under the Lessee, or any accident or fire on said
premises or any adjacent sidewalk or any nuisance made or suffered thereon,
or any failure by the Lessee to keep said premises or sidewalk in a safe
condition, and will reimburse the Lessors for all their costs and expenses
including reasonable attorneys' fees incurred in connection with the
defense of any such claims, and will hold all goods, materials, furniture,
fixtures, equipment, machinery and other property on said premises at the
sole risk of the Lessee and hold the Lessors harmless from liability for
loss or damage thereto by any cause whatsoever, and will indemnify and hold
the Lessors harmless from and against all loss, costs and expenses,
including reasonable attorneys' fees with respect to any attachment,
judgment, lien, charge or encumbrance whatsoever against said premises made
or suffered by the Lessee.
Notwithstanding the provisions of ... [the above paragraph], the
obligations of the Lessee to indemnify and hold Lessors harmless, and to
assume the risk of damage to the loss of property, shall not extend to
liability, damage or losses resulting from the negligence or willful
misconduct of Lessors.
9. Memorandum of Sublease. Tenant agrees that it will, upon
Landlord's request, execute, acknowledge and deliver to Landlord a
memorandum of this Ground Sublease in
-6-
<PAGE> 49
a form suitable for recording under applicable law. Such recordation shall be
at Tenant's expense.
10. Notice. Any notice required or permitted by or in connection
with this Ground Sublease shall be in writing and made by hand delivery or
overnight delivery service or by certified mail, return receipt requested,
postage prepaid, addressed to the respective parties at the appropriate address
set forth below or to such other address as may be hereafter specified by
written notice by any party, and shall be considered given as of the date of
hand delivery or as of one (1) day after sending overnight delivery service or
three (3) days after the date of mailing, independent of the date of delivery,
as the case may be:
<TABLE>
<CAPTION>
<S> <C>
If to Tenant: Physics International Company
2700 Merced Street
P.O. Box 1538
San Leandro, CA 94577
Attn: J.H. Banister, Jr.
If to Landlord: The Connecticut National Bank
777 Main Street
Hartford, CT 06115
ATTN: Bond and Trustee
Administration
Copy to: Maryland National Leasing
Corporation
502 Washington Avenue
Towson, MD 21204
ATTN: Vice-President
Operations
</TABLE>
-7-
<PAGE> 50
<TABLE>
<CAPTION>
<S> <C>
Copy to: Olin Financial Services
120 Long Ridge Road
Stamford, CT 06904
ATTN: Corporate Secretary
Copy to: Alan J. Mogol, Esq.
Ober, Kaler, Grimes & Shriver
1600 Maryland National Bank
Building
10 Light Street
Baltimore, MD 21202
</TABLE>
11. Merger. All prior understandings and agreements between the parties
with respect to the subject matter hereof are merged within this Ground
Sublease, which alone and completely sets forth the understanding of the
parties and this Ground Sublease may not be changed or terminated orally or in
any manner other than by an agreement in writing signed by all parties.
12. Binding Effect. The covenants and agreements herein contained shall
bind and inure to the benefit of Landlord, Tenant and their respective
successors and assigns.
13. Applicability of California Law. The laws of the State of California
shall govern the rights and obligations of the parties to this Ground Sublease
and the interpretation, construction and enforceability hereof and any and all
issues relating to the transactions contemplated in this Ground Sublease.
14. Remedies Cumulative. All of the Landlord's rights and remedies
hereunder shall be cumulative and supplemental to Landlord's rights and
remedies under the
-8-
<PAGE> 51
Facility Lease and Purchase and Assignment Agreement of even date herewith.
IN WITNESS WHEREOF, the parties hereto have executed this Ground Sublease
on the day and year first written above.
<TABLE>
<CAPTION>
<S> <C>
WITNESS/ATTEST: LANDLORD:
THE CONNECTICUT NATIONAL BANK,
not individually but solely in
its capacity as Trustee
________________________ By:__________________________(SEAL)
TENANT:
PHYSICS INTERNATIONAL COMPANY
________________________ By:__________________________(SEAL)
James H. Banister, Jr.
Senior Vice President
Corporate Director of
Administration
</TABLE>
-9-
<PAGE> 52
ACKNOWLEDGEMENTS
STATE OF ______________________, CITY OF ___________________________ TO WIT:
I HEREBY CERTIFY that on this _______ day of December, 1986, before the
subscriber, a Notary Public of the State and subdivision aforesaid, personally
appeared _________________, who acknowledged ____________ self to be the
_______________ of THE CONNECTICUT NATIONAL BANK, not individually but solely
in its capacity as trustee, and that _____________ he as such
__________________, being so authorized to do, executed the foregoing
instrument for the purposes therein contained by signing the name of the
Trustee by ______ self as _____________ in my presence.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
____________________________________
Notary Public
My Commission Expires:
STATE OF CALIFORNIA )
) ss.
COUNTY OF _________ )
On _____________________, 19___, before me the undersigned a Notary
Public, in and for said State, personally appeared _________________ known to
me to be the ______________ President of the corporation that executed the
within instrument, and also known to me to be the persons who executed it on
behalf of such corporation, and acknowledged to me that such corporation
executed the same, and further acknowledged to me that such corporation
executed the instrument pursuant to its by-laws or a resolution of its Board of
Directors.
_________________________________________
Notary Public
My Commission Expires:
-10-
<PAGE> 53
Those parcels of land, not including any buildings or improvements, in the City
of San Leandro, County of Alameda, State of California, described as follows:
PARCEL 1:
Beginning at a point on the northwestern line of the 66.29 acre tract of land
fifthly described in the Decree of Distribution in the Matter of the Estate of
Georges LeRoy, deceased, in the Superior Court, Contra Costa County, Probate No.
11478, certified copy of which decree was recorded November 22, 1948, in Book
5660 OR, page 403 (AC/88342), distant thereon north 62 degrees 30' east 631.30
feet from the northeastern line of Merced Street; thence along said line of said
66.92 acre tract, north 62 degrees 30' east 315.65 feet; thence south 27 degrees
30' east 690 feet to the direct extension northeasterly of the northwestern line
of the land described as Parcel III in the deed from Oakland Title Insurance
Company to Southern Pacific Company, recorded March 23, 1954, in Book 7278 OR,
page 297, (AJ/23953); thence along said direct extension south 62 degrees 30'
west 315.65 feet to the most northern corner of said Parcel III in the last
mentioned deed; and thence north 27 degrees 30' west 690 feet to the point of
beginning.
PARCEL 2:
Portion of the 66.92 acre tract of land fifthly described in the Decree of
Distribution in the Matter of the Estate of Georges LeRoy, deceased, in the
Superior Court of Contra Costa County, Probate No. 11478, a certified copy of
which decree was recorded November 22, 1948, in Book 5660 OR, page 403
(AC/88342), described as follows:
Beginning at the intersection of the northeastern line of Merced Street, 60 feet
wide, with the northwestern line of said 66.92 acre tract, thence along the
northwestern line of said 66.92 acre tract north 62 degrees 30' east 631.30
feet; thence south 27 degrees 30' east 690 feet; thence south 62 degrees 30'
west 631.30 feet to said line of Merced Street; thence along the last named line
north 27 degrees 30' west 690 feet to the point of beginning.
Exception therefrom that portion quitclaimed to the City of San Leandro by
instrument recorded October 10, 1957, Book 8490 OR, page 595, (AM/100857)
Exhibit A-1
<PAGE> 1
EXHIBIT 10.42
(1) PEGASUS AIRWAVE LIMITED
(2) TRI-MAP INTERNATIONAL LIMITED
(3) M R PONSFORD and P J GOODRIDGE
UNDERLEASE
of
Premises at
Units 2 and 3
Kingscroft Court
Havant
Hampshire
Glanvilles
Solicitors
16 Landport Terrace
Portsmouth
Hants PO1 2OT
<PAGE> 2
UNDERLEASE dated
BETWEEN:
(1) PEGASUS AIRWAVE LIMITED whose registered office is at Pegasus House,
Waterberry Drive, Waterlooville, Hampshire, PO7 7XX ("the Landlord")
(2) TRI-MAP INTERNATIONAL LIMITED whose registered office is at Sandford House,
Medwin Walk, Horsham, West Sussex ("the Tenant")
(3) MARK RICHARD PONSFORD of 9 St James Road, Emsworth, Hampshire and PAUL JOHN
GOODRIDGE of 98 Westbourne Avenue, Emsworth, Hampshire ("the Guarantor")
1. PARTICULARS
1.1 the Premises: all that land and building situate at Units 2 and 3
Kingscroft Court, Havant, Hampshire and shown for the purposes of
identification only outlined in red on the Plan
1.2 Contractual Term: 10 years commencing on 3rd February 1997 and ending on
2nd February 2007
1.3 Rent Commencement Date: 3rd August 1997
1.4 Initial Rent: L.60,000 (sixty thousand pounds) per annum
1.5 Review Date: the 3rd February 2002
1.6 Interest Rate: 4% above the base lending rate of Midland Bank Plc or such
other bank as the Landlord may from time to time nominate in writing
1.7 Permitted User: assembly of computer equipment together with storage and
offices or such other use that falls within Class B1 of the Schedule to the
Town and Country Planning (Use Classes) Order 1987 as the Landlord shall from
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[MAP OF SITE]
<PAGE> 4
time to time approve such approval not to
be unreasonably delayed or withheld
1.8 Exterior Decorating Years: 2000 2003 2006
1.9 Interior Decorating Years: 2002 2006
2. DEFINITIONS
2.1 For all purposes of this underlease the terms defined in clauses 1
and 2 have the meanings specified
2.2 'Building' means the building or buildings now or at any time during
the Term erected on the whole or part of the Premises
2.3 'the Insurance Rent' means the sums which the Landlord shall from
time to time pay by way of premium and premium tax including any
excess deducted by the insurers in respect of any claim:
2.3.1 for insuring the Premises (including insuring for loss of
Rent) in accordance with the Landlord's obligations contained
in this underlease;
2.3.2 and for insuring in such amount and on such terms as the
Landlord shall reasonably consider appropriate against all
liability of the Landlord to third parties arising out of or in
connection with any matter including or relating to the
Premises
2.3.3 all of any increased premium payable by reason of any act or
omission of the Tenant
2.4 'Insured Risks' means fire lightning explosion aircraft (including
articles dropped from aircraft) riot civil commotion malicious persons
earthquake storm tempest flood bursting and overflowing of water pipes
tanks and other apparatus and impact by road vehicles and such other
risks as the Landlord from time to time the in the Landlord's
reasonable discretion may think fit to insure against
2.5 'Interest' means interest during the period from the date on which the
payment is due to the date of payment both before and after any
judgment at the Interest Rate then prevailing or should the base rate
referred to in clause 1.6 cease to
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<PAGE> 5
exist such other rate of interest as is most loosely comparable with the
interest Rate to be agreed between parties or in default of agreement to be
determined by the Surveyor acting as an expert and not as an arbitrator
2.6 'the 1954 Act' means the Landlord and Tenant Act 1954 Act and all statutes
regulations and orders included by virtue of clause 3.18
2.7 'Pipes' means all pipes sewers drains mains ducts conduits gutters
watercourses wires cables channels flues and all other conducting media
and includes any fixings louvres cowls and any other ancillary apparatus
which are in on or under or which serve the Premises
2.8 'the Plan' means the plan annexed to this underlease
2.9 'the Planning Acts' means the Town and Country Planning Act 1990 the
Planning (Listed Building and Conservation Areas) Act 1990 the Planning
(Hazardous Substances) Act 1990 and the Planning (Consequential
Provisions) Act 1990 and all statutes regulations and orders included by
virtue of clause 3.18
2.10 'Rent' means the Initial Rent and rent ascertained in accordance with the
second schedule and such term does not include the Insurance Rent but the
term 'rents' includes both the Rent and the insurance Rent
2.11 'the Operational Covenants' means the covenants set out in the third
schedule
2.12 'Surveyor' means any person or firm appointed by the Landlord to perform
any of the functions of the Surveyor under this underlease (including an
employee of the Landlord and including also the person or firm appointed
by the Landlord to collect the rents)
2.13 'VAT' means Value Added Tax as provided for in the Value Added Tax Act
1983 and legislation (delegated or otherwise) supplemental thereto and any
similar tax replacing or introduced in addition to the same and unless
otherwise stated all references to rents or other sums payable by the
Tenant are exclusive of VAT
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<PAGE> 6
2.14 'the Headlease' means the superior leases under which the
Landlord holds the Premises one made the 30th June 1987 between
Marples Ridgeway Properties Limited (1) The Vision Research
Company Limited (2) Kingscroft Management Limited (3) and Hill
Samuel Finance (No 12) Limited (4) of Unit 2 for a term of 999
years from 30th June 1987 and the other made the 19th October
1987 between Marples Ridgeway Properties Limited (1) Minverose
Limited (2) Kingscroft Management Limited (3) and Hill Samuel
Finance (No 12) Limited (4) for a term of 999 years from 19th
October 1987 of Unit 3 and any lease or leases superior to the
Headlease
2.15 'the Superior Landlord' means Kingscroft Management Limited
3. INTERPRETATION
3.1 The expressions 'the Landlord' and 'the Tenant' wherever the
context so admits include the person for the time being entitled
to the reversion immediately expectant on the determination of
the Term and the Tenant's successors in title respectively and
any reference to a superior landlord includes the Landlord's
immediate reversioner (and any superior landlords) at any time
3.2 Where the Landlord the Tenant or the Guarantor for the time
being are two or more persons obligations expressed or implied
to be made by or with such party are deemed to be made by or
with such persons jointly and severally
3.3 Any obligation to pay money refers to a sum exclusive of VAT
and any VAT charged on it is payable in addition
3.4 Words importing one gender include all other genders and words
importing the singular include the plural and vice versa
3.5 The expression 'Guarantor' includes not only the person referred
to herein (if any) but also any person who enters into covenants
with the Landlord pursuant to clauses 5.9.5 or 5.23
3.6 The expression 'the Premises' includes:
3.6.1 the Building;
3.6.2 all additions and improvements to the Premises;
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<PAGE> 7
3.6.3 all the Landlord's fixtures and fittings and fixtures of
every kind which shall from time to time be in or upon
the Premises (whether originally affixed or fastened to
or upon the Premises or otherwise) except any such
fixtures installed by the Tenant that can be removed
from the Premises without defacing the Premises;
3.6.4 all Pipes in on under or over the Premises and
3.6.5 the entire thickness of all walls and fences forming the
boundaries of the Premises
but such expression includes no air space above the height of
the top of the Building and references to 'the Premises' in the
absence of any provisions to the contrary include any part of
the Premises
3.7 The expression 'the Term' includes the Contractual Term and any
period of holding-over or extension or continuance of the
Contractual Term whether by statute or common law
3.8 References to 'the last year of the Term' include the last year
of the Term if the Term shall determine otherwise than by
effluxion of time and references to 'the expiration of the Term'
include such other determination of the Term
3.9 References to any right of the Landlord to have access to the
Premises shall be construed as extending to any superior
landlord and any mortgagee of the Premises and to all persons
authorised by the Landlord and any superior landlord or
mortgagee (including agents professional advisers contractors
workmen and others) where such superior lease or mortgage grants
such rights of access to the superior landlord or mortgagee
3.10 Any covenant by the Tenant not to do an act or thing shall be
deemed to include an obligation not to permit or suffer such act
or thing to be done by another person
3.11 Any provisions in this underlease referring to the consent or
approval of the Landlord shall be construed as also requiring
the consent or approval of any mortgagee of the Premises and any
superior landlord where such consent shall be required but
nothing in this underlease shall be
5
<PAGE> 8
construed as implying that any obligation is imposed upon any mortgagee or
any superior landlord not unreasonably to refuse any such consent or
approval
3.12 References to 'consent of the Landlord' or words to similar effect mean a
consent in writing signed by or on behalf of the Landlord and to
'approved' and 'authorised' or words to similar effect mean (as the case
may be) approved or authorised in writing by or on behalf of the Landlord
3.13 The terms 'the parties' or 'party' mean the Landlord and/or the Tenant but
except where there is an express indication to the contrary exclude the
Guarantor
3.14 References to the Superior Landlord shall include the Superior Landlord's
successors in title and shall include all superior landlords however
remote
3.15 Where under the terms of this underlease the consent of the Landlord is
required for any act or matter the consent of the Superior Landlord under
the terms of the Headlease shall also be required wherever requisite
PROVIDED that nothing in this underlease shall be construed as imposing on
the Superior Landlord any obligation (or indicating that such obligation
is imposed on the Superior Landlord by virtue of the terms of the
Headlease) not unreasonably to refuse any such consent
3.16 Reference to any right exercisable by the Landlord or any right
exercisable by the Tenant in common with the Landlord shall be construed
as including (where appropriate) the exercise of such right:
3.16.1 by the Superior Landlord and all persons authorised by the Superior
Landlord and
3.16.2 in common with all other persons having a like right
3.17 'Development' has the meaning given by the Town and Country Planning Act
1990 Section 55
3.18 Any references to a specific statute include any statutory extension or
modification amendment or re-enactment of such statute and any regulations
or orders made under such statute and any general reference to 'statute'
or 'statutes'
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<PAGE> 9
includes any regulations or orders made under such statute or statutes and
all legislation of the European Community
3.19 References in this underlease to any clause sub-clause or schedule without
further designation shall be construed as a reference to the clause
sub-clause or schedule to this underlease so numbered
3.20 The clause paragraph and schedule headings do not form part of this
underlease and shall not be taken into account in its construction or
interpretation
4. DEMISE
The Landlord demises to the Tenant the Premises EXCEPTING AND RESERVING to the
Landlord the rights specified in the first schedule TO HOLD the Premises to the
Tenant for the Contractual Term TOGETHER WITH the rights set out in the
Headlease so far as the Landlord can grant the same SUBJECT to all rights
easements privileges restrictions covenants and stipulations of whatever nature
affecting the Premises including any specified in the Headlease and including
any matters contained or referred to in the fifth schedule YIELDING AND PAYING
to the Landlord:
4.1 The Rent payable without any deduction by equal quarterly payments in
advance on the usual quarter days in every year and proportionately for any
period of less than a year the first such payment being a proportionate sum
in respect of the period from and including the Rent Commencement Date to
and including the day before the quarter day next after the Rent
Commencement Date to be paid on the Rent Commencement Date and
4.2 By way of further rent the Insurance Rent payable on demand in accordance
with clause 7
4.3 By way of further rent payable on demand amounts equal to such sums paid
from time to time by the Landlord pursuant to the terms of the Headlease in
respect of any service charge as defined in the Headlease PROVIDED that if
the Superior Landlord shall require the service charge to be paid to it
direct then the Tenant complying with such requirement there
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<PAGE> 10
shall be no further obligation to reimburse the Landlord
therefor
5. THE TENANT'S COVENANTS
The Tenant covenants with the Landlord:
5.1 Rent
5.1.1 To pay the rents on the days and in the manner set out
in this underlease and not to exercise or seek to
exercise any right or claim to withhold rent or any
right or claim to legal or equitable set-off
5.1.2 If so required in writing by the Landlord to make such
payments so far as they relate to the Rent by banker's
order or credit transfer to any bank and account in the
UK that the Landlord may from time to time nominate
5.1.3 To pay the Landlord on demand sums equal to the amounts
paid from time to time by the Landlord to the Superior
Landlord pursuant to the terms of the Headlease in
respect of any service charge as defined in the
Headlease SUBJECT to the proviso to clause 4.3 hereof
and to the right of the Tenant to require certification
of such sums in accordance with the terms of the
Headlease
5.2 Outgoings and VAT
5.2.1 To pay and to indemnify the Landlord against all or in
the absence of direct assessment of the Premises to pay
to the Landlord a fair proportion of rates taxes
assessments duties charges impositions and outgoings
which are now or during the Term shall be charged
assessed or imposed upon the Premises or upon the owner
or occupier of them and if the Landlord shall suffer any
loss of rating relief which may be applicable to empty
premises after the end of the Term by reason of such
relief being allowed to the Tenant in respect of any
period before the end of the Term to make good such loss
to the Landlord and
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<PAGE> 11
5.2.2 To pay VAT which may from time to time be charged on
rents or other sums payable by the Tenant under this
underlease
5.3 Electricity, Gas and other Services Consumed
To pay to the suppliers and to indemnify the Landlord against all
charges for electricity gas and other services consumed or used
at or in relation to the Premises (including meter rents)
5.4 Repair, Cleaning, Decoration etc
5.4.1 To repair the Premises and keep them in repair
excepting damage caused by an Insured Risk other than
where the insurance money is irrecoverable in
consequence of any act or default of the Tenant or
anyone at the Premises expressly or by implication with
the Tenant's authority PROVIDED that the Tenant shall
not be required to carry out any repairs or
redecorations to the external cladding to the Building
5.4.2 To replace from time to time the Landlord's fixtures
and fittings in the Premises which may be or become
beyond repair at any time during or at the expiration
of the Term
5.4.3 To clean the Premises and keep them in a clean
condition
5.4.4 Not to cause any land roads or pavements abutting the
Premises to be untidy or in a dirty condition and in
particular (but without prejudice to the generality of
the above) not to deposit on them refuse or other
materials
5.4.5 In each of the Exterior Decorating Years and in the
last year of the Term to redecorate the exterior of the
Building provided as in clause 5.4.1 and in each of the
Interior Decorating Years and in the last year of the
Term to redecorate the interior of the Building in both
instances in a good and workmanlike manner and with
appropriate materials of good quality any change in
the tints colours and patterns of such
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<PAGE> 12
decoration to be approved by the Landlord (such approval
not to be unreasonably withheld)
5.4.6 Where the use of Pipes boundary structures or other things
is common to the Premises and other property to be
responsible for and to indemnify the Landlord against all
sums due from and to undertake all work that is the
responsibility of the owner lessee or occupier of the
Premises in relation to those Pipes or other things
5.4.7 To observe and perform the covenants and conditions as to
repair and decoration on the part of the lessee contained
in the Headlease (provided as in clause 5.4.1) and to
indemnify the Landlord from and against any actions
proceedings claims damages costs expenses or losses arising
from any breach non-observance or non-performance of such
covenants and conditions both during and at the
determination of the Term (provided as aforesaid)
5.4.8 To keep any part of the Premises which may not be built
upon ('the Open Land') adequately surfaced in good
condition and free from weeds
5.4.9 Not to bring keep store stack or lay out upon the Open Land
any materials equipment plant bins crates cartons boxes or
any receptacle for waste or any other item
5.4.10 Not to deposit or permit to be deposited any waste rubbish
or refuse on the Open Land
5.4.11 Not to keep or store on the Open Land any caravan or
movable dwelling
5.5 WASTE AND ALTERATIONS
5.5.1 Not to:
5.5.1.1 commit any waste
5.5.1.2 make any addition to the Premises
5.5.1.3 unite the Premises with any adjoining premises
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<PAGE> 13
5.5.1.4 make any alteration to the Premises save as
permitted by the following provisions of this
clause
5.5.2 Not to make internal non-structural alterations to the
Building without:
5.5.2.1 obtaining and complying with all necessary
consents of any competent authority and paying all
charges of any such authority in respect of such
consents
5.5.2.2 making an application to the Landlord supported by
drawings and where appropriate a specification in
duplicate
5.5.2.3 paying the fees of the Landlord any superior
landlord any mortgagee and their respective
professional advisers and
5.5.2.4 entering into such covenants as the Landlord may
reasonably require as to the execution and
reinstatement of the alterations
and in the case of any works of a substantial nature the
Landlord may require prior to the commencement of such
works the provision by the Tenant of adequate security in
the form of a deposit of money or the provision of a bond
as assurance to the Landlord that any works which may from
time to time be permitted by the Landlord shall be fully
completed
5.5.3 Subject to the provisions of clause 5.5.2 not to make any
internal non-structural alterations to the Building
without the consent of the Landlord such consent not to be
unreasonably withheld or delayed provided that:
5.5.3.1 the installation by the Tenant without such
consent of internal demountable partitions in the
Premises of a design and of materials approved in
writing by the Landlord such approval not to be
unreasonably withheld shall be deemed not to be a
breach of this covenant and
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<PAGE> 14
5.5.3.2 the Tenant may without further consent
reposition and remove or alter such internal
partitions from time to time
5.5.4 To remove any additional buildings additions alterations
or improvements made to the Premises at the expiration
of the Term if so requested by the Landlord and to make
good any part or parts of the Premises which may be
damaged by such removal
5.5.5 Not to make connection with the Pipes that serve the
Premises otherwise than in accordance with plans and
specifications approved by the Landlord such approval
not to be unreasonably withheld or delayed subject to
consent to make such connection having previously been
obtained from the competent statutory authority or
undertaker
5.6 Aerials, Signs and Advertisements
5.6.1 Not to erect any pole mast or wire (whether in
connection with telegraphic telephonic radio television
or satellite communication without the prior written
consent of the Landlord such consent not to be
unreasonably withheld or delayed) or otherwise upon the
Premises
5.6.2 Not to affix to or exhibit on the outside of the
Building or to or through any window of the Building nor
display anywhere on the Premises any placard sign notice
fascia board or advertisement except any sign permitted
by virtue of any consent given by the Landlord pursuant
to a covenant contained in this underlease
5.7 Statutory Obligations
5.7.1 At the Tenant's own expense to execute all works and
provide and maintain all arrangements upon or in respect
of the Premises or the use to which the Premises are
being put that are required in order to comply with the
requirements of any statute (already or in the future to
be passed) or any government department local authority
other public or competent
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<PAGE> 15
authority or court of competent jurisdiction regardless of
whether such requirements are imposed on the lessor the lessee
or the occupier.
5.7.2 Not to do in or near the Premises any act or thing by reason of
which the Landlord may under any statute incur have imposed
upon the Landlord or become liable to pay any penalty damages
compensation costs charges or expenses
5.7.3 Without prejudice to the generality of the above to comply in
all respects with the provisions of any statutes and any other
obligations imposed by law or by any byelaws applicable to the
Premises or in regard to carrying on the trade or business for
the time being carried on on the Premises
5.8 Access of the Landlord and Notice to Repair
5.8.1 To permit the Landlord upon reasonable prior notice and at
reasonable times except in an emergency:
5.8.1.1 to enter upon the Premises for the purpose of
ascertaining that the covenants and conditions of this
underlease have been observed and performed
5.8.1.2 to view (and to open up floors and other parts of the
Premises where such opening-up is reasonably required in
order to view) the state of repair and condition of the
Premises and
5.8.1.3 to give to the Tenant (or leave upon the Premises) a
notice specifying any repairs cleaning maintenance or
painting that the Tenant has failed to execute in
breach of the terms of this underlease including the
making good of such opening-up (if any)
provided that any such opening-up shall be forthwith made good
by and at the cost of the Landlord where such opening-up
reveals no breaches of the terms of this underlease
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5.8.2 To commence and proceed to repair cleanse maintain and paint
the Premises as required by such notice within one month after
service thereof
5.8.3 If within one month of the service of such a notice the Tenant
shall not have commenced and be proceeding diligently with the
execution of the work referred to in the notice or shall fail
to complete the work within two months or if in the Landlord's
opinion the Tenant is unlikely to have completed the work
within such period to permit the Landlord to enter the Premises
to execute such work as may be necessary to comply with the
notice and to pay to the Landlord the cost of so doing and all
expenses incurred by the Landlord (including legal costs and
surveyor's fees) within 14 days of a written demand
5.8.4 To permit the Landlord and all persons authorised by the
Landlord (including agents professional advisers contractors
workmen and others) upon reasonable notice (except in the case
of emergency) to enter upon the Premises for any purpose that
is in the reasonable opinion of the Landlord necessary to
enable it to comply with the covenants and the conditions
contained in the Headlease
5.9 Alienation
5.9.1 Not to hold on trust for another or (save pursuant to a
transaction permitted by and effected in accordance with the
provisions of this underlease) part with the possession of the
whole or any part of the Premises or permit another to occupy
the whole or any part of the Premises PROVIDED that the Tenant
may share occupation of the Premises with a company within the
same group of companies (within the meaning of section 42 of the
1954 Act) as the Tenant provided that no relationship of
landlord and tenant is created and for so long as both
companies remain a member of the same group
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5.9.2 Not to assign underlet or charge part only of the Premises save
that the Tenant may subject to clause 5.9.6 underlet either
Unit 2 or Unit 3 as a whole with the prior consent of the
Landlord which is not to be unreasonably withheld or delayed
5.9.3 Not to assign or charge or underlet the whole of the Premises
without the prior consent of the Landlord such consent not to
be unreasonably withheld or delayed
5.9.4 Not to assign the whole of the Premises without the prior
consent of the Landlord such consent not to be unreasonably
withheld or delayed PROVIDED THAT the Landlord shall be
entitled for the purposes of Section 19(1A) of the Landlord and
Tenant Act of 1927 to withhold its consent or licence to an
assignment of the whole of the Premises if the circumstances
and conditions set out in clause 5.9.5 do not exist or have not
been complied with and PROVIDED ALWAYS that the Landlord may
withhold its consent on any other ground or grounds where such
withholding of consent would be reasonable or to impose any
further reasonable condition or conditions upon the grant of
consent
5.9.5 The circumstances and conditions referred to in clause 5.9.4
are:
5.9.5.1 that the Tenant who is to assign the underlease enters
into an Authorised Guarantee Agreement with the
Landlord in the form set out in the Fourth Schedule with
such changes thereto as the Landlord may reasonable
require from time to time and
5.9.5.2 that such persons as the Landlord may reasonably
require act as Guarantors for the intended assignee in
the form set out in clause 8 of the underlease
5.9.5.3 that any arrears of rent and other monetary payments due
under the terms of this
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underlease have been paid prior to completion of the
assignment
5.9.5.4 that all other material breaches of the Tenant's
covenants and conditions in this underlease have been
remedied
5.9.5.5 that the assignee and any other required guarantors
have produced accounts and references reasonably
acceptable to the Landlord
5.9.5.6 that the Tenant has with the application for consent to
assign produced to the Landlord an unconditional
undertaking from its solicitors to pay whether the
license is granted or not all costs and disbursements
(including VAT) which may be properly incurred by the
Landlord in connection with the application for consent
(including without prejudice to the generality of the
foregoing) its solicitors' costs, its surveyors' costs
and its accountants' costs (if any) or that the Tenant
has provided such other security for such costs and
disbursements as the landlords reasonably requires or
5.9.5.7 the assignee has first covenanted by deed with the
Landlord in such form as the Landlord may reasonably
require that with effect from the date of the
assignment and during the residue of the Term or until
the proposed assignee is released from such covenants
or conditions the assignee will pay the Rent and
observe and perform all the provisions of this
underlease to be observed and performed by the Tenant
5.9.5.8 the assignee has if reasonably required by the Landlord
procured a covenant by deed with the Landlord from a
guarantor or
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guarantors for the assignee (such guarantors to be
reasonably acceptable to the Landlord) in the form of
the guarantee set out in clause 8 of the underlease
5.9.6 That each and every permitted underlease shall be granted
without any fine or premium at a rent not less than the then
open market rental value of the Premises to be approved by the
Landlord prior to any such underlease or the Rent then being
paid (whichever shall be greater) (adjusted if only one unit is
being underlet) such rent being payable in advance on the days
on which Rent is payable under this underlease and shall
contain provisions approved by the Landlord:
5.9.6.1 for the upwards only review of the rent reserved by
such underlease on the basis and on the dates on which
the Rent is to be reviewed in this underlease
5.9.6.2 prohibiting the undertenant from doing or allowing any
act or thing in relation to the underlet premises
inconsistent with or in breach of the provisions of
this underlease
5.9.6.3 for re-entry by the underlandlord on breach of any
covenant by the undertenant
5.9.6.4 imposing an absolute prohibition against all
dispositions of or other dealings whatever with the
Premises other than an assignment of the whole
5.9.6.5 prohibiting any assignment of the whole without the
prior consent of the Landlord under this underlease but
providing that such consent may not be unreasonably
withheld or delayed
5.9.6.6 prohibiting the undertenant from permitting another to
occupy the whole or any part of the Premises
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5.9.6.7 imposing in relation to any permitted assignment the same
obligations for registration with the Landlord as are contained
in this underlease in relation to dispositions by the Tenant
5.9.6.8 excluding the provisions of the sections 24-28 of the 1954 Act
5.9.7 Prior to any permitted underletting to procure that the undertenant
enters into direct covenants with the Landlord to the like effect as
those contained in clause 5.9.6
5.9.8 To enforce the performance and observance by every such undertenant of
the provisions of the underlease and not at any time either expressly or
by implication to waive any breach of the covenants or conditions on the
part of any undertenant or assignee of any underlease nor (without the
consent of the Landlord such consent not to be unreasonably withheld or
delayed) vary the terms or accept a surrender of any permitted underlease
5.9.9 In relation to any permitted underlease:
5.9.9.1 to ensure that the rent is reviewed in accordance with the terms
of the underlease
5.9.9.2 not to agree the reviewed rent with the undertenant without the
approval of the Landlord
5.9.9.3 where the underlease provides such an option not to agree that
the third party determining the rent in default of agreement
shall act as an arbitrator or as an expert without the approval
of the Landlord
5.9.9.4 not to agree upon the appointment of a person to act as the
third party determining the rent in default of agreement without
the approval of the Landlord
5.9.9.5 to incorporate as part of any submissions or representations to
that third party such
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submissions or representations as the Landlord shall reasonably
require
5.9.9.6 to give notice to the Landlord of the details of the
determination of every rent review within 14 days
provided that the Landlord's approvals specified in this clause 5.9.9
shall not be unreasonably withheld or delayed
5.9.10 Within 28 days of any assignment charge underlease or sub-underlease or
any transmission or other devolution relating to the Premises to produce
for registration with the Landlord's solicitor such deed or document or a
certified copy of it and to pay the Landlord's solicitor's reasonable
charges for the registration of every such document such charges not
being less than L.25 (twenty five pounds) plus VAT
5.10 Nuisance, Etc. and Residential Restrictions
5.10.1 Not to do nor allow to remain upon the Premises anything which may be or
become or cause a nuisance annoyance disturbance inconvenience injury or
damage to the Landlord or the Landlord's tenants or other owners or
occupiers of adjacent or neighbouring premises
5.10.2 Not to use the Premises for a sale by auction or for any dangerous
noxious noisy or offensive trade business manufacture or occupation nor
for any illegal or immoral act or purpose
5.10.3 Not to use the Premises as sleeping accommodation or for residential
purposes nor keep any animal fish reptile or bird anywhere on the
Premises
5.11 Landlord's Costs
To pay to the Landlord on an indemnity basis all costs fees charges
disbursements and expenses (including without prejudice to the generality of
the above those payable to counsel solicitors surveyors and bailiffs) properly
and reasonably incurred by the Landlord in relation to or incidental to:
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5.11.1 every application made by the Tenant for a consent or
licence required by the provisions of this underlease
whether such consent or licence is granted or refused
or proffered subject to any qualification or condition
or whether the application is withdrawn
5.11.2 the preparation and service of a notice under the Law
of Property Act 1925 Section 146 or incurred by or in
contemplation of proceedings under Sections 146 or 147
of that Act notwithstanding that forfeiture is avoided
otherwise than by relief granted by the court
5.11.3 the recovery or attempted recovery of arrears of rent
or other sums due from the Tenant and
5.11.4 and steps taken in contemplation of or in connection
with the preparation and service of a schedule of
dilapidations during or within three months after the
expiration of the Term
5.12 The Planning Acts
5.12.1 Not to commit any breach of planning control (such term
to be construed as it is used in the Planning Acts) and
to comply with the provisions and requirements of the
Planning Acts that affect the Premises whether as to
the Permitted User or otherwise and to indemnify (both
during or following the expiration of the Term) and
keep the Landlord indemnified against all liability
whatsoever including costs and expenses in respect of
any contravention such consent not to be unreasonably
withheld or delayed
5.12.2 At the expense of the Tenant to obtain all planning
permissions and to serve all such notices as may be
required for the carrying out of any operations or user
on the Premises which may constitute Development
provided that no application for planning permission
shall be made without the previous consent of the
Landlord such consent not to be unreasonably withheld
or delayed
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5.12.3 Subject only to any statutory direction to the contrary
to pay and satisfy any charge or levy that may
subsequently be imposed under the Planning Acts in
respect to the carrying out or maintenance of any such
operations or the commencement or continuance of any
such user
5.12.4 Notwithstanding any consent which may be granted by the
Landlord under this underlease not to carry out or make
any alteration or addition to the Premises or any
change of use until:
5.12.4.1 all necessary notices under the Planning Acts
have been served and copies produced to the
Landlord
5.12.4.2 all necessary permissions under the Planning
Acts have been obtained and produced to the
Landlord and
5.12.4.3 the Landlord has acknowledged that every
necessary planning permission is acceptable
the Landlord being entitled to refuse to
acknowledge acceptance of a planning
permission on the grounds that any condition
contained in it or anything omitted from it
or the period referred to in it would be (or
be likely to be) prejudicial to the
Landlord's interest in the Premises whether
during or following the expiration of the
Term
5.12.5 Unless the Landlord shall otherwise direct to carry out
and complete before the expiration of the Term:
5.12.5.1 any works stipulated to be carried out to the
Premises by a date subsequent to such
expiration as a condition of any planning
permission granted for any Development begun
before the expiration of the Term and
5.12.5.2 any Development begun upon the Premises in
respect of which the Landlord shall or may
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be or become liable for any charge or levy under the
Planning Acts
5.12.6 In any case where a planning permission is granted subject to
conditions and if the Landlord so reasonably requires to provide
security for the compliance with such conditions and not to
implement the planning permission until security has been
provided
5.13 Plans, Documents and Information
5.13.1 If called upon to do so to produce to the Landlord or the
Surveyor all plans documents and other evidence as the Landlord
may reasonably require in order for the Landlord to be satisfied
that the provisions of this underlease have been complied with
5.13.2 If called upon to do so to furnish to the Landlord the Surveyor
or any person acting as the third party determining the Rent in
default of agreement between the parties under any provisions for
rent review contained in this underlease such information as may
reasonably be requested in writing in relation to any pending or
intended step under the 1954 Act or the implementation of any
provisions for rent review
5.14 Indemnities
To be responsible for and to keep the Landlord fully indemnified against
all damage damages losses costs expenses actions demands proceedings claims
and liabilities made against or suffered or incurred by the Landlord
arising directly or indirectly out of:
5.14.1 any act omission or negligence of the Tenant or any persons at
the Premises expressly or impliedly with the Tenant's authority
or
5.14.2 any breach or non-observance by the Tenant of the covenants
conditions or other provisions of this underlease or any of the
matters to which this demise is subject or
5.14.3 the use or occupation of the Premises
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5.15 Reletting Boards
To permit the Landlord at any time during the last 6 months of the
Contractual Term and at any time thereafter (or sooner if the rents or any
part of them shall be in arrear and unpaid for longer than 28 days) to
enter upon the Premises and affix and retain anywhere upon the Premises a
notice for reletting the Premises (but not so as to obscure the doors or
windows thereof) and during such period to permit persons with the written
authority of the Landlord or the Landlord's agent at reasonable times of
the day by appointment to view the Premises
5.16 Encroachments
5.16.1 Not to stop up darken or obstruct any windows or light belonging
to the Building
5.16.2 To take all steps to prevent any new window light opening
doorway path passage pipe or other encroachment or easement
being made or acquired in against out of or upon the Premises and
to notify the Landlord immediately upon it coming to the notice
of the Tenant if any such encroachment or easement shall be made
or acquired (or attempted to be made or acquired) and at the
request and cost (unless due to the Tenant's default or
omission) of the Landlord to adopt such means as shall be
required to prevent such encroachment or the acquisition of any
such easement
5.17 Yield Up
At the expiration of the Term:
5.17.1 to yield up the Premises in repair and in accordance with the
terms of this underlease
5.17.2 to give up all keys of the Premises to the Landlord and
5.17.3 to remove all signs erected by the Tenant in upon or near the
Premises and immediately to make good any damage caused by such
removal
5.18 Interest on arrears
5.18.1 If the Tenant shall fail to pay the rents or any other sum due
under this underlease within 14 days of
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the date due whether formally demanded or not the Tenant shall pay to the
Landlord Interest on the rents or other sum from the date when they were
due to the date on which they are paid and such Interest shall be deemed to
be rents due to the Landlord
5.18.2 Nothing in the preceding clause shall entitle the Tenant to
withhold or delay any payment of the rents or any other sum due
under this underlease after the date upon which they fall due or
in any way prejudice affect or derogate from the rights of the
Landlord in relation to such non-payment including (but without
prejudice to the generality of the above) under the proviso for
re-entry contained in this underlease
5.19 Statutory Notices etc.
To give full particulars to the Landlord of any notice direction order or
proposal for the Premises made given or issued to the Tenant by any local
or public authority within 7 days of receipt and if so required by the
Landlord to produce it to the Landlord and without delay to take all
necessary steps to comply with the notice direction or order and at the
request of the Landlord but at the joint cost of the Landlord and the
Tenant to make or join with the Landlord in making such objection or
representation against or in respect of any notice direction order or
proposal as the Landlord shall deem expedient
5.20 Keyholders
To ensure that at all times the Landlord has written notice of the name
home address and home telephone number of at least 2 keyholders of the
Premises
5.21 Sale of Reversion etc.
To permit upon reasonable notice at any time during the Term during normal
business hours prospective purchasers of or agents instructed in
connection with the sale of the Landlord's reversion or of any other
interest superior to the Term to view the Premises by prior appointment
without interruption provided they are authorised in writing by the
Landlord or its agents
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5.22 Defective Premises
To give notice to the Landlord of any defect in the Premises
which might give rise to an obligation on the Landlord to do or
refrain from doing any act or thing in order to comply with the
provisions of this underlease or the duty of care imposed on the
Landlord pursuant to the defective Premises Act 1972 or
otherwise as soon as the same shall come to the notice of the
Tenant and at all times to display and maintain all notices
which the Landlord may from time to time require to be
displayed at the Premises
5.23 New Guarantor
Within 14 days of the death during the Term of any Guarantor or
of such person becoming bankrupt or having a receiving order
made against him or having a receiver appointed under the Mental
Health Act 1983 or being a company passing a resolution to wind
up or entering into liquidation or having a receiver appointed
to give notice of this to the Landlord and if so required by the
Landlord at the expense of the Tenant within 28 days to procure
some other person acceptable to the Landlord to execute a
guarantee in respect of the Tenant's obligations contained in
this underlease in the form of the Guarantor's covenants
contained in this underlease
5.24 Landlord's Rights
To permit the Landlord at all times during the Term to exercise
without interruption or interference any of the rights granted
to the Landlord by virtue of the provisions of this underlease
5.25 To observe and perform the covenants and conditions contained in
the Headlease
To observe and perform the covenants and conditions on the part
of the lessee contained in the Headlease except in so far as the
Landlord expressly covenants in this underlease to observe and
perform the same and to indemnify the Landlord from and against
any actions proceedings claims damages costs expenses or losses
arising from any breach
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non-observance or non-performance of such covenants and
conditions
5.26 Not to commit a breach of the terms of the Headlease
Not to do omit suffer or permit in relation to the Premises any
act or thing which would or might cause the Landlord to be in
breach of the Headlease or which if done omitted or suffered or
permitted by the Landlord would or might constitute a breach of
the covenants on the part of the lessee and the conditions
contained in the Headlease
5.27 The Operational Covenants
To observe and perform the Operational Covenants
6. THE LANDLORD'S COVENANTS
The Landlord covenants with the Tenant:
6.1 Quiet Enjoyment
To permit the Tenant peaceably and quietly to hold and enjoy the
Premises without any interruption or disturbance from or by the
Landlord or any person claiming under or in trust for the
Landlord
6.2 To pay the Headlease rent(s)
To pay the rents reserved by the Headlease and to perform so far
as the Tenant is not liable for such performance under the terms
of this underlease the covenants and conditions on the part of
the lessee contained in the Headlease
6.3 To enforce the covenants in the Headlease
On the request and at the expense of the Tenant to take all
reasonable steps to enforce the covenants on the part of the
Superior Landlord contained in the Headlease
6.4 To obtain consents under the Headlease
To take all reasonable steps at the Tenant's expense to obtain
the consent of the Superior Landlord wherever the Tenant makes
application for any consent required under this underlease where
the consent of both the Landlord and the Superior Landlord is
needed by virtue of this underlease and the Headlease
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6.5 External cladding
After any notice given by the Tenant as to any substantial
defect in the external cladding of the Building having come to
the notice of the Tenant to inspect the same and to carry out
any work which may reasonably be required thereto so as to
ensure that the Building remains wind and water tight
7. Insurance
7.1 Warranty re Convictions
The Tenant warrants that prior to the execution of this
underlease the Tenant has disclosed to the Landlord in writing
any conviction judgment or finding or any court or tribunal
relating to the Tenant (or any director other officer or major
shareholder of the Tenant) of such a nature as to be likely to
affect the decision of any insurer or underwriter to grant or to
continue insurance of the Building against loss of damage by any
of the Insured Risks
7.2 Landlord to Insure
7.2.1 Subject to the Tenant paying the Insurance Rent the
Landlord covenants with the Tenant to insure the
Premises unless such insurance shall be vitiated by any
act of the Tenant or by anyone at the Premises expressly
or by implication with the Tenant's authority
7.2.2 Insurance shall be effected:
7.2.2.1 in such insurance office or with such
underwriters and through such agency as the
Landlord may from time to time decide
7.2.2.2 for the following sums:
(a) such sum as the Landlord shall from time to
time be advised as being the full cost of
rebuilding and reinstatement including VAT
architect's surveyors' and other professional
fees fees payable upon any applications for
planning permission or other permits or consents
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that may be required in relation to the
rebuilding or reinstatement of the Premises
the cost of the debris removal demolition
site clearance any works that may be
required by statute and incidental expenses
and
(b) the loss of Rent payable under this
underlease from time to time (having regard
to any review of rent which may become due
under this underlease) for 3 years or such
longer period as the Landlord may from time
to time consider to be sufficient for the
purposes of the planning and carrying out
the rebuilding or reinstatement
7.2.2.3 against damage or destruction by the Insured
Risks to the extent that such insurance may
ordinarily be arranged for properties such as
the Premises with an insurer of repute and
subject to such excesses exclusions or
limitations as the insurer may require
7.3 Payment of Insurance Rent
The Tenant shall pay the Insurance Rent on the date of this
underlease for the period from and including the date of this
underlease to the day before the next policy renewal date and
subsequently the Tenant shall pay the Insurance Rent on demand
and (if so demanded) in advance of the policy renewal date
7.4 Suspension of Rent
7.4.1 If and whenever during the Term:
7.4.1.1 the Premises or any part of them are damaged or
destroyed by any of the Insured Risks so that
the Premises or any part of them are unfit for
occupation or use and
7.4.1.2 payment of the insurance money is not refused in
whole or in part by reason of any act or default
of the Tenant or anyone at
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the Premises expressly or by implication with
the Tenant's authority
the provisions of clause 7.4.2 shall have effect
7.4.2 When the circumstances contemplated in clause 7.4.1
arise the Rent or a fair proportion of the Rent
according to the nature and extent of the damage
sustained shall cease to be payable until the Premises
or the affected part shall have been rebuilt or
reinstated so that the Premises or the affected part are
made fit for occupation or use or until the expiration
of 3 years from the destruction or damage whichever
period is the shorter
7.5 Reinstatement and Termination if Prevented
7.5.1 If and whenever during the Term:
7.5.1.1 the Premises or any part of them are damaged or
destroyed by any of the Insured Risks
7.5.1.2 the payment of the insurance money is not
refused in whole or in part by reason of any act
or default of the Tenant or anyone at the
Premises expressly or by implication with the
Tenant's authority
the Landlord shall use the Landlord's best endeavours to
obtain all planning permissions or other permits and
consents that may be required under the Planning Acts or
other statutes (if any) to enable the Landlord to
rebuilt and reinstate ('Permissions')
7.5.2 Subject to the provisions of clauses 7.5.3 and 7.5.4 the
Landlord shall as soon as the Permissions have been
obtained or immediately where no Permissions are
required apply all money received in respect of such
insurance (except sums in respect of loss of Rent) in
rebuilding or reinstating the Premises so destroyed or
damaged and shall make up any shortfall out of the
Landlord's own monies
7.5.3 For the purposes of this clause the expression
'Supervening Events' means:
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7.5.3.1 the Landlord has failed despite using the
Landlord's best endeavours to obtain the
Permissions
7.5.3.2 any of the Permissions have been granted subject
to a lawful condition with which in all the
circumstances it would be unreasonable to expect
the Landlord to comply
7.5.3.3 some defect or deficiency in the site upon which
the rebuilding or reinstatement is to take place
would mean that the same could only undertaken at
a cost that would be unreasonable in all the
circumstances
7.5.3.4 the Landlord is unable to obtain access to the site
for the purposes of rebuilding or reinstating
7.5.3.5 the rebuilding or reinstating is prevented by war
act of God Government action strike lock-out or
7.5.3.6 any other circumstances beyond the control of the
Landlord
7.5.4 The Landlord shall not be liable to rebuild or reinstate
the Premises if and for so long as such rebuilding or
reinstating is prevented by Supervening Events
7.5.5 If upon the expiry of a period of 2-1/2 years commencing
on the date of the damage or destruction the Premises have
not been rebuilt or reinstated so as to be fit for the
Tenant's occupation and use either party may by notice
served at any time within 6 months of the expiry of such
period invoke the provisions of clause 7.5.6
7.5.6 Upon service of a notice in accordance with clause 7.5.5:
7.5.6.1 the Term will absolutely cease but without
prejudice to any rights or remedies that may have
accrued to either party against the other
including (without prejudice to the
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generality of the above) any right that the Tenant
might have against the Landlord for a breach of
the Landlord's covenants set out in clauses 7.5.1
and 7.5.2
7.5.6.2 all money received in respect of the insurance
effected by the Landlord pursuant to this clause
shall belong to the Landlord
7.6 Tenant's Insurance Covenants
The Tenant covenants with the Landlord:
7.6.1 to comply with all the requirements and recommendations of
the insurers
7.6.2 not to do or omit anything that could cause any policy of
insurance on or in relation to the Premises to become void
or voidable wholly or in part nor (unless the Tenant shall
have previously notified the Landlord and have agreed to
pay the increased premium) anything by which additional
insurance premiums may become payable
7.6.3 to keep the Premises supplied with such fire fighting
equipment as the insurers and the fire authority may
require or as the Landlord may reasonably require and to
maintain such equipment to their satisfaction and in
efficient working order and at least once in every 6
months to cause any sprinkler system and other fire
fighting equipment to be inspected by a competent person
7.6.4 not to store or bring onto the Premises any article
substance or liquid of a specially combustible inflammable
or explosive nature and to comply with the requirements and
recommendations of the fire authority and the reasonable
requirements of the Landlord as to fire precautions
relating to the Premises
7.6.5 not to obstruct the access to any fire equipment or the
means of escape from the Premises nor to lock any fire
door while the Premises are occupied
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7.6.6 to give notice to the Landlord immediately upon the
happening of any event which might affect any insurance
policy on or relating to the Premises or upon the
happening of any event against which the Landlord may have
insured under this underlease
7.6.7 immediately to inform the Landlord in writing of any
conviction judgment or finding of any court or tribunal
relating to the Tenant (or any director other officer or
major shareholder of the Tenant) of such a nature as to be
likely to affect the decision of any insurer or
underwriter to grant or to continue any such insurance
7.6.8 if at any time the Tenant shall be entitled to the benefit
of any insurance on the Premises (which is not effected or
maintained in pursuance of any obligation contained in
this underlease) to apply all money received by virtue of
such insurance in making good the loss or damage in
respect of which such money shall have been received
7.6.9 if and whenever during the Term the Premises or any part
of them are damaged or destroyed by an Insured Risk and
the insurance money under the policy of insurance relating
to the Premises is by reason of any act or default of the
Tenant or anyone at the Premises expressly or by
implication with the Tenant's authority wholly or
partially irrecoverable immediately in every such case (at
the option of the Landlord) either:
7.6.9.1 to rebuild and reinstate at the Tenant's own
expense the Premises or the part destroyed or
damaged to the reasonable satisfaction and under
the supervision of the Surveyor the Tenant being
allowed towards the expenses of so doing upon such
rebuilding and reinstatement being completed the
amount (if any) actually received in respect of
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such destruction or damage under any such
insurance policy or
7.6.9.2 to pay to the Landlord on demand with Interest
the amount of such insurance money so
irrecoverable in which event the provisions of
clauses 7.4 and 7.5 shall apply
7.7 Landlord's Insurance Covenants
The Landlord covenants with the Tenant in relation to the policy
of insurance effected by the Landlord pursuant to the Landlord's
obligations contained in this underlease to produce to the
Tenant on demand reasonable evidence of the terms of the policy
and fact that the last premium has been paid
8. The Guarantor's Covenants
The Guarantor covenants with the person named herein as Landlord and
without the need for any express assignment with all the Landlord's
successors in title that:
8.1 To Pay Observe and Perform
Whilst the underlease is vested in the Tenant or the Tenant
remains liable by virtue of the Landlord and Tenant (Covenants)
Act 1995 and whilst the Tenant remains liable to the Landlord
under any authorised guarantee agreement entered into pursuant
to this underlease ("the Liability Period") the Tenant shall
punctually pay the rents and observe and perform the covenants
and other terms of this underlease and if at any time during the
Liability Period the Tenant shall make any default in payment of
the rents or in observing or performing any of the covenants or
other terms of this underlease the Guarantor will pay the rents
and observe or perform the covenants or terms in respect of
which the Tenant shall be in default and make good to the
Landlord on demand and indemnify the Landlord against all losses
and damages costs and expenses arising or incurred by the
Landlord as a result of such non-payment non-performance or
non-observance notwithstanding:
8.1.1 any time or indulgence granted by the Landlord to the
Tenant or any neglect or forbearance of the Landlord
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in enforcing the payment of the rents or the observance
or performance of the covenants or other terms of this
underlease or any refusal by the Landlord to accept
rents tendered by or on behalf of the Tenant at a time
when the Landlord was entitled (or would after the
service of a notice under the Law of Property Act 1925
Section 146 have been entitled) to re-enter the Premises
8.1.2 that the terms of this underlease may have been varied
by agreement between the parties
8.1.3 that the Tenant shall have surrendered part of the
Premises in which event the liability of the Guarantor
under this underlease shall continue in respect of the
part of the Premises not so surrendered after making any
necessary apportionments under the Law of Property Act
1925 Section 140 and
8.1.4 any other act or thing by which but for this provision
the Guarantor would have been released
8.2 To Take Underlease Following Disclaimer
If at any time during the Liability Period the Tenant (being an
individual) shall become bankrupt or (being a company) shall
enter into liquidation and the trustee in bankruptcy or
liquidator shall disclaim this underlease the Guarantor shall if
the Landlord shall by notice within 60 days after such
disclaimer so require take from the Landlord an underlease of
the Premises for the residue of the Contractual Term which would
have remained had there been no disclaimer at the Rent then
being paid under this underlease and subject to the same
covenants and terms as in this underlease (except that the
Guarantor shall not be required to procure that any other person
is made a party to that underlease as guarantor) such new
underlease to take effect from the date of such disclaimer and
in such case the Guarantor shall pay the costs of such new
underlease and execute and deliver to the Landlord a counterpart
of it
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8.3 To Make Payments Following Disclaimer
If this underlease shall be disclaimed and for any reason the Landlord
does not require the Guarantor to accept a new underlease of the
Premises in accordance with clause 8.2 the Guarantor shall pay to the
Landlord on demand an amount equal to the difference between any money
received by the Landlord for the use of occupation of the Premises and
the rents in both cases for the period commencing with the date of
such disclaimer and ending on whichever is the earlier of the
following dates:
8.3.1 the date 6 months after such disclaimer and
8.3.2 the date (if any) upon which the Premises are relet
9. PROVISOS
9.1 Re-entry
If and whenever during the Term:
9.1.1 the rents (or any of them or any part of them) under this
underlease are outstanding for 14 days after becoming due
whether formally demanded or not or
9.1.2 there is a breach by the Tenant or the Guarantor of any
covenant or other term of this underlease or any document
supplemental to this underlease or
9.1.3 an individual Tenant or the Guarantor:
9.1.3.1 becomes bankrupt or
9.1.3.2 has an interim receiver appointed in respect of
his property or
9.1.3.3 has a bankruptcy order made against him
9.1.4 a company Tenant or the Guarantor:
9.1.4.1 enters into liquidation whether compulsory or
voluntary (but not if the liquidation is for
amalgamation or reconstruction of a solvent
company) or
9.1.4.2 has an administrative or other receiver appointed
9.1.5 the Tenant enters into an arrangement for the benefit of the
Tenant's creditors or
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9.1.6 the Tenant has any distress or execution levied on the
Tenant's goods
the Landlord may re-enter the Premises (or any part of them in the
name of the whole) at any time (and even if any previous right of
re-entry has been waived) and then the Term will absolutely cease but
without prejudice to any rights or remedies which may have accrued to
the Landlord against the Tenant or the Guarantor in respect of any
breach of covenant or other term of this underlease (including the
breach in respect of which the re-entry is made)
9.2 Exclusion of Use Warranty
Nothing in this underlease or in any consent granted by the Landlord
under this underlease shall imply or warrant that the Premises may
lawfully be used under the Planning Acts for the purpose authorised in
this underlease(or any purpose subsequently authorised)
9.3 Entire Understanding
This underlease embodies the entire understanding of the parties
relating to the Premises and to all the matters dealt with by any of
the provisions of this underlease
9.4 Representations
The Tenant acknowledges that this underlease has not been entered into
in reliance wholly or partly on any statement or representation made
by or on behalf of the Landlord except any such statement or
representation that is expressly set out in this underlease
9.5 Licences etc. Under Hand
Whilst the Landlord is a limited company or other corporation all
licences consents approvals and notices required to be given by the
Landlord shall be sufficiently given if given under the hand of a
director the secretary or other duly authorised officer of the
Landlord
9.6 Tenant's Property
If after the Tenant has vacated the Premises on the expiry of the Term
any property of the Tenant remains in or on the Premises and the
Tenant fails to remove it within 7 days after being requested in
writing by the Landlord to do so or
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if after using reasonable endeavours the Landlord is unable to make such a
request to the Tenant within 14 days from the first attempt so made by the
Landlord:
9.6.1 the Landlord may as the agent of the Tenant sell such property and
the Tenant will indemnify the Landlord against any liability
incurred by the Landlord to any third party whose property shall
have been sold by the Landlord in the mistaken belief held in good
faith (which shall be presumed unless the contrary be proved) that
such property belonged to the Tenant
9.6.2 if the Landlord having made reasonable efforts is unable to locate
the Tenant the Landlord shall be entitled to retain such proceeds
of sale absolutely unless the Tenant shall claim them within 3
months of the date upon which the Tenant vacated the Premises and
9.6.3 the Tenant shall indemnify the Landlord against any damage
occasioned to the Premises and any actions claims proceedings costs
expenses and demands made against the Landlord caused by or related
to the presence of the property in or on the Premises
9.7 Compensation on Vacating
Any statutory right of the Tenant to claim compensation from the Landlord
on vacating the Premises shall be excluded to the extent that the law
allows
9.8 Disputes under the Headlease
Where any issue question or matter arising out of or under or relating to
the Headlease which also affects or relates to the provisions of this
underlease is to be determined as provided in the Headlease the
determination of such issue question or matter pursuant to the provisions
of the Headlease shall be binding on the Tenant as well as the Landlord for
the purposes both of the Headlease and this underlease
9.9 Service of Notices
The provisions of the Law of Property Act 1925 Section 196 as amended by
the Recorded Delivery Service Act 1962
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shall apply to the giving and service of all notices and documents under
or in connection with this underlease
9.10 Jurisdiction
9.10.1 This underlease shall be governed by English Law
9.10.2 The parties submit to the non-exclusive jurisdiction of the High
Court of Justice in England
9.11 Landlord and Tenant (Covenants) Act 1995
The parties hereby certify that this is a new tenancy for the purpose of
the Landlord and Tenant (Covenants) Act 1995
9.12 Landlord's Release
The Landlord shall be released from all liability under this underlease on
an assignment by the Landlord of its reversionary interest (subject always
to section 26(2) of the Landlord and Tenant (Covenants) Act 1995)
9.13 Option to Determine
If the Tenant wishes to determine this Lease on the expiry of the fifth
year of the Term and shall give to the Landlord not less than six months'
prior notice in writing and shall up to the time of such determination pay
the rents reserved by and in all material respects perform and observe the
covenants contained in this underlease then upon the expiry of such notice
the Term shall immediately cease and determine but without prejudice to
the respective rights of either party in respect of any antecedent claim
or breach of covenant
9.14 Tenant's option with regard to external cladding
If the Tenant shall at any time after the expiry of the fifth year of the
Term give to the Landlord notice in writing that the decorative condition
of the external cladding of the Building has substantially deteriorated
such that re-decoration is reasonably required then the Landlord shall
within three months of the date of service of such notice either:
9.14.1 Carry out the re-decoration of the external cladding in a proper
and workmanlike manner and with good
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quality materials and to the reasonable satisfaction of
the Tenant or
9.14.2 Give counternotice to the Tenant that the Landlord does
not propose to carry out such decorations in which event
the Tenant may within six months of the service of such
counternotice forthwith determine the Lease by written
notice to the Landlord on the same conditions as for
the determination of the Lease in accordance with
clause 9.13 hereof
IN WITNESS of which this deed has been executed the day and year first above
written
FIRST SCHEDULE
Rights Reserved
1. The right at any time during the Term at reasonable times and upon
reasonable notice except in cases of emergency to enter (or in cases of
emergency to break and enter) the Premises:
1.1 to inspect the condition and state of repair of the Premises
1.2 to take schedules or inventories of fixtures and other items to
be yielded upon on the expiry of the Term and
1.3 to exercise any of the rights granted to the Landlord elsewhere
in this underlease
2. The right with the Surveyor and the third party determining the Rent in
default of agreement between the parties under any provisions for rent
review contained in this underlease at convenient hours and on
reasonable prior notice to enter and inspect and measure the Premises
for all purposes connected with any pending or intended step under the
1954 Act or the implementation of the provisions for rent review
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SECOND SCHEDULE
Rent and rent review
1. DEFINITIONS
1.1 The terms defined in this paragraph shall for all purposes of
this schedule have the meanings specified
1.2 'Review Period' means the period between the Review Date and
the expiry of the Term (inclusive)
1.3 'the Assumptions' means the following assumptions at the Review
Date:
1.3.1 that no work has been carried out on the Premises by
the Tenant or the Tenant's subtenants or their
predecessors in title during the Term or during any
previous term held by the Tenant which has diminished
the rental value of the Premises
1.3.2 That if the Premises have been destroyed or damaged
they have been fully restored
1.3.3 that the covenants contained in this underlease on the
part of the Tenant have been fully performed and
observed
1.3.4 that the Premises are available to let by a willing
landlord to a willing tenant by one underlease without
a premium being paid by either party and with vacant
possession
1.3.5 that the Premises are ready for and fitted out and
equipped for immediate occupation and use for the
purpose or purposes required by the willing tenant
referred to in paragraph 1.3.4 and that all the
services required for such occupation and use are
connected to the Premises
1.3.6 that the underlease referred to in paragraph 1.3.4
contains the same terms as this underlease except the
amount of the Initial Rent and any rent free period
allowed to the Tenant for fitting out the Premises for
the Tenant's occupation and use at the commencement of
the Term but including the provisions for rent review
on the Review Dates and at similar
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intervals after the last Review Date and except as set
out in paragraph 1.3.7
1.3.7 that the term of the underlease referred to in
paragraph 1.3.4 is equal in length to the Contractual
Term and that such term begins on the relevant Review
Date and that the rent shall commence to be payable
from that date and that the years during which the
tenant covenants to decorate the Premises are at
similar intervals after the beginning of the term of
such underlease as those specified in this underlease
1.3.8 that the underlease referred to in paragraph 1.3.4 will
be renewed at the expiry of its term under the
provisions of the 1954 Act
1.3.9 that the hypothetical tenant is and that tenants in the
market generally are registered for the purposes of VAT
and will be able to set off in full by way of input tax
any VAT payable in respect of any payment of rent
against the output tax payable by such tenant
1.4 'the Disregarded Matters' means:
1.4.1 any effect on rent of the fact that the Tenant or the
Tenant's permitted subtenants or their respective
predecessors in title have been in occupation of the
Premises
1.4.2 any goodwill attached to the Premises by reason of the
carrying on at the Premises of the business of the
Tenant or the Tenant's permitted subtenants or their
predecessors in title in their respective businesses
1.4.3 any increase in rental value of the Premises
attributable to the existence at the relevant Review
Date of any improvement addition alteration or other
work to the Premises carried out with consent where
required otherwise than in pursuance of an obligation
to the Landlord or the Landlord's predecessors in title
by the Tenant or the Tenant's permitted subtenants or
their respective predecessors in title during the Term
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1.4.4 any adverse effect on rent of any temporary works
operations or other activities on any adjoining or
neighbouring property
1.4.5 any rent free or reduced rent period or reverse
premiums or other concessions that a willing landlord
might give to a willing tenant in the open market at
the relevant Review Date
1.5 'the President' means the President for the time being of the
Royal Institution of Chartered Surveyors the duly appointed
deputy of the President or any person authorised by the
President to make appointments on his behalf
1.6 'the Independent Surveyor' means a person appointed by
agreement between the parties or in the absence of agreement
within 14 days of one party giving notice to the other of their
nomination or nominations nominated by the President on the
application of either party made not earlier than 6 months
before the relevant Review Date or at any time afterwards
2. ASCERTAINING THE RENT
2.1 The Rent shall be:
2.1.1 until the first Review Date the Initial Rent and
2.1.2 during the Review Period a rent equal to the greater of:
2.1.2.1 the Rent payable immediately prior to the
relevant Review Date or if payment of Rent has
been suspended pursuant to the proviso to that
effect contained in this underlease the Rent
which would have been payable had there been no
suspension or
2.1.2.2 such Rent as may be ascertained in accordance
with this schedule
2.2 Such revised Rent for the Review Period may be agreed in
writing at any time between the parties or (in the absence of
agreement) will be determined not earlier than the Review Date
by the Independent Surveyor
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2.3 The revised Rent to be determined by the Independent Surveyor shall
be such as he shall decide to be the rent at which the Premises might
reasonably be expected to be let on the open market at the Review
Date making the Assumptions but disregarding the Disregarded Matters
2.4 The Independent Surveyor shall act as an arbitrator in accordance
with the Arbitration Acts 1950 to 1979 unless before his appointment
the Landlord shall elect in writing that the Independent Surveyor
shall act as an expert and not as an arbitrator and in such event the
Independent Surveyor acting as an expert shall nevertheless afford
the parties a reasonable opportunity to make written representations
to him but save in the event of manifest error his decision as an
expert shall be final and binding on the parties
2.5 The Independent Surveyor shall also have authority to determine the
proportions in which the costs of his determination shall be borne
between the parties
2.6 If the Independent Surveyor shall die or become unwilling to act or
incapable of acting or withdraws or if for any other reason the
President or the person acting on the President's behalf shall think
fit the Independent Surveyor shall be discharged and the President or
the person acting on his behalf shall appoint another in his place
and this shall be repeated as many times as may be necessary in the
circumstances
2.7 Whenever the Rent shall have been ascertained in accordance with this
schedule memoranda to this effect shall be signed by or on behalf of
the parties and annexed to this underlease and its counterpart and the
parties shall bear their own costs in this respect (but failure to
sign such a memorandum shall not affect the recovery of the new rent)
3. ARRANGEMENT PENDING ASCERTAINMENT OF REVISED RENT
3.1 If the revised Rent payable during the Review Period has not been
ascertained by the relevant Review Date Rent shall continue to be
payable at the rate previously payable such payments being on account
of the Rent for that Review Period
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<PAGE> 46
3.2 If one party shall upon publication of the Independent Surveyor's
award pay all the Independent Surveyor's fees and expenses such party
shall be entitled to recover (in default of payment within 21 days of
a demand to that effect in the case of the Landlord as Rent in
arrears or in the case of the Tenant by deduction from Rent) such
proportion of them (if any) as the Independent Surveyor shall award
against the other party
4. PAYMENT OF REVISED RENT
4.1 If the revised Rent shall be ascertained on or before the Review Date
and that date is not a quarter day the Tenant shall on that Review
Date pay to the Landlord the amount by which one quarter's Rent at
the rate payable on the immediately preceding quarter day is less
than one quarter's Rent at the rate of the revised rent apportioned
on a daily basis for that part of the quarter during which the
revised Rent is payable
4.2 If the revised Rent payable during the Review Period has not been
ascertained by the Review Date then immediately after the date when
the same has been agreed between the parties or the date upon which
the Independent Surveyor's award shall be received by one party the
Tenant shall pay to the Landlord:
4.2.1 any shortfall between the Rent which would have been paid on
the Review Date and on any subsequent quarter days had the
revised rent been ascertained on or before the Review Date and
the payments made by the Tenant on account and
4.2.2 interest at the rate equal to the base lending rate of the
bank referred to in or nominated pursuant to clause 1.6
prevailing on the day upon which the shortfall is paid in
respect of each instalment of Rent due on or after the Review
Date on the amount by which the instalment of the revised Rent
which would have been paid on the relevant Review Date or such
quarter day exceeds the amount paid on account and
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such interest shall be payable for the period from the date
upon which the instalment was due up to the date of payment of
the shortfall
5. ARRANGEMENTS WHEN INCREASING RENT PREVENTED ETC.
5.1 If at any of the Review Dates there shall be in force a statute which
shall prevent restrict or modify the Landlord's right to review the
Rent in accordance with this underlease and/or to recover any increase
in the Rent the Landlord shall when such restriction or modification
is removed relaxed or modified be entitled (but without prejudice to
the Landlord's rights (if any) to recover any Rent the payment of
which has only been deferred by law) on giving not less than one
month's nor more than 3 month's notice in writing to the Tenant to
invoke the provisions of paragraph 5.2
5.2 Upon the service of a notice pursuant to paragraph 5.1 the Landlord
shall be entitled:
5.2.1 to proceed with any review of the Rent which may have been
prevented or further to review the Rent in respect of any
review where the Landlord's right was restricted or modified
and the date of expiry of such notice shall be deemed for the
purposes of this underlease to be a Review Date (provided that
without prejudice to the operation of this paragraph nothing in
this paragraph shall be construed as varying any subsequent
Review Dates)
5.2.2 to recover any increase in Rent with effect from the earliest
date permitted by law
THIRD SCHEDULE
The Operational Covenants
1. USER
1.1 To use the Premises for the Permitted User only
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1.2 Not to cease carrying on business in the Premises or leave the
Premises continuously unoccupied for more than one month without:
1.2.1 notifying the Landlord and
1.2.2 providing such caretaking or security arrangements as the
Landlord shall reasonably require and the insurers shall
require in order to protect the Premises from vandalism theft
damage or unlawful occupation
2. SMOKE ABATEMENT
2.1 To ensure that every furnace boiler or heater at the Premises
(whether using solid liquid or gaseous fuel) is constructed and used
so as substantially to consume or burn the smoke arising from it
2.2 Not to cause or permit any grit or noxious or offensive effluvia to
be emitted from any engine furnace chimney or other apparatus on the
Premises without using the best possible means for preventing or
counteracting such emission
2.3 To comply with the provisions of the Clean Air Acts 1956 and 1968 and
the Control of Pollution Act 1974 and with the requirements of any
notice of the local authority served under them
3. POLLUTION
Not to permit to be discharged into any Pipes serving the Premises:
3.1 any oil or grease or any deleterious objectionable dangerous
poisonous or explosive matter or substance and to take all measures
to ensure that any effluent discharged into the Pipes will not be
corrosive or otherwise harmful to the Pipes or cause obstruction or
deposit in them or
3.2 any fluid of a poisonous or noxious nature or of a kind likely to or
that does in fact destroy sicken or injure the fish or contaminate or
pollute the water of any stream or river
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4. ROOF AND FLOOR WEIGHTING
4.1 Not to bring or permit to remain upon the Building any safes
machinery goods or other articles which shall or may strain or
damage the Building or any part of it
4.2 Not without the consent of the Landlord to suspend any weight
from the stanchions roof purlins or portal frames or use the
same for storage of goods or place any weight on them
4.3 On any application by the Tenant for the Landlord's consent
under paragraph 4.2 the Landlord shall be entitled to consult
and obtain the advice of an engineer or other person in relation
to the roof or floor loading proposed by the Tenant and the
Tenant shall repay to the Landlord on demand the fee of such
engineer or other person
5. MACHINERY
5.1 To keep all plant apparatus and machinery (including any boilers
and furnaces) upon the Premises properly maintained and in good
working order and for that purpose to employ reputable
contractors for the regular periodic inspection and maintenance
of them
5.2 To renew all working and other parts as and when necessary or
when recommended by such contractors
5.3 To ensure by directions to the Tenant's staff and otherwise that
such plant apparatus and machinery are properly operated and
5.4 To avoid damage to the Premises by vibration or otherwise
6. SIGNS
At all times to display and maintain a suitable sign showing the
Tenant's trading name and business of a size and kind first approved by
the Landlord on a point on the Premises to be reasonably specified in
writing to the Landlord
7. UNLOADING AND PARKING
Not to unload any goods or materials from vehicles and convey them into
the Premises except through the approved entrances provided
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for the purpose and not to cause congestion of adjoining parking areas
or inconvenience to any other user of them}
FOURTH SCHEDULE
Authorised Guarantee Agreement
THIS GUARANTEE is made the day of 199 BETWEEN:
(1) of ("the Guarantor")
(2) of ("the Landlord")
NOW IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
In this guarantee the following expressions shall (where the context
permits) have the following meanings respectively:
1.1 "the Assignee" means
1.2 "the Lease" means the underlease dated and made
between (Stop01) and (Stop02) [and (Stop03)] for a term of
from [and varied by a deed dated and made
between ]
1.3 "the Premises" means the premises demised by the Lease
1.4 "the Liability Period" means the period during which the
Assignee is bound by the tenant covenants of the Lease
1.5 the expressions "authorised guarantee agreement" and "tenant
covenants" shall have the same meaning in this guarantee as in
the Landlord and Tenant (Covenants) Act 1995 section 28(1)
2. RECITALS
2.1 By clause 5.9 of the Lease the Landlord's consent is required to
the assignment of the Lease
2.2 The Landlord has agreed to give consent to the assignment to the
Assignee on condition that the Guarantor enters into this
guarantee
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2.3 This guarantee takes effect only when the Lease is assigned to the
Assignee
3. In consideration of the Landlord's consent to the assignment the Guarantor
covenants with the Landlord and without the need for any express assignment
with all its successors in title that:
3.1 To pay observe and perform
The Assignee shall punctually pay the rents and observe and perform
the covenants and other terms of the Lease throughout the Liability
Period and if at any time during the Liability Period the Assignee
shall make any default in payment of the rents or in observing or
performing any of the covenants or other terms of the Lease the
Guarantor will pay the rents and observe or perform the covenants or
terms in respect of which the Assignee shall be in default and make
good to the Landlord on demand and indemnify the Landlord against all
losses damages costs and expenses arising or incurred by the Landlord
as a result of such non-payment non-performance or non-observance
notwithstanding:
3.1.1 any time or indulgence granted by the Landlord to the Assignee
or any neglect or forbearance of the Landlord in enforcing the
payment of the rents or observance or performance of the
covenants or other terms of the Lease or any refusal by the
Landlord to accept rents tendered by or on behalf of the
Assignee at a time when the Landlord was entitled (or would
after the service of a notice under the Law of Property Act
1925 Section 146 have been entitled) to re-enter the Premises
3.1.2 that the terms of the Lease may have been varied by agreement
between the parties
3.1.3 that the Assignee shall have surrendered part of the Premises
in which event the liability of the Guarantor under the Lease
shall continue in respect of the part of the Premises not so
surrendered after
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making any necessary apportionments under the law of Property Act
1925 Section 140 and
3.1.4 any other act or thing by which but for this provision the Guarantor
would have been released
3.2 To take lease following disclaimer
If during the Liability Period the Assignee (being an individual) shall
become bankrupt or (being a company) shall enter into liquidation and the
trustee in bankruptcy or liquidator shall disclaim the Lease the Guarantor
shall if the Landlord shall by notice within 60 days after such disclaimer
so require take from the Landlord a lease of the Premises for the residue
of the contractual term of the Lease which would have remained had there
been no disclaimer at the rent then being paid under the Lease and subject
to the same covenants and terms as in the Lease (except that the Guarantor
shall not be required to procure that any other person is made a party to
that lease as guarantor) such new lease to take effect from the date of
such disclaimer and in such case the Guarantor shall pay the costs of such
new lease and execute and deliver to the Landlord a counterpart of it
3.3 To make payments following disclaimer
If during the Liability Period the Lease shall be disclaimed and for any
reason the Landlord does not require the Guarantor to accept a new
underlease of the Premises in accordance with clause 3.2 above the
Guarantor shall pay to the Landlord on demand an amount equal to the rents
for the period commencing with the date of such disclaimer and ending on
whichever is the earlier of the following dates:
3.3.1 the date 6 months after such disclaimer and
3.3.2 the date (if any) upon which the Premises are relet
FIFTH SCHEDULE
(Particulars of matters to which the Premises are subject)
All those matters set out in the Headlease and in the registered title of the
premises.
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<PAGE> 53
THE COMMON SEAL OF )
PEGASUS AIRWAVE LIMITED )
was hereunto affixed to this instrument )
as a deed in the presence of )
/s/ (Signature) Director
- -----------------------------------
/s/ (Signature) Secretary
- -----------------------------------
51
<PAGE> 54
DATED ___________, 1998
THE TRUSTEES OF THE SUMMERTHORNE
ESTATES LIMITED EXECUTIVE PENSION FUND
- to -
MAP MANUFACTURING LIMITED
(TRI-MAP INTERNATIONAL LIMITED
AS GUARANTOR)
Counterpart/
L E A S E
relating to
60-64 Framfield Road
Uckfield
East Sussex
DAWSON HART
The Old Grammer School
9 Church Street
Uckfield
East Sussex
TN22 1BH
JB.09.SD
<PAGE> 55
THIS LEASE is made ______________________, 1998 BETWEEN MICHAEL CLIFFORD
TIMMS, MICHAEL JOHN ROBERTS and PENSIONEER TRUSTEES (LONDON) LIMITED all care
of Mercer House Thames Side Windsor Berkshire SL4 1QN ("the Landlord" which
expression where the context so admits shall include the reversioner for the
time being immediately expectant upon the term hereby granted) of the first
part MAP MANUFACTURING LIMITED whose registered office is situate at Units 2 &
3 Kingscroft Court Ridgway Havant Hampshire PO9 1LS ("the Tenant" which
expression where the context so admits shall include the company or persons in
whom the term hereby granted may from time to time be vested) of the second
part and TRI-MAP INTERNATIONAL LIMITED whose registered office is at Sanford
House Medwin Walk Horsham West Sussex RH12 1AG "the Guarantor") of the third
part
WHEREAS in this Lease the following expressions shall have the following
meanings:
(1) "the Demised Premises" means the property known as 60-64 Framfield Road
Uckfield East Sussex more particularly described in the First Schedule
hereto
(2) "the Conduits" means all sewers drains pipes gullies gutters ducts
wires cables and other conducting media of whatsoever nature
(3) "the Utilities" means water soil gas and electricity telecommunications
and other services and supplies of whatsoever nature
(4) "the Landlord's Surveyor" means any chartered surveyor or other agent
appointed by the Landlord to determine any issue as to rent or other
matter contained in the Lease allowing for determination by the
Landlord's Surveyor
NOW THIS DEED WITNESSETH as follows:
1
<PAGE> 56
1. DEMISE AND RENTS
In consideration of the rents herein reserved and covenants on the part
of the Tenant and the Guarantor herein contained the Landlord HEREBY
DEMISES unto the Tenant ALL THOSE the Demised Premises TO HOLD the
Demised Premises unto the Tenant for a term of FIFTEEN YEARS from 10th
December 1997 ("the Term") YIELDING AND PAYING therefor FIRSTLY yearly
and proportionately for any fraction of a year:
(a) for the first three years of the term a rent of FORTY-TWO
THOUSAND POUNDS (L.42,000)
(b) for the fourth and fifth years of the term a rent of FORTY-EIGHT
THOUSAND POUNDS (L.48,000)
(c) for the remainder of the term the yearly term of FORTY-EIGHT
THOUSAND POUNDS (L.48,000) or (if higher) such other rent as may
become payable under and by virtue of the provisions of the
Second Schedule hereto
by equal quarterly payments to be made in advance on the usual quarter
days in every year without any deduction (and if the Landlord so
requires by standing order) and SECONDLY by way of additional rent from
time to time such sum or sums as are equal to the amount which the
Landlord expends in effecting and maintaining the insurance of the
Demised Premises in accordance with clause 4 hereof such last mentioned
rent to be paid without deduction forthwith on demand
2. TENANT'S COVENANTS
The Tenant HEREBY COVENANTS with the Landlord as follows:
2.1 TO PAY RENTS
2
<PAGE> 57
To pay the rents hereinbefore reserved at the times and in manner
aforesaid without any deduction whatsoever
2.2 TO PAY INTEREST ON OVERDUE MONEYS
If any of the said rents or any other sum of money payable to the
Landlord by the Tenant under this Lease shall remain unpaid for
more than 14 days after the date upon which the Landlord notifies
the Tenant in writing that such rent or other sum of money has not
been paid on the due date to pay interest thereon from the date of
such notice to the actual date of payment at the yearly rate of 4%
per annum above the base rate for the time being of National
Westminster Bank plc or in the event of National Westminster Bank
plc ceasing to publish a base rate such other reasonable
comparable rate of interest as the Landlord shall from time to
time determine (in either case called "the Prescribed Rate")
2.3 TO PAY OUTGOINGS
To bear pay and discharge all rates taxes duties charges
assessments impositions and outgoings of whatever nature now or
hereafter assessed charged or imposed upon or payable in respect
of the Demised Premises or any part thereof or upon the owner of
occupier thereof and a proper proportion attributable to the
Demised Premises of any such rates taxes duties charges
assessments impositions and outgoings now or hereafter assessed
charged or imposed upon or payable in respect of the Demised
Premises or any part thereof or upon the owners or occupiers
thereof jointly with any adjoining or neighbouring property or the
owners or occupiers thereof excluding any payable by the Landlord
occasioned by any disposition or dealing with or ownership of the
reversion to this Lease
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2.4 TO KEEP IN REPAIR
To keep the whole of the Demised Premises in good tenantable repair
and condition (damage by any of the Insured Risks (as defined in
clause 4 hereof) excepted unless payment of the insurance moneys shall
be withheld or refused by reason of any wilful act neglect or default
on the part of the Tenant) PROVIDED ALWAYS that the Landlord will
indemnify the Tenant for the roofing works specified as items 1 2 and
3 in a letter to Map Manufacturing Limited from Albany Roofing Group
Limited dated 21 October 1997 as and when such works are put in hand
(such letter being set out in the Third Schedule)
2.5 DECORATIONS
(a) In every fifth year of the Term and also during the last six
months of the last year of the Term (whether determined by
effluxion of time or otherwise) in a proper and workmanlike
manner to clean prepare and paint or otherwise treat as
appropriate the exterior of the Demised Premises
(b) In every fifth year of the Term and also during the last three
months of the last year of the Term (whether determined by
effluxion of time or otherwise) in a proper and workmanlike
manner to clean prepare paint paper decorate or otherwise treat
as appropriate the interior of the Demised Premises
2.6 CLEANING
To keep the Demised Premises in a clean and tidy condition and
regularly to clean all the windows in the Demised Premises
2.7 TO YIELD UP
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At the expiration or sooner determination of the Term quietly to yield
up the Demised Premises to the Landlord in such good and tenantable
repair and condition as shall be in accordance with the covenants on
the part of the Tenant herein contained
2.8 ENTRY BY LANDLORD AND OTHERS
To permit the Landlord and the Landlord's agents surveyors and workmen
with all necessary materials and appliances by prior written
appointments (except in the case of emergency) to enter and remain
upon the Demised Premises for any of the following purposes:
(a) to view and examine the state and condition of the Demised
Premises and to take schedules or inventories of the Landlord's
fixtures and fittings
(b) for any other purpose connected with the interest of the Landlord
in the Demised Premises including but not limited to valuing or
disposing of the interest of the Landlord
(c) to exercise any of the rights excepted and reserved by this Lease
the Landlord making good as soon as reasonably practicable any
damage caused thereby
2.9 TO COMPLY WITH NOTICES TO REPAIR
To repair and make good to the reasonable satisfaction of the Landlord
all defects wants of repair and breaches of covenant of which notice
in writing shall be given to the Tenant by the Landlord and for which
the Tenant is liable under this Lease within three months of such
notice and if the Tenant shall fail within one month of such notice
(or as soon as reasonably possible in case of
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emergency) to commence and then diligently and expeditiously to
continue to comply with such notice in all respects then it shall be
lawful (but without prejudice to the right of re-entry and forfeiture
hereinafter contained) for the Landlord and the Landlord's agents
surveyors and workmen to enter upon the Demised Premises and carry out
all or any of the works referred to in such notice and the cost of so
doing and all expenses incurred thereby shall be paid by the Tenant to
the Landlord on demand and in default of payment shall be recoverable
as rent in arrear
2.10 ALTERATIONS
(a) Not without the Landlord's consent in writing to make any
alterations or additions to the structure or exterior of the Demised
Premises
(b) Not without the Landlord's consent in writing (such consent not to
be unreasonably withheld or delayed) to make any major internal
alterations to the Demised Premises
(c) The Landlord may as a condition of giving any such consent as
aforesaid require the Tenant to enter into such covenants with the
Landlord as the Landlord may reasonably require as regards the
execution of any such works and the reinstatement of the Demised
Premises at the end or sooner determination of the Term (if required)
but save for reimbursement of reasonable legal fees and reasonable
surveyors' fees for giving consent the Landlord shall not be entitled
to charge for such consent
(d) In the event of the Tenant failing to observe this covenant it
shall be lawful for the Landlord and the Landlord's agents surveyors
and
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workmen with all necessary materials and appliances to enter upon the
Demised Premises and remove any alterations or additions and execute
such works as may be necessary to restore the Demised Premises to
their former state and the costs and reasonable expenses thereof
(including surveyor's and other professional fees) shall be paid by
the Tenant to the Landlord on demand
2.11 STATUTORY REQUIREMENTS
At the Tenant's own expense to observe and comply in all respects with the
provisions and requirements of The Offices Shops and Railway Premises Act
1963 The Fire Precautions Act 1971 The Defective Premises Act 1972 and The
Health and Safety at Work Etc Act 1974 and of every other statute already
or hereafter to be passed or prescribed or required by any public local or
other authority so far as they relate to or affect the Demised Premises or
any additions or improvements thereto or the user thereof for any purpose
or the employment therein of any person or any fixture machinery plant or
chattel for the time being affixed thereto or being thereupon
2.12 PLANNING
(a) To comply in all respects with all Town and Country Planning
legislation ("the Planning Acts") and to keep the Landlord
indemnified in respect thereof
(b) Not to make any application for planning permission or change of use
without the consent in writing of the Landlord whose consent shall
not be unreasonably withheld
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(c) To pay and satisfy any charge that may hereafter be imposed under the
Planning Acts in respect of the carrying out by Tenant of any of the
Tenant's operations on the Demised Premises or the institution or
continuation by the Tenant of any use thereof which may constitute
development within the meaning of the Planning Acts
(d) Unless the Landlord shall otherwise direct to carry out before the
expiration or sooner determination of the Term any works stipulated
to be carried out to the Demised Premises by a date subsequent to
such expiration or sooner determination as a condition of any
planning permission which may have been granted to and implemented by
the Tenant
(3) If and when called upon to do so to produce to the Landlord all plans
documents and other evidence which the Landlord may reasonably
require in order to satisfy the Landlord that the provisions of this
subclause have been complied with in all respects
2.13 STATUTORY NOTICES
Within 14 days of the receipt of notice of the same to produce to the
Landlord a true copy of any permission notice or order or proposal for a
notice or order relevant to the Demised Premises or to the use or
condition thereof made given or issued to the Tenant by any government
department or local or public authority and without unreasonable delay to
take all reasonable or necessary steps to comply therewith
2.14 FIRE PRECAUTIONS
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(a) To keep the Demised Premises sufficiently supplied and equipped
with such fire-fighting and extinguishing appliances as shall
from time to time be required by any statute or by the fire or
other competent authority or the insurers of the Demised Premises
(b) Not to obstruct the access to or means of working of any
fire-fighting and extinguishing appliances or the means of escape
from the Demised Premises in case of fire
2.15 USER
(a) Not at any time during the Term to use or permit the Demised
Premises to be used for any noisy noisome noxious dangerous or
offensive trade manufacture or business whatsoever nor for the
carrying on of anything which shall be a nuisance damage
annoyance or inconvenience to the Landlord or to the tenants or
owners or occupiers of any nearby property or which shall in any
way be injurious to the same nor to allow any sale by auction to
be held in the Demised Premises
(b) Not to use or permit the Demised Premises to be used otherwise
than in accordance with Class B1 B2 and B8 of the Schedule to the
Town and Country Planning (Use Classes) Order 1987 together with
ancillary office and storage areas
2.16 NOT TO AFFIX SIGNS
Not without the consent in writing of the Landlord (whose consent
shall not be unreasonably withheld) to affix or exhibit or permit to
be affixed or exhibited to or upon any part of the Demised Premises
any sign board or other advertisement other than the signs currently
displayed on the Demised Premises showing the
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Tenant's business PROVIDED THAT the consent of the Landlord shall not
be required for any new fascia for the Tenant's business of similar
size to those at present
2.17 NOTICES FOR DISPOSAL
To permit the Landlord to fix and retain in a conspicuous position on
the Demised Premises but not so as to obscure the Tenant's windows a
notice board for the reletting (in the event of the termination of the
Term) and/or the sale of the Landlord's reversion to the Demised
Premises and not to take down or obscure the said notice board and to
permit all persons authorised in writing by the Landlord or the
Landlord's agents to view the Demised Premises at all reasonable hours
in the daytime upon prior appointment having been make
2.18 TO NOTIFY LANDLORD OF ENCROACHMENTS
To give immediate notice to the Landlord of any notice or claim
affecting the Demised Premises or any part thereof and not knowingly
to permit or suffer any encroachment upon the Demised Premises or the
acquisition of any new right to light passage drainage or other
easement on over or under the Demised Premises and if any such
encroachment or easement shall be made or acquired or threatened to be
made or acquired forthwith to give notice to the Landlord and at the
cost of the Landlord to do all such things as may be proper for the
purpose of preventing the making of such encroachment or the
acquisition of such easement or right
2.19 LANDLORD'S COSTS
To pay on demand to the Landlord all reasonable costs professional
fees charges and expenses properly and justifiably incurred by the
Landlord:
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(a) incidental to the preparation and service of a notice
under Section 146 of the Law of Property Act 1925 or in
contemplation of any proceedings under Sections 146 or
147 of the said Act (whether or not any right of
re-entry or forfeiture has been waived by the Landlord
or a notice served under the said Section 146 is
complied with by the Tenant or the Tenant has been
relieved under the provisions of the said Act and
notwithstanding forfeiture is avoided otherwise than by
relief granted by the Court)
(b) incidental to the preparation and service of all notices
and schedules relating to wants of repair whether served
during or after the expiration of the Term (but relating
in all cases only to such wants of repair that accrued
not later than the expiration or sooner determination of
the Term)
(c) in connection with or in procuring the remedying of the
breach of any covenant by the Tenant contained in this
Lease
(d) in relation to any application for consent required by
this Lease
2.20 ALIENATION
(a) Not to assign underlet or otherwise part with the
possession of any part of the Demised Premises or permit
another to occupy any part of the Demised Premises
(b) Not to assign the whole of the Demised Premises without
the prior written consent of the Landlord such consent
not to be unreasonably withheld or delayed PROVIDED THAT
the Landlord shall not be considered to be unreasonably
withholding or delaying the Landlord's
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consent to an assignment in the event that the Tenant fails to comply
with the provisions of paragraphs (c)(d) and (e) of this sub-clause
(c) Prior to any permitted assignment at the Tenant's own expense to
procure that the assignee of the Demised Premises enters into a direct
covenant with the Landlord to perform and observe all the tenant's
covenants and all other provisions of this Lease
(d) On or before completion of any assignment the Tenant shall enter into
an authorised guarantee agreement in such form as is reasonably
required by the Landlord (so long as it complies with the provisions
of Section 16 of the Landlord and Tenant (Covenants) Act 1995)
(e) On or before completion of any assignment to a company the Tenant
shall (if the Landlord reasonably so requires) procure a guarantor or
other suitable security for the assignee's obligations such guarantee
or other security to be in such form as is reasonably required by the
Landlord
(f) Not to underlet the whole of the Demised Premises without the prior
written consent of the Landlord such consent not to be unreasonably
withheld or delayed
(g) Prior to any permitted underlease of the whole of the Demised Premises
the underlessee shall in the licence to underlet covenant directly
with the Landlord to observe and perform the covenants and conditions
contained in this Lease (other than the covenant to pay rent) and
shall further covenant not to assign underlet or charge or otherwise
part with the possession of the whole or any part of the Demised
Premises or permit
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another to occupy the whole or any part of the Demised Premises other
than by way of assignment of the whole of the Demised Premises with
the prior consent in writing of the Landlord (not to be unreasonably
withheld or delayed) and the Tenant
(h) Within 21 days of any assignment charge underlease or any transmission
or other devolution relating to the Demised Premises or any part
thereof to produce for registration with the Landlord's solicitor such
deed or document or a certified copy thereof and to pay the Landlord's
solicitor's reasonable charges for the registration of every such
document such charge being not less than L.20 plus value added tax
2.21 VALUE ADDED TAX
(a) To pay and keep the Landlord indemnified against all value added tax
which may from time to time be charged or chargeable on any rent or
other sum payable by the Tenant pursuant to the terms of this Lease or
any document entered into pursuant hereto
(b) Any rent or other sum specified in this Lease or in any document
entered into pursuant hereto is and any sum to be agreed certified
determined or ascertained pursuant to the provisions hereof shall be a
sum net of value added tax
(c) The Tenant HEREBY IRREVOCABLY consents to the Landlord charging value
added tax on any such rent or other sum should the Landlord elect to
do so
3. LANDLORD'S COVENANT
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The Landlord HEREBY COVENANTS with the Tenant that the Tenant paying the
rents hereby reserved and performing and observing the several covenants
conditions and agreements herein contained and on its part to be performed
and observed shall and may peaceably and quietly hold and enjoy the Demised
Premises during the Term without any lawful interruption or disturbance
from or by the Landlord or any person or persons lawfully claiming under or
in trust for the Landlord
4. INSURANCE
The Landlord and the Tenant HEREBY COVENANT with each other as follows:
4.1 LANDLORD TO INSURE
The Landlord shall insure and keep insured with some publicly quoted
insurance company or with Lloyds' Underwriters:
(a) the Demised Premises in the name of the Landlord in the full
reinstatement cost of the Demised Premises against loss or
damage by fire storm flood explosion and aircraft bursting or
overflowing of water tanks apparatus or pipes and impact and
such other usual risks subject to cover being available in the
United Kingdom insurance market as the Landlord may from time to
time require subject to such exclusions excesses and limitations
as may be imposed by the insurers ("the Insured Risks")
including architects' surveyors' and other professional fees
and disbursements (and where applicable value added tax thereon)
and the cost of shoring-up demolition and site clearance and
similar expenses
(b) the loss of rent payable under this Lease or reasonably
estimated to be payable for a period of three years
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(c) the explosion of any engineering and electrical plant and
machinery to the extent that the same is not covered by
paragraph (a) of this sub-clause
(d) property owners' liability
4.2 LANDLORD TO PRODUCE EVIDENCE OF INSURANCE
At the request of the Tenant the Landlord:
(a) shall produce to the Tenant a copy of the policy of such
insurance and current schedule of insurance cover and
(b) procure the insurers note the interest of the Tenant on the said
policy
4.3 DESTRUCTION OF THE DEMISED PREMISES
If the Demised Premises or any part thereof are destroyed or damaged
by any of the Insured Risks then:
(a) unless payment of the insurance moneys shall be refused by
reason of any act neglect or default on the part of the Tenant
or any undertenant and
(b) subject to the Landlord being able to obtain any necessary
planning consents and all other necessary licences approvals and
consents and the Landlord shall use all reasonable endeavours to
obtain the same without delay and
(c) subject to the necessary labour and materials being and
remaining available and the Landlord shall use all reasonable
endeavours to obtain the same without delay
the Landlord shall as soon as reasonably practicable lay out the net
proceeds of such insurance (other than any in respect of loss of rent)
in the rebuilding and
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reinstatement of the premises so destroyed or damaged substantially
as the same were prior to any such destruction or damage
4.4 FRUSTRATION
(a) If for any reason whatsoever the obligation by the Landlord to
rebuild or reinstate as aforesaid becomes impossible of
performance the said obligation shall thereupon be deemed to
have been discharged and either the Landlord or the Tenant may
then by notice in writing given to the other terminate this
demise but without prejudice to any claim by either party
against the other in respect of any antecedant breach of covenant
(b) (i) The Landlord shall immediately following completion of any
rebuilding or reinstatement of the Demised Premises advise
the Tenant in writing of such completion
(ii) The Tenant shall be entitled to terminate this Lease by
notice in writing to that effect served on the Landlord
within 14 days of receipt of such advice
(iii) This Lease shall terminate on the date falling six months
after service by the Tenant of such notice
(iv) Termination of this Lease pursuant to this clause 4.4(b)
shall be without prejudice to any claim by either party
against the other in respect of any antecedent breach of
covenant
4.5 PAYMENT OF INSURANCE MONEYS REFUSED
If the payment of any insurance moneys is refused in whole or in part
as a result of some act neglect or default on the part of the Tenant
or any undertenant the Tenant shall pay to the Landlord on demand the
amount so refused
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4.6 CESSER OF RENT
In case the Demised Premises or any part thereof shall be destroyed or
damaged by any of the Insured Risks so as to render the Demised
Premises unfit for occupation or use and the policy or policies of
insurance shall not have been vitiated or payment of the policy moneys
refused in consequence of some act neglect or default on the part of
or suffered by the Tenant or any undertenant then the rent first
hereby reserved or a fair proportion thereof according to the nature
and extent of the damage sustained shall be suspended until the
Demised Premises shall be again rendered fit for occupation and use or
the expiration of three years from the date of the destruction or
damage (whichever is the earlier) and any dispute regarding the cesser
of rent shall be referred to the award of a single arbitrator to be
appointed in default of agreement upon the application of either party
by or on behalf of the President for the time being of The Royal
Institution of Chartered Surveyors in accordance with the provisions
of the Arbitration Acts 1950 to 1996 (as the same may from time to
time be amended)
4.7 BENEFIT OF OTHER INSURANCES
If the Tenant shall become entitled to the benefit of any insurance
on the Demised Premises which is not effected or maintained in
pursuance of the obligations herein contained then the Tenant shall
apply all moneys received by virtue of such insurance (in so far as
the same shall extend) in making good the loss or damage in respect
of which the same shall have been received
4.8 INSURANCE BECOMING VOID
The Tenant shall not do anything whereby any policy or policies of
insurance for the time being in force in respect of or including or
covering the Demised
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Premises against damage by any of the Insured Risks may become void or
voidable or except with Landlord's consent (not to be unreasonably
withheld) whereby the rate of premium thereon may be increased and shall
repay on demand to the Landlord all sums paid by way of increased premiums
arising therefrom and all expenses incurred by the Landlord in or about
the renewal of such policy or policies rendered necessary by a breach of
this covenant
4.9 REQUIREMENTS OF INSURERS
The Tenant shall at all times comply with all the reasonable requirements
of the insurers which are made known by the Landlord to the Tenant
5. PROVISOS AGREEMENTS AND DECLARATIONS
PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED as follows:
5.1 FORFEITURE
Without prejudice to any other right and remedy or power herein contained
or otherwise available to the Landlord:
(a) if rents hereby reserved or any part thereof shall be unpaid for 28
days after becoming payable or
(b) if the Tenant shall commit a material breach of any of the covenants
on the part of the Tenant contained in this Lease or
(c) if the Tenant (being a company) shall be wound up compulsorily or
voluntarily (other than a voluntary liquidation of a solvent company
for the purpose of amalgamation or reconstruction) or shall have a
receiver appointed or
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(d) if the Tenant (being an individual or if more than one individual
then any one of them) shall become bankrupt or shall have a receiving
order made against him or
(e) if the Tenant shall make any assignment for the benefit of creditors
or make any arrangements with creditors for the liquidation of debts
by composition or otherwise
then and in any such case and thenceforth it shall be lawful for the
Landlord or any person duly authorised by the Landlord in that behalf at
any time thereafter to re-enter the Demised Premises or any part thereof
in the name of the whole and thereupon this demise shall absolutely cease
and determine but without prejudice to any right of action or remedy of
the Landlord in respect of any antecedent breach of any of the covenants on
the part of the Tenant contained in this Lease
5.2 IMPLIED EASEMENTS
That nothing herein contained shall operate expressly or impliedly to
confer upon or grant to the Tenant any easement right or privilege
whatsoever
5.3 NOTICES
(a) Any notice or document to be given under this Lease may be delivered
or sent by first class registered post or facsimile transmission to
the party to be served at the party's address appearing in this Lease
or the address of that party's solicitors or other such address as
that party shall notify in writing to the other Any such notice or
document shall be deemed to be served:
(i) if delivered at time of delivery
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(ii) if posted at the expiration of 48 hours after the envelope
containing the same shall have been put in the post
(iii) if sent by facsimile transmission on despatch
(b) In proving such service it shall be sufficient to prove that
delivery was made or that the envelope containing such notice or
document was properly addressed and posted as a prepaid first class
registered letter or that the sender of the facsimile transmission
has its copy with the successful transmission slip attached
5.4 INTERPRETATION
In this Lease where the context so admits words importing the neuter
gender only include the masculine or feminine gender (as the case may be)
and words importing the masculine gender only include the feminine gender
and words importing the singular number only include the plural number and
vice versa and where there are two or more individuals included in the
expression "the Tenant" covenants herein expressed to be made by the
Tenant shall be deemed to be made by such persons jointly and severally
5.5 PARAGRAPH HEADINGS
The paragraph headings hereto shall not affect the construction of these
presents
6. BREAK CLAUSE
If the Tenant so desires and serves at least six months' prior notice in
writing to the Landlord or their agents of its desire so to do the Tenant
hereby has the right to determine this Lease at the end of the fifth year
of the term and PROVIDED all payments and rent and other monies covenanted
to be paid by the Tenant shall have been paid up to such date this Lease
shall determine and cease on such date but without
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prejudice to the right of either party to any claim for any antecedent
breach of the terms hereof
7. NO PRIOR AGREEMENT
There is no prior agreement to which this Lease gives effect and this
Lease is a new tenancy for the purposes of the Landlord and Tenant
(Covenants) Act 1995
8. GUARANTEE PROVISIONS
The Guarantor hereby covenants with the Landlord that if at any time
during the term and the period of any holding-over or any extensions or
continuance thereof whether by statute or common law:
1. the Tenant shall make any default in payment of the rent hereby reserved
(or as otherwise agreed between the Landlord and the Tenant) or in
observing or performing any of the covenants or conditions herein
contained the Guarantor will pay the said rent and observe and perform the
covenants or conditions in respect of which the Tenant shall be in default
notwithstanding:
1.1. any time or indulgence granted by the Landlord to the Tenant
1.2. any other act or thing whereby but for this provision the Guarantor
would have been released
2. The Tenant shall enter into liquidation and the liquidator shall disclaim
this Lease. The Guarantor will if the Landlord shall by notice in writing
within two months after receiving such notice of disclaimer so require
take from the Landlord a Lease of the Demised Premises for the residue of
the term which would have remained had there been no disclaimer subject to
the same covenants and conditions as in this Lease with the exception of
this Clause 8 such new Lease to take effect from the date of disclaimer
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in such case the Guarantor shall pay the costs of such new Lease and
execute and deliver to the Landlord an executed counterpart thereof
IN WITNESS whereof this Lease has been duly executed as a deed the day and year
first before written
THE FIRST SCHEDULE
THE DEMISED PREMISES AND RIGHTS GRANTED
ALL THAT commercial premises known as 60 62 and 64 Framfield Road Uckfield
East Sussex. All which premises are registered at H M Land Registry in the
names of the Landlord under Title Numbers ESX59739 and ESX175214 together with
all alterations additions and improvements thereto and all landlord's fixtures
and fittings now or hereafter or in or about the same TOGETHER WITH (so far as
the Landlord can grant the same) the right for the Tenant any undertenant or
other permitted occupier their servants agents and visitors of free and
uninterrupted passage of the Utilities through the appropriate Conduits now or
at any time during the Term serving the Demised Premises
THE SECOND SCHEDULE
RENT REVIEW (DUE IN 5TH AND 10TH YEARS OF THE TERM)
1. DEFINITIONS
(1) "Review Date" means every fifth anniversary of the commencement of
the Term of this Lease and the expression "Relevant Review Date"
shall be construed accordingly
(2) "Open Market Rent" means the yearly rent at which the Demised
Premises might reasonably be expected to be let as a whole in the
open market on the Relevant Review Date by a willing landlord to a
willing tenant with vacant possession and without a premium or any
other consideration for the grant
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thereof for a term of years equal to the residue of the Term
remaining unexpired on the Relevant Review Date and otherwise on the
same terms and conditions as are contained in this Lease (except as
to the amount of the rent payable hereunder but including these
provisions for the review of rent) and on the assumption (if not a
fact) that at the Relevant Review Date:
(a) the Demised Premises are fit for immediate occupation and use
(b) the Demised Premises are in good repair
(c) no work has been carried out to the Demised Premises by the
Tenant or any undertenant during the Term which has diminished
the rental value of the Demised Premises
(d) if the Demised Premises have been destroyed or damaged they have
been fully rebuilt or reinstated
(e) all the covenants on the part of the Tenant contained in this
Lease have been fully performed and observed
BUT there shall be disregarded:
(i) any effect on rent of the fact that the Tenant or any permitted
undertenant may have been in occupation of the Demised Premises
(ii) any goodwill attached to the Demised Premises by reason of any
business carried on therein by the Tenant or any permitted
undertenant
(iii) any increase in the rental value of the Demised Premises
attributable to the existence at the Relevant Review Date of
any improvement to the Demised Premises or any part thereof
carried out by the Tenant or any permitted undertenant after
the date hereof with the consent (where required) of the
Landlord
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(iv) the taxable status of the Tenant for the purposes of value added
tax or any other tax
(3) "Surveyor" means the independent professionally qualified surveyor of
not less than 10 years' standing being suitably experienced in rent
review valuations of retail premises of a similar size and nature to
the Demised Premises appointed from time to time to determine the
Open Market Rent pursuant to the provisions of this Schedule
(4) "the President" means the President for the time being of The Royal
Institution of Chartered Surveyors and shall include the duly
appointed deputy of the President or any person authorised by the
President to make appointments on his behalf
(5) "Rent Restrictions" means any restrictions imposed by statute for the
control of rent in force on a Review Date or on the date on which any
increased rent is ascertained in accordance with this Schedule and
which operate to impose any limitation whether in time or amount on
the collection of an increase in the rent first hereby reserved or
any part thereof
2. UPWARDS ONLY REVIEW
The rent hereby reserved shall be reviewed at each Review Date in
accordance with the provisions of this Schedule and from and including
each Review Date the rent shall be equal to the higher of either the rent
payable immediately before the Relevant Review Date or the Open Market
Rent on the Relevant Review Date agreed or determined as hereinafter
provided
3. AGREEMENT OR DETERMINATION OF THE REVIEWED RENT
24
<PAGE> 79
The Open Market Rent at any Review Date may be agreed in writing at any
time between the Landlord and the Tenant but if for any reason (whether
through failure or omission to agree or negotiate or to initiate any
negotiations) the Landlord and the Tenant do not so agree then either
the Landlord or the Tenant may (not more than 12 weeks before but at any
time after the Relevant Review Date) by notice to the other party
require the Open Market Rent to be determined by the Surveyor
4. APPOINTMENT OF SURVEYOR
In default of agreement between the Landlord and the Tenant on the
appointment jointly of the Surveyor the Surveyor shall be appointed by
the President on the written application of either the Landlord or the
Tenant who shall be at liberty to make such application not more than 10
weeks before but at any time after the Relevant Review Date
5. FUNCTIONS OF THE SURVEYOR
The Surveyor shall:
(1) acts as an arbitrator
(2) invite the Landlord and the Tenant to submit to him within such
time limits (not being less than 14 days) as he shall consider
appropriate a valuation accompanied if desired by a statement of
reasons and such representations and cross-representations as to
the amount of the Open Market Rent with such supporting evidence
as they may respectively wish
(3) within 42 days of his appointment or within such extended period
as the Landlord and the Tenant shall jointly agree in writing
give to each of them written notice of the amount of the Open
Market Rent as determined by him
6. COSTS OF REFERENCE TO SURVEYOR
25
<PAGE> 80
The costs of any reference to the Surveyor shall be in his award and
failing such award the costs shall be borne by the parties in equal
shares
7. APPOINTMENT OF NEW SURVEYOR
If the Surveyor does not give notice of his determination within the
time aforesaid or if he shall die or become unwilling to act or
incapable of acting or if for any other reason he is unable to act then
either the Landlord or the Tenant may request the President to discharge
the Surveyor and appoint another Surveyor in his place which procedure
may be repeated as many times as necessary
8. INTERIM PAYMENTS PENDING DETERMINATION
In the event that by the Relevant Review Date the amount of the reviewed
rent has not been agreed or determined as aforesaid (such date of
agreement or determination being called "the Determination Date") then
in respect of the period of time ("the Interim Period") beginning with
the Relevant Review Date and ending on the quarter day following the
Determination Date the Tenant shall pay to the Landlord rent at the
yearly rate payable immediately before the Relevant Review Date and
within 14 days of the Determination Date if the reviewed rent exceeds
the rent actually paid the Tenant shall pay to the Landlord the amount
by which the reviewed rent exceeds the rent actually paid during the
Interim Period (apportioned on a daily basis) together with interest on
each part of such excess at the Prescribed Rate less 4% for the period
from the date that such part would have been due if the reviewed rent
had been agreed or determined to the date of actual payment unless such
delay is demonstrably through no fault of the Tenant
26
<PAGE> 81
9. RENT RESTRICTIONS
On each and every occasion during the Term that Rent Restrictions shall
prevent or prohibit either wholly or partially:
(1) the operation of the above provisions of review of the rent or
(2) the normal collection and retention by the Landlord of any
increase in the rent or any installment of part thereof
then and in each such case respectively:
(a) the operation of such provisions for review of the rent shall be
postponed to take effect on the first date or dates thereafter
upon which such operation may occur
(b) the collection of any increase or increases in the rent shall be
postponed to take effect on the first date or dates thereafter
that such increase or increases may be collected and/or retained
in whole or in part and on as many occasions as shall be required
to ensure the collection of the whole increase
and until the Rent Restrictions shall be relaxed either partially or
wholly the rent first hereby reserved shall be the maximum sum from time
to time permitted by the Rent Restrictions as may be applicable
10. MEMORANDA OF REVIEWED RENT
As soon as the amount of any reviewed rent has been agreed or determined
memoranda thereof shall be prepared by the Landlord or the Landlord's
solicitors and thereupon shall be signed by or on behalf of the Landlord
and the Tenant and annexed to this Lease and the Counterpart thereof and
the parties shall bear their own costs in respect thereof
11. TIME NOT OF THE ESSENCE
For the purposes of this Schedule time shall not be of the essence
27
<PAGE> 82
THE THIRD SCHEDULE
Letter from Albany Roofing Group Limited date 21 October 1997
EXECUTED as a deed by MAP )
MANUFACTURING LIMITED )
Acting by two of its Directors: )
EXECUTED as a deed by TRI-MAP )
INTERNATIONAL LIMITED acting )
By two of its Directors: )
28
<PAGE> 83
SAM/1174/TS/FG/RQ [ALBANY LOGO]
Map Manufacturing Ltd
60-64 Framfield Road
UCKFIELD
East Sussex TN22 5AR
For the attention of Mr. P. Hough - Managing Director
SPECIFICATION
21 October 1997
Dear Sirs
Ref: Roof Maintenance and Repairs
Further to our recent discussions we are pleased to submit our revised
quotation for the works previously described in our estimate reference
SAM/1156/TS/FG dated 10 October 1997.
For ease of identification and specification purposes, we have itemised our
quotation as follows:-
Item 1 - 2 No. Gutters
Since installation, settlement has occurred throughout the length of this
guttering, and the dips in various places tend to retain rainwater measuring to
a depth of 25mm. These permanently damp conditions support a large amount of
vegetation which hinders flow to the outlets, considerably increasing the risk
of overflowing during heavy rain conditions.
In order to prolong the life of the existing fabric of the guttering, we
propose that the full length and accessible girth of the weatherside of the
guttering be lined with bituminous roofing emulsion, reinforced as necessary
with bitumen impregnated glassfibre membrane.
This will be to a total gutter length of approximately 84 square metres (this
covers the front eaves and valley gutter, we were informed there were no
problems with the rear eaves gutter).
Prior to the application of this treatment all gutter joints will be inspected
for leakage and if necessary resealed as we deem most appropriate.
Item 2 - Vents
We were informed that leaks occur around the 10 no. vents that are situated
within sheets and protrude through the roof of the rear of the factory. At your
request we propose the following:-
Continued ...
<PAGE> 84
-2-
SAM/1174/TS/FG/RQ
Continued...
We would therefore remove 10 no. of these sheets and replace them with new to
BS 476 Part 3 having a fire classification of EXT. S.A.A. with a class 1 spread
of flame rating, conforming to current building regulations, all being sealed
with mastic and the side laps stitched with seam bolts.
Item 3 - Health & Safety Requirements
In order to comply with our obligations in relation to site safety we have
provided in our costing for the supply of equipment or plant that we deem
necessary for the undertaking of the above contract.
To carry out all work as specified above WOULD BE FOR THE SUM OF
(pounds)2098.00 (two thousand and ninety eight pounds).
Item 4 - General Report
During our survey it was noted that the corrugated asbestos cement sheeting to
this roof has become very fibrous and porous, and is covered with a find
fungoid growth with accumulations of moss in places. Deterioration by further
weathering will therefore be considerably accelerated.
We feel that if this roof area is left and allowed to decay further a complete
re-roofing operation will become inevitable in the very near future. If
remedial action is taken in time, a great deal of inconvenience and expense can
be saved, as it is our opinion that there is still sound and sufficient
material to form a basis for a waterproofing treatment.
If you require us to do so, we would be happy to provide you with an estimate
for the recommended work, together with a detailed specification.
This quotation does not include VAT which will be added to the invoice at the
appropriate rate.
We allow in our costings for all old materials or debris connected with our
work, to be lowered to the ground and removed from site.
PAYMENT TO BE MADE IN THE FORM OF INTERIMS, AS WORK PROGRESSES.
Continued...
<PAGE> 85
-3-
SAM/1174/TS/FG/RQ
Continued...
It is assumed that suitable storage will be provided by you for our materials,
close to the working area.
Please note our Conditions of Contract, which will apply if our quotation is
accepted.
We trust this meets with your approval and look forward to receiving your
further instructions.
Yours faithfully
ALBANY ROOFING GROUP LIMITED
Stephen A Moore
Senior Area Surveyor
SW
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES
ENTITY STATE OF INCORPORATION
Maxwell Technologies, Inc. Delaware
PurePulse Technologies, Inc. Delaware
I-Bus, Inc. California
Maxwell Business Systems, Inc. California
Maxwell Federal Division, Inc. California
Maxwell Information Systems, Inc. California
Maxwell Energy Products, Inc. California
Phoenix Power Systems, Inc. California
I-Bus UK, Ltd. United Kingdom
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 2-91483, 33-88634, 33-88636, 33-88638, 333-07835, 333-07831,
333-63815 and 333-63813) and Form S-3 (Nos. 333-36853, 333-49941 and 333-57947)
of Maxwell Technologies, Inc. of our report dated September 15, 1998, 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, 1998.
ERNST & YOUNG LLP
San Diego, California
October 28, 1998
<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 IN THE
APPENDIX TO MAXWELL TECHNOLOGIES, INC.'S ANNUAL REPORT ON FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 21,224
<SECURITIES> 0
<RECEIVABLES> 37,012
<ALLOWANCES> (950)
<INVENTORY> 15,823
<CURRENT-ASSETS> 75,286
<PP&E> 59,413
<DEPRECIATION> (36,137)
<TOTAL-ASSETS> 105,065
<CURRENT-LIABILITIES> 27,154
<BONDS> 361
0
0
<COMMON> 838
<OTHER-SE> 75,000
<TOTAL-LIABILITY-AND-EQUITY> 105,065
<SALES> 125,308
<TOTAL-REVENUES> 125,308
<CGS> 83,459
<TOTAL-COSTS> 83,459
<OTHER-EXPENSES> 43,539
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 214
<INCOME-PRETAX> (463)
<INCOME-TAX> 226
<INCOME-CONTINUING> (769)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (769)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
