<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 19, 1996
IRVINE SENSORS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-8402 33-0280334
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
3001 Redhill Avenue
Costa Mesa, California 92626
(Address of principal executive offices, including Zip Code)
(714) 549-8211
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 27, 1996, Irvine Sensors Corporation (the "Company") formally
notified International Business Machines Corporation, a New York corporation
("IBM") that it had secured the funds necessary to purchase the equipment
constituting IBM's chip-stacking line located at IBM's Essex Junction, Vermont
facilities (the "Equipment"). The purchase of the Equipment was completed on
April 19, 1996. The Equipment had previously been used since June 1992 by the
Company and IBM in connection with their joint development activities to
commercialize the Company's chip-stacking technology. The development phase of
the activities contemplated by the June 1992 series of agreements between the
Company and IBM has been completed. Upon completion of those joint development
activities, IBM agreed to sell the Equipment to the Company for a purchase price
of approximately $6.5 million. The purchase price was determined through
negotiations between the parties.
The Company funded the purchase of the Equipment through the sale of an
aggregate of $11,100,000 in principal amount of 8% convertible subordinated
debentures due 1998 (the "Debentures") to offshore investors in an offering
pursuant to Regulation S. The Debenture financing will be used by the Company
both for the purchase of the Equipment and to provide the additional working
capital the Company will need to ramp up its production. The Company intends to
file a registration statement under the Securities Act of 1933 to register for
resale the shares underlying the Debentures.
The Company acquired the Equipment line as of April 19, 1996. Under the
terms of the Lease Agreement between the two companies announced in January
1996, the Company may operate the Equipment line within IBM's Essex Junction
facilities at least through December 1998. The Company intends to use the
Equipment to continue the commercialization of its chip-stacking technology.
ITEM 5. OTHER EVENTS
A. Issuance of 8% Convertible Subordinated Debentures
---------------------------------------------------
As referred to in the discussion under Item 2, above, the Company issued
an aggregate of $11,100,000 of 8% Convertible Subordinated Debentures Due 1998
(the "Debentures"), the final closing of which took place on March 26, 1996.
Of these Debentures, $8,000,000 in principal amount are convertible, at the
holder's option, on the following terms: The Debentures will initially convert
at $5 per share (the "Initial Conversion Price"). The Initial Conversion Price
will be subject to adjustment for stock splits,
<PAGE>
reverse splits and other similar recapitalization events, as well as under the
following circumstances (all stock prices subject to adjustment for
recapitalization): If the closing bid price of the Common Stock is above $7.50
for the 10 consecutive trading days immediately preceding the date of conversion
(the "Conversion Trading Period"), the Initial Conversion Price will adjust to
an amount equal to $5 plus 50% of the amount over $7.50. If the closing bid
price averages above $5 but less than $7.50 for the Conversion Trading Period,
the Initial Conversion Price will adjust to the lesser of (i) $5 or (ii) 75% of
such average closing bid price. If the closing bid price averages between $5 and
$3 for the Conversion Trading Period, the Initial Conversion Price will adjust
to the greater of (i) 75% of such average closing bid price or (ii) $3. If the
closing bid price averages below $3 for the Conversion Trading Period, the
Initial Conversion Price will adjust to such average closing bid price.
The remaining $3,100,000 in Debentures are convertible, at the option of
the holder, on the following terms: Until May 1, 1996, the Debentures will
convert at $5 per share; thereafter, they will convert at the lesser of (i) $5
or (ii) a price equal to a 25% discount from the average of the closing bid
prices of the Common Stock for the 20 trading day period preceding the date of
conversion; provided, however, that the conversion price shall in no event be
less than $3.625 per share.
As a result of the terms of these Debentures, an indeterminate number of
shares of Common Stock is issuable upon conversion. If the price of the Common
Stock decreases substantially while Debentures remain outstanding, the number of
shares so issued upon conversion could cause substantial per share dilution to
existing investors.
B. IBM Agreements
--------------
As part of the transaction that gave the Company the right to acquire the
IBM Equipment line and to lease the facilities in which the Equipment is
located, as described in Item 2, above, the Company and IBM entered into other
agreements for clarification and modification of their ongoing relationship.
Among the agreements executed as of January 22, 1996 was an Agreement for
Purchase and Use of IBM Memory Die. Under this agreement, which expires
December 31, 1999 unless earlier terminated, the Company has the right, but is
not obligated, to order memory die from IBM. Other collateral agreements
entered into in connection with the modification of the relationship between the
parties included a revision to the Cubing Technology License Agreement, which
made immaterial modifications to the prior agreement among the parties, an
Agreement for Purchase of Fabrication Services, which permits but does not
obligate IBM to purchase fabrication services from the Company, and an Amendment
which makes immaterial modifications to the Patent License Agreement.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following exhibits are filed as part of this Current Report on
Form 8-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<C> <S>
10.24* Office, Manufacturing Facility, and Equipment Lease between
International Business Machines Corporation and the Registrant
10.25 Form of 8% Series A Convertible Subordinated Debentures Due 1998
10.26 Form of 8% Convertible Subordinated Debentures Due 1998
</TABLE>
_______________
* Portions of this Exhibit have been filed separately with the Commission in
reliance on Rule 24b-2 and the Registrant's request for confidential
treatment.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 22, 1996
IRVINE SENSORS CORPORATION
By: /s/ John J. Stuart, Jr.
------------------------
John J. Stuart, Jr.
Executive Vice President and
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY NUMBERED
PAGE
---------------------
<S> <C>
10.24* Office, Manufacturing Facility, and Equipment
Lease between International Business Machines
Corporation, Landlord, and Irvine Sensors
Corporation, Tenant 6
10.25 Form of 8% Series A Convertible Subordinated Debentures
Due 1998 62
10.26 Form of 8% Convertible Subordinated Debentures
Due 1998 71
</TABLE>
___________
* Portions of this Exhibit have been filed separately with the Commission in
reliance on Rule 24b-2 and the Registrant's request for confidential
treatment.
<PAGE>
EXHIBIT 10.24*
Office, Manufacturing Facility, and Equipment Lease
between
International Business Machines Corporation, Landlord,
and
Irvine Sensors Corporation, Tenant
___________
* Portions of this Exhibit have been filed separately with the Commission in
reliance on Rule 24b-2 and the Registrant's request for confidential
treatment.
<PAGE>
OFFICE, MANUFACTURING FACILITY, AND EQUIPMENT LEASE
CONFIDENTIAL TREATMENT REQUESTED
(*) Denotes information for which confidential treatment has been requested.
Confidential portions omitted have been filed separately with the Commission.
<PAGE>
INTERNATIONAL BUSINESS MACHINES CORPORATION
Landlord
AND
IRVINE SENSORS CORPORATION
Tenant
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TITLE PARAGRAPH
<S> <C>
Alterations 8
Assignment, Subletting and Recapture 7
Brokerage Commission 33
Care of Premises 6
Casualty 22
Certain Rights Reserved to Landlord 13
Condition of Premises 25
Default 19
Default Under Other Leases 14
Eminent Domain 21
Estoppel Certificate 32
Hazardous Materials 30
Holding Over 16
Indemnity 26
Insurance 24
Landlord's Title 12
Limitation on Liability 31
Mechanics' Liens 20
Miscellaneous 34
Notice 11
Parties
Possession 27
Premises, Equipment and Services 1
Quiet Enjoyment 28
Rent and Other Payments 5
Restrictions on Use 3
Rules 17
Security 29
Services and Utilities 10
Signs 9
Subordination 18
Term 4
Use 2
Waiver of Claims 15
Waiver of Subrogation 23
Rider A - Additional Terms
Rider B - Rules and Regulations
Rider C - Building 963 Specifications
</TABLE>
Exhibit A - Location Map F - IBM Purchase Agreement for Used Equipment
B - Equipment G - Manufacturing Area
<PAGE>
C - Consulting Services H - IBM Request for Rearrangement Form
D - Floor Plan I - Drafting Specifications
E - Facilities Environmental J - IBM Environmental Corrective Action Permit
Data Input Sheet
<PAGE>
L E A S E
Parties This Lease, made the 1st day of July 1995, (the "Effective Date")
between International Business Machines Corporation, a New York
corporation, having its principal office at Armonk, New York,
hereinafter called the Landlord, and Irvine Sensors Corporation,
hereinafter called the Tenant.
Premises, 1. (a) The Landlord hereby leases to the Tenant, and the Tenant
Equipment hereby hires and takes from the Landlord the following described
premises (hereinafter called the and Services "Premises") outlined on
Exhibit A hereto, on the site (hereinafter called the "Site") located
at 1000 River Street, Essex Junction, VT 05452, in building 963
(hereinafter called the "Building") on the terms and conditions
hereinafter set forth. The horizontal and vertical boundaries of the
Premises shall be as follows: (i) In the Office Space (as defined in
Paragraph 10), the vertical boundaries shall be defined by the
vertical plane which includes the interior face of the walls bounding
the Premises extended to intersections with each other and with the
upper and lower boundaries. The horizontal boundaries shall be defined
by the horizontal planes formed by the upper surface of the floor
covering and the lower surface of the ceiling. (ii) In the
Manufacturing Area (as defined in Paragraph 10), the vertical boundary
shall be defined by the exterior face of the vertical clean room walls
bounding the Manufacturing Area (as defined in Paragraph 10), and the
interior face of the vertical walls, other than clean room walls,
bounding the Manufacturing Area (as defined in Paragraph 10),
extending to the intersections with each other and with the upper and
lower boundaries. The horizontal boundaries shall be defined by the
upper surface of the floor covering and the exterior surface of the
ceiling, which includes the ceiling grids, filters, and lights, but
not sprinklers.
(b) The Landlord may provide the services set forth in Exhibit C on
the terms and conditions hereinafter set forth.
<PAGE>
(c) ANY SERVICES PROVIDED BY LANDLORD UNDER THIS LEASE, AS WELL AS ANY
LANDLORD EQUIPMENT USED OR LEASED BY TENANT UNDER THIS LEASE,
INCLUDING WITHOUT LIMITATION THE PROVISION OF ANY UTILITIES, ARE
PROVIDED ON AN "AS IS" BASIS WITHOUT WARRANTY OF ANY KIND. ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY
FULLY DISCLAIMED.
Use 2. The Tenant may use and occupy the Premises solely for a commercial
business office, for the manufacture and development of Cube
technology products, which involves the dicing, grinding, picking,
polishing, stacking, laminating and interconnecting of individual
semiconductor chips into a multichip component, for thin film
manufacturing in accordance with groundrules greater than or equal to
one micron, for wafer back end of line processing in accordance with
groundrules greater than or equal to one micron, and for no other
purpose. The Tenant may use the Premises and the equipment set forth
in Exhibit B ("Equipment") (while such Equipment is located on the
Premises), solely for the foregoing purposes and for no other purpose.
The Landlord represents that all governmental licenses and permits
required for the present use of the Premises and the Equipment on the
Effective Date by the Landlord have been obtained.The Landlord shall
obtain all governmental licenses and permits required by law for the
Tenant's permitted use of the Premises and Equipment subsequent to the
Effective Date and for the Term (as hereinafter defined ), subject to
Paragraph 30 (g). The cost of obtaining all such permits and licenses
shall be borne by the Tenant to the extent that Tenant's use of the
Premises and Equipment generates the requirement to obtain such
licenses and permits. The Tenant agrees to provide reasonable
cooperation to the Landlord in obtaining such licenses and permits.
Restric- 3. (a) The Tenant shall not use the Premises or permit the
tions Premises to be used in any manner that: (i) violates any current or
future law, including, without limitation, the IBM Environmental
Corrective Action Permit set forth in Exhibit J, any certificate of
occupancy or any covenant, condition or restriction affecting the
Building, the land thereunder, the Premises or the Equipment; (ii)
causes or is reasonably likely to cause damage to the Building, the
Premises or the Equipment; (iii) violates a requirement or condition
of any insurance policy covering the Building, the Premises, or the
Equipment, or increases the cost of such policy; (iv) constitutes or
is reasonably likely to constitute a nuisance, annoyance or
inconvenience to other tenants or occupants of the Building or
interferes with the use and occupancy of any portion of the Building
or other tenants or occupants; (v) impairs or is reasonably likely to
impair the proper maintenance, operation or
<PAGE>
repair of the Building or its equipment, facilities or systems; (vi)
interferes with, or is reasonably likely to interfere with, the
transmission or reception of microwave, television, radio, telephone
or other communication signals by antennae or other facilities located
on, in and about the Building; or (vii) violates the Rules and
Regulations described in Rider B. The Landlord represents, to the best
of its knowledge, that the use and occupancy of the Premises by the
Landlord meets the foregoing usage requirements on the Effective Date.
The sole and exclusive remedy for breach of such Landlord
representation shall be limited to correction of the legal violations,
if any, that Landlord failed to disclose, if and to the extent
required by law. Notwithstanding the foregoing, Landlord shall not be
obligated to make any such correction if the cost of making such
correction may exceed U.S.$ 75,000, or if the cost of making such
correction, in addition to the cost of other such corrections
previously made hereunder and under Paragraphs 2 and 24 (c), may
aggregately exceed U.S.$ 75,000, or if such correction is not required
for Tenant to continue its manufacturing operations in the Premises.
(b) The Tenant shall not use or permit the use of the Premises or
Equipment for governmental or quasi-governmental functions; any type
of political or quasi-political organization or function; any manner
of political activity; retail banking; food service (except vending
machine operations), or a medical or dental practice.
Term 4. (a) The term of this Lease (hereinafter, the "Term") shall be
for a period of three and one half (3 1/2) years, to commence on the
Effective Date, and to end on the last day of December 31, 1998,
unless sooner terminated as hereinafter provided. On or before
September 30th of each calendar year during the Term, Tenant may
request, in writing, a one (1) year extension to the Term. Landlord
may accept or reject each such request, in its sole discretion. In the
event Landlord grants such an extension, the parties will in good
faith negotiate the amount of the rent to be paid by Tenant during the
period of the extension. The Landlord agrees to respond in writing to
the Tenant's request on or before December 5th of the year during
which such request was made.
(b) This Lease shall automatically terminate at the conclusion of the
Removal Period (as defined in Paragraph 5 below).
(c) In addition to any other rights the Tenant may have to terminate
this Lease, the Lease may be terminated at any time during the Term by
the Tenant providing to the Landlord no less than one hundred twenty
(120) days prior written notice of the date of termination.
Rent and 5. (a) In consideration of the lease by Landlord to Tenant of the
Premises
<PAGE>
Other hereunder and the provision of services set forth in Exhibit C, as
well as the Payments periodic lease by Landlord to Tenant of the
Equipment under certain conditions set forth in this Lease, the Tenant
shall pay the applicable following payments : (i)
monthly rent for the Premises shall be paid as set forth in Rider
A, payable monthly in advance on the first day of every calendar
month during the Term. However,the monthly installment payment
for January and February of 1996 shall be due on March 1, 1996,
in addition to the monthly installment payment due for March of
1996. The last monthly installment payment shall include rent for
the last calendar month plus rent for the remaining days to the
end of the Term. Rent for any period of less than one month
shall equal 1/30 of the monthly rent for each day of such period;
(ii) payment for services set forth in Exhibit C shall be payable
monthly; and (iii) monthly rent for the Equipment as set forth in
Rider A (hereinafter called the "Equipment Rent") during the
Removal Period (as hereinafter defined). Notwithstanding the
foregoing, Equipment Rent for the Financing Period (as
hereinafter defined) shall be due at the beginning of the Removal
Period; (iv) interest on the amount of Equipment Rent unpaid
during the Financing Period (as hereinafter defined), the monthly
installment rent payments for the Premises delayed until March 1
of 1996 in accordance with subsection (i) of this Paragraph, and
the security deposit payable under Paragraph 29, shall be due at
the annual rate of fourteen percent (14%), compounded monthly,
all such interest to accrue beginning on January 1, 1996, and
such interest shall be due and payable for a given payment, on
the date the initial payment of rent, the initial payment of
Equipment Rent, and security deposit are due pursuant to this
Paragraph and Paragraph 29. If such interest rate exceeds the
maximum legal rate in the jurisdiction where a claim therefor is
being asserted, the interest rate shall be reduced to the maximum
legal rate.
(b) The Tenant will pay the rent, the Equipment Rent, and all other
payments due hereunder, including, without limitation, interest
thereon, without deduction, set off or demand to International
Business Machines Corporation, P.O. Box 7247-0298, Branch Office 8HT,
Philadelphia, PA 19170-0298, or to such other person or at such other
place as the Landlord may designate in writing. Checks for the
payment of rent shall be made payable to International Business
Machines Corporation. No payment by the Tenant or receipt by the
Landlord of a lesser amount than the correct amount of rent due
hereunder shall be deemed to be other than a payment on account; nor
shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed to effect or evidence an
accord and satisfaction. The Landlord may accept such check or
payment
<PAGE>
without prejudice to the Landlord's right to recover the balance or
pursue any other remedy provided in this Lease or at law or in equity.
(c) The parties hereto agree that, in addition to leasing the Premises
hereunder, Tenant desires to purchase, and Landlord desires to sell,
the Equipment. However, the parties acknowledge that such purchase is
contingent on Tenant's successfully raising the funds necessary
therefor. In light of the foregoing, Landlord acknowledges that
Tenant may require a certain period of time within which to secure the
funds necessary to purchase the Equipment. Landlord agrees that
Tenant may have up to sixty (60) calendar days after the date of the
last signature hereto (hereinafter called the "Financing Period") to
secure such funds. Upon the conclusion of the Financing Period, or
the date Tenant actually secures the foregoing funds, whichever first
occurs, Tenant shall notify Landlord in writing as to whether Tenant
successfully secured such funds (hereinafter called the "Equipment
Purchase Notice"). In the event Tenant specifies in the Equipment
Purchase Notice that Tenant successfully secured the necessary funds
to purchase the Equipment, Tenant shall, within thirty (30) calendar
days after the date of such notice, purchase the Equipment by
execution of the unmodified agreement set forth in Exhibit F
(hereinafter, called the "Purchase Agreement") and payment to Landlord
of U.S. $6.3 million, in accordance with the Purchase Agreement. In
the event Tenant fails to either pay the full payment amount for the
Equipment or execute the unmodified Purchase Agreement within the
specified time period, such failure shall be deemed a material default
under this Lease. In addition to any other rights or remedies
Landlord may exercise in the event Tenant fails to meet the foregoing
payment and execution obligations, Landlord may use, or dispose of,
the Equipment in any manner Landlord in its sole discretion deems fit.
Proceeds from any sale by Landlord or its agent of the Equipment, in
such event, shall accrue only to the Landlord, and Tenant shall have
no right, title, or interest therein, except as otherwise specified
in Paragraph 5 (d) below . In addition, payment by Tenant of only a
portion of the full payment amount for the Equipment or of any
Equipment Rent shall not confer on Tenant any right, title, or
interest in any portion of the Equipment. In the event Tenant
specifies in the Equipment Purchase Notice that Tenant failed to
secure the necessary funds to purchase the Equipment, or fails to
provide the Equipment Purchase Notice within the time required, Tenant
shall vacate the Premises and remove Tenant owned assets from the Site
within no more than seventy-five (75) calendar days after the earlier
of the end of the Financing Period or the date of such the Equipment
Purchase Notice (hereinafter called the "Removal Period"). During the
Removal Period, Tenant shall, in addition to the rent for the Premises
and any other payments required under this Lease, pay to Landlord the
monthly Equipment Rent, payable monthly in advance on the first day of
every calendar month during the Term plus rent for the remaining days
to the end of the Term.
<PAGE>
The foregoing rent for the Equipment for any period of less than one
month shall equal 1/30 of the montly rent for each day of such
period.
(d) If Landlord sells part or all of the Equipment within six (6)
months after the end of the Removal Period for an aggregate gross
price that exceeds seven million U.S. dollars (U.S. $7,000,000.00),
the Tenant will receive a rebate on its Equipment Rent actually paid
to Landlord in the following amount:
fifty percent (50%) of the gross sales proceeds in excess of
seven million U.S. dollars (U.S. $7,000,000) less fifty percent
(50%) of any taxes on such excess sales proceeds (exclusive of
any taxes on Landlord's net income).
Care of 6. (a) The Tenant will take good care of the Premises, the Equipment
Premises (prior to purchase of such Equipment by Tenant pursuant to Paragraph
5) the and Building fixtures and appurtenances located within the
Premises, and Equipment any alterations, additions and improvements
to the Premises; will repair all damage to the same resulting from
the negligent or willful acts of the Tenant, or its employees,
agents, contractors, or invitees; will suffer no waste or injury;
will execute and comply with all federal, state and local laws,
rules, orders, statutes, directives, ordinances and regulations
(collectively herein called the "laws"), at any time issued or
enforced by any lawful authority, applicable to the Tenant's use,
manner of use or occupancy of the Premises; and will repair, at or
before the end of the term, all injury done by the installation or
removal of furniture and property.
(b) At any time, whether voluntarily or pursuant to governmental
requirements, the Landlord may, at its cost, make repairs and
improvements in or to the Building or any part thereof, including the
Premises. The Landlord may close entrances, doors, corridors,
elevators or other facilities, all without any liability to the
Tenant by reason of interference, inconvenience, or annoyance. The
Landlord shall use reasonable efforts not to interfere with the
Tenant's use and occupancy of the Premises. The Landlord shall not be
liable to the Tenant for any expense, injury, loss or damage
resulting from work done in or upon, or the use of, any adjacent or
nearby building, land, street or alley.
Assign- 7.(a) The Tenant shall not, whether voluntarily or by operation of
ment, law, assign, encumber or otherwise transfer this Lease or any
Subletting interest herein, or sublet the Premises or any part thereof, or
Recapture permit the Premises to be occupied by anyone other than the Tenant
or the Tenant's employees, contract labor, customers or contractors
without the prior written consent of the Landlord. Notwithstanding
the foregoing, but subject to Landlord's prior written consent, which
will not be
<PAGE>
unreasonably withheld, Tenant may sublet the Premises to one Spinoff
Entity, which is defined herein as a party that is a corporation,
company or other entity:
1) more than twenty percent (20%) of whose outstanding shares or
securities (representing the right to vote for the election of
directors or other managing authority) are; or which does not have
outstanding shares or securities, as may be the case in a partnership,
joint venture or unincorporated association, but more than twenty
percent (20%) of whose ownership interest representing the right to
make the decisions for such corporation, company, or other entity is;
now or hereafter, directly owned or controlled by a party hereto; and
(2) and more than twenty percent (20%) of whose outstanding shares or
securities (representing the right to vote for the election of
directors or other managing authority) are; or
(a) which does not have outstanding shares or securities, as may be
the case in a partnership, joint venture or unincorporated
association, but more than twenty percent (20%) of the ownership
interest representing the right to make the decisions for such
corporations, company or other entity is;
(b) now or hereafter, not directly owned or controlled by any single
third party; and
3) (c) that is formed for the purpose of purchasing or otherwise
accepting the conveyances to it of an operating division, product line
or other significant part of the business of a party hereto engaged in
a Cubing Process (as defined in the Cubing Technology License
Agreement between the parties, executed contemporaneously herewith)
and to which such operating division, product line or other
significant part of the business of such party has actually been sold
or otherwise conveyed and is thereafter operated; but such
corporation, company or other entity shall be deemed to be a Spinoff
Entity only so long as such conditions in Paragraph 7(a) above
continue to be satisfied. Withholding of consent by Landlord shall be
deemed reasonable, without limitation, if the subletting entity is, in
the opinion of Landlord, a competitor to Landlord. In addition,
subject to Landlord's prior written consent, which will not be
unreasonably withheld, Tenant may sublet the Premises to one party
that is a corporation, company or other entity: 1) more than 50% of
whose outstanding shares or securities (representing the right to vote
for the election of directors or other managing authority) are; or 2)
which does not have outstanding shares or securities, as may be the
case in a partnership, joint venture or unincorporated association,
but more than 50% or of whose ownership interest representing the
right to make the
<PAGE>
decisions for such corporation, company, or other entity is: now or
hereafter, owned or controlled, directly or indirectly, by a party
hereto. Withholding of consent by Landlord shall be deemed reasonable,
without limitation, if the subletting entity is, in the opinion of
Landlord, a competitor to Landlord.
For purposes of this Lease, an assignment shall include any transfer
of any interest in this Lease or the Premises by the Tenant pursuant
to a merger, division, consolidation or liquidation, or pursuant to
change in ownership of the Tenant involving a transfer of voting
control in the Tenant (whether by transfer of partnership interests,
corporate stock or otherwise). Landlord will not unreasonably
withhold its consent to an assignment to be made to an entity
acquiring Tenant through a merger, division, consolidation or
liquidation of Tenant. Withholding of consent by Landlord of such an
assignment shall be deemed reasonable, without limitation, if the
acquiring entity is a competitor to Landlord. In the event of an
assignment by Tenant of this Lease, Tenant's assignee shall assume the
Tenant's obligation hereunder accruing on or after the date of
assumption. Any sale, assignment, mortgage, transfer, or subletting
of this Lease or interest herein that is not in compliance with the
provisions of this Paragraph shall be of no effect and void.
(b) The Landlord may assign this Lease and shall not be liable for
obligations thereafter accruing hereunder; provided that the
Landlord's assignee shall assume the Landlord's obligations hereunder
accruing on or after the date of assumption.
Altera- 8. (a) The Tenant shall not make or permit anyone to make any
tions alterations in or additions to the Premises (herein collectively
called "improvements") or install any equipment that will require any
improvements to the water, heating, air conditioning or electrical or
other Building systems or equipment, without the Landlord's advance
written consent in each instance, which will not be unreasonably
withheld. The following reasons, without limitation, shall be deemed,
singly or cumulatively, reasonable bases upon which Landlord may
withhold its consent to the foregoing alterations, additions, or
installations;such alterations, additions, or installations, in the
opinion of Landlord: (i) present or create an unsafe condition; (ii)
create an excessive demand on services or utilities to be provided by
Landlord; (iii) require services or utilities that Landlord does not
provide under this Lease; (iv) may damage or impair existing systems
and services of Landlord; (v) would violate governmental laws,
regulations, orders, ordinances, or permits (including, without
limitation, the permit set forth in Exhibit J); (vi) would require
Landlord to expend a significant sum to remove and/or restore Premises
to its pre-existing condition; or (vii) might weaken or impair the
soundness of the existing infrastructure of the Building or other
portions of the Site. If the Landlord consents to the Tenant's
request to make improvements or add other equipment to the Premises,
before commencing the work or delivering
<PAGE>
any materials into the Building, the Tenant shall furnish the Landlord
with (i) plans and specifications therefor, and (ii) information, in
the form and content set forth in Exhibit E, "Facilities Environmental
Data Input Sheets," regarding any increase or decrease in the use of
Landlord-provided utilities (including but not limited to, water,
heating, air conditioning, electrical, exhaust, drainage, gases,
compressed air, chemical usage, and process vacuum) that may arise
from the foregoing improvements or equipment installation. In the case
where Tenant requests Landlord to perform the foregoing improvements
or equipment installation, if the Landlord is willing to perform the
Tenant requested improvements, the Tenant shall provide the Landlord
with a request for quote, in writing, on an IBM Request for
Rearrangement Form (Exhibit H) signed by the Tenant's on-site
supervisor. The request for quote shall include, without limitation,
any requests by Tenant to restrict certain contractors from performing
said improvements. This request should shall be delivered to the IBM
Space Planner for the Building and shall contain all necessary data
sheets (FEDS), specifications, sketches, mini-maps, and any other
information required by the Landlord to provide a written estimate of
the cost of such work to the Tenant. Before any work commences the
Tenant shall provide the Landlord written authorization by the
Tenant's on-site supervisor for Landlord to perform the requested work
and to charge Tenant actual costs for such work, including cost of
design services, plus a 14% overhead cost adder. The Landlord shall
use reasonable efforts to provide a written estimate to the Tenant
within fourteen (14) days after the Tenant has delivered to the
Landlord the information required of it. The written estimate shall
contain an estimate of the cost of the work to be done as well as a
maximum price for the work. In the case where the Tenant chooses to
perform said work, or contract the services of a subcontractor
directly, the Tenant is responsible for providing the Landlord with
names and addresses of proposed contractors who will perform the work,
copies of contracts, necessary permits, waivers of lien, and
indemnification against claims, costs, damages, liabilities and
expenses, each in form and amount satisfactory to the Landlord.
Contractors not listed on the Landlord list of approved Contractors
will not be permitted, except in the sole discretion of Landlord, to
enter the Site. All improvements shall be installed in a good,
workmanlike manner and only high grade materials which are in
accordance with the Building standards shall be used. Whether the
Tenant furnishes the Landlord the foregoing or not, if the Tenant
chooses to perform the work or contract the services of a
subcontractor directly, the Tenant hereby agrees to indemnify and hold
the Landlord harmless from and defend it against any and all claims,
costs, damages, liabilities and expenses of every kind and description
which may arise out of or be connected in any way with these
improvements or the installation thereof, except to the extent of the
negligent act of Landlord, as determined by a court of competent
jurisdiction. Before commencing any work in the Premises, the Tenant
shall furnish the Landlord with certificates of insurance
<PAGE>
from all contractors performing labor or furnishing materials,
insuring the Landlord against any and all claims, costs, damages,
liabilities and expenses which may arise out of or be connected in any
way with these improvements or the installation thereof.
(b) The Tenant shall pay the cost of all of its improvements and also
the cost of decorating the Premises occasioned by them. All
improvements shall comply with all insurance requirements and with all
applicable laws. The Tenant shall permit the Landlord to supervise
construction of these improvements and decorations.
(c) Upon completing any improvements made by the Tenant or its
subcontractor, the Tenant shall furnish the Landlord with contractors'
affidavits and full and final waivers of lien and receipted bills
covering all labor and materials expended and used. Tenant shall also
furnish as-built drawings of each applicable trade (for example,
architectural, electrical, mechanical, piping), in softcopy form,
which shall have been generated utilizing a Landlord-approved
computer-aided design system, and which shall be in compliance with
Landlord's drafting specifications which are attached to this Lease as
Exhibit I.
(d) The privilege herein granted to the Tenant to make improvements
to the Premises is conditioned upon the Tenant's contractors, workmen
and employees working in harmony and not interfering with the workmen,
employees and contractors of the Landlord or of any other tenant.
The Tenant shall have the right to remove from the Premises all
hardware and non-trade fixtures and all improvements, temporary or
permanent, in the Premises, whether placed there by the Tenant or by
the Landlord at the request of the Tenant, so long as the Tenant
repairs, by the end of the Term, all damage to the Premises caused by
the removal thereof. All such hardware and non-trade fixtures and
improvements which are not removed by the Tenant shall become the
Landlord's property and shall remain upon the Premises at the end of
the Term, however ended, without compensation, allowance or credit to
the Tenant.
(e) The Landlord may require the Tenant to remove improvements
(including equipment requiring improvements as aforesaid in
subparagraph (a)), hardware and non-trade fixtures prior to the end of
the Term, however ended, whether installed by the Landlord or the
Tenant before or after the start of the Term. The Tenant shall remove
the same prior to the end of the Term and the Tenant shall repair all
damage to the Premises caused thereby. If, after the Landlord's
request, the Tenant does not remove items it is required hereunder to
remove prior to the end of the Term, the Landlord may remove the same
and repair all damage caused
<PAGE>
thereby, and the Tenant shall pay to the Landlord upon demand the cost
of such removal and repair of all damage.
(f) The Tenant shall remove the Tenant's furniture, machinery, tools,
equipment, trade fixtures, and other items of personal property of
every kind and description from the Premises prior to the end of the
Term, however ended. If not so removed, the Landlord may request
their removal, and if the Tenant does not remove them, the Landlord
may do so and the Tenant shall pay the Landlord upon demand the cost
of such removal and repair of all damage. If the Landlord does not
request their removal, or removal of selected improvements, and they
are not removed by Tenant, all such items shall be conclusively
presumed to have been conveyed by the Tenant to the Landlord under
this Lease as a bill of sale without compensation, allowance or credit
by the Landlord to the Tenant.
(g) Tenant shall, at or before the end of the Term, remove the
Equipment purchased by Tenant, in its entirety, including, without
limitation, all tools, equipment, fixtures, and other equipment used
in the Premises, in accordance with all applicable government rules,
regulations, ordinances, and statutes, including those applicable to
the use and disposal of Hazardous Materials. Tenant shall pay
Landlord the cost of any damage to the Premises not repaired by the
Tenant within the time-frame specified in Paragraph 8(d) above
resulting from the foregoing removal activity.
Signs 9. The Tenant shall not permit or suffer any signs, logos, symbols,
advertisements or notices to be displayed, inscribed upon or affixed
on any part of the outside or inside of the Premises (to the extent
visible outside of the Building), or in any other part of the
Building, or on the street adjacent to the Building.
Services 10. (a) In consideration of payment of rent for the Premises
and hereunder, Landlord will provide the Tenant the following services
Utilities and utilities:
(1) JANITOR SERVICE (i) in that portion of the Premises
designated Office Space in Exhibit D (the "Office Space"),
Saturdays, Sundays and holidays recognized by the Landlord
excepted. Janitor Services will be provided by Landlord that
consists of (A) monthly cleaning of floors only, and sweep and
wetmop, (B) weekly trash and recycle pickup and removal, (C)
annual strip and wax of floors; (ii) in the Perimeter Aisle
designated in Exhibit G, Janitor Service will be provided by
Landlord that consists of weekly cleaning, dustmop and wetmop;
(iii) in the cores designated in Exhibit G, Janitor Service
consists of semimonthly vacuum and damp wipe of ceiling, overhead
pipes, overhead lights, and walls; and (iv) in the garment room
designated in Exhibit G, Janitor Service consists of periodic
<PAGE>
cleaning as required to maintain the Clean-Room Specification, as
defined in Rider C, in the adjacent manufacturing space.
Landlord shall not be responsible for providing Janitor Services
in the Manufacturing Clean Aisle designated in Exhibit G. The
Tenant shall not provide any additional or alternative janitor
service to that described in Paragraph 10 (a)(1)(i)-(iv) without
the Landlord's written consent. If the Landlord consents,
such janitor service shall be at the Tenant's sole cost and
responsibility and subject to the Landlord's inspection. The
Tenant shall not provide any janitor service in the Premises
except through a janitor contractor or employees satisfactory to
the Landlord, to be determined by the Landlord in its sole
judgment.
(2) HEAT AND AIR CONDITIONING twenty four (24) hours daily,
manufacturing shutdowns required by the Landlord excepted,
whenever heat or air conditioning shall, in the Landlord's sole
judgment, be required for the comfortable occupation and use of
the Premises. Landlord will provide Tenant prior notice,
consistent with that provided to other occupants of the Building,
of such manufacturing shutdowns. Whenever alterations are made
by Tenant, as described in Paragraph 8, or additional heat
generating machines or equipment, or lighting fixtures other than
Building standard lighting fixtures are added to the Premises and
affect the Building air conditioning system, the Landlord may
install supplementary air conditioning units in or for the
benefit of the Premises, and the cost of installation, operation
and maintenance thereof shall be paid by the Tenant to the
Landlord upon billing by the Landlord as additional rent.
(3) WATER from municipal mains for drinking, lavatory, and
toilet purposes, drawn through fixtures installed by the Landlord
or by the Tenant with the Landlord's written consent. The
Tenant shall pay, at rates fixed by the Landlord, for excessive
water usage, the amount of which shall be determined by Landlord
in its sole discretion.
(4) DE-IONIZED WATER, PROCESS WATER and CHILLED WATER, as
described in Rider C, for use in the current location of the
Manufacturing Area (as hereinafter defined), in the quantity
currently utilized in such locations as of the Effective Date,
twenty-four (24) hours daily, manufacturing shutdowns by the
Landlord excepted. Landlord will provide Tenant prior notice
consistent with other occupants of the Building, of such
manufacturing shutdowns. With respect to the foregoing usage,
de-ionized water, process water, and chilled water will be
furnished by the Landlord without extra charge. If the Tenant's
requirements of de-ionized water, process water, and chilled
water are in excess of those set
<PAGE>
forth in the preceding sentence,
the Tenant shall pay, at rates fixed by Landlord, consistent with
the rate charged to other Site occupants, for such excessive
water usage.
(5) ELECTRICITY for Building standard lighting fixtures and for
the Tenant's incidental uses, twenty-four (24) hours daily,
manufacturing shutdowns required by the Landlord excepted, as
follows: (i) with respect to such incidental uses, electricity
will be furnished in the Office Space by the Landlord to the
Tenant without extra charge provided that (1) the electricity so
furnished for incidental uses will be at nominal 120 volt single
phase and that no electrical circuit for the supply of such
incidental use will have a current capacity exceeding 15 amperes
and (2) such incidental electricity will be used only for
equipment and accessories normal to office usage such as personal
computers, typewriters, calculating machines, and other standard
machines of similar low electrical consumption; and (ii) with
respect to such incidental uses, electricity will be furnished in
the portion of the Premises other than the Office Space (the
"Manufacturing Area") by the Landlord to the Tenant as presently
provided to the Premises without extra charge, provided that
Tenant's electrical consumption does not exceed the current
electrical usage of the Premises as of the Effective Date plus
any incremental additional electrical usage agreed to by Landlord
pursuant to Paragraph 8(a). If the Tenant's requirements for
electricity are in excess of those set forth in the preceding
sentence, including electricity for machines such as electronic
data processing equipment or for special lighting fixtures, the
Tenant shall pay the Landlord upon billing for the cost of such
excess electricity as additional rent. The Tenant shall also pay
the Landlord for the cost of installing any additional risers or
other facilities that may be necessary to furnish such excess
electricity to the Premises.
(6) BULK GASES for use in the current location of the
Manufacturing Area, in the quantities currently utilized in such
locations as of the Effective Date, twenty four (24) hours daily,
manufacturing shutdowns by the Landlord excepted. Bulk Gases
consist of compressed air, Nitrogen, Oxygen, and Argon, as
described in Rider C. With respect to the foregoing usage, Bulk
Gases will be furnished by the Landlord without extra charge. If
the Tenant's requirements for Bulk Gases are in excess of those
set forth in the preceding sentences, the Tenant shall pay the
Landlord upon billing for the cost of such excess Bulk Gases as
additional rent.
(b) The Landlord does not warrant that any of the services listed
above will be free of or from interruption caused by war,
insurrection, civil commotion, riots,
<PAGE>
acts of God or the enemy or of Government action, repairs, renewals,
improvements, strikes, lockouts, or picketing, whether legal or
illegal, accidents, inability of the Landlord to obtain fuel or
supplies, or any other cause or causes beyond the Landlord's
reasonable control. Any such interruption of service shall never be
deemed an eviction or disturbance of the Tenant's use and possession
of the Premises or any part thereof, or render the Landlord liable to
the Tenant for damages, or relieve the Tenant from performance of the
Tenant's obligations under this Lease. Notwithstanding the foregoing,
Landlord will use reasonable efforts to reestablish such service
following the foregoing interruption(s).
(c) Notwithstanding anything to the contrary in this Paragraph or
elsewhere in this Lease, the Landlord shall have the right to
institute policies, programs and measures of general applicability to
the Site as may be necessary or desirable, in the Landlord's sole
discretion, for the conservation and/or preservation of energy or
energy-related services, or as may be required to comply with any
applicable laws, whether mandatory or voluntary; provided, however,
unless such policies, programs or measures are mandatory under
applicable law, they shall not have any significant adverse impact on
the Tenant's use and occupancy of the Premises as permitted under
Paragraph 2.
Notice 11. Any notice or demand under this Lease shall be in writing and
shall be considered properly delivered when addressed as hereinafter
provided, given or served personally, or by fax, receipt confirmed, or
by registered or certified mail (return receipt requested) and
deposited in the United States general or branch post office. Any
notice, or demand by the Landlord to the Tenant shall be addressed to
the Tenant at the Premises until otherwise directed in writing by the
Tenant. Any notice or demand by the Landlord to the Tenant shall be
addressed to the Manager of Contracts, 3001 Redhill Avenue, Building
III, Costa Mesa, California 92626, with copies addressed
simultaneously to John M. Wursthorn, at the Premises. Any notice,
request, communication or demand by the Tenant to the Landlord shall
be addressed to the Landlord's building manager (presently Joseph
Walsh) at the Building with copies addressed simultaneously to the
Landlord, attention of the Associate General Counsel, IBM Real Estate
Services, 208-262 Harbor Drive, P.O. Box 10501, Stamford,
Connecticut, 06904-2501 and attention of the RES Director, U.S.
Operations, IBM Real Estate Services, 208-262 Harbor Drive, P.O. Box
10501, Stamford, Connecticut, 06904-2501, until otherwise directed in
writing by the Landlord. Rejection or other refusal to accept a
notice, or demand or the inability to deliver the same because of a
changed address of which no notice was given shall be deemed to be
receipt of the notice, request, communication or demand sent. Routine
daily requests or communications between the parties may occur by
e-mail transmission.
<PAGE>
Landlord's 12. The Landlord's title is and always shall be paramount to the
Title Tenant's interest in this Lease, and nothing herein contained
shall empower the Tenant to do any act which shall encumber the
Landlord's title.
Certain 13. (a) The Landlord reserves the following rights to be
Rights exercised in the Landlord's sole discretion:
Reserved
to (1) To change the name or street address of the Building without
Landlord notice to the Tenant or liability of the Landlord to the Tenant.
(2) To install and maintain a sign or signs on the exterior of
the Building.
(3) During the last ninety (90) days of the Term, if during or
prior to that time the Tenant vacates the Premises, to decorate,
remodel, repair, alter or otherwise prepare the Premises for
reoccupancy.
(4) To constantly have pass keys or other access devices to the
Premises. Tenant shall not install locks or any other security
devices on doors providing access to and in any part of the
Premises without Landlord's prior written consent.
(5) To grant to anyone the exclusive right to conduct any
particular business or undertaking in the portion of the Site
other than the Premises.
(6) To take any and all measures, including inspections, repairs
and improvements of and to the Premises or elsewhere in the
Building, as may be necessary or desirable for the safety,
protection or preservation of the Premises and other parts of the
Building or the Landlord's interests therein, or as may be
necessary or desirable in the operation of the Building. The
Landlord shall use reasonable efforts not to interfere with the
Tenant's use and occupancy of the Building.
(7) To approve the weight, size and location of tools,
equipment, fixtures and other heavy equipment and articles in and
about the Premises and elsewhere in the Building so as not to
exceed the legal live load of 200 lb per square foot designated
by the structural engineers for the Building, and to require all
such items and furniture and similar items to be moved into or
out of the Building only at such times and in such manner as the
Landlord shall direct in writing. The Landlord represents that
the present placement of the Equipment does not violate the
foregoing. The Tenant shall not install or operate machinery or
any mechanical devices of a nature not related to the Tenant's
ordinary use of the Premises without the prior
<PAGE>
written consent of the Landlord. Movement of the Tenant's
property into or out of the Building and within the Building are
entirely at the Tenant's risk and responsibility, and the
Landlord reserves the right to require permits before allowing
any property to be moved into or out of the Building.
(8) To establish controls generally applicable to the Site for
the purpose of regulating all property and packages, both
personal and otherwise, to be moved into or out of the Building,
and all persons using the Building after normal office hours.
(9) To regulate delivery and service of supplies and the usage
of the loading docks, receiving areas and freight elevators.
(b) Subject to the provisions of Subparagraph (c), the Landlord may
enter the Premises and may exercise any or all of the foregoing rights
enumerated in Subparagraphs (a) (7) and (8), without being deemed
guilty of an eviction or disturbance of the Tenant's use or
possession and without being liable in any manner to the Tenant,
provided that the Landlord gives the Tenant the specified notice, or
if no notice period is specified, then a reasonable notice, of any
intention to enter the Premises (unless doing so is impractical or
unreasonable because of emergency), and does not interfere
unreasonably with the Tenant's use and enjoyment of the Premises.
(c) Notwithstanding any provision in this Lease to the contrary, the
Landlord shall require the consent of the Tenant to enter the
Premises, which consent the Tenant will not unreasonably withhold or
delay, except that no consent will be required for the Landlord to
enter the Premises (i) while it or its employees are providing
services to Tenant in accordance with provisions of this Lease (ii) if
there is an emergency as determined by the Landlord in good faith, and
those requiring entry are employees or contractors of the Landlord who
work in the security or emergency response function or (iii) pursuant
to Paragraph 19.
Default 14. If the term of any lease made by the Tenant for any space in
Under the Building, other than this Lease, shall be terminated or
Other terminable after the making of this Lease because of any default
Leases by the Tenant under such other lease, such fact shall constitute a
default under this Lease and shall empower the Landlord, at the
Landlord's sole option, to terminate this Lease by notice to the
Tenant.
Waiver of 15. (a) To the extent permitted by law, the Tenant hereby
Claims releases the Landlord and the property manager and their respective
agents, invitees, contractors and employees, from, and waives all
claims for injury (including death) to any person
<PAGE>
and damage to any property sustained by the Tenant or its agents,
employees, contractors or invitees or any other occupant of the
Building or Premises, resulting from the Building or Premises or any
part of either or any equipment or appurtenance becoming out of
repair, or resulting from any accident, assault or robbery in or about
the Building, or resulting directly or indirectly from any act,
omission or neglect of any tenant or occupant of the Building or of
any other person, including the Landlord and the property manager and
their respective agents, contractors, invitees and employees. This
Paragraph shall apply especially, but not exclusively, to the flooding
of basements or other subsurface areas, and to damage caused by
refrigerators, sprinkling devices, air conditioning apparatus, water,
snow, frost, steam, excessive heat or cold, falling plaster, broken
glass, sewage, gas, odors or noises, or the bursting or leaking of
pipes or plumbing fixtures, and shall apply equally whether any such
damage results from the act, omission or neglect of the Landlord or
the property manager or of other tenants, occupants, or contractors in
the Building or of any other person, and whether such damage be caused
or results from any thing or circumstance above mentioned or referred
to, or any other thing or circumstance whether of a like nature or of
a wholly different nature. If any such damage, whether to the Premises
or to the Building or any part thereof, or whether to the Landlord or
the property manager, or to other tenants in the Building, results
from any act, omission or neglect of the Tenant or its agents,
employees, contractors or invitees, the Landlord may, in its sole
discretion, repair such damage and the Tenant shall, upon demand by
the Landlord, reimburse the Landlord forthwith for the total cost of
the repairs as additional rent. The Tenant shall not be liable for any
damages caused by its act, omission or neglect to the extent the
Landlord or a tenant has recovered insurance proceeds therefor and the
insurance company has waived in writing its rights of subrogation. The
immediately preceding sentence shall take precedence over the
indemnity provided by Tenant pursuant to Paragraph 26(a) (the
"Indemnity") but only with respect to damages subject to Landlord
insurance coverage, and only to the extent that the Landlord actually
recovers insurance proceeds from its insurance company; Tenant shall
continue to be liable to Landlord under the Indemnity for that portion
of the damages caused by Tenant's act, omission or neglect that is
equal to the amount of Landlord's applicable insurance deductible, if
any, as well as any other portion of the damages incurred by Landlord
for which Landlord does not actually receive insurance proceeds.
(b) As a material part of the consideration to the Landlord, the
Tenant hereby assumes all risk of assault or robbery and risk or
damage to or loss, theft or misappropriation of property in, upon or
about the Site, Premises and Building (and any motor vehicles, if
applicable) from any source and to whomever belonging, and the Tenant
hereby waives all claims in respect thereof against the
<PAGE>
Landlord and the property manager and their respective agents,
contractors, invitees or employees.
Holding 16. (a) If the Tenant retains possession of the Premises or any
Over part thereof after the end of the Term, however ended, the Tenant
shall pay the Landlord rent at double the rate of rental specified in
this Lease for the time the Tenant remains in possession, which rate
of rental shall be equal to the rate of rental applicable to the final
year of the Term, and in addition thereto, shall pay the Landlord for
all damages, whether consequential, special, incidental or otherwise,
sustained by reason of the Tenant's retention of possession. In such
event, Landlord shall have no obligation to continue providing the
services specified in Exhibit C. If the Tenant remains in possession
of the Premises, or any part thereof, after the end of the Term,
however ended, such holding over shall, at the election of the
Landlord expressed in a notice to the Tenant and not otherwise, in
lieu of double rent, constitute a renewal of this Lease for one month
for the same rent and additional rent set forth in this Lease for the
final year of the Term prior to such renewal. The provisions of this
Paragraph do not waive the Landlord's rights of reentry or any other
rights hereunder or available at law or in equity.
(b) The word "possession" shall include continued occupancy of
persons or of items that the Tenant is required by Paragraph 8 to
remove but which continue to remain in the Premises beyond the end of
the Term.
Rules 17. The Tenant shall observe faithfully and comply strictly with the
rules and regulations attached to this Lease and made a part hereof as
Rider B, and such other rules and regulations applicable to the Site
generally promulgated from time to time by the Landlord, which in the
Landlord's sole judgment are necessary for the safety, care and
cleanliness of the Building or for the preservation of good order
therein. The Landlord will not be liable to the Tenant for violation
of such rules and regulations by any other tenant, or its employees,
agents, invitees, or contractors.
Subordi- 18. (a) This Lease shall be subordinate and subject at all times
nation to all ground or underlying leases and to any mortgage or deed of
trust covering the Premises or which at any time hereafter shall be
made, and to all renewals, modifications, consolidations, or
replacements thereof, and to all advances made, or hereafter to be
made, upon the security of any such mortgage or deed of trust. The
Tenant shall execute instruments subordinating this Lease to any such
mortgage or deed of trust as the Landlord shall request.
(b) If the Landlord commits any act or omission which would give the
Tenant the right under this Lease to damages from the Landlord or the
right to terminate this
<PAGE>
Lease, the Tenant agrees that it will not sue for such damages or
terminate this Lease until (i) it shall have given written notice of
the act or omission to the Landlord and to the holder(s) of the
indebtedness or other obligations secured by any mortgage or deed of
trust affecting the Premises or of any ground or underlying lease, if
the name and address of such holder(s) have been furnished to the
Tenant, and (ii) a reasonable period of time, in light both of the
time required to effect a remedy and of the impact of the act or
omission on the Tenant's business operations at the Premises, for
remedying the act or omission has elapsed following the giving of the
notice, during which time the Landlord and such holder(s),or either of
them, and their agents or employees, will be entitled to enter upon
the Premises and do whatever may be necessary to remedy the act or
omission.
Default 19. All rights and remedies of the Landlord herein enumerated shall
be cumulative, and none shall exclude any other right or remedy
allowed by law or equity.
(a) The occurrence of any one or more of the following events shall
constitute a default by the Tenant and a breach of this Lease: (i)
the Tenant fails to make a payment of rent, Equipment Rent, or any
other payment of money (other than the payment for purchase of
Equipment specified in Paragraph 5c), as and when the same shall
become due and payable hereunder and such failure shall continue for
more than ten (10) consecutive days after notice by the Landlord, or
(ii) the Tenant fails to promptly and fully perform or observe any of
the other provisions in this Lease to be performed or observed by the
Tenant and the failure shall continue for more than twenty (20)
consecutive days after notice by the Landlord specifying the nature of
such failure, or if the failure so specified shall be of such a nature
that the same cannot be reasonably cured or remedied within said
twenty (20) day period, the Tenant shall not have commenced to cure or
remedy the failure in good faith within such twenty (20) day period
and thereafter diligently proceeded to cure or remedy it, (unless the
act or omission of the Tenant or occurrence involves a hazardous or
emergency condition which shall be cured by the Tenant forthwith upon
the Landlord's demand) or (iii) the leasehold interest or property of
the Tenant be levied upon under execution or be attached by process of
law, unless Tenant shall in good faith use best efforts to remove any
such lien or attachment (except that if Tenant fails to remove such
lien or attachment within one hundred twenty (120) calendar days of
the date such lien or attachment was first imposed, Tenant shall
nevertheless be in default and in breach of this Lease), or (iv) the
Tenant discontinues the conduct of its business in the Premises for
more than thirty (30) consecutive days, or (v) at any time prior to or
during the Term, the Tenant makes an assignment for the benefit of
creditors, or a receiver be appointed for any property of the Tenant,
or any voluntary or involuntary petition or similar pleading under
any section or
<PAGE>
sections of any bankruptcy law shall be filed by or against the
Tenant, or any voluntary or involuntary proceeding in any court or
tribunal shall be instituted to declare the Tenant insolvent or unable
to pay the Tenant's debts, and in the case of any involuntary petition
or proceeding, the petition or proceeding is not dismissed within
thirty (30) consecutive days from the date it is filed, or (vi) the
Tenant fails to meet any of its obligations specified in Paragraph
5(c).
(b) If the Tenant defaults hereunder, and at any time thereafter, (i)
if the Term shall not have commenced, the Landlord may cancel and
terminate this Lease by notice to the Tenant, or (ii) if the Term
shall have commenced, the Landlord may serve upon the Tenant a notice
that this Lease and the Term will terminate on a date to be specified
therein, (which shall not be less than five (5) consecutive days after
the date the Landlord's notice is given), and upon the date so
specified by the Landlord in its notice, this Lease and the then
unexpired Term shall terminate and come to an end as fully and
completely as if the date specified in the Landlord's notice was the
day herein definitely fixed for the end and expiration of this Lease
and the term, and the Tenant shall then quit and surrender the
Premises to the Landlord, but the Tenant shall remain liable as
hereinafter set forth; provided, however, that if the Tenant shall
fail to make timely payment of rent, and such failure shall continue
for two (2) consecutive months, or if the Tenant shall fail to perform
or comply with a provision of this Lease, including the timely payment
of rent, two (2) or more times in any period of six (6) months then,
notwithstanding that each act or omission shall have been cured within
the period after the giving of notices as herein provided, any further
similar act or omission shall be deemed to be deliberate and the
Landlord thereafter may serve the aforesaid notice of termination
without affording to the Tenant a further opportunity to cure the
default.
(c) Upon termination of this Lease by the Landlord as hereinabove
provided, or if the Premises become vacated or deserted, the Landlord
may, without notice, terminate all services including, without
limitation, those set forth in Exhibit C, and reenter the Premises
either by force or otherwise, and by summary proceedings or otherwise,
dispossess the Tenant and the legal representatives of the Tenant or
any other occupant of the Premises, and remove their effects without
being deemed in any manner guilty of trespass, eviction or forceable
detainer, and hold the Premises as if this Lease had not been made.
(d) If the Tenant defaults as provided in this Paragraph, the
Landlord shall have the right, without notice or demand to the Tenant
(the Tenant hereby irrevocably waiving all notices and demands,
statutory or otherwise, including any notice otherwise required in
connection with any forcible entry and detainer action), to terminate
this Lease, and the Tenant's right to possession of the Premises
without
<PAGE>
terminating this Lease, in which event the Landlord shall be entitled
to receive from the Tenant:
(1) the worth at the time of award of any unpaid rent which has
been earned at the time of such termination; plus
(2) 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
Tenant proves could be reasonably avoided; plus
(3) any other amount necessary to compensate the Landlord for
all the detriment proximately caused by the Tenant's failure to
perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom; and
(4) at the Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to
time by applicable law or in equity.
As used in subparagraphs (1) and (2) above, "worth at the time of
award" shall mean the present value determined using the then
highest lawful interest rate, but in no event to exceed fourteen
(14) percent per annum.
(e) Any and all property which may be removed from the Premises by
the Landlord pursuant to the authority of this Lease or of the law, to
which the Tenant has or may have an interest, may be handled,
removed or stored by the Landlord at the Tenant's risk and cost, and
the Landlord shall in no event be responsible for the value,
preservation or safekeeping thereof. The Tenant shall pay to the
Landlord upon demand as additional rent any and all expenses incurred
by the Landlord to remove and store such property so long as the same
shall be in the Landlord's possession or under the Landlord's
control. Any property of the Tenant which is not removed from the
Premises or retaken from storage by the Tenant within thirty (30) days
after the end of the term, however terminated, shall be presumed to
have been conveyed by the Tenant to the Landlord under this Lease as a
bill of sale without further payment or credit by the Landlord to the
Tenant.
(f) The Tenant shall pay upon demand all costs and charges, including
the fees of counsel, agents and others retained by the Landlord,
incurred by the Landlord to enforce or carry out the Tenant's
obligations hereunder or incurred by the Landlord in any litigation,
negotiation or transaction in which the Tenant causes
<PAGE>
the Landlord, without the Landlord's fault, to become involved or
concerned, plus interest from the date of payment at the annual rate
of fourteen percent (14%), which amount shall be deemed to be
additional rent due and payable by the Tenant at once without notice
or demand (but in no event, at a rate which is more than the highest
rate which is at the time lawful in the State where the Building is
located).
(g) The Tenant hereby expressly waives the service of notice of
intention to reenter or to institute legal proceedings to that end
and waives any and all rights of redemption granted by or under any
present or future laws by reason of the Tenant being evicted or
dispossessed for any cause, or by reason of the Landlord obtaining
possession of the Premises because of the Tenant's violation of any
of the provisions of this Lease or otherwise. The words "reenter",
"enter" and "reentry" as used in this Lease are not restricted to
their technical legal meaning.
(h) If the Tenant breaches or threatens breach of any of the
provisions of this Lease on its part to be performed hereunder, the
Landlord shall have the right of injunction and the right to invoke
any remedy allowed at law or in equity as if reentry, summary
proceedings and other remedies were not herein provided for. Mention
in this Lease of any particular remedy shall not preclude the
Landlord from pursuing any other remedy available at law or in
equity.
(i) The delivery of keys to any agent or employee of the Landlord
shall not be considered as a termination of this Lease or a surrender
of the Premises.
(j) The Landlord and the Tenant hereby waive trial by jury in any
action, proceeding or counterclaim brought by either of them against
the other on any matters not relating to personal injury but
otherwise arising out of or in any way connected with this Lease, the
relationship of the Landlord and the Tenant, the Tenant's use or
occupancy of the Premises, or any emergency statutory remedy. The
Tenant further agrees that it shall not interpose any counterclaim in
a summary proceeding or in any action based on nonpayment of rent or
any other payment required of the Tenant hereunder unless the rules
of civil procedure of the forum in which the summary proceeding or
action is initially brought by Landlord specifies that all related
claims, including counterclaims, if not brought in such summary
proceding or action, shall be permanently barred from any future
legal proceeding.
Mechanics' 20. The Tenant shall not permit any mechanics' or materialmen's
Liens liens to be filed against the fee of the real property on which the
Building is located nor against the Tenant's leasehold interest in
the Premises or the Equipment. The Landlord shall have the right at
all reasonable times to post and keep posted on the Premises any
<PAGE>
notices which it deems necessary for protection from such liens. If
any mechanics' or materialmen's liens are so filed, the Landlord, at
its election, may pay and satisfy the same in which event the sums so
paid by the Landlord, with interest from the date of payment at the
annual rate of fourteen percent (14%).
Eminent 21. (a) If the whole or any part of the of the Premises shall be
Domain lawfully condemned or taken in any manner for any public or quasi-
public use, at the Landlord's option, this Lease and the term shall
forthwith cease and terminate on the date of the taking of possession
by the condemning authority and the Landlord shall be entitled to
receive the entire award without any payment to the Tenant, the Tenant
hereby assigning to the Landlord the Tenant's interest in the award,
if any, and the rent shall be apportioned as of such date.
(b) If a part of the Building shall be so condemned or taken and if
the Landlord determines in its sole discretion that the Building
should be restored in such a way as to materially alter the Premises,
or that the Building should be demolished, the Landlord may terminate
this Lease and the term without compensation to the Tenant by
notifying the Tenant of such termination within sixty (60) days
following the date of the taking of possession by the condemning
authority, and this Lease and the term shall expire on the date
specified in the notice of termination not less than sixty (60) days
after the giving of such notice as fully and completely as if such
date were the date hereinbefore set for the expiration of the term,
and the rent shall be apportioned as of such date.
Casualty 22. (a) If there is damage or destruction to the Premises during the
Term by fire, the elements, or casualty, the Landlord shall forthwith
repair the same, provided such repairs can be made within one hundred
twenty (120) days from the date of the damage or destruction as
determined by the Landlord in its reasonable discretion. The damage
or destruction shall in nowise annul or void this Lease, but the
Tenant shall be entitled to a proportionate reduction of rent while
such repairs are being made. Such proportionate reduction shall be
based upon the extent to which the Premises, or part thereof, may be
untenantable; provided, however, if the portion of the Premises which
is untenantable makes it impossible, in the Landlord's reasonable
judgment and discretion, for the Tenant to continue its manufacturing
operations, the entire rent for the Premises shall abate until the
Premises are repaired and Tenant shall cease all manufacturing
operations until the repairs are completed.
(b) If the Landlord determines in its reasonable discretion that such
repairs to the Premises cannot be made within one hundred twenty (120)
days from the date of the damage or destruction the Landlord may, at
its option to be exercised within thirty (30) days from the date of
such damage or destruction, make the same as
<PAGE>
soon as possible thereafter, this Lease continuing in full force and
effect and the rent to be proportionately reduced or abated as
provided in subparagraph (a) above. If the Landlord does not so elect
to make such repairs which cannot be made within said one hundred
twenty (120) day period, and the Tenant chooses, within thirty (30)
days of such notification, not to make such repairs at its own
expense, this Lease may be terminated at the option of either party.
(c) The Landlord shall promptly (but in no event later than thirty
(30) days after the date of such damage or destruction) notify the
Tenant in writing of its estimate of the time needed to make repairs.
The Tenant shall exercise its right to terminate this Lease, in
accordance with Paragraph 22 (b) above, no later than thirty (30) days
after receipt of such notice from the Landlord.
(d) If the Building is damaged, this Lease shall continue in full
force and effect, but the Landlord shall forthwith repair such damage;
except that if the Building is severely damaged or destroyed as
determined by the Landlord in its sole discretion, the Landlord, at
its option to be exercised within thirty (30) days from the date of
such damage or destruction, may terminate this Lease. The Tenant
shall be entitled to a proportionate reduction or abatement of rent
only if the Premises are untenantable as aforesaid and no such rent
reduction shall be allowed by reason of inconvenience, annoyance or
injury to the Tenant's business because of such damage or
destruction, or the necessity of repairing any portion of the
Building, or the making of such repairs, and the Landlord shall not
be liable to the Tenant because of such inconvenience, annoyance or
injury. In the event the Premises are untenantable, and if comparable
space is available at the Site, Landlord, may, in its sole discretion,
make said space available to Tenant, and the rent shall thereupon
become due and payable. In such event, Tenant shall assume all costs
of relocation and fix-up of the new premises.
Waiver of 23. Each party hereto releases the other and waives all claims for
Sub- recovery from the other party for any loss or damage to any of its
rogation property in the amount of the insurance proceeds recovered under
property insurance policies. The immediately preceding sentence shall
take precedence over the indemnity provided by Tenant pursuant to
Paragraph 26(a) (the "Indemnity") but only with respect to damages
subject to Landlord insurance coverage, and only to the extent that
the Landlord actually recovers insurance proceeds from its insurance
company; Tenant shall continue to be liable to Landlord under the
Indemnity for that portion of the damages caused by Tenant's act,
omission or neglect that is equal to the amount of Landlord's
applicable insurance deductible, if any, as well as any other portion
of the damages incurred by Landlord for which Landlord does not
actually receive insurance proceeds.
<PAGE>
Insurance 24. (a) The Tenant shall purchase and during the Term maintain for
the benefit of the Tenant, the Landlord and the property manager (as
their respective interests may appear) insurance coverages on terms
and with companies reasonably satisfactory to the Landlord.
Initially, the Tenant shall maintain the following coverages in the
following amounts with such increases in limits as the Landlord may
from time to time reasonably request:
(i) Comprehensive General Liability Insurance, naming the Tenant,
the Landlord, the Landlord's lender and the property manager as
additional insured, covering any liability for bodily injury,
personal injury (including death) and property damage arising out
of the Tenant's operations, assumed liabilities or use of the
Premises, for limits of liability not less than:
Bodily (*) each occurrence
Injury Liability (*) annual aggregate
Personal (*) each occurrence
Injury Liability (*) annual aggregate
Property (*) each occurrence
Damage Liability (*) annual aggregate
(ii) Physical Damage Insurance covering all tools, equipment,
office furniture, trade fixtures, office equipment, merchandise
and all other items of both the Landlord's and Tenant's property
located within the Premises. Such insurance shall be written on
an "all risk" of physical loss or damage basis, for the full
replacement cost of the covered items and in amounts that meet
any coinsurance clause of the policies of insurance.
(iii) Business Interruption Insurance in such amounts as will
reimburse the Tenant for direct or indirect loss of earnings
attributable to perils insured against in this Paragraph.
(b) Prior to the commencement of the Term, the Tenant shall furnish
the Landlord with certificates evidencing the coverages required
above. The certificates shall state that the coverage may not be
changed or canceled without at least ten (10) days' prior written
notice to the Landlord and the Tenant.
(c) The Tenant shall comply with all laws and ordinances, all orders
and decrees of a court and all requirements of other governmental
authorities and agencies and political subdivisions thereof,
applicable to the Tenant's business operations, and shall not,
directly or indirectly, make any use of the Premises which may
thereby be prohibited or be unreasonably dangerous to person or
property or which may
<PAGE>
jeopardize any insurance coverage or may increase the cost of
insurance or require additional insurance coverage. If by reason of
the Tenant's failure to comply with the provisions of this Paragraph,
any insurance coverage is jeopardized or insurance premiums are
increased, the Landlord may in its sole discretion terminate this
Lease, require the Tenant to make immediate payment of this increased
insurance premium, or assure continued coverage by all commercially
reasonable means available, including payment of premiums, in which
event the Tenant shall reimburse the Landlord for all costs incurred
therefor as additional rent. Landlord represents that, to the best of
its knowledge, the use and occupancy of the Premises complies, on the
Effective Date, with the foregoing provisions of this Paragraph. In
the event Landlord breaches such representation, the sole and
exclusive remedy of Tenant therefor shall be that Landlord will, at
its sole option, either (i) use reasonable efforts to correct the non-
compliance, if and to the extent required by law, or (ii) refrain from
terminating the Lease on the basis of such non-compliance.
Notwithstanding the foregoing, Landlord shall not be obligated
hereunder to make any such correction if the cost of making such
correction may in the aggregate exceed U.S. $ 75,000, or if the cost
of making such correction, in addition to the cost of other such
corrections previously made hereunder and under Paragraphs 2 and 3(a),
may exceed U.S. $ 75,000, or if such correction is not required for
Tenant to continue its manufacturing operations in the Premises.
Condition 25. The Tenant's taking of possession of the Premises and
of Equipment shall be conclusive evidence against the Tenant that the
Premises Premises were in good order and satisfactory condition when the
Tenant took possession. No promise of the Landlord to alter, remodel
or improve the Premises, Equipment, or the Building and no
representations respecting the condition of the Premises, Equipment,
or the Building or land under and adjacent to the Building have been
made by the Landlord to the Tenant, unless the same are contained
herein or made a part hereof. At the end of the Term, by lapse of
time or otherwise, the Tenant shall return the Premises and
Equipment, other than Equipment purchased by Tenant in accordance
with Paragraph 5, as required Paragraph 8 and in as good condition
as when the Tenant took possession, ordinary wear and loss by fire
or other casualty insured by the Landlord under valid fire and
standard extended coverage insurance policies excepted. However, if
at the end of the Term, by lapse of time or otherwise, the Tenant
has purchased the Equipment in accordance with the Lease, then
Tenant's obligation shall be to return the Office Space as required
by Paragraph 8 and in as good condition as when the Tenant took
possession, ordinary wear and loss by fire or other casualty
insured by the Landlord under valid fire and standard extended
coverage insurance policies excepted, and will also return
the Manufacturing Area in "AS IS" condition after removal of all
equipment from such Manufacturing Area, as required under this
<PAGE>
Lease. If the Tenant fails to comply with such obligation, the
Landlord may restore the Premises as required by the provisions of
this Lease and the Tenant shall pay the cost thereof and this
obligation shall survive the expiration or earlier termination of this
Lease.
Indemnity 26. (a) The Tenant agrees to indemnify and save harmless the Landlord
and the property manager and leasing agent for the Building (the
"property manager") and their respective agents, invitees,
contractors and employees from, and defend them against any and all
claims by or on behalf of any person, firm or corporation, arising
from (1) the use, manner of use, or occupancy of the Premises or
Equipment by the Tenant, its agents, contractors, employees or
invitees, or the conduct of the Tenant's business therein, or from any
activity, work, or thing done, permitted or suffered by the Tenant,
its agents, contractors, employees or invitees in or about the Site
(or any parking lot or structure, if used by them), and (2) any breach
or default in the performance or observance of any provision in this
Lease on the Tenant's part to be performed or observed, and (3) any
act, omission or negligence of the Tenant, or any of its agents,
contractors, employees or invitees. The Tenant shall also reimburse
the Landlord for all counsel, consulting, expert and witness fees and
other expenses the Landlord or the property manager incurs in
connection with any such claim.
(b) Without limiting subparagraph (a), the indemnity, defense and
reimbursement obligations of the Tenant shall cover any and all
environmental damages which arise from: (i) the handling of any
Hazardous Materials (hereinafter defined in Paragraph 30), by the
Tenant, its agents, invitees, contractors or employees, or (ii) the
breach of any of the provisions of this Lease on the Tenant's part to
be performed. For the purpose of this Lease, "environmental damages"
shall mean and include: (x) all claims, judgments, damages (including
punitive damages), penalties, fines, costs, liabilities (including
strict liability), fees, disbursements, encumbrances, liens and
losses, including diminution in the value of the Premises or any
portion of the Building, damages for the loss of or restriction on use
of rentable or usable space or of any amenity of the Premises or any
portion of the Building, and from any adverse impact to the Landlord's
marketing of space; (y) all reasonable sums paid for claims and
attorneys', witness', consultants' and experts' fees; and (z) all
costs incurred by the Landlord in connection with investigation or
remediation relating to the handling of the Tenant's Hazardous
Materials, whether or not required by the Environmental Laws
(hereinafter defined in Paragraph 30(c)), necessary for the Landlord
to make full economic use of the Premises or any portion of the
Building, or otherwise required under this Lease. The Tenant's
obligations and liabilities pursuant to this Paragraph shall survive
the expiration or earlier termination of this Lease. In case any
action or proceeding be brought against the Landlord or the property
manager or their
<PAGE>
respective agents, contractors, invitees or employees
by reason of any such claim, upon notice from the Landlord, the
Tenant covenants to resist or defend at the Tenant's expense such
action or proceeding by counsel reasonably satisfactory to the
Landlord.
Posses- 27. If the Landlord fails to deliver possession of the Premises on
sion the date agreed upon for commencement of the Term, the Landlord and
the property manager and their respective agents, contractors,
invitees and employees shall not be liable for any damage to anyone
caused thereby, nor shall this Lease thereby become void or voidable,
nor shall the Term be in any way extended, but in such event the Term
shall begin when the Landlord does deliver possession of the Premises.
The Tenant shall not be liable for any rent until the date the
Landlord delivers such possession.
Quiet 28. The Landlord covenants and agrees that the Tenant on paying the
Enjoyment rent, including additional rent, and performing and observing the
covenants on the Tenant's part to be performed and observed hereunder,
shall and may peaceably and quietly hold and enjoy the Premises for
the Term, subject to the provisions of this Lease.
Security 29. The Tenant will deposit with the Landlord the sum of US $100,000
no later than March 1, 1996 as security for the faithful performance
and observance by the Tenant of the provisions of this Lease on its
part to be performed. If the Tenant defaults in respect of any of
these provisions, including the payment of rent and additional rent,
the Landlord may use, apply or retain the whole or any part of the
security so deposited, including the accrued interest thereon, to the
extent required for the payment of any rent and additional rent or any
other sum as to which the Tenant is in default or for any sum which
the Landlord may expend or may be required to expend by reason of the
Tenant's default in respect of any of these provisions, including any
damages or deficiency in the reletting of the Premises, whether such
damages or deficiency accrued before or after summary proceedings or
other reentry by the Landlord. If the Tenant shall fully and
faithfully comply with all of these provisions, the security deposit
plus interest thereon from the date of deposit by the Tenant at an
annual rate equal to the annual interest rate of three month United
States Treasury Bills adjusted annually on March 1 of each year shall
be returned to the Tenant after the date fixed as the end of this
Lease and after delivery of possession of the entire Premises to the
Landlord as required by this Lease. If the Landlord sells or leases
the Building, the Landlord shall have the right to transfer the
security to the vendee or lessee and the Landlord shall thereupon be
released by the Tenant from all liability for the return of such
security. The Tenant agrees to look solely to the new landlord for
the return of said security. It is agreed that the provisions
hereof shall apply to every transfer
<PAGE>
or assignment made of the security to a new landlord. The Tenant
further covenants that it will not assign or encumber or attempt to
assign or encumber the monies deposited herein as security and that
neither the Landlord nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted
encumbrance.
Hazardous 30. (a) No Hazardous Materials (hereinafter defined in subparagraph
Materials (d)) shall be handled upon, about, above or beneath the Office Space
or any portion of the Building other than the Manufacturing Area, or
the land thereunder or adjacent thereto by or on behalf of the
Tenant, its subtenants or its assignees, or their respective
contractors, employees, agents or invitees. Any Hazardous Materials
so handled by or on behalf of the Tenant, its subtenants or its
assignees, or their respective contractors, employees, agents or
invitees shall be known as the "Tenant's Hazardous Materials";
except that the Tenant's Hazardous Materials shall not include
normal quantities of Hazardous Materials customarily used in the
conduct of general administrative and executive office activities
(such as copier fluids and cleaning supplies) which may be used and
stored at the Building without the Landlord's prior written consent,
but only in compliance with all applicable Environmental Laws. No
Hazardous Materials other than those in use by the IBM
Microelectronic Division for the manufacture of Cube technology
products on the Effective Date shall be introduced by the Tenant
to the Site without notice to the Landlord and the Landlord's prior
consent. Landlord will review and grant or deny each request to
introduce Hazardous Materials to the Site in accordance with Site
practices. In no event will Landlord be required to permit on
the Site any Hazardous Materials that impose additional costs for
which Tenant does not reimburse Landlord, or risk, to Landlord.
(b) In addition to the Tenant's obligation in Paragraph 26 above to
indemnify the Landlord, the Tenant shall, at its sole cost, promptly
take all actions required by any federal, state or local government
agency or political subdivision, necessary for the Landlord to make
full economic use of the Building or any portion of the Building,
which requirements arise from the handling of the Tenant's Hazardous
Materials upon, about, above or beneath the Premises or any portion of
the Building and the land thereunder or adjacent thereto. Such
actions shall include the investigation of the environmental condition
of the Building and the land thereunder or adjacent thereto or any
portion thereof, the preparation of any feasibility studies or
reports and the performance of any cleanup, remedial, removal or
restoration work. The Tenant shall take all actions necessary to
restore the Building or any portion of the Building to the condition
existing prior to the introduction of Tenant's Hazardous Materials,
notwithstanding any less stringent standards or remediation allowable
under applicable Environmental Laws. The Tenant shall nevertheless
obtain the Landlord's written approval prior
<PAGE>
to undertaking any actions required by this Paragraph, which approval
shall not be unreasonably withheld so long as such actions will not,
in the Landlord's reasonable opinion, have a material adverse long-
term or short-term effect on the Premises or any portion of the
Building or such land.
(c) The words "Environmental Laws" mean and include all existing and
future statutes, ordinances, codes, regulations, rules, rulings,
orders, decrees, directives, and other laws and policies and
requirements by any federal, state or local governmental authority
regulating, relating to or imposing liability or standards of conduct
concerning public health and safety or the environment.
(d) The words "Hazardous Materials" mean (1) any material or
substance: (i) which is defined or becomes defined as "hazardous
substance," "hazardous waste," "toxic substance," "infectious waste,"
"chemical mixture or substance," or "air pollutant" under the
Environmental Laws; (ii) containing petroleum or its byproducts;
(iii) containing polychlorinated biphenyl; (iv) containing asbestos,
radon, gas or urea formaldehyde foam insulation; (v) which is
radioactive; or (2) any other pollutant or contaminant or hazardous,
toxic, flammable or dangerous chemical, waste, material or substance,
as all such terms are used in their broadest sense, and defined,
regulated or become regulated by the Environmental Laws, or which
cause a nuisance upon or waste to the Premises or any portion of the
Building or the land thereunder or adjacent thereto.
(e) The words "Handle," "Handled," or "Handling," each shall mean and
include any installation, handling, generation, storage, use,
manufacture, refinement, presence, emission, transportation, or any
other activity of any type in connection with or involving Hazardous
Materials.
(f) The Tenant agrees to acquire and the Landlord agrees to supply to
the extent and when available all Hazardous Materials, chemicals and
gases through the Landlord's Chemical and Gas Management
organizations. Prior to the Handling by the Tenant of any Hazardous
Material not in use at the Site as of the Effective Date, the Tenant
and the Landlord shall review full compliance relating to the specific
Hazardous Material with the Environmental Laws and Site rules,
regulations and procedures described in Rider B. In the event the
Tenant's use of Hazardous Materials in the Building or Premises
requires prior permitting by the federal, state or local government or
any regulatory agency, the Landlord shall apply for said permitting
provided the Tenant provides the Landlord with reasonable notice of
its Hazardous Material requirements, and except as stated in
subparagraph (g). The Landlord shall pursue such permits promptly and
diligently, and in any event with the same diligence that it would
pursue for its own most valuable manufacturing processes. The Tenant
shall reimburse the
<PAGE>
Landlord for all related fees and costs associated therewith which
are authorized by the Tenant in advance. Under no circumstance shall
the Tenant use any new Hazardous Material on the Premises without
full compliance.
(g) In the event the Landlord is not lawfully permitted to apply for
environmental permits on behalf of the Tenant pursuant to the
Environmental Laws, the Tenant shall, in compliance with the
Environmental Laws, apply for said permits. Prior to said
application, the Tenant shall notify the Landlord.
(h) The Tenant shall immediately notify the Landlord of any actual
known or suspected violation of the Environmental Laws relating to
Tenant's Hazardous Materials.
(i) The Landlord will be solely responsible for the disposal and
treatment of all Hazardous Materials generated by the Tenant at the
premises. The Tenant shall not treat, remove, discharge, or release
any Hazardous Materials without the prior written consent of the
Landlord.
(j) Tenant acknowledges that Tenant has fully reviewed and
understands the corrective action permit set forth in Exhibit J
(hereinafter the "Corrective Action Permit"). Landlord is subject to
the restrictions set forth in the Corrective Action Permit, and
Tenant agrees to refrain from activity that may cause Landlord to be
in violation thereof, and acknowledges that Landlord may be prevented
thereby from implementing or permitting certain alterations to the
Site, Building, or Premises.
Limitation 31. Anything herein to the contrary notwithstanding, it is
on expressly understood and agreed by and between the parties hereto
Liability that Landlord's entire liability and Tenant's exclusive remedy are
set forth in this Paragraph. Under no circumstances shall Landlord be
liable to Tenant, Tenant's successors, heirs, sublessees, or assigns
for any lost revenue, lost profits or other incidental or
consequential damages, even if Landlord has been advised of the
possibility of such damages. In addition, in no event will Landlord
be liable for any damages claimed by Tenant based on any third party
claim or for damages caused by Tenant's failure to perform its
responsibilities. In no event, except for claims by Tenant for bodily
injury for which Landlord is legally liable and claims arising under
Paragraphs 3(a) and 24(c), will Landlord be liable to Tenant, its
successors, heirs, sublessees, or assigns for actual damages in
excess of the lesser of the amount of rent actually paid by Tenant up
to the date the cause of action accrued, or (*). Landlord's liability
to Tenant for claims for actual damages arising under Paragraphs 3(a)
and 24(c) shall not exceed the limitations set forth in such
Paragraphs.
<PAGE>
Estoppel 32. The Tenant agrees that, from time to time upon not less than ten
Certificate (10) days after the Landlord's request the Tenant, or the Tenant's
duly authorized representative having knowledge of the following
facts, will deliver to the Landlord a statement in writing
certifying (i) that this Lease is unmodified and in full force and
effect (or if there have been modifications, a description of such
modifications and that this Lease as modified is in full force and
effect); (ii) the dates to which rent and other charges have been
paid; (iii) that the Landlord is not in default under any provision
of this Lease, or, if in default, the nature thereof in detail; and
(iv) such further matters as may be requested by the Landlord, it
being intended that any such statement may be relied upon by any
mortgagees or prospective mortgagees of the Landlord, or any
prospective assignee of any mortgagees, or any prospective and/or
subsequent purchaser or transferee of all or a part of Landlord's
interest in the land and/or Building. The Tenant shall execute and
deliver whatever instruments may be required for such purposes, and
if the Tenant fails so to do within ten (10) consecutive days after
demand in writing, the Tenant shall be considered in default under
this Lease.
Brokerage 33. The Tenant represents and warrants to the Landlord that the
Commission Tenant has directly dealt only with the Landlord in securing this
Lease and has not dealt with any broker in connection with this
Lease, and agrees to indemnify and hold harmless the Landlord from
and defend the Landlord against any and all claims or demands,
damages, liabilities and expenses of any type or nature whatsoever
arising by reason of the incorrectness or breach of the aforesaid
representation and warranty.
Miscel- 34. (a) No receipt of money by the Landlord from the Tenant
laneous after the termination of this Lease, service of any notice,
commencement of any suit, or final judgment for possession of the
Premises shall renew, reinstate, continue or extend the Term or
affect any such termination notice, demand, suit or judgment.
(b) No waiver of any default hereunder of the Tenant shall be
implied from any omission by the Landlord to take any action on
account of such default if such default persists or is repeated, and
no express waiver shall affect any default other than the default
specified in a written waiver and then only for the time and to the
extent therein stated. The invalidity or unenforceability of any
provision of this Lease shall not affect or impair any other
provision and the invalid or unenforceable provision shall be deemed
modified and restated to comply with law.
(c) The word "Tenant" wherever used in this Lease shall be construed
to mean "Tenants" in all cases where there is more than one tenant,
and the necessary
<PAGE>
grammatical changes required to make the provisions hereof apply
either to corporations, firms or individuals, men or women, shall in
all cases be assumed as though in each case fully expressed.
(d) Provisions inserted herein or affixed hereto shall not be valid
unless appearing in both the duplicate original hereof held by the
Landlord and the Tenant.
(e) Each provision hereof shall extend to and shall, as the case may
require, bind and inure to the benefit of the Landlord and its legal
representatives, successors and permitted assigns, and to the Tenant
and her or his heirs, legal representatives, successors, and
permitted assigns.
(f) The headings of Paragraphs are for convenience only and do not
limit or construe the contents of the Paragraphs.
(g) Submission of this instrument for examination does not constitute
a reservation of or option for the Premises. This instrument becomes
effective as a lease upon execution thereof by both the Landlord and
the Tenant and delivery of an executed counterpart to each other.
(h) All amounts (other than rent, which remains subject to the
provisions of Paragraph 5, and escalation payments) owed by the Tenant
to the Landlord hereunder shall be paid within thirty (30) days from
the date the Landlord renders statements of account therefor and all
such amounts as well as rents and escalation payments shall bear
interest from their respective due date until paid at the monthly
rate of one and one-half percent (1.5%) of the outstanding balance.
If such interest rate exceeds the maximum legal rate in the
jurisdiction in which a claim therefore is being asserted, the
interest rate shall be reduced to the maximum legal rate. All such
amounts other than rent shall be deemed additional rent.
(i) This Lease shall be construed according to the laws of the State
of Vermont, without regard to the conflict of laws provisions thereof.
(j) No determination by any court, governmental body or otherwise that
any provision of this Lease or any amendment hereof is invalid or
unenforceable in any instance shall effect the validity or
enforceability of any other such provision. Each such provision shall
be valid and enforceable to the fullest extent allowed by, and shall
be valid and enforceable to the fullest extent allowed by, and shall
be construed wherever possible as being consistent with, applicable
law.
(k) No rights to any view or to light or air over any property,
whether belonging to the Landlord or any other person, are granted to
the Tenant by this Lease.
<PAGE>
(l) All rights and remedies of the Landlord under this Lease shall be
cumulative and none shall exclude any other rights and remedies
allowed by law or equity.
(m) The Landlord shall have the right to apply payments received from
the Tenant pursuant to this Lease (regardless of the Tenant's
designation of such payments) to satisfy any obligations of the
Tenant hereunder, in such order and amounts as Landlord in its sole
discretion may elect.
(n) Time is of the essence of this Lease and each of its provisions.
(o) This Lease shall be strictly construed neither against the
Landlord or the Tenant; each provision hereof shall be deemed both a
covenant and a condition running with the Land; except as otherwise
expressly provided in this Lease and its Exhibits and other
attachments, the singular includes the plural and the plural includes
the singular; "or" is not exclusive; a reference to an agreement or
other contract includes supplements and amendments thereto to the
extent permitted by this Lease; a reference to any laws includes any
amendment or supplement to such laws; a reference to a person or other
entity includes its permitted successors and assigns; accounting
provisions have the meanings assigned to them by generally accepted
accounting principles applied on a consistent basis; the words "such
as," "include," "includes" and "including" are not limiting; except as
specifically agreed upon in this Lease, any right may be exercised at
any time and from time to time and all obligations are continuing
obligations throughout the term of this Lease, and in calculating any
time period, the first day shall be excluded and the last day shall be
included and all days are calendar days unless otherwise specified.
(p) This Lease may be amended only in writing by an instrument
executed and delivered by each party hereto.
(q) Each provision hereof shall extend to and shall, as the case may
require, bind and inure to the benefit of the Landlord and the Tenant
and their respective legal representatives, successors and permitted
assigns.
Riders A, B, and C and Exhibits A, B, C, D, E, F, G, H, I, and J are attached
hereto and made a part of this Lease.
IN WITNESS WHEREOF, this instrument has been executed by the duly authorized
representatives of the parties hereto as of the day and year first above
written.
<PAGE>
INTERNATIONAL BUSINESS MACHINES
CORPORATION
Witness: By: /s/ D. A. Grose
------------------- ------------------------------
Title: GM, World Wide Logic Mfg.
------------------------------
Date: January 22, 1996
------------------------------
IRVINE SENSORS CORPORATION
Witness: By: /s/ John J. Stuart, Jr.
------------------- ------------------------------
Title: Executive Vice-President & CFO
------------------------------
Date: January 22, 1996
------------------------------
<PAGE>
RIDER A
Attached to and made part of
Office, Manufacturing Facility, and Equipment Lease dated
made between
INTERNATIONAL BUSINESS MACHINES CORPORATION
and
IRVINE SENSORS CORPORATION
ADDITIONAL TERMS
Paragraph 35. USE OF COMMON AREAS. (a) Except as provided elsewhere in this
Lease and subject to compliance with the Site rules, regulations and
procedures described in Rider B, the Landlord hereby grants to the Tenant a
nonexclusive license to use (and to permit its officers, directors, agents,
employees, contractors, contract labor and invitees to use in the course of
conducting business at the Premises), throughout the Term, the following
Common Areas:
(1) any and all elevators, common stairways, lobbies, common hallways, rest
rooms, the cafeteria and other portions of the Building which, by their
nature, are manifestly designed and intended for common use by the occupants
of the Building, and for pedestrian ingress and egress to and from the
Premises and for any other such manifest purposes, and
(2) any and all portions of the land on which the Building is located which,
by their nature, are manifestly designed and intended for common use by the
occupants of the Building and any other improvements on the land including,
but not limited to the right to use the parking areas located on the Site in
the same manner as other occupants of the Site.
(b) Neither the Tenant nor its employees, agents, licensees or invitees shall
be entitled the use of or access to any portions of Buildings 617, 620, 861,
862, 863, 974, 976, second floor 965, and third floor 965, or any other
buildings built on the Site after the Effective Date, unless invited by
Landlord.
(c) The Landlord may in the Landlord's sole discretion change, improve,
rearrange and otherwise modify, the common areas both within and without the
Building and use the common areas for other purposes and nothing herein
contained shall be deemed to grant to
<PAGE>
the Tenant any right of approval thereof; provided, that no such changes will
interfere unreasonably with the Tenant's use of or access to the Premises.
(d) Such license shall be exercised in common with the exercise thereof by
the Landlord or any tenant of the Building, any other person who may now or
hereafter have any right to use any or all of the areas which are the subject
of such license, and their respective officers, directors, agents, employees
and invitees.
Paragraph 36. ACCESS TO THE PREMISES. (a) Identification Badges. The
Landlord shall provide to the Tenant identification badges to be worn by the
Tenant's employees working in the Premises, and management employees of the
Tenant, (collectively, the "Employees") which shall give the Employee access
to the Site, Building and Premises. For all invitees of Tenant other than
Employees, Landlord will provide identification badges upon Tenant request,
which shall, subject to subparagraph (f) of this Paragraph, provide such
invitees with access to the Premises. Identification badges for the
Employees shall state the Tenant's name and will not indicate in any manner
that the Employees are employees or vendors of the Landlord. The Tenant
shall be responsible for returning to the Landlord's Security Department the
identification badge of: (i) any Employee or invitee of Tenant who is no
longer employed by the Tenant; and (ii) any Employee or invitee when such
Employee or invitee no longer requires access to the Building and the
Premises; (iii) all Employees of Tenant and other invitees upon termination
or expiration of this Lease.
(b) Access Outside Normal Working Hours. The Tenant shall from time to time
provide to the Landlord a list of those employees of the Tenant ("Authorizing
Employees") who have the authority to authorize invitees (other than
Employees of the Tenant) who have not already been issued identification
badges to enter the Site, Building or the Premises outside normal working
hours and who have the authority to escort invitees of the Tenant requiring
escort. The Landlord shall provide identification badges to be worn by such
invitees whose entry has been authorized by an Authorizing Employee of the
Tenant. As used in this section (b), normal working hours shall mean 8:00
am. to 6:00 pm., Monday through Friday, excluding the Landlord's recognized
holidays.
(c) Access by Emergency Response Personnel. Notwithstanding anything to the
contrary contained herein, any of the Landlord's or the Tenant's personnel
responding to an emergency involving the Premises or the Employees shall have
access to the Building and the Premises for the purpose of responding to such
emergency.
(d) Access to Loading Dock. The Tenant's Employees, agents, licensees and
invitees shall have access to the loading dock which accesses the Premises as
though such Employees, agents, licensees and invitees were employees, agents,
licensees and invitees of the Landlord. Such access shall be coordinated
through the Landlord.
<PAGE>
(e) The Tenant must provide seventy-two (72) hours prior written notification
to the Security Department of its intent to provide access to the Building to
any Foreign National Visitor as defined by Federal import/export rules and
regulations. The Landlord reserves the right to review such request and deny
access, in its sole discretion, to the Site.
(f) With respect to all visitors of the Tenant which the Tenant knows
represent or have significant interests in any business which is in direct or
indirect competition with the Landlord's business, the Tenant shall identify
each such visitor and his or her affiliation to the Landlord's Security
Department prior to such visitor entering the Site. Although the Landlord
may not refuse entry to any such visitor (except pursuant to subparagraph
36(e)), it may limit access to Site buildings other than the Premises and
does require Tenant to provide an escort to accompany said visitor at all
times.
Paragraph 37. DELIVERY OF POSSESSION. (a) Commencement Date. The Landlord
shall deliver possession of the Premises to the Tenant on the Effective Date.
Paragraph 38. MAINTENANCE/SERVICES AND UTILITIES. (a) To the extent and in
the same manner as provided to portions of the Site other than the Premises,
the following maintenance and services will be provided by the Landlord for
both Office Space and Manufacturing Area, and are included in the rent for
the Premises:
Environmental Compliance
Safety and Industrial Hygiene Audits and Inspections
Building Service Systems and Building Structure Maintenance
Grounds/Snow Removal/Parking Lot Maintenance
Asset Protection/Emergency Control
Access to Cafeteria/Vending/Break Areas
Office and Telephone Relocations
Cleaning and Janitorial Services
Shipping and Receiving
Security System Maintenance
Facilities Space Planning
Clean Room Particulate Monitoring
Telephone System and Telephone Maintenance
The Landlord does not warrant that any of the services listed above will be
free of or from interruption caused by an excusable delay, such as war,
insurrection, civil commotion, riots, acts of God or the enemy or of
Government action, repairs, renewals, improvements, strikes, lockouts, or
picketing, whether legal or illegal, accidents, inability of the Landlord to
obtain fuel or supplies, or any other cause or causes beyond the Landlord's
reasonable control. The Landlord shall promptly notify the Tenant of such
interruption and shall use reasonable efforts to remedy such interruption.
<PAGE>
The Landlord will use reasonable efforts to maintain in good order and repair
the Premises, the walls, ceilings and floors bounding the Premises, any
structural members located within the Premises, the heating and air
conditioning system serving the Premises, the de-ionized water system, the
process water system, the chilled water system, the lighting fixtures within
the Office Space, the electrical system serving the Premises, the bBulk gGas
delivery system, the bulk chemical supply system, the plumbing and sewer
system serving the Premises, the CAS and Detex security and alarm systems
located within the Premises or located on doors accessing the Premises, and
the sprinkler system located within the Premises.
(b) The following goods, materials, services, and utilities shall be made
available to the Tenant for purchase as required, to the extent readily
available, and shall be charged to the Tenant separately as additional rent.
The charges for such goods, materials, services and utilities shall be at the
normal Landlord rate, which is the rate charged to Landlord internal
customers, plus a (*) overhead surcharge.
Chemicals and chemical delivery
Chemical Mixing Service
Cylinder Gas and gas delivery
Crib Commodities
Spare Parts, as available in the IBM crib
Model Shop Services
Instrument Services
Materials Analysis
Failure Analysis
Tool Maintenance
Tool Clean
Wafer Clean
Garment Clean
Box Clean
Purchasing Services (for Chemicals and Clean Room Supplies)
Telephone service. The Landlord shall provide voice and data telephone
connections for the Office Space and the Manufacturing Area (existing
locations at no charge and new locations at the Landlord's cost of installing
the wiring to provide such additional locations plus a (*) overhead
surcharge). The Landlord shall also provide the Tenant with the Tenant's
reasonable requirements for telephone instruments free of additional charge.
The monthly charge for telephone service shall be no more than (*) per month
per telephone. Additional charges will be assessed for outside telephone
usage. Outside telephone usage includes charges for all local and long
distance calls billed by local and long-distance carriers.
<PAGE>
Data Processing. Monthly charges for computer access and usage will be
billed on a monthly basis. Monthly charges for data processing access will
be no more than (*) per data processing port or hookup used by the Tenant.
Additional charges will be assessed for online central processing usage
(CPU), and data storage usage (DASD).
Other Services. Landlord will provide other goods, materials, services, and
utilities which are requested by the Tenant which the Landlord chooses to
provide.
(c) All charges for (b) above will be collected by Landlord and billed to
Tenant on a monthly basis payable under the terms and conditions for rent
contained in paragraph 5.
(d) Upon Tenant request to Landlord, the Landlord will provide Tenant, at no
additional charge, standard office furniture for use by Tenant in the Office
Space. The Landlord will provide such furniture from existing Landlord
furniture inventories at the Site, and shall in no event be obligated to
obtain furniture from outside such inventories, or to purchase furniture for
Tenant.
Paragraph 39. RENT AND OTHER PAYMENTS. As provided under Paragraph 5, the
Tenant shall pay to Landlord the following monthly payments in consideration
of the lease by Landlord to Tenant of the Premises and Equipment and the
provision of services set forth in Exhibit C hereto.
<TABLE>
<CAPTION>
PAYMENTS
PER MONTH 1995 1996 1997 1998
--------------------------------------------------
<S> <C> <C> <C> <C>
(*)
</TABLE>
Paragraph 40. RELOCATION. During the Term of this Lease, the Landlord may
elect to relocate the Office Space to other space (the "Substitute Premises")
within the Building and adjacent to the Manufacturing Area by giving the
Tenant at least two (2) months prior notice. Such notice shall specify the
effective date of the relocation and the space to which the Tenant is being
relocated, and the Tenant shall surrender the Office Space in accordance with
the provisions of this Lease on or before the stated effective date. Failure
of the Tenant to surrender the Office Space shall constitute a default
hereunder, unless such failure is caused by the Landlord's acts or failure to
act as required under this Lease. The Substitute Premises shall be
comparable in all material aspects and contain not less than the existing
square footage of floor space comprising the Office Space. Whether the space
offered by the Landlord is comparable shall be determined by the Tenant in
good faith. The
<PAGE>
Landlord shall be responsible for any work in the Substitute Premises
necessary to make it comparable to the Premises, which work shall be
completed prior to the stated effective date. The Landlord shall be liable
for any moving expenses or any other direct costs incurred by the Tenant by
reason of such relocation but shall not be liable for indirect, special,
consequential or other similar costs and losses. On the stated effective date
of any such relocation, this Lease shall have no force and effect with
respect to the original Office Space and thereafter all references to the
Office Space herein shall be deemed to include the Substitute Premises and
not the original Office Space, and all of the terms, covenants, and
conditions hereof (including rent) shall apply to the Substitute Premises as
well as the other portions of the Premises.
<PAGE>
RIDER B
RULES AND REGULATIONS
Attached to and made part of Office, Manufacturing Facility,
and Equipment Lease
made between
International Business Machines Corporation
and
Irvine Sensors Corporation
1. The sidewalks, halls, passages, elevators and stairways, exits,
entrances, and other common areas shall not be obstructed by the Tenant or
used for any purpose other than for ingress to and egress from the Premises.
The halls, passages, exits, entrances, elevators, stairways, balconies and
roof are not for the use of the general public, and the Landlord shall in all
cases retain the right to control and prevent access thereto of all persons
whose presence in the judgment of the Landlord shall be prejudicial to the
safety, character, reputation and interests of the Building and its tenants,
provided that nothing herein contained shall be construed to prevent such
access to persons with whom the Tenant normally deals in the ordinary course
of its business unless such persons are engaged in illegal activities. The
Tenant and its employees shall not go upon the roof of the Building without
the written consent of the Landlord.
2. The sashes, sash doors, windows, glass lights and any lights or skylights
that reflect or admit light into the halls or other places of the Building
shall not be covered or obstructed. The toilet rooms, water and wash closets
and other water apparatus shall not be used for any purpose other than that
for which they were constructed, and no foreign substance of any kind
whatsoever shall be thrown therein, and the expense of any breakage,
stoppage, or damage, resulting from the violation of this rule, shall be
borne by the Tenant who, or whose clerk, agents, servants, or visitors, shall
have caused it.
3. If the Landlord, by a notice in writing to the Tenant, shall object to
any curtain, blind, shade or screen attached to, or hung in, or used in
connection with, any window or door of the Premises, such use of such
curtain, blind, shade or screen shall be forthwith discontinued by the
Tenant. No awnings shall be permitted on any part of the Premises.
4. The moving of equipment shall occur only between such hours as may be
designated by, and only upon previous notice, to the manager of the Building,
and the persons employed to move equipment in or out of the Building must be
acceptable to the Landlord. No tools, equipment, freight, furniture or bulky
matter of any description shall be received into the
<PAGE>
Building or carried into the elevators except during hours and in a manner
approved by the Landlord.
5. The Tenant shall not use, keep, or permit to be used or kept in the
Premises any foul or noxious gas or substance, (except that the foregoing are
permissible in the Manufacturing Area if equipment utilizing such gas or
substance is required for the production of Cube technology products as of
the Effective Date) or permit or suffer the Premises to be occupied or used
in a manner offensive or objectionable to the Landlord or other occupants of
the Building by reason of noise, odors, and/or vibrations, or permit or
suffer the Premises to be occupied or used in a manner that, in the sole
judgment of the Landlord diminishes or threatens to diminish the quality or
reputation of the Building as an office or manufacturing structure or is not
in keeping with the reputation, integrity or standards of the Landlord, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds (except as required for disabled persons) be kept
in or about the Building. The Tenant shall not place or install any
antennae, microwave or satellite dishes, or aerials or similar devices
outside of or in the Premises.
6. The Tenant shall not use or keep in the Building any inflammables
including, but not limited to kerosene, gasoline, naphtha and benzene,
(except cleaning fluids in small quantities and when in containers approved
by the Board of Underwriters) and except that the foregoing are permissible
in the Manufacturing Area pursuant to the conditions set forth in Paragraph
30, entitled "Hazardous Materials," or explosives or any other articles of
intrinsically dangerous nature, or use any method of heating other than that
supplied by the Landlord.
7. The Tenant, upon the termination of the tenancy, shall deliver to the
Landlord all the keys of offices and rooms which shall have been furnished
the Tenant or which the Tenant shall have had made, and in the event of loss
of any keys so furnished shall pay the Landlord therefor.
8. The Tenant shall not put down any floor covering in the Premises without
the Landlord's prior approval of the manner and method of applying such floor
covering.
9. The Tenant assumes full responsibility for protecting its space from
theft, robbery, assault and pilferage including, without limitation, keeping
doors locked and windows and other means of entry to the Premises closed.
10. The Tenant shall not alter any lock or install a new or additional lock
or any bolt on any door of the Premises without prior written consent of the
Landlord. If the Landlord shall give its consent, the Tenant shall in each
case furnish the Landlord with a key for any such lock.
<PAGE>
11. Without the Landlord's prior written consent, the Tenant shall not use
the name of the Building (whether or not the Building is named or commonly
known as "The IBM Building" or the like) in its advertising or other
publicity or on its stationery or other correspondence or otherwise, (except
that the name of the Building may be used in the normal course of the
Tenant's business to describe the location of the Premises), and shall not
use pictures of the exterior of the Building or the interior of the Building
other than the Premises, in advertising or publicity or otherwise.
12. The Tenant shall not make any room-to-room canvass to solicit business
from other tenants in the Building; and shall not exhibit, sell or offer to
sell, use, rent or exchange in or from the Premises unless ordinarily
embraced within the Tenant's use of the Premises specified in the Lease.
13. The Tenant shall not waste electricity, water, bulk gas, air
conditioning, or any other service provided by the Landlord, and agrees to
cooperate fully with the Landlord to assure the most effective operation of
the Building's heating and air conditioning, and shall not allow the
adjustment (except by the Landlord's authorized Building personnel) of any
controls other than room thermostats installed for the Tenant's use. The
Tenant shall keep corridor doors closed and shall not open any windows except
that if the air circulation shall not be in operation, windows which are
operable may be opened with the Landlord's consent.
14. The Tenant shall not do any cooking in the Premises or engage any coffee
cart or vending services.
15. Prior to removing any Landlord property, including without limitation,
any furniture, tools, equipment, or from the Building, the Tenant must submit
a written list of such items to the Landlord and obtain approval thereof from
the Landlord.
16. Additional services requested by the Tenant shall be attended to only
upon application to the Landlord.
17. The Tenant shall not conduct any auction, fire, bankruptcy, going out of
business, liquidation or similar sales in or about the Building.
18. TOOL INSPECTIONS: The Tenant shall submit to the Landlord's Safety
Department drawings and/or specifications for all tools, equipment, or other
apparatus, new or used, which the Tenant intends to install or situate in the
Premises, prior to such installation, for Landlord review and approval. The
Landlord may perform a physical inspection of the tool, at the Landlord's
expense, to identify safety or life safety violations of general industry
standards, or government regulations or codes. Where such a physical
inspection of a tool, equipment or other apparatus is reasonably sufficient
to make identification of
<PAGE>
such violation, the Tenant shall not be required to submit drawings and/or
specifications to the Landlord's Safety Department. The Tenant will be
responsible to correct any and all violations identified by Landlord, at the
Tenant's expense, prior to installation at the Premises, and to permit
additional safety inspections as required, by the Landlord to ascertain
compliance. The Landlord may also, in its sole discretion, identify potential
ergonomic concerns, which are tool characteristics which may limit or provide
limitations to the human operation of the tool or equipment, but which may or
may not constitute actual violations of any industry standard, regulation or
code. The Tenant, when advised of potential ergonomic concerns, may in its
discretion determine what corrective action, if any, Tenant will perform.
19. MAINTENANCE RESPONSIBILITY: The Tenant shall maintain and provide
preventive and corrective maintenance on each tool, piece of equipment or
asset, including the Equipment, in the Manufacturing Area, and including, to
the point described below, and the Landlord shall provide maintenance on
tools, equipment, or assets, beginning after the point described below:
Electrical: At the point immediately following and including the tool
disconnect, or the applicable tool "A" box.
Gas, water, and other piped delivery systems: At the last valve within the
Premises prior to the common system interconnect. The Tenant shall be
responsible for all point of use filters, flow meters, pumps, and other
apparatus directly associated or required by the tool.
Drains: At the point within the Premises immediately following the last trap
serving the tool leading into the common drain line. All piped waste
delivery systems, including "sandpiper" lifts, will be the responsibility of
the Landlord from the point where tool connects into the lift.
Exhaust: At the point directly preceding the blast gate.
20. The Tenant shall store all its trash, refuse and waste materials within
its Premises or in such locations as the Landlord may designate for pick-up
and removal by the Landlord. All trash, refuse and waste materials shall be
stored in adequate containers so as not to constitute a health or fire hazard
or a nuisance to any other tenant. No burning of trash, refuse and waster
materials shall be allowed.
21. The Tenant agrees not to use the plumbing facilities for any purpose
other than that for which they were constructed.
22. The Tenant shall coordinate all its construction activities in the
Premises so that such construction work does not interfere with the
operations of other tenants or the Landlord.
<PAGE>
The Tenant shall place all construction trailers in staging areas designated
by the Landlord. The Tenant shall store all construction materials entirely
within its Premises.
23. The Tenant shall cause all trucks making deliveries to or pickups from
the Tenant's Premises to utilize designated truck drivers.
24. Tenant employees and invitees are required to prominently display their
identification badge while on the Site.
25. If a Tenant's employee's or invitee's badge is lost or stolen, IBM
Security must be notified immediately.
26. Controlling access to Site facilities is a primary security measure which
must be in place for other security measures to be effective. It is
essential that all persons who enter any Site facility are AUTHORIZED and
that an audit trail/record of this access and authorization exist.
27. Each Tenant employee must badge-in individually and must not allow
persons behind them to enter unless they "light the light" with their own
badge. If they do not have a badge or their badge does not work, direct them
to the main lobby receptionist for a visitor sign-in or a temporary badge, or
to security badge operations to see why their badge does not work.
28. Do not park in restricted zones, i.e., Reserved for Handicapped, Reserved
for Medical, Reserved for Visitors, or in any area marked with yellow lines.
Unauthorized parking will result in a security violation. Violators may be
subject to loss of Site driving and parking privileges.
29. All vehicles must yield "Right Of Way" at pedestrian crossings. Site
speed limit is 30 MPH unless otherwise posted. Parking lot speed limit is 10
MPH. Violators may be subject to loss of Site driving and parking
privileges.
30. All emergencies, such as fire, serious illness, etc., should be reported
to IBM Security, ext. 3-3333 immediately.
31. In the event of a EMERGENCY EVACUATION of a building, you will be
notified via the Site public address system (a distinctive set of tones
followed by an announcement). All tenants must become familiar with their
primary and secondary evacuation routes and group assembly location.
32. All security related incidents, i.e., theft, vandalism, drugs, violence,
or any suspicious activity, should be reported to IBM Security, 6-2559,
immediately.
<PAGE>
33. Firearms, illegal drugs and alcoholic beverages are prohibited on the
Site.
34. Cameras and recording devices may be used in the Premises only if Tenant
first notifies the IBM Security Department and receives written authorization
therefrom to transport the foregoing equipment throughout the Site.
35. If any serious personal injury or illness or significant damage to the
Premises occurs in connection with the Tenant's operations, the Tenant shall
immediately notify the Landlord of the event in a written statement by the
close of the next business day.
36. The Tenant shall notify the Landlord if a charge of a non-compliance
with OSHA or any other regulatory agency is filed against the Tenant in
connection with the Tenant's operations performed on the premises.
37. The Tenant shall inform the IBM Building Manager if it has reason to
believe that an event other than normal operating procedures may adversely
affect the Landlord or other Tenants on the Site.
38. A permit or approval must be obtained before:
a. cutting, welding, burning, or open flame work.
b. blasting.
c. using powder-actuated tools.
d. using a laser or x-ray.
e. using a combustion engine indoors.
f. entering a confined space.
g. going onto a roof.
h. lifting, hoisting, or air lifting.
i. doing any hot work in a hazardous area.
j. moving or relocating any emergency equipment.
k. using salamanders.
The Landlord shall respond to a request for a permit within one working day.
39. The Tenant shall notify the Landlord prior to using any ionizing
radiation source.
40. Chemical Safety Training
Tenant is responsible to maintain documentation, and demonstrate to Landlord
no less frequently than once per year, that each Tenant employee working on
the Premises has been provided the type and amount of chemical safety
training required to meet all
<PAGE>
applicable statutory, regulatory, or other governmental requirements. In the
event Landlord determines, in its sole discretion, that Landlord will provide
chemical safety training to its own employees at the Site, Tenant may, for a
fee, send its employees working on the Premises to attend such training,
provided that Tenant and each of its employees attending such training first
agrees to and signs a written waiver of liability agreement, the form and
content of which will be provided by Landlord. Tenant may request from
Landlord and Landlord shall provide confirmation of attendance (or lack
thereof) and satisfactory completion of course by Tenant employees.
41. All tools and equipment removed or relocated from the Site by the Tenant
be decontaminated by Tenant in accordance with all applicable statutory,
regulatory, or other governmental requirements.
42. The following may not be used in production processes on the Site:
(*)
<PAGE>
Additional substances may be added to the above list of prohibited substances
upon prior written notice by the Landlord to the Tenant if their use in
production is prohibited by the Environmental Laws. Substances which may be
prohibited from use in production processes on the Site in the future
include:
(*)
43. Tenant shall not assign any of its employees to perform work at the Site
if such employees are both former full-time Landlord employees and have
worked physically at the Site as Landlord employees within the twelve (12)
month period prior to the assignment.
<PAGE>
RIDER C
BUILDING 963 SPECIFICATIONS
CLEAN ROOM SPECIFICATIONS
-------------------------
The space designated on Exhibit G as Garment Room and as Manufacturing Clean
Aisle shall be clean room space certified to Federal Standard 209 DL. These
standards identify the number of particles per cubic foot that are allowed as
a function of the size of the particle. The performance requirements of the
clean room provided in this Lease are defined as:
(*)
The Landlord agrees to use reasonable efforts to maintain the clean room
space in such a manner as to meet the specified performance during passive
operation, that is operating clean room systems with installed and operating
equipment, but without movement of personnel. Tenant understands and agrees
that Landlord cannot guarantee that the clean room space will at all times
meet the specified performance, due to the complexity of the systems required
therefor.
<PAGE>
GAS SPECIFICATIONS
------------------
The gas delivery system available within the Building is a copper piped
delivery system. The system is designed to meet the following
specifications:
(*)
The Landlord agrees to use reasonable efforts to maintain the gas delivery
system in such a manner as to meet the foregoing specifications. Tenant
understands and agrees that Landlord cannot guarantee that the gas delivery
system will at all times meet the specified performance, due to the
complexity of the systems required therefor.
DE-IONIZED WATER SPECIFICATION
------------------------------
The de-ionized water (DIW) system in the Building is designed to the
following specifications:
(*)
The Landlord agrees to use reasonable efforts to maintain the DIW system in
such a manner as to meet the foregoing specifications. Tenant understands
and agrees that Landlord cannot guarantee that the DIW system will at all
times meet the specified performance, due to the complexity of the systems
required therefor.
CHILLED AND PROCESS WATER SPECIFICATION
---------------------------------------
The landlord will use reasonable efforts to maintain the chilled water and
process water systems in the Building so as to meet the requirements, on the
Effective Date, for Equipment in the Manufacturing Area.
Tenant understands and agrees that Landlord cannot guarantee that the
foregoing systems will at all times meet the specified performance, due to
the complexity of the systems required therefor.
<PAGE>
EXHIBIT 10.25
Form of
8% Series A Convertible Subordinated Debentures Due 1998
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES, OR TO OR FOR THE ACCOUNT OR
BENEFIT OF, UNITED STATES PERSONS, EXCEPT IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT. THE RESALE SAFE HARBOR OF REGULATION S DOES NOT PERMIT THE
RESALE OF THE SECURITIES IN THE UNITED STATES OR TO A U.S. PERSON. OFFERS AND
SALES MAY BE MADE IN THE UNITED STATES OR TO U.S. PERSONS ONLY PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS. TERMS USED ABOVE HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S.
No. A-___ U.S. $___________
IRVINE SENSORS CORPORATION
8% SERIES A CONVERTIBLE SUBORDINATED DEBENTURE DUE 1998
THIS DEBENTURE is one of a duly authorized issue of Debentures of Irvine
Sensors Corporation, a corporation duly organized and existing under the laws of
the State of Delaware (the "Company") designated as its 8% Convertible
Subordinated Debentures Due 1998, in an aggregate principal amount not exceeding
Ten Million United States Dollars (U.S. $10,000,000), issued pursuant to that
certain Subscription and Purchase Agreement between the Company and the
purchaser hereof or the purchaser's assignee (the "Purchase Agreement").
Reference is hereby made to the Purchase Agreement for a complete description of
the rights and obligations of, and limitations and restrictions on, the Company
and the Holder of this Debenture. The terms and conditions of the Debenture
noted hereinafter are subject in every respect to the terms and conditions of
the Purchase Agreement. In the event of a conflict between the provisions of
this Debenture and the Purchase Agreement, the Purchase Agreement shall control.
FOR VALUE RECEIVED, the Company promises to pay to ______________________.,
the registered holder hereof (the "Holder"), the principal sum of
_______________________________ United States Dollars (U.S. $___________), on
January 31, 1998, and to pay interest on the principal sum outstanding from time
to time semi-annually in arrears on the first business day of each semi-annual
period of each year, i.e., January 31 and July 31 ("Interest Payment Dates"),
after as well as before maturity and default and after judgment, at the rate of
Eight Percent (8%) per annum
<PAGE>
accruing from the date of initial issuance. Payment of interest shall commence
on the first such business day to occur after the date hereof (and shall be pro
rated for such period from the date of initial issuance) and shall continue on
the first business day of each succeeding semi-annual period until payment in
full of the principal sum has been made or duly provided for or the Debenture
shall have been converted. All accrued and unpaid interest shall bear interest
at the same rate at the due date of the interest payment until paid but shall
not be subject to conversion. January 15 and July 15 of each year shall serve as
the record date (the "Record Date") for determining ownership of this Debenture
with respect to payments of interest to be made on the following Interest
Payment Date, unless the Debenture has previously been converted, in which case,
and as to the converted Debenture only, the Record Date shall be the date of
conversion. The interest so payable on any Interest Payment Date will, as
provided in the Purchase Agreement, be paid to the person in whose name this
Debenture (or one or more predecessor Debentures) is registered on the records
of the Company regarding registration and transfers of the Debentures (the
"Debenture Register") at the Record Date for such Interest Payment Date;
provided, however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions of the Purchase Agreement. The
principal of, and interest on, this Debenture are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address last appearing on
the Debenture Register of the Company as designated in writing by the Holder
from time to time. The Company will pay interest on this Debenture by sending a
check for such interest due, less any amounts required by law to be deducted, to
the registered holder of this Debenture and addressed to such holder at the last
address appearing on the Debenture Register. The forwarding of such check shall
constitute a payment of interest hereunder and shall satisfy and discharge the
liability for interest on this Debenture to the extent of the sum represented by
such check plus any amounts so deducted unless such check is not paid at par.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of One Thousand United
States Dollars (U.S. $1,000) and integral multiples thereof. As provided in the
Purchase Agreement, the Debentures are exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holders surrendering the same. No service charge will be made
for such registration of transfer or exchange; however, the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection with the transfer or exchange of this Debenture.
<PAGE>
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged only as
provided in the Purchase Agreement. Prior to due presentment for transfer of
this Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
4. If an Event of Default occurs and is continuing, the Holders of not
less than Twenty-five Percent (25%) in principal amount of the Debentures
outstanding may declare the principal of all the Debentures to be immediately
due and payable in the manner and to the extent provided in the Purchase
Agreement, and such declarations may be in certain events rescinded, in the
manner and with the effect provided in the Purchase Agreement.
5. The indebtedness evidenced by this Debenture is, to the extent provided
in the Purchase Agreement, subordinate and subject in right of payment to the
prior payment or satisfaction of Bank Indebtedness, and this Debenture is issued
subject to the provisions of the Purchase Agreement with respect thereto. Each
Holder of this Debenture, by accepting the same, agrees to and shall be bound by
such provisions.
6. Subject to the provisions of the Purchase Agreement, the Holder of this
Debenture is entitled, at its option, at any time until maturity hereof to
convert the principal amount of this Debenture or any portion of the principal
amount hereof which is at least Twenty-five Thousand United States Dollars (U.S.
$25,000) or, if at the time of such election to convert the aggregate principal
amount of all Debentures registered to the Holder is less than Twenty-five
Thousand United States Dollars (U.S. $25,000), then the whole amount thereof,
into shares of Common Stock of the Company at a conversion price then in effect.
The Debentures will initially convert at Five United States Dollars (U.S. $5)
per share (the "Initial Conversion Price"). The Initial Conversion Price will be
subject to adjustment for stock splits, reverse splits and other similar
recapitalization events, as well as under the following circumstances (all stock
prices subject to adjustment for recapitalization): If the closing bid price of
the Common Stock is above Seven United States Dollars Fifty Cents (U.S. $7.50)
for the Ten (10) consecutive trading days immediately preceding the date of
conversion (the "Conversion Trading Period"), the Initial Conversion Price will
adjust to an amount equal to Five U.S. Dollars (U.S. $5) plus Fifty Percent
(50%) of the amount over Seven United States Dollars Fifty Cents (U.S. $7.50).
If the closing bid price averages above Five United States Dollars (U.S. $5) but
less than Seven United States Dollars Fifty Cents (U.S. $7.50) for the
Conversion Trading Period, the Initial Conversion Price will adjust to the
lesser of (i) U.S. $5 or (ii) 75% of such average closing bid price. If the
closing
<PAGE>
bid price averages between Five United States Dollars (U.S. $5) and Three United
States Dollars (U.S. $3) for the Conversion Trading Period, the Initial
Conversion Price will adjust to the greater of (i) Seventy-five Percent (75%) of
such average closing bid price or (ii) Three United States Dollars (U.S. $3). If
the closing bid price averages below Three United States Dollars (U.S. $3) for
the Conversion Trading Period, the Initial Conversion Price will adjust to such
average closing bid price. The Initial Conversion Price or the adjusted
conversion price, as the context may require, is referred to herein as the
"Conversion Price." The Holder may convert the Debentures at the then-effective
Conversion Price upon surrender of this Debenture to the Company at its office
in Costa Mesa, California, with the form of conversion notice attached hereto as
Exhibit A executed by the Holder of this Debenture evidencing such Holder's
- ---------
intention to convert this Debenture or a specified portion (as above provided)
hereof, and accompanied, if required by the Company, by proper assignment hereof
in blank. No amount of accrued but unpaid interest shall be subject to
conversion, but accrued interest will be paid at the next subsequent payment
date after conversion. As provided in the Purchase Agreement, the conversion
price is subject to adjustment in certain events. Subject to the foregoing, no
adjustment is to be made upon any conversion for dividends on securities issued
on such conversion or for interest accrued hereon. As further provided in the
Purchase Agreement, in the case of any capital reorganization, certain
reclassifications of the Common Stock, the consolidation or merger of the
Company with or into any other corporation or the disposition of the properties
and assets of the Company, as, or substantially as, an entirety to any other
corporation, this Debenture shall thereafter cease to be convertible into Common
Stock and shall be convertible into the shares of stock or other securities or
property (including cash) to which the holders of Common Stock are entitled upon
such capital reorganization, reclassification, consolidation, merger or
disposition. No fractions of shares or scrip representing fractions of shares
will be issued on conversion, but an adjustment in cash will be made for any
fractional interest as provided in the Purchase Agreement.
The foregoing notwithstanding, the Company shall have the right, in its
sole discretion, to require conversion of the outstanding Debentures at any time
after January 31, 1997 until such Debentures have been fully repaid.
7. Neither the Debentures nor the Common Stock issuable upon conversion
thereof have been registered under the Securities Act nor qualified for issuance
under any state securities laws. The offering of the securities has been made
pursuant to Regulation S promulgated under the Securities Act and has been made
in reliance upon the specific representations and warranties of the initial
investors of the Debentures regarding compliance with the provisions and
conditions of Regulation S. The Company has agreed to use its best efforts to
effect the registration of the shares of Common Stock underlying the Debentures
as more fully set forth in the Registration Rights Agreement dated the date of
the Closing.
8. The Purchase Agreement permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Debentures under
the Purchase Agreement at any time by the
<PAGE>
Company with the consent of the Holders of Sixty-six and Two-thirds Percent (66-
2/3%) in aggregate principal amount of the Debentures at the time outstanding.
The Purchase Agreement also contains provisions permitting the Holders of a
majority of the aggregate principal amount of the Debentures at the time
outstanding, on behalf of the Holders of all the Debentures, to waive compliance
by the Company with certain provisions of the Purchase Agreement and certain
past defaults under the Purchase Agreement and their consequences. Any such
consent or waiver shall be conclusive and binding upon all Holders and upon all
future Holders of this Debenture and of any debenture issued upon registration
of transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent or waiver is made upon this Debenture.
9. Except with respect to the rights of the holders of Superior Bank
Indebtedness set forth in this Debenture and in the Purchase Agreement, no
reference herein to the Purchase Agreement and no provision of this Debenture or
of the Purchase Agreement shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, and interest on,
this Debenture at the time, place and rate, and in the coin or currency, herein
prescribed. This Debenture and all other Debentures now or hereafter issued
under the Purchase Agreement are direct obligations of the Company. This
Debenture ranks equally and ratably with all other Debentures now or hereafter
issued under the Purchase Agreement.
10. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Purchase Agreement or any
Purchase Agreement supplemental thereto, against any incorporator, stockholder,
officer or director, as such, past, present or future, of the Company or any
successor corporation, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.
11. The Holder of this Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture except under circumstances which
will not result in a violation of the Securities Act or any applicable United
States Blue Sky law. This Debenture and the Common Stock issuable upon
conversion thereof shall bear a legend in substantially the following form:
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES, OR TO OR FOR THE ACCOUNT OR
BENEFIT OF, UNITED STATES PERSONS, EXCEPT IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT. THE RESALE SAFE HARBOR OF REGULATION S DOES NOT PERMIT THE
RESALE OF THE SECURITIES IN THE UNITED STATES OR TO A U.S. PERSON. OFFERS AND
SALES MAY BE MADE IN THE UNITED STATES OR TO U.S. PERSONS ONLY PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS. TERMS USED ABOVE HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S.
12. With respect to any offer, sale or other disposition of this Debenture
or the shares of Common Stock issuable upon conversion thereof, the Holder
hereof and each subsequent Holder of this Debenture (or the shares of Common
Stock issuable upon conversion thereof) agrees to give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of such Holder's counsel, if requested by the Company, to the
effect that such offer, sale or other disposition may be effected without
registration or qualification of this Debenture (or the shares of Common Stock
issuable upon conversion thereof) under the Securities Act or any applicable
state Blue Sky law then in effect, and indicating whether or not under any of
said laws, certificates for this Debenture (or the shares of Common Stock
issuable upon conversion thereof) to be sold or otherwise disposed of require
any restrictive legend as to applicable restrictions on transferability in order
to insure compliance therewith. Upon receiving such written notice and
reasonably satisfactory opinion, if so requested, the Company shall notify such
Holder that such Holder may sell or otherwise dispose of this Debenture (or the
shares of Common Stock issuable upon conversion thereof), all in accordance with
the terms of the notice delivered to the Company. If a determination has been
made pursuant to this paragraph 12 that the opinion of counsel for the Holder is
not reasonably satisfactory to the Company, the Company shall so notify the
Holder promptly after such determination has been made.
13. All terms used in this Debenture which are defined in the Purchase
Agreement shall have the meanings assigned to them in the Purchase Agreement.
14. This Debenture shall be governed by and construed in accordance with
the laws of the State of California.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed
<PAGE>
by an officer thereunto duly authorized.
IRVINE SENSORS CORPORATION
By:______________________________
John J. Stuart, Jr.
Executive Vice President and
Chief Financial Officer
Dated: March __,1996
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
TO: IRVINE SENSORS CORPORATION
The undersigned Holder of this Debenture hereby irrevocably elects to
convert this Debenture, or portion hereof (which is at least U.S. $25,000,
unless the undersigned holds Debentures aggregating less than U.S. $25,000, in
which event, the amount converted shall be the entire amount of principal of
such Debentures) below designated, into shares of Common Stock of Irvine Sensors
Corporation in accordance with the terms of the Purchase Agreement between the
Company and the Holder (or original Holder, if the Debenture has been
transferred) pertaining to the sale of the Debentures, and directs that the
shares issuable and deliverable upon such conversion, together with any check
(or such other form of payment acceptable to Irvine Sensors Corporation) in
payment for fractional shares and any Debentures representing any unconverted
principal amount hereof, be issued and delivered to the undersigned unless a
different name has been indicated below. If shares are to be issued in the name
of a person other than the undersigned, the undersigned will pay all transfer
taxes, if any, payable with respect thereto.
Dated _________________________, 199___
________________________________ ____________________________
Principal Amount to be Converted Signature of Holder
THE DEBENTURES ARE TRANSFERABLE ONLY AS PROVIDED IN THE PURCHASE AGREEMENT.
Provide the following information if shares of Common Stock and/or Debentures
are to be issued otherwise than to the Holder. Please print name and address
(including zip code) of such other person:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_________________________________
Social Security or Other Taxpayer
Identifying Number, if Applicable
<PAGE>
EXHIBIT 10.26
Form of
8% Convertible Subordinated Debentures Due 1998
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES, OR TO OR FOR THE ACCOUNT OR
BENEFIT OF, UNITED STATES PERSONS, AND EXCEPT IN ACCORDANCE WITH REGULATION S
UNDER THE SECURITIES ACT. THE RESALE SAFE HARBOR OF REGULATION S DOES NOT PERMIT
THE RESALE OF THE SECURITIES IN THE UNITED STATES OR TO A U.S. PERSON. OFFERS
AND SALES MAY BE MADE IN THE UNITED STATES OR TO U.S. PERSONS ONLY PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS. TERMS USED ABOVE HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S.
No.____ U.S. $_____________
IRVINE SENSORS CORPORATION
8% CONVERTIBLE SUBORDINATED DEBENTURE DUE 1998
THIS DEBENTURE is one of a duly authorized issue of Debentures of Irvine
Sensors Corporation, a corporation duly organized and existing under the laws of
the State of Delaware (the "Company") designated as its 8% Convertible
Subordinated Debentures Due 1998, in an aggregate principal amount not exceeding
Ten Million United States Dollars (U.S. $10,000,000) (or such increased amount
as the Company and Bailey & Company Inc., the selling agent of the offering, may
mutually agree), issued pursuant to that certain Subscription and Purchase
Agreement between the Company and the purchaser hereof or the purchaser's
assignee (the "Purchase Agreement"). Reference is hereby made to the Purchase
Agreement for a complete description of the rights and obligations of, and
limitations and restrictions on, the Company and the Holder of this Debenture.
The terms and conditions of the Debenture noted hereinafter are subject in every
respect to the terms and conditions of the Purchase Agreement. In the event of
a conflict between the provisions of this Debenture and the Purchase Agreement,
the Purchase Agreement shall control.
FOR VALUE RECEIVED, the Company promises to pay to______________________,
the registered holder hereof (the "Holder"), the principal sum of
___________________________ United States Dollars (U.S. $_____), on January 31,
1998, and to pay interest on the principal sum outstanding from time to time
semi-annually in arrears on the first business day of each semi-annual period of
each year, i.e., January 31 and July 31 ("Interest Payment Dates"), after as
well as before maturity and default and after judgment, at the rate of Eight
Percent (8%) per annum accruing from the date of initial issuance. Payment of
interest shall commence on the first such business day to occur after the date
hereof (and shall be pro rated for such period from the date
<PAGE>
of initial issuance) and shall continue on the first business day of each
succeeding semi-annual period until payment in full of the principal sum has
been made or duly provided for or the Debenture shall have been converted. All
accrued and unpaid interest shall bear interest at the same rate at the due date
of the interest payment until paid but shall not be subject to conversion.
January 15 and July 15 of each year shall serve as the record date (the "Record
Date") for determining ownership of this Debenture with respect to payments of
interest to be made on the following Interest Payment Date, unless the Debenture
has previously been converted, in which case, and as to the converted Debenture
only, the Record Date shall be the date of conversion. The interest so payable
on any Interest Payment Date will, as provided in the Purchase Agreement, be
paid to the person in whose name this Debenture (or one or more predecessor
Debentures) is registered on the records of the Company regarding registration
and transfers of the Debentures (the "Debenture Register") at the Record Date
for such Interest Payment Date; provided, however, that the Company's obligation
to a transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the Purchase
Agreement. The principal of, and interest on, this Debenture are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts, at the address last
appearing on the Debenture Register of the Company as designated in writing by
the Holder from time to time. The Company will pay interest on this Debenture by
sending a check for such interest due, less any amounts required by law to be
deducted, to the registered holder of this Debenture and addressed to such
holder at the last address appearing on the Debenture Register. The forwarding
of such check shall constitute a payment of interest hereunder and shall satisfy
and discharge the liability for interest on this Debenture to the extent of the
sum represented by such check plus any amounts so deducted unless such check is
not paid at par.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of One Thousand United
States Dollars (U.S. $1,000) and integral multiples thereof. As provided in the
Purchase Agreement, the Debentures are exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holders surrendering the same. No service charge will be made
for such registration of transfer or exchange; however, the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection with the transfer or exchange of this Debenture.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged only as
provided in the Purchase Agreement. Prior to due presentment for transfer of
this Debenture, the Company and any agent
<PAGE>
of the Company may treat the person in whose name this Debenture is duly
registered on the Company's Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture be overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary.
4. If an Event of Default occurs and is continuing, the Holders of not
less than Twenty-five Percent (25%) in principal amount of the Debentures
outstanding may declare the principal of all the Debentures to be immediately
due and payable in the manner and to the extent provided in the Purchase
Agreement, and such declarations may be in certain events rescinded, in the
manner and with the effect provided in the Purchase Agreement.
5. The indebtedness evidenced by this Debenture is, to the extent provided
in the Purchase Agreement, subordinate and subject in right of payment to the
prior payment or satisfaction of Bank Indebtedness, and this Debenture is issued
subject to the provisions of the Purchase Agreement with respect thereto. Each
Holder of this Debenture, by accepting the same, agrees to and shall be bound by
such provisions.
6. Subject to the provisions of the Purchase Agreement, the Holder of this
Debenture is entitled, at its option, at any time until maturity hereof to
convert the principal amount of this Debenture or any portion of the principal
amount hereof which is at least Twenty-five Thousand United States Dollars (U.S.
$25,000) or, if at the time of such election to convert the aggregate principal
amount of all Debentures registered to the Holder is less than Twenty-five
Thousand United States Dollars (U.S. $25,000), then the whole amount thereof,
into shares of Common Stock of the Company at a conversion price then in effect.
The initial conversion price shall be determined by negotiation between the
Company and Bailey & Company Inc., as selling agent, on the last trading day
preceding the date of the first closing and shall, in no event, be greater than
Five United States Dollars (U.S. $5.00) per share (the "Initial Conversion
Price"). On or after May 1, 1996, the Holder may convert the Debentures at the
lower of (i) the Initial Conversion Price or (ii) a Twenty-five Percent (25%)
discount from the average of the closing bid prices of the Company's Common
Stock for the Twenty (20) trading days immediately preceding the date of
conversion, provided, however, that such Conversion Price be in no event be less
-----------------
than Two United States Dollars Five Cents (U.S. $2.50) (or at the current
adjusted conversion price if an adjustment has been made as provided in the
Purchase Agreement), upon surrender of this Debenture to the Company at its
office in Costa Mesa, California, with the form of conversion notice attached
hereto as Exhibit A executed by the Holder of this Debenture evidencing such
---------
Holder's intention to convert this Debenture or a specified portion (as above
provided) hereof, and accompanied, if required by the Company, by proper
assignment hereof in blank. No amount of accrued but unpaid interest shall be
subject to conversion, but accrued interest will be paid at the next subsequent
payment date after conversion. As provided in the Purchase Agreement, the
conversion price is subject to adjustment in certain events. Subject to the
foregoing, no adjustment is to be made upon any conversion for dividends on
securities issued on such conversion or for interest accrued hereon. As further
provided in the Purchase Agreement,
<PAGE>
in the case of any capital reorganization, certain reclassifications of the
Common Stock, the consolidation or merger of the Company with or into any other
corporation or the disposition of the properties and assets of the Company, as,
or substantially as, an entirety to any other corporation, this Debenture shall
thereafter cease to be convertible into Common Stock and shall be convertible
into the shares of stock or other securities or property (including cash) to
which the holders of Common Stock are entitled upon such capital reorganization,
reclassification, consolidation, merger or disposition. No fractions of shares
or scrip representing fractions of shares will be issued on conversion, but an
adjustment in cash will be made for any fractional interest as provided in the
Purchase Agreement.
The foregoing notwithstanding, the Company shall have the right, in its
sole discretion, to require conversion of the outstanding Debentures at any time
after January 31, 1997 until such Debentures have been fully repaid.
7. Neither the Debentures nor the Common Stock issuable upon conversion
thereof have been registered under the Securities Act nor qualified for issuance
under any state securities laws. The offering of the securities has been made
pursuant to Regulation S promulgated under the Securities Act and has been made
in reliance upon the specific representations and warranties of the initial
investors of the Debentures regarding compliance with the provisions and
conditions of Regulation S. The Company has agreed to use its best efforts to
effect the registration of the shares of Common Stock underlying the Debentures
as more fully set forth in the Registration Rights Agreement dated the date of
the Closing.
8. The Purchase Agreement permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Debentures under
the Purchase Agreement at any time by the Company with the consent of the
Holders of Sixty-six and Two-thirds Percent (66-2/3%) in aggregate principal
amount of the Debentures at the time outstanding. The Purchase Agreement also
contains provisions permitting the Holders of a majority of the aggregate
principal amount of the Debentures at the time outstanding, on behalf of the
Holders of all the Debentures, to waive compliance by the Company with certain
provisions of the Purchase Agreement and certain past defaults under the
Purchase Agreement and their consequences. Any such consent or waiver shall be
conclusive and binding upon all Holders and upon all future Holders of this
Debenture and of any debenture issued upon registration of transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Debenture.
9. Except with respect to the rights of the holders of Superior Bank
Indebtedness set forth in this Debenture and in the Purchase Agreement, no
reference herein to the Purchase Agreement and no provision of this Debenture or
of the Purchase Agreement shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, and interest on,
this Debenture at the time, place and rate, and in the coin or currency, herein
prescribed. This Debenture and all other Debentures now or hereafter issued
under the Purchase
<PAGE>
Agreement are direct obligations of the Company. This Debenture ranks equally
and ratably with all other Debentures now or hereafter issued under the Purchase
Agreement.
10. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Purchase Agreement or any
Purchase Agreement supplemental thereto, against any incorporator, stockholder,
officer or director, as such, past, present or future, of the Company or any
successor corporation, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.
11. The Holder of this Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture except under circumstances which
will not result in a violation of the Securities Act or any applicable United
States Blue Sky law. This Debenture and the Common Stock issuable upon
conversion thereof shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES, OR TO OR
FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS, AND EXCEPT IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT. THE RESALE SAFE
HARBOR OF REGULATION S DOES NOT PERMIT THE RESALE OF THE SECURITIES IN THE
UNITED STATES OR TO A U.S. PERSON. OFFERS AND SALES MAY BE MADE IN THE
UNITED STATES OR TO U.S. PERSONS ONLY PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS. TERMS USED ABOVE HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S.
12. With respect to any offer, sale or other disposition of this Debenture
or the shares of Common Stock issuable upon conversion thereof, the Holder
hereof and each subsequent Holder of this Debenture (or the shares of Common
Stock issuable upon conversion thereof) agrees to give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of such Holder's counsel, if requested by the Company, to the
effect that such offer, sale or other disposition may be effected without
registration or qualification of this Debenture (or the shares of Common Stock
issuable upon conversion thereof) under the Securities Act or any applicable
state Blue Sky law then in effect, and indicating whether or not under any of
said laws, certificates for this Debenture (or the shares of
<PAGE>
Common Stock issuable upon conversion thereof) to be sold or otherwise disposed
of require any restrictive legend as to applicable restrictions on
transferability in order to insure compliance therewith. Upon receiving such
written notice and reasonably satisfactory opinion, if so requested, the Company
shall notify such Holder that such Holder may sell or otherwise dispose of this
Debenture (or the shares of Common Stock issuable upon conversion thereof), all
in accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this paragraph 12 that the opinion of
counsel for the Holder is not reasonably satisfactory to the Company, the
Company shall so notify the Holder promptly after such determination has been
made.
13. All terms used in this Debenture which are defined in the Purchase
Agreement shall have the meanings assigned to them in the Purchase Agreement.
14. This Debenture shall be governed by and construed in accordance with
the laws of the State of California.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
IRVINE SENSORS CORPORATION
By:______________________________
John J. Stuart, Jr.
Executive Vice President and
Chief Financial Officer
Dated: March , 1996
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
TO: IRVINE SENSORS CORPORATION
The undersigned Holder of this Debenture hereby irrevocably elects to
convert this Debenture, or portion hereof (which is at least U.S. $25,000,
unless the undersigned holds Debentures aggregating less than U.S. $25,000, in
which event, the amount converted shall be the entire amount of principal of
such Debentures) below designated, into shares of Common Stock of Irvine Sensors
Corporation in accordance with the terms of the Purchase Agreement between the
original investor and Irvine Sensors Corporation pertaining to the purchase and
sale of these Debentures, and directs that the shares issuable and deliverable
upon such conversion, together with any check (or such other form of payment
acceptable to Irvine Sensors Corporation) in payment for fractional shares and
any Debentures representing any unconverted principal amount hereof, be issued
and delivered to the undersigned unless a different name has been indicated
below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes, if any, payable with
respect thereto.
Dated _________________________, 199___
________________________________ _________________________
Principal Amount to be Converted Signature of Holder
THE DEBENTURES ARE TRANSFERABLE ONLY AS PROVIDED IN THE PURCHASE AGREEMENT.
Provide the following information if shares of Common Stock and/or Debentures
are to be issued otherwise than to the Holder. Please print name and address
(including zip code) of such other person:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_________________________________
Social Security or Other Taxpayer
Identifying Number
