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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________.
Commission file number: 0-4041
HATHAWAY CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 88-0518115
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8228 Park Meadows Drive
Littleton, Colorado 80124
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 799-8200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of August 28, 1997, the aggregate market value of voting stock held by
non-affiliates of the Registrant, computed by reference to the average bid and
asked prices of such stock approximated $12,655,000.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement dated September 18,
1997 are incorporated by reference in Part III of this Report.
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Table of Contents
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Part I. Page
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Item 1. Business...............................................................................1
Item 2. Properties.............................................................................4
Item 3. Legal Proceedings......................................................................4
Item 4. Submission of Matters to a Vote of Security Holders....................................4
Part II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................4
Item 6. Selected Financial Data................................................................5
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................................5
Item 8. Financial Statements and Supplementary Data...........................................10
Report of Independent Public Accountants..............................................10
Item 9. Disagreements on Accounting and Financial Disclosure..................................27
Part III.
Item 10. Directors and Executive Officers of the Registrant....................................27
Item 11. Executive Compensation................................................................27
Item 12. Security Ownership of Certain Beneficial Owners and Management........................27
Item 13. Certain Relationships and Related Transactions........................................27
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................27
Consent of Independent Public Accountants.............................................31
Signatures............................................................................32
Officers and Directors / Investor Information.........................................33
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PART I
Item 1. Business.
Hathaway Corporation (the Company) was organized under the laws of Colorado
in 1962. The Company is engaged in the business of designing, manufacturing
and selling advanced electronic instrumentation and systems to the
worldwide power and process industries, as well as motion control products
to a broad spectrum of customers throughout the world. The Company also
develops, designs, and installs integrated process automation systems for
industrial applications. The Company operates primarily in the United
States and Europe and has three joint venture investments in China and a
joint venture investment in Malaysia.
Power and Process Instrumentation and Systems Automation
Power Instrumentation
Hathaway's complete line of power instrumentation products helps ensure
that electric utilities provide high quality service to consumers of
electricity. With manufacturing facilities in Seattle and Belfast, Northern
Ireland, and sales and engineering functions in Seattle, Belfast and
Denver, the power products group produces a comprehensive and
cost-effective range of products designed exclusively for the power
industry worldwide. Hathaway's equipment assists the electric power system
operators in operating and maintaining proper system performance. The
products, which are used to monitor and control the power generation,
transmission and distribution processes, include fault recording products,
fault location products, condition monitoring (circuit breaker) products
and remote terminal units (RTUs) for Supervisory Control and Data
Acquisition (SCADA) systems.
The Company also has three joint venture investments in China - Zibo Kehui
Electric Company Ltd. (Kehui), Hathaway Si Fang Protection and Control
Company (Si Fang), and Hathaway Power Monitoring Systems Company, Ltd.
(HPMS). The Company holds a 25% interest in Kehui and Si Fang and a 40%
interest in HPMS. Kehui designs, manufactures and sells cable and overhead
fault location, SCADA systems and other test instruments within the China
market. Si Fang designs, manufactures and sells a new generation of digital
protective relays, control equipment and instrumentation products for
substations in power transmission and distribution systems in China. The
Company will sell these products outside of China. HPMS will design,
manufacture and sell, under a license from the Company, instrumentation
products designed by the Company, to electric power companies in China.
Process Instrumentation
The process instrumentation products group manufactures and markets
monitoring systems which provide either visual annunciation and/or printed
messages whenever a monitored "point" changes from an existing state. These
systems are called visual annunciators and sequential event recorders
(SER's). Visual annunciators and SER's are sold to electric utility
companies and the process industry in general. Visual annunciators provide
both visual and audible alert signals whenever a process variable goes into
an alarm state. SER's provide a printed message whenever a monitored
"point" changes state. The group also manufactures and sells combined
annunciator/SER systems with distributed architecture (which significantly
reduces installation costs) for power plant applications and is engaged in
the design, manufacture and sale of power transducers which are sold to the
process and power utility industries, as well as calibrators and signal
conditioning products which are sold to the process industry.
Business Acquisition
Effective September 30, 1996, the Company acquired a 100% partnership
interest in Tate Integrated Systems, L.P. and 100% of the stock of its sole
general partner, Tate Integrated Systems, Inc. (collectively referred to as
"TIS"). The ownership interests were acquired for an adjusted negotiated
price of $1,092,000, of which $718,000 was paid in cash at closing on
October 10, 1996 and $145,000 on June 30, 1997. In addition, $229,000 of
additional consideration will be payable when certain accounts receivable
of TIS are collected. Hathaway purchased the stock and partnership interest
from Tate Engineering Services Corporation and its affiliate, Tate
Engineering Services, Inc., both divisions of Tate Industries, a privately
held company (collectively referred to as "TES".)
TIS has operated under the ownership of Hathaway Industrial Automation
(HIA), a newly-formed wholly-owned subsidiary of the Company, since October
1, 1996. HIA is located in Baltimore, Maryland and is a full service
supplier of process automation systems for industrial applications. HIA has
developed a state-of-the-art
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software system for Supervisory Control and Data Acquisition (SCADA) and
Distributed Control Systems (DCS). The HIA system has been used to fully
automate such industrial applications as water and wastewater treatment
plants, glass manufacturing plants, oil and gas terminals and tank farm
facilities. In addition to expanding into its traditional process markets,
HIA's system is being marketed to the power utility industry. The Company
expects to team the HIA system with certain existing Hathaway products and
target the combined product at substation automation and integration
applications used in power transmission and distribution facilities.
Restructuring
In the fourth quarter of fiscal 1996 the Company decided to reorganize its
Canadian and U.K. operations. Effective June 30, 1996 the net assets and
substantially all operations of Hathaway Instruments Limited (HIL), the
Company's subsidiary located in Hoddesdon, England, were transferred to
Hathaway Systems Limited (HSL), the Company's Belfast, Northern Ireland
subsidiary. In connection with the asset transfer, substantially all
operations of HIL were combined with the operations of HSL. In addition,
the Company decided to close its Toronto, Canada facility and to combine
substantially all of its operations with the operations of Hathaway Process
Instrumentation, the Dallas, Texas division. The initiatives were aimed at
reducing costs and enhancing productivity and efficiency. The restructuring
provision was primarily comprised of estimated costs for employee severance
benefits and fixed asset writeoffs. The payouts related to the
restructuring charge were made in 1996 and 1997.
In the first quarter of 1997, management decided to restructure the power
products manufacturing operations to produce operating efficiencies and to
better utilize local management talent and expertise. Accordingly, the
manufacturing operation located in Denver was consolidated in 1997 into two
manufacturing facilities located in Seattle, Washington and Belfast,
Northern Ireland.
Motion Control Instrumentation
The motion control group offers quality, cost-effective products that suit
a wide range of applications in the industrial, medical, military and
aerospace sectors, as well as in manufacturing of analytical instruments
and computer peripherals. The end products using Hathaway technology
include special industrial and technical products such as satellite
tracking systems, MRI scanners, and high definition printers.
The motion control group is organized into two divisions and one
subsidiary, respectively: Engineered Motion Technology division
("EMT"-Tulsa, previously known as the Motion Control division), Motors and
Instruments Division ("MI"-Tulsa) and Computer Optical Products, Inc.,
("COPI"-Chatsworth, CA).
The EMT division designs, manufactures and markets direct current (DC)
brushless motors, related components, and drive and control electronics.
Markets served include semiconductor manufacturing, industrial automation,
medical equipment, and military and aerospace.
The MI division manufactures precision direct-current fractional horsepower
motors and certain motor components. Industrial equipment and military
products are the major application for the motors. This division also
supplies spare parts and replacement equipment for general-purpose
instrumentation products.
Optical encoders are manufactured by COPI in Chatsworth, California. They
are used to measure rotational and linear movements of parts in diverse
applications such as machine tools, robots, printers and medical equipment.
The primary markets for the optical encoders are in the industrial, medical
and computer peripheral manufacturing sectors. COPI also designs,
manufactures and markets fiber optic-based encoders with special
characteristics, such as immunity to radio frequency interference and high
temperature tolerance, suited for industrial, aerospace and military
environments. Applications include airborne navigational systems, anti-lock
braking transducers, missile flight surface controls and high temperature
process control equipment.
Product Distribution and Principal Markets
In addition to its own marketing and sales force, the Company has developed
a worldwide network of independent sales representatives and agents to
market its various product lines.
The Company faces competition in all of its markets, although the number of
competitors varies depending upon the product. The Company believes there
are only a small number of competitors in the power and process
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markets, but there are numerous competitors in the motion control market.
No clear market share data is available for the Company's other product
areas. Competition involves primarily product performance and price,
although service and warranty are also important.
Financial Information about Industry Segments
The Company considers all of its operations to be materially in one
industry segment - electronic instrumentation.
Availability of Raw Materials
All parts and materials used by the company are in adequate supply. No
significant parts or materials are acquired from a single source.
Patents, Trademarks, Licenses, Franchises, and Concessions.
The Company holds several patents and trademarks regarding components used
by the various subsidiaries; however, none of these patents and trademarks
are considered to be of major significance.
Seasonality of the Business
The Company's business is not of a seasonal nature.
Working Capital Items
The Company currently maintains inventory levels adequate for its
short-term needs based upon present levels of production. The Company
considers the component parts of its different product lines to be readily
available and current suppliers to be reliable and capable of satisfying
anticipated needs.
Sales to Large Customers
During fiscal 1997, no single customer accounted for more than 10% of the
Company's consolidated revenue from continuing operations.
Sales Backlog
The backlog of the Company's continuing operations at June 30, 1997
consisted of sales orders totaling approximately $14,742,000. The Company
expects to ship goods filling $14,229,000 of those purchase orders within
fiscal 1998. This compares to a backlog from continuing operations of
$9,998,000 at June 30, 1996, of which $9,982,000 was scheduled for shipment
is fiscal 1997.
Government Sales
Approximately $605,000 of the Company's backlog as of June 30, 1997
consisted of contracts with the United States Government. The Company's
contracts with the government contain a provision generally found in
government contracts which permits the government to terminate the contract
at its option. When the termination is attributable to no fault of the
Company, the government would, in general, have to pay the Company certain
allowable costs up to the time of termination, but there is no compensation
for loss of profits.
Engineering and Development Activities
The Company's expenditures on engineering and development for continuing
operations were $3,646,000 in fiscal 1997, $3,722,000 in fiscal 1996 and
$3,616,000 in fiscal 1995. Of these expenditures, no material amounts were
charged directly to customers.
Environmental Issues
No pollution or other types of emission result from the Company's
operations and it is not anticipated that the Company's proposed operations
will be affected by Federal, State or local provisions concerning
environmental controls.
Export Sales from Domestic Operations and Foreign Operations
The information required by this item is set forth in Note 9 on page 26
herein.
Employees
As of the end of fiscal 1997, the Company had approximately 380 full-time
employees.
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Item 2. Properties.
The Company leases its administrative offices and manufacturing facilities as
follows:
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Approximate
Description / Use Location square footage
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Corporate headquarters and administrative office Denver, Colorado 14,000
Office and manufacturing facility Dallas, Texas 29,000
Office and manufacturing facility Seattle, Washington 16,000
Engineering, development and administrative office Baltimore, Maryland 14,000
Office and manufacturing facility Tulsa, Oklahoma 12,000
Office and manufacturing facility Chatsworth, California 11,000
Office and manufacturing facility Tulsa, Oklahoma 8,000
Office and manufacturing facility Belfast, Northern Ireland 17,000
</TABLE>
The Company's management believes the above described facilities are adequate to
meet the Company's current and foreseeable needs. All facilities described above
are operating at or near full capacity.
Item 3. Legal Proceedings.
The Company has been named as a defendant in certain actions that have arisen
out of the ordinary course of business. Management believes the actions are
without merit and will not have a significant adverse effect on the Company's
consolidated financial position.
Item 4. Submission of Matters to Vote of Security Holders.
No matter was submitted to a vote of the security holders of the Company in the
fourth quarter of 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Hathaway Corporation's common stock is traded on the Nasdaq National Market
System under the symbol HATH. The number of holders of record of the Company's
common stock as of the close of business on August 28, 1997 was 660.
The following table sets forth, for the periods indicated, the high and low
prices of the Company's common stock on the Nasdaq National Market System, as
reported by Nasdaq.
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Price Range
Dividends per share High Low
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FISCAL 1996
First Quarter $ 0.10 $ 3.13 $ 2.50
Second Quarter --- 2.88 1.88
Third Quarter --- 2.56 1.81
Fourth Quarter --- 4.00 1.69
FISCAL 1997
First Quarter --- $ 4.38 $ 2.50
Second Quarter --- 4.13 3.25
Third Quarter --- 4.88 3.00
Fourth Quarter --- 3.81 2.38
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The Bid and Asked quotations as published by Nasdaq reflect interdealer prices
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
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Item 6. Selected Financial Data.
The following table summarizes data from the Company's annual financial
statements for the years 1993 through 1997 and notes thereto; the Company's
complete annual financial statements and notes thereto for the current fiscal
year appear in Item 8 beginning on page 10 herein. See Item 1 in the Business
section of this report and Note 2 to Consolidated Financial Statements on page
18 for discussion of a business acquisition completed in fiscal 1997.
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For the years ended June 30,
1997 1996 1995 1994 1993
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In thousands (except per share data)
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Statements of Operations Data:
Net revenues from continuing operations $ 39,946 $ 35,411 $ 39,838 $ 43,028 $ 45,741
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Net income (loss) from continuing
operations $ (1,429) $ (1,013) $ 842 $ 955 $ 23
Net income (loss) from operations of
divested segment and divested operation -- -- -- 885 958
Gain on sale of segment -- -- -- 4,023 --
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Net income (loss) $ (1,429) $ (1,013) $ 842 $ 5,863 $ 981
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Fully diluted earnings (loss) per share:
Continuing operations $ (0.33) $ (0.24) $ 0.19 $ 0.19 $ --
Operations of divested segment and
divested operation -- -- -- 0.18 0.21
Sale of segment -- -- -- 0.81 --
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Net income (loss) $ (0.33) (0.24) $ 0.19 $ 1.18 $ 0.21
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Cash dividends:
Per share $ -- $ 0.10 $ 0.12 $ 0.205 $ --
Total amount paid $ -- $ 426 $ 536 $ 992 $ --
Balance Sheet Data:
Total assets at June 30 $ 19,967 $ 21,139 $ 23,312 $ 24,432 $ 28,326
Total long-term debt at June 30 $ 1,769 $ 1,777 $ 2,144 $ 2,298 $ 5,819
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
All statements contained herein that are not statements of historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that could
cause the actual results of the Company to be materially different from the
historical results or from any future results expressed or implied by such
forward-looking statements. Among the factors that could cause actual results to
differ materially are the following: the unavailability of sufficient capital on
satisfactory terms to finance the Company's business plan, increased
competition, the introduction of new technologies and competitors into the
systems and instrumentation markets where the Company competes, adverse changes
in the regulatory environment, and general business and economic conditions. In
addition to statements that explicitly describe such risks and uncertainties,
readers are urged to consider statements labeled with the terms "believes,"
"expects," "plans," "anticipates," or "intends" to be uncertain and
forward-looking. All cautionary statements made herein should be read as being
applicable to all related forward-looking statements wherever they appear. In
this connection, investors should consider the risks described herein.
OPERATING RESULTS
Fiscal year 1997 compared to fiscal year 1996
The Company recorded a net loss of $1,429,000 in fiscal year 1997, compared to a
net loss of $1,013,000 in 1996. The fiscal 1997 net loss includes a $923,000 net
loss from Hathaway Industrial Automation (HIA), acquired by the Company
effective September 30, 1996 (see discussion under "Business Acquisition"
below), and a $506,000 net loss from operations of the Company's other
businesses.
Revenues increased by $4,535,000, or 13%, from 1996 to 1997, comprised of a 16%
increase in sales of the Company's power and process instrumentation and systems
products and a 7% increase in sales of motion control products (the fourth
consecutive annual increase).
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The increase in sales of power and process products consists of a 3% increase in
sales of the Company's traditional product lines - the first such increase since
1993. Management believes that this trend is the first indication that the
downturn in power and process revenues that began after the power industry
deregulation law was passed in October 1992 may be reversing. The remainder of
the increase in power and process revenues was due to product sales of HIA,
totalling $2,993,000.
Sales to international customers increased 12% from $12,668,000, or 36% of sales
in fiscal 1996 to $14,200,000, or 36% of sales in fiscal 1997. Foreign sales as
a percentage of total sales remained constant because the growth in the
Company's traditional foreign business was offset by HIA's business, which is
primarily with domestic customers. Sales backlog increased from $9,998,000 at
June 30, 1996 to $14,742,000 at June 30, 1997, comprised of $11,996,000 of
traditional product backlog and $2,746,000 of HIA product backlog.
Cost of products sold increased to 64% of revenues in 1997 from 62% in 1996. The
increase occurred primarily because of price reductions implemented in response
to competitive pressures, changes in the mix of products sold, and manufacturing
inefficiencies resulting from the consolidation of manufacturing operations
implemented in 1997. In addition, HIA's cost of products sold represents a
higher percentage of revenues than that of the Company's traditional product
lines. Excluding the effect of HIA, the cost of products sold in 1997 represents
63% of related revenues.
Selling, general and administrative and engineering and development expenses
increased 9% from $14,671,000 in 1996 to $16,018,000 in 1997 because of such
expenses incurred by HIA. Excluding the effect of HIA, these expenses would have
totaled $14,182,000 in 1997, representing a 3% decrease from the prior period.
This decrease reflects the overall cost reduction efforts initiated by the
Company in recent years.
Amortization of intangibles and other assets increased from $215,000 in 1996 to
$402,000 in 1997, primarily due to the $197,000 write-off of unamortized debt
acquisition costs related to the Marine Midland loan facility (see further
discussion under "Liquidity and Capital Resources" below.)
Other income in 1996 includes $165,000 of income recorded upon the Company's
consummation of an agreement with Global Software, Inc. (Global). Under the
terms of this agreement, the Company received $165,000 in exchange for, among
other things, consenting to Global's proposed disposition of certain assets
acquired after the Company's January 31, 1994 sale of Global and acknowledging
that this disposition would not violate the terms of the original sale
agreement.
The Company recorded a $338,000 restructuring charge in the fourth quarter of
fiscal 1996 in connection with the reorganization of its Canadian and U.K.
operations. Effective June 30, 1996 the net assets and substantially all
operations of Hathaway Instruments Limited (HIL), the Company's subsidiary
located in Hoddesdon, England, were transferred to Hathaway Systems Limited
(HSL), the Company's Belfast, Northern Ireland subsidiary. In connection with
the asset transfer, substantially all operations of HIL were combined with the
operations of HSL. In addition, the Company decided to close its Toronto, Canada
facility and to combine substantially all of its operations with the operations
of Hathaway Process Instrumentation, the Dallas, Texas division. The initiatives
were aimed at reducing costs and enhancing productivity and efficiency. The
restructuring provision was primarily comprised of estimated costs for employee
severance benefits and fixed asset writeoffs. The payouts related to the
restructuring charge were made in 1996 and 1997.
In the first quarter of 1997, management decided to restructure the power
products manufacturing operations to produce operating efficiencies and to
better utilize local management talent and expertise. Accordingly, the
manufacturing operation located in Denver was consolidated in 1997 into two
manufacturing facilities located in Seattle, Washington and Belfast, Northern
Ireland. The cost of consolidating these manufacturing facilities was not
material and was paid in fiscal year 1997.
As expected, the consolidation of certain manufacturing operations in 1997
initially produced some inefficiencies in the manufacturing process due to
additional training and start-up time required at the remaining facilities.
Management believes, however, that the initial issues encountered have been
substantially resolved and expects to generate significant cost savings from the
consolidation efforts.
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Fiscal year 1996 compared to fiscal year 1995
The Company recorded a net loss of $1,013,000 in 1996 compared to net income of
$842,000 in 1995.
Revenues decreased by $4,427,000, or 11%, from 1995 to 1996, comprised of a 26%
decrease in sales of the Company's power and process instrumentation products,
offset by a 48% increase in sales of the Company's motion control products.
Sales to international customers decreased 14% from $14,646,000, or 37% of sales
in fiscal 1995 to $12,668,000, or 36% of sales in fiscal 1996. Sales backlog
increased 14% from to $8,878,000 at June 30, 1995 to $9,998,000 at June 30,
1996.
Cost of products sold increased to 62% of revenues in 1996, compared to 57% in
1995. The increase was due to price reductions implemented in response to
competitive pressures and changes in the mix of products sold.
Selling, general and administrative and engineering and development expenses
decreased 5% from $15,489,000 in 1995 to $14,671,000 in 1996 primarily due to
overall cost reduction efforts initiated by the Company.
BUSINESS ACQUISITION
Effective September 30, 1996, the Company acquired a 100% partnership interest
in Tate Integrated Systems, L.P. and 100% of the stock of the sole general
partner, Tate Integrated Systems, Inc. (collectively referred to as "TIS"). The
ownership interests were acquired for an adjusted negotiated price of
$1,092,000, of which $718,000 was paid in cash at closing on October 10, 1996
and $145,000 on June 30, 1997. In addition, $229,000 will be payable when
certain accounts receivable of TIS are collected.
TIS has operated under the ownership of Hathaway Industrial Automation (HIA), a
newly-formed wholly-owned subsidiary of the Company, since October 1, 1996. HIA
is located in Baltimore, Maryland and is a full service supplier of process
automation systems for industrial applications. HIA has developed a
state-of-the-art software system for Supervisory Control and Data Acquisition
(SCADA) and Distributed Control Systems (DCS). The HIA system has been used to
fully automate such industrial applications as water and wastewater treatment
plants, glass manufacturing plants, oil and gas terminals and tank farm
facilities. In addition to expanding into its traditional process markets, HIA's
system is being marketed to the power utility industry. The Company expects to
team the HIA system with certain existing Hathaway products and target the
combined product at substation automation and integration applications used in
the distribution and transmission of power.
The acquisition has been accounted for using the purchase method of accounting,
and, accordingly, the purchase price has been allocated to the assets purchased
and the liabilities assumed based upon the fair values at the date of
acquisition. This allocation is subject to adjustment pending the resolution of
certain items.
The Company is investing substantial resources in HIA, consistent with the
Company's strategy to expand further into the process industry and to develop
applications of the HIA software for the power industry. Management believes
that the software products developed by HIA, as modified for the power industry
and combined with other Company products, will provide power companies with
automated and integrated systems solutions that will both reduce their operating
costs and improve the reliability of their power supply. Management believes
that there is significant demand in the power industry for such solutions as a
result of the business environment created by the recent industry deregulation.
The successful implementation of the Company's current business plan is
partially dependent on the Company's investment in HIA producing growth and
increased profitability in HIA's traditional process automation business, as
well as the ability to successfully market HIA's products to the power industry.
The factors that will affect the success of implementing this business plan
include, but are not limited to, the ability to win a sufficient amount of
project work on favorable terms to the Company, the ability to complete projects
in a timely and cost-effective manner, and the existence of sufficient demand
for the HIA products in both the power and process markets. An inability to
achieve this plan in the planned timeframe may have a material adverse effect on
the Company's operating results and financial condition.
7
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LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position as measured by cash and cash equivalents
(excluding restricted cash) decreased $1,494,000 during the year to a balance of
$3,431,000 at June 30, 1997. Operating activities used $197,000 of cash in
fiscal 1997 compared to $93,000 used in 1996 and $1,266,000 generated in 1995.
Of the $197,000 used in 1997 by operating activities, $1,592,000 was used to
fund the operations of the HIA business and $1,395,000 was generated from the
operating activities of the Company's other businesses. The overall reduced cash
from operations in 1997 and 1996 is primarily the result of net losses of
$1,429,000 and $1,013,000 recorded in 1997 and 1996, respectively, compared to
net income of $842,000 recorded in 1995.
Cash of $1,313,000 was used by investing activities in fiscal 1997 compared to
$376,000 generated in fiscal 1996 and $1,049,000 used in fiscal 1995. The 1996
cash generated by investing activities was primarily due to proceeds of
$1,000,000 from maturities of marketable securities. The 1997 cash used for
investing activities includes $863,000 paid for the interest acquired in TIS.
Financing activities used $32,000, $828,000 and $1,887,000 in fiscal years 1997,
1996 and 1995, respectively. The decrease in cash used for financing activities
from 1995 to 1996 is due primarily to less cash used for the purchase of
treasury stock. The Board of Directors' fiscal 1996 decision to discontinue the
public stock repurchase program was the primary reason for the lower volume of
stock repurchase activity in 1996. The decrease in cash used for financing
activities from 1996 to 1997 occurred primarily because no dividends were paid
to stockholders in 1997, as compared to $426,000 of dividends paid to
stockholders in 1996. The Board of Directors did not declare a dividend in 1997
because of the net loss recognized by the Company for fiscal 1996 and dividend
restrictions contained in the loan agreement with Marine Midland Business Loans,
Inc. (see below).
At June 30, 1997, the Company had $1,769,000 of debt, compared with $1,777,000
at June 30, 1996, a reduction of $8,000. The debt represents borrowings on the
Company's long-term financing agreement (Agreement) with Marine Midland Business
Loans, Inc. (Midland). The Agreement is a Reducing Revolving Line of Credit with
a borrowing limit that is reduced monthly over the seven-year term of the loan.
Borrowings on the line are restricted to the lesser of i) an amount based on
certain asset levels, or ii) the borrowing limit. As of June 30, 1997, the
Company could borrow an additional $1,036,000 up to the current borrowing limit
of $2,805,000. Pursuant to the borrowing limit reduction schedule contained in
the Agreement, the limit will be amortized to $2,070,000, $1,133,000 and
$155,000 in the years ended June 30, 1998, 1999 and 2000, respectively, with the
remaining unpaid balance of the loan becoming due August 1, 2000.
The line bears interest at Midland's prime borrowing rate plus 1% (9.5% at June
30, 1997). As long as the Agreement is in place, interest expense is calculated
using the higher of i) the actual debt balance or ii) 50% of the borrowing
limit. Starting in August 1997 the Company may repay the entire debt balance
with Midland with no prepayment penalty.
The debt is secured by all assets of the Company. The Agreement requires that
the Company maintain compliance with certain covenants related to tangible net
worth, cash flow coverage and current ratios. The Company has not met the
quarterly-calculated cash flow coverage covenant since the first quarter of
fiscal 1996. Midland issued a waiver of compliance with the cash flow coverage
covenant through June 30, 1997. In connection with obtaining the aforementioned
waiver, the Company agreed to certain conditions, including limiting the assets
against which the Company may borrow to certain accounts receivable and
maintaining higher tangible net worth and achieving certain annual operating
results in fiscal 1997. In addition, the Company agreed not to pay cash
dividends, purchase treasury stock (except for limited amounts from employees),
or make investments in other than investment grade securities without the prior
written consent of Midland, as long as the Company is in violation of the cash
flow coverage covenant.
Beginning in March 1997 the Company has not maintained the aforementioned
minimum tangible net worth. In addition, the Company did not achieve the
aforementioned minimum fiscal 1997 operating results.
The Company's not meeting these requirements constitutes an event of default
under the Agreement. Pursuant to the Agreement, upon the happening of an event
of default, Midland may declare any principal outstanding to be immediately due
and payable, together with all interest thereon and applicable costs and
expenses. Accordingly, the balance of the long-term debt has been classified as
current as of June 30, 1997.
8
<PAGE>
To date, Midland has not declared the Company's indebtedness to be immediately
due and payable. In addition, the Company is renegotiating with Midland for a
waiver of the aforementioned debt covenant violations. There can be no
assurance, however, that Midland will grant such a waiver.
Because of the uncertainty regarding the timing of the debt becoming due and
payable, the Company wrote off the $197,000 unamortized balance of the Midland
loan acquisition costs at June 30, 1997.
The Company has three joint venture investments in China - Zibo Kehui Electric
Company Ltd. (Kehui), Hathaway Si Fang Protection and Control Company, Ltd. (Si
Fang), and Hathaway Power Monitoring Systems Company, Ltd. (HPMS). Kehui
designs, manufactures and sells cable and overhead fault location, SCADA systems
and other test instruments within the China market and the Company will sell
these products outside of China. Si Fang designs, manufactures and sells a new
generation of digital protective relays, control equipment and instrumentation
products for substations in power transmission and distribution systems and the
Company will sell these products outside of China. HPMS will design, manufacture
and sell, under a license from Hathaway, instrumentation products designed by
Hathaway, to electric power companies in China. There are no future commitments
relating to these investments. The Company considers the realization of these
investments to be uncertain due to political instability and the untested market
in China. Accordingly, the Company has fully reserved for these investments. The
Company recognizes income from the joint ventures as cash dividends are
received.
The Company also has an 11.4% interest in a joint venture (JV) with KUB Holdings
BHD, a Malaysian firm. The interest, acquired by TIS for $400,000 in March 1995,
was acquired by the Company in connection with the purchase of TIS effective
September 30, 1996. The fair market value of this asset was not significant at
the acquisition date. The JV was created for the purpose of manufacturing,
marketing and selling the TIS-4000 system in certain Asian countries. If the JV
requires funding, the Company may be required to contribute in accordance with
the agreed-upon proportions as defined in the JV agreement.
The JV agreement also requires the Company to continue as a going concern and to
provide support services to the JV at market rates. If the Company does not meet
this requirement, it could be required to refund a contractually-defined portion
($1,938,000 at June 30, 1997) of the $2,500,000 proceeds TIS received in 1995
from the sale to the JV of licensing and marketing rights to the TIS-4000
technology. Because of the remote possibility of the Company being required to
make such a refund, this obligation was determined to be zero at the acquisition
date. Further, as of July 30, 1997, the Company does not expect that such
refunds will be required. In addition, the Company is not aware of any
violations of the requirements defined in the JV agreement nor does it
anticipate any future violations.
As in the three-year period ended June 30, 1997, the Company's fiscal 1998
working capital, capital expenditure and debt service requirements, including
repayment of the entire balance of the Midland loan, if necessary, are expected
to be funded from the existing cash balance of $3,431,000 at June 30, 1997. In
addition, the Company may seek additional debt, equity or other financing,
particularly if it must fully repay the Midland loan balance, in order to
supplement its long-term financial resources. There can be no assurance,
however, that additional debt, equity or other financing will be available on
terms acceptable to the Company, or at all.
PRICE LEVELS AND THE IMPACT OF INFLATION
Prices of the Company's products have not increased significantly as a result of
inflation during the past several years, primarily due to competition. The
effect of inflation on the Company's costs of production has been minimized
through production efficiencies and lower costs of materials. The Company
anticipated that these factors would continue to minimize the effects of any
foreseeable inflation and other price pressures from the industries in which it
operates. As the Company's manufacturing activities mainly utilize semi-skilled
labor, which is relatively plentiful in the areas surrounding the Company's
production facilities, the Company does not anticipate substantial
inflation-related increases in the wages of the majority of its employees.
9
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
<TABLE>
<S> <C> <C>
a) Report of Independent Public Accountants.................................................................................10
b) Consolidated Balance Sheets as of June 30, 1997 and June 30, 1996........................................................11
c) Consolidated Statements of Operations for each of the years in the three-year period ended
June 30, 1997............................................................................................................12
d) Consolidated Statements of Cash Flows for each of the years in the three-year
period ended June 30, 1997...............................................................................................13
e) Consolidated Statements of Stockholders' Investment for each of the years in the three-year period ended
June 30, 1997............................................................................................................14
f) Notes to Consolidated Financial Statements...............................................................................15
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hathaway Corporation:
We have audited the accompanying consolidated balance sheets of HATHAWAY
CORPORATION (a Colorado corporation) AND SUBSIDIARIES as of June 30, 1997 and
1996, and the related consolidated statements of operations, cash flows and
stockholders' investment for each of the three fiscal years in the period ended
June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hathaway Corporation
and subsidiaries as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended June 30, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
July 30, 1997.
10
<PAGE>
HATHAWAY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 3,431 $ 4,925
Restricted cash 253 312
Marketable securities, current -- 201
Trade receivables, net of allowance for doubtful accounts of $492 and
$321 at June 30, 1997 and 1996, respectively 6,910 6,293
Inventories, net 4,907 4,972
Current deferred income taxes 854 893
Income tax refunds receivable, prepaid expenses and other 1,180 857
- -------------------------------------------------------------------------------------------------------------
Total current assets 17,535 18,453
Property and equipment, net 1,841 1,727
Cost in excess of net assets acquired, net 591 623
Other -- 336
- -------------------------------------------------------------------------------------------------------------
Total Assets $ 19,967 $ 21,139
=============================================================================================================
Liabilities and Stockholders' Investment
Current Liabilities:
Long-term debt classified as current (Note 4) $ 1,769 $ --
Accounts payable 1,843 1,309
Accrued liabilities 2,594 2,907
Income taxes payable 169 405
Product service reserve 566 459
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 6,941 5,080
Long-term debt (Note 4) -- 1,777
- -------------------------------------------------------------------------------------------------------------
Total Liabilities 6,941 6,857
Commitments and Contingencies (Notes 3, 4 and 8)
Stockholders' Investment:
Preferred stock, par value $1.00 per share, authorized 5,000 shares;
no shares outstanding -- --
Common stock, at aggregate stated value, authorized 50,000 shares;
5,405 and 5,307 issued at June 30, 1997 and 1996, respectively 100 100
Additional paid-in capital 9,954 9,712
Loans receivable for stock (Note 7) (235) (235)
Retained earnings 6,818 8,247
Cumulative translation adjustments (Note 1) 360 163
Treasury stock, at cost; 1,121 and 1,058 shares at June 30, 1997 and
1996, respectively (Note 8) (3,971) (3,705)
- -------------------------------------------------------------------------------------------------------------
Total Stockholders' Investment 13,026 14,282
- -------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Investment $ 19,967 $ 21,139
=============================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
11
<PAGE>
HATHAWAY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the fiscal years ended June 30,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 39,946 $ 35,411 $ 39,838
Operating costs and expenses:
Cost of products sold 25,575 21,926 22,834
Selling 7,601 6,269 7,037
General and administrative 4,771 4,680 4,836
Engineering and development 3,646 3,722 3,616
Amortization of intangibles and other 402 215 246
Restructuring charge (Note 11) -- 338 --
- ---------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 41,995 37,150 38,569
- ---------------------------------------------------------------------------------------------------------------
Operating income (loss) (2,049) (1,739) 1,269
Other income (expenses), net:
Interest and dividend income 245 325 332
Interest expense (173) (194) (204)
Other income (expenses), net (215) 210 (76)
- ---------------------------------------------------------------------------------------------------------------
Total other income (expenses), net (143) 341 52
- ---------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (2,192) (1,398) 1,321
Benefit (provision) for income taxes (Note 5) 763 385 (479)
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,429) $ (1,013) $ 842
===============================================================================================================
Primary and fully diluted net income (loss) per share
(Note 1) $ (0.33) $ (0.24) $ 0.19
===============================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
12
<PAGE>
HATHAWAY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the fiscal years ended June 30,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (1,429) $ (1,013) $ 842
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization 1,199 960 970
Deferred income tax provision (benefit) 39 (155) (6)
Other 241 (149) (52)
Changes in assets and liabilities, net of effect in 1997
of purchase of Tate Integrated Systems (Note 2):
(Increase) decrease in -
Restricted cash 59 86 13
Receivables (239) 1,177 (580)
Inventories 1,174 (503) 247
Prepaid expenses and other (317) (282) (26)
Increase (decrease) in -
Accounts payable (46) 1 (138)
Accrued liabilities (649) 187 (429)
Product service reserve 7 (42) 65
Income taxes payable (236) (360) 360
- ---------------------------------------------------------------------------------------------------------------
Net cash from operating activities (197) (93) 1,266
Cash Flows From Investing Activities:
Purchase of property and equipment (651) (719) (934)
Purchase of Tate Integrated Systems (Note 2) (863) -- --
Investments in joint ventures (Note 3) -- (70) (115)
Proceeds from maturity of marketable securities 201 1,000 --
Other -- 165 --
- ---------------------------------------------------------------------------------------------------------------
Net cash from investing activities (1,313) 376 (1,049)
Cash Flows from Financing Activities:
Repayments on line of credit and long-term debt (8) (360) (460)
Borrowings on line of credit and long-term debt -- -- 276
Dividends paid to stockholders -- (426) (536)
Proceeds from exercise of employee stock options 81 -- 43
Purchase of treasury stock (105) (42) (1,210)
- ---------------------------------------------------------------------------------------------------------------
Net cash from financing activities (32) (828) (1,887)
Effect of foreign exchange rate changes on cash 48 (35) 39
- ---------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,494) (580) (1,631)
Cash and cash equivalents at beginning of year 4,925 5,505 7,136
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,431 $ 4,925 $ 5,505
===============================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 167 $ 177 $ 194
Income taxes 4 173 108
Noncash investing and financing activities:
Assets of Tate Integrated Systems purchased, net of liabilities
assumed (Note 2) $ 1,092 $ -- $ --
Acquisition of common stock as a result of stock option
exercises (Note 6) 161 -- --
Repayment of loan receivable from Leveraged Employee Stock
Ownership Plan and Trust ("LESOP") (Note 7) -- -- 55
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
13
<PAGE>
HATHAWAY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(In thousands, except per share data)
<TABLE>
<CAPTION>
Treasury Stock
Common Stock Additional Loans (Note 8)
--------------------- Paid-in Receivable Retained ----------------------
Shares Amount Capital (Note 7) Earnings Shares Amount
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1994 5,290 $ 100 $ 9,717 $ (290) $ 9,380 675 $ (2,453)
Exercise of employee stock
options 17 -- 43 -- -- -- --
Long-term incentive plan
bonus (Note 8) -- -- (16) -- -- -- --
Repayment of loan
receivable from LESOP -- -- -- 55 -- -- --
Tax benefit from
disqualifying stock
dispositions -- -- 23 -- -- -- --
Purchase of treasury stock -- -- -- -- -- 367 (1,210)
Dividend paid to
stockholders ($.12 per
share) -- -- -- -- (536) -- --
Net income -- -- -- -- 842 -- --
- -----------------------------------------------------------------------------------------------------------------
Balances, June 30, 1995 5,307 $ 100 $ 9,767 $ (235) $ 9,686 1,042 $ (3,663)
Long-term incentive plan bonus
(Note 8) -- -- (55) -- -- -- --
Purchase of treasury stock -- -- -- -- -- 16 (42)
Dividend paid to
stockholders ($.10 per
share) -- -- -- -- (426) -- --
Net loss -- -- -- -- (1,013) -- --
- -----------------------------------------------------------------------------------------------------------------
Balances, June 30, 1996 5,307 $ 100 $ 9,712 $ (235) $ 8,247 1,058 $ (3,705)
Purchase of treasury stock -- -- -- -- -- 25 (105)
Exercise of employee stock
options 32 -- 81 -- -- -- --
Acquisition of common
stock as a result of
stock option exercises
(Note 6) 66 -- 161 -- -- 38 (161)
Net loss -- -- -- -- (1,429) -- --
- -----------------------------------------------------------------------------------------------------------------
Balances, June 30, 1997 5,405 $ 100 $ 9,954 $ (235) $ 6,818 1,121 $ (3,971)
=================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
14
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Hathaway Corporation (the Company) is engaged in the business of designing,
manufacturing and selling electronic instrumentation products to the
worldwide power and process industries, as well as motion control products
to a broad spectrum of customers throughout the world. The Company also
develops, designs, and installs integrated process automation systems for
industrial applications. The Company operates primarily in the United
States and Europe and has three joint venture investments in China and a
joint venture investment in Malaysia (Note 3).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions are eliminated in consolidation.
Investments in joint ventures, in which the ownership is at least 20% but
less than 50%, are accounted for using the equity method (Note 3).
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, cash and cash
equivalents include amounts which are readily convertible into cash
(original maturities of three months or less) and which are not subject to
significant risk of changes in interest rates. Cash flows in foreign
currencies are translated using an average rate.
Restricted Cash
Restricted cash consists of certificates of deposit that serve as
collateral for letters of credit issued on behalf of the Company.
Inventories
Inventories, valued at the lower of cost (first-in, first-out basis) or
market, are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
----------------------------------
<S> <C> <C>
Parts and raw materials, net $ 2,141 $ 2,689
Finished goods and work-in process, net 2,766 2,283
----------------------------------
$ 4,907 $ 4,972
==================================
</TABLE>
Reserves established for anticipated losses on excess or obsolete
inventories were approximately $1,943,000 and $1,689,000 at June 30, 1997
and 1996, respectively.
Property and Equipment
Property and equipment, at cost, is classified as follows (in thousands):
<TABLE>
<CAPTION>
Useful lives June 30, 1997 June 30, 1996
---------------------------------------------------
<S> <C> <C> <C>
Machinery, equipment, tools and dies 2-8 years $ 6,738 $ 5,763
Furniture, fixtures and other 3-10 years 2,056 2,074
----------------------------------
8,794 7,837
Less accumulated depreciation and amortization (6,953) (6,110)
----------------------------------
$ 1,841 $ 1,727
==================================
</TABLE>
Depreciation and amortization are provided using the straight-line method
over the estimated useful life of the assets. Maintenance and repair costs
are charged to operations as incurred. Major additions and improvements are
capitalized. The cost and related accumulated depreciation of retired or
sold property are removed from the accounts and any resulting gain or loss
is reflected in earnings.
15
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired represents the amount by which the
purchase price of acquired companies exceeds the fair market value of net
assets acquired, and is amortized using the straight-line method over five
to ten years. Cost in excess of net assets acquired as of June 30, 1997 and
1996 consists of $1,613,000 and $1,505,000 of original costs and $1,022,000
and $882,000 of accumulated amortization, respectively. The Company reviews
its assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. For
assets that are held and used in operations, the asset would be considered
to be impaired if the undiscounted future cash flows related to the asset
did not exceed the net book value. As discussed in Note 2, the Company's
acquisition of Tate Integrated Systems resulted in $108,000 of costs in
excess of net assets acquired, which is being amortized over five years.
Such amount is subject to adjustment pending the outcome of certain
acquisition-related matters.
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
----------------------------------
<S> <C> <C>
Compensation and fringe benefits $ 716 $ 1,012
Commissions 592 539
Professional fees 117 239
Other accrued expenses 1,169 1,117
----------------------------------
$ 2,594 $ 2,907
==================================
</TABLE>
Foreign Currency Translation
In accordance with Statement of Financial Accounting Standards (SFAS) No.
52, "Foreign Currency Translation", the assets and liabilities of the
Company's foreign subsidiaries are translated into U.S. dollars using
current exchange rates. Revenues and expenses are translated at average
rates prevailing during the period. The resulting translation adjustments
are recorded in the Cumulative Translation Adjustments component of
Stockholders' Investment in the accompanying Consolidated Balance Sheets.
Changes in Cumulative Translation Adjustments included in the Stockholders'
Investment section of the accompanying Consolidated Balance Sheets are as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
----------------------------------
<S> <C> <C>
Cumulative Translation Adjustments, beginning of year $ 163 $ 218
Translation adjustments 197 (55)
----------------------------------
Cumulative Translation Adjustments, end of year $ 360 $ 163
==================================
</TABLE>
Revenue and Cost Recognition on Contracts
Hathaway Industrial Automation (HIA) undertakes contracts for the
installation of integrated process control systems that use its proprietary
software. The Company recognizes contract revenues and costs by applying
the percentage of completion achieved to the total contract sales price and
estimated costs. The Company determines the percentage of completion for
all contracts using the "cost-to-cost" method of measuring contract
progress. Under this method, actual contract costs incurred to date are
compared to total estimated contract costs to determine the estimated
percentage of revenues to be recognized. Provisions for estimated losses on
uncompleted contracts, to the full extent of the estimated loss, are made
during the period in which the Company first becomes aware that a loss on a
contract is probable. The Company's traditional businesses (other than HIA)
generally recognize revenue when products are shipped.
16
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings per Share
Earnings per share is calculated using the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding
during the period, including the effects of options and warrants granted
when such adjustment has a dilutive effect on earnings per share. Shares
used in the computations for the periods reported are as follows (in
thousands):
<TABLE>
<CAPTION>
Primary Fully Diluted
---------------------------------
<S> <C> <C>
1997 4,317 4,317
1996 4,271 4,309
1995 4,422 4,422
</TABLE>
Stock-Based Compensation
The Company accounts for its stock-based compensation plans for employees
under the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25).
Fair Values of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, restricted cash, trade receivables, accounts payable
and accrued liabilities approximate fair value because of the immediate or
short-term maturities of these financial instruments. The carrying amount
of long-term debt approximates fair value because the underlying instrument
is a variable rate note that reprices frequently. The carrying value of
marketable securities approximates fair value obtained from quoted market
prices.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make certain
estimates and assumptions. Such estimates and assumptions affect the
reported amounts of assets and liabilities as well as disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior years' balances in order
to conform to the current year's presentation.
New Accounting Standard
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which establishes new reporting requirements for
earnings per share (EPS). The Statement replaces Primary and Fully Diluted
EPS reporting required under APB Opinion No. 15 with Basic and Diluted EPS,
respectively. Basic EPS is computed by dividing reported earnings available
to common stockholders by weighted average shares outstanding, with no
consideration for other potentially dilutive securities (in contrast to
Opinion 15 requirements). Diluted EPS is computed by dividing reported
earnings by weighted average outstanding and dilutive shares, where the
dilution is determined using the average share price for the period. In
contrast, Opinion 15 requires that the calculation use a more dilutive
share price, which represents the greater of the average or end-of-period
share price. The Statement also requires a disclosure reconciling the
numerator and denominator of the EPS calculations. The Company will adopt
the new reporting requirements in the quarter ending December 31, 1997 and
management does not believe the effect of adoption will be material.
17
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
2. BUSINESS ACQUISITION
Effective September 30, 1996, the Company acquired a 100% partnership
interest in Tate Integrated Systems, L.P. and 100% of the stock of its sole
general partner, Tate Integrated Systems, Inc. (collectively referred to as
"TIS"). The ownership interests were acquired for an adjusted negotiated
price of $1,092,000, of which $718,000 was paid in cash at closing on
October 10, 1996 and $145,000 on June 30, 1997. In addition, $229,000 of
additional consideration will become payable when certain accounts
receivable of TIS are collected.
TIS has operated under the ownership of Hathaway Industrial Automation
(HIA), a newly-formed wholly-owned subsidiary of the Company, since October
1, 1996. HIA is located in Baltimore, Maryland and is a full service
developer and supplier of integrated process automation systems for
industrial applications. HIA has developed a state-of-the-art software
system, the TIS-4000, for Supervisory Control and Data Acquisition (SCADA)
and Distributed Control Systems (DCS). The HIA system has been used to
fully automate such industrial applications as water and wastewater
treatment plants, glass manufacturing plants, oil and gas terminals and
tank farm facilities. In addition to expanding into its traditional process
markets, HIA's system is being marketed to the power utility industry. The
Company expects to team the HIA system with certain existing Hathaway
products and target the combined product at substation automation and
integration applications in power plants.
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon the fair values at
the date of acquisition. This allocation is subject to adjustment pending
the resolution of certain items. The preliminary net purchase price
allocation is as follows: (in thousands):
<TABLE>
<S> <C>
Trade receivables, net $ 485
Inventories, net 1,165
Property and equipment, net 123
Cost in excess of net assets acquired 108
Accounts payable (580)
Accrued liabilities and other (209)
--------------
Net purchase price $ 1,092
==============
</TABLE>
The results of operations of TIS have been included in the Company's 1997
Consolidated Statement of Operations starting on October 1, 1996.
The following unaudited pro forma summary (in thousands, except per share
data) combines the consolidated results of operations of the Company and
TIS as if the acquisition had occurred at the beginning of fiscal years
1997 and 1996 after giving effect to certain pro forma adjustments related
to such items as income taxes, depreciation, and amortization of cost in
excess of net assets acquired. The pro forma results are shown for
illustrative purposes only, and do not purport to be indicative of the
actual results which would have occurred had the transaction been
consummated as of those earlier dates, nor are they indicative of results
of operations which may occur in the future.
<TABLE>
<CAPTION>
For the years ended June 30,
1997 1996
----------------------------------
(Unaudited)
<S> <C> <C>
Revenue $ 40,946 $ 40,016
Net loss (1,403) (1,072)
Primary net loss per share (0.32) (0.25)
</TABLE>
18
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
3. INVESTMENTS IN JOINT VENTURES
The Company has three joint venture investments in China - Zibo Kehui
Electric Company Ltd. (Kehui), Hathaway Si Fang Protection and Control
Company, Ltd. (Si Fang), and Hathaway Power Monitoring Systems Company,
Ltd. (HPMS). Kehui designs, manufactures and sells cable and overhead fault
location, SCADA systems and other test instruments in China. Si Fang
designs, manufactures and sells a new generation of digital protective
relays, control equipment and instrumentation products for substations in
power transmission and distribution systems. HPMS will design, manufacture
and sell, under a license from Hathaway, instrumentation products designed
by Hathaway, to electric power companies in China. The Company's investment
and ownership interest in these Chinese joint ventures are as follows (in
thousands):
<TABLE>
<CAPTION>
Ownership
Investment interest
--------------------------------
<S> <C> <C>
Kehui $ 100 25%
Si Fang 175 25%
HPMS 140 40%
--------------
$ 415
==============
</TABLE>
The Company has no future commitments relating to these investments. The
Company considers the realization of these investments to be uncertain due
to political instability and the untested market in China. Accordingly, the
Company has fully reserved for these investments. The Company recognizes
income from the joint ventures as cash dividends are received.
The Company also has an 11.4% interest in a joint venture (JV) with KUB
Holdings BHD, a Malaysian firm. The interest, acquired by TIS for $400,000
in March 1995, was acquired by the Company in connection with the purchase
of TIS effective September 30, 1996 (Note 2). The fair value of this asset
was not significant at the acquisition date. The JV was created for the
purpose of manufacturing, marketing and selling the TIS-4000 system in
certain Asian countries. If the JV requires funding, the Company may be
required to contribute in accordance with the agreed-upon proportions as
defined in the JV agreement.
The JV agreement also requires the Company to continue as a going concern
and to provide support services to the JV at market rates. If the Company
does not meet this requirement, it could be required to refund a
contractually-defined portion ($1,938,000 at June 30, 1997) of the
$2,500,000 proceeds TIS received in 1995 from the sale to the JV of
licensing and marketing rights to the TIS-4000 technology. Because of the
remote possibility of the Company being required to make such a refund,
this obligation was determined to be zero at the acquisition date. Further,
as of July 30, 1997, the Company does not expect that such refunds will be
required. In addition, the Company is not aware of any violations of the
requirements defined in the JV agreement nor does it anticipate any future
violations.
19
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
4. DEBT
On August 2, 1993, the Company entered into a long-term financing agreement
(Agreement) with Marine Midland Business Loans, Inc. (Midland). The
Agreement is a Reducing Revolving Line of Credit with a borrowing limit
that is reduced monthly over the seven year term of the loan. Borrowings on
the line are restricted to the lesser of an amount based on certain asset
levels, or the borrowing limit. As of June 30, 1997, the Company could
borrow an additional $1,036,000 up to the current borrowing limit of
$2,805,000. Pursuant to the borrowing limit amortization schedule, the
limit will be amortized to $2,070,000, $1,133,000 and $155,000 in the years
ended June 30, 1998, 1999 and 2000, respectively, with the remaining unpaid
balance of the loan becoming due August 1, 2000.
The line bears interest at Midland's prime borrowing rate plus 1% (9.5% at
June 30, 1997). As long as the Agreement is in place, interest expense is
calculated using the higher of the actual debt balance or 50% of the
borrowing limit. Starting in August 1997 the Company may repay the entire
debt balance with Midland with no prepayment penalty.
The debt is secured by all assets of the Company. The Agreement requires
that the Company maintain compliance with certain covenants related to
tangible net worth, cash flow coverage and current ratios.
The Company has not met the quarterly-calculated cash flow coverage
covenant since the first quarter of fiscal 1996. Midland has issued waivers
of non-compliance with the cash flow coverage covenant through June 30,
1997. In connection with obtaining the aforementioned waivers, the Company
agreed to certain conditions, including limiting the assets against which
the Company may borrow to certain accounts receivable, maintaining higher
tangible net worth and achieving certain annual operating results in fiscal
1997. In addition, the Company may not, without the prior written consent
of Midland, pay cash dividends, purchase treasury stock (except for limited
amounts from employees), or make investments in other than investment grade
securities, as long as the Company is in violation of the cash flow
coverage covenant.
Beginning in March 1997, the Company has not maintained the aforementioned
minimum tangible net worth. In addition, the Company did not achieve the
aforementioned minimum fiscal 1997 operating results.
The Company's non-compliance with these requirements constitutes an event
of default under the Agreement. Pursuant to the Agreement, upon the
happening of an event of default, Midland may declare any principal
outstanding to be immediately due and payable, together with all interest
thereon and applicable costs and expenses. Accordingly, the $1,769,000
balance of the long-term debt has been classified as current as of June 30,
1997.
As of July 30, 1997, Midland had not declared the Company's indebtedness to
be immediately due and payable. The Company's management is currently
discussing the terms of this debt with Midland and believes that should
Midland declare the debt immediately due and payable, the Company would be
able to satisfy the debt obligation using its cash on hand and maintain
liquidity sufficient to meet the near-term needs of the Company.
Because of the uncertainty regarding the timing of the debt becoming due
and payable, the Company wrote off $197,000 of unamortized Midland loan
acquisition costs at June 30, 1997.
Contractual maturities of long-term debt, which Midland may accelerate or
declare immediately due and payable at any time unless the aforementioned
event of default is cured, are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ --
1999 628
2000 978
2001 163
---------------
Total 1,769
===============
</TABLE>
20
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
The benefit (provision) for income taxes is based on income (loss) before
income taxes as follows (in thousands):
<TABLE>
<CAPTION>
For the years ended June 30,
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Domestic $ (2,471) $ (1,160) $ 948
Foreign 279 (238) 373
-------------------------------------------------
Income (loss) before income taxes $ (2,192) $ (1,398) $ 1,321
=================================================
</TABLE>
Components of the benefit (provision) for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
For the years ended June 30,
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Current benefit (provision):
Domestic $ 682 $ 222 $ (414)
Foreign 120 8 (74)
-------------------------------------------------
Total current benefit (provision) 802 230 (488)
Domestic deferred benefit (provision) (39) 155 9
-------------------------------------------------
Benefit (provision) for income taxes $ 763 $ 385 $ (479)
=================================================
</TABLE>
The benefit (provision) for income taxes differs from the amount determined
by applying the federal statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
For the years ended June 30,
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Tax benefit (provision) computed at statutory
rate $ 745 $ 475 $ (449)
State tax, net of federal benefit (2) (2) (25)
Nondeductible expenses (32) (90) (69)
Income tax credits -- (72) 73
Non-benefitted losses of foreign subsidiaries (3) (33) (5)
Recovery of prior year taxes paid 98 84 --
Change in valuation allowance (89) 37 (11)
Other 46 (14) 7
-------------------------------------------------
Benefit (provision) for income taxes $ 763 $ 385 $ (479)
=================================================
</TABLE>
The tax effects of significant temporary differences and credit
carryforwards that give rise to the net deferred tax asset under SFAS 109
are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------------------------
<S> <C> <C>
Allowances and other accrued liabilities $ 1,361 $ 1,401
Tax credit carryforwards 209 88
Net operating loss carryforwards -- 31
Valuation allowance (716) (627)
------------------------------
Net deferred tax asset $ 854 $ 893
==============================
</TABLE>
As of June 30, 1997, the Company has paid foreign advance corporation tax
of $20,000 which may be utilized to reduce future foreign taxes due and has
domestic tax credit carryforwards of $189,000 expiring in 2007 and 2008.
21
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK COMPENSATION
At June 30, 1997, 294,621 shares of common stock were available for grant
under the Company's stock option plans. Under the terms of the plans,
options may not be granted at less than 85% of fair market value. However,
all options granted to date have been granted at fair market value as of
the date of grant. Options generally become exercisable evenly over three
years starting one year from the date of grant and expire seven years from
the date of grant.
During 1997 the Company granted options for 125,000 shares of the Company's
common stock to certain key management personnel of HIA. Of the total,
75,000 vest over seven years, subject to acceleration if certain
performance criteria are achieved by HIA and expire ten years after date of
grant. The remaining 50,000 vest over four years only if certain
performance criteria are met. Based on HIA's 1997 operating results, 10,000
shares will never vest and were forfeited.
In 1997 certain eligible employees of the Company exercised stock options
by surrendering to the Company their Company stock with an aggregate fair
market value of $161,000, in non-cash, tax-free transactions.
Option activity in fiscal years 1995, 1996 and 1997 was as follows:
<TABLE>
<CAPTION>
Weighted Number of Weighted
Number of Average Shares Average
Shares Exercise Price Exercisable Exercise Price
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1994 320,356 $ 2.76
Granted 88,500 3.74
Exercised (17,500) 2.47
Canceled or forfeited (28,500) 3.09
------------------------------
Outstanding at June 30, 1995 362,856 $ 2.88 228,856 $ 2.76
Granted 22,500 2.68
Canceled or forfeited (52,500) 2.75
------------------------------
Outstanding at June 30, 1996 332,856 $ 2.87 250,856 $ 2.88
Granted 503,350 3.58
Exercised (98,252) 2.46
Canceled or forfeited (29,250) 3.84
------------------------------
Outstanding at June 30, 1997 708,704 $ 3.45 187,104 $ 3.19
==============================================================
</TABLE>
Exercise prices for options outstanding at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Range of Exercise Prices
Total
$2.38 - $3.19 $3.50 - $4.31 $2.38 - $4.31
---------------------------------------------------------------
<S> <C> <C> <C>
Options Outstanding:
Number of options 285,104 423,600 708,704
Weighted average exercise price $ 2.82 $ 3.88 $ 3.45
Weighted average remaining
contractual life 4.63 years 5.66 years 5.24 years
Options Exercisable:
Number of options 106,104 81,000 187,104
Weighted average exercise price $ 2.85 $ 3.64 $ 3.19
</TABLE>
The Company accounts for its stock-based compensation plans for employees
under the provisions of APB 25. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Standards No. 123,
"Accounting for Stock-Based Compensation," (SFAS 123) which established an
alternative method of expense recognition for stock-based compensation
awards to employees based on fair values. Companies that elect to continue
accounting for stock-based compensation plans under the provisions of APB
25 must present certain pro forma disclosures.
22
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK COMPENSATION (CONTINUED)
Pro forma information regarding net loss and loss per share is required by
SFAS 123 and has been determined as if the Company had accounted for its
stock-based compensation plans using the fair value method prescribed by
that statement. The fair value for these options was estimated at the date
of grant using a Black-Scholes pricing model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
For the years ended June 30,
1997 1996
----------------------------------
<S> <C> <C>
Risk-free interest rate 6.3% 6.5%
Expected dividend yield 0.0% 0.0%
Expected life 6 years 6 years
Expected volatility 58.5% 57.7%
</TABLE>
Using the fair value method of SFAS 123, the net loss and net loss per
share would have been adjusted to the pro forma amounts indicated below (in
thousands, except per share data):
<TABLE>
<CAPTION>
For the years ended June 30,
1997 1996
----------------------------------
<S> <C> <C>
Pro forma net loss $ (1,686) $ (1,016)
Pro forma primary and fully diluted net loss per share $ (0.39) $ (0.24)
</TABLE>
The weighted average fair value of options granted during 1997 and 1996 was
$1.98 and $1.39, respectively. The total fair value of options granted was
$978,000 and $31,000 in 1997 and 1996, respectively. These amounts have
been amortized ratably over the vesting periods of the options for purposes
of this disclosure.
7. LOANS RECEIVABLE FOR STOCK
The Company's loans receivable balance of $235,000 at June 30, 1997 and
1996 is comprised of a loan for $102,000 from the Leveraged Employee Stock
Ownership Plan and Trust (the Plan) and $133,000 from an Officer of the
Company.
The Plan allows eligible Company employees to participate in ownership of
the Company. The $102,000 receivable represents the unpaid balance of the
original $500,000 that the Company loaned to the Plan in fiscal 1989 so
that the Plan could acquire from the Company 114,285 newly issued shares of
the Company's common stock. The note bears interest at an annual rate of
9.23% and matures May 31, 2004. The terms of the Plan require the Company
to make an annual contribution equal to the greater of i) the Board
established percentage of pretax income before the contribution (5% in
1997, 1996 and 1995) or ii) the annual interest payable on the note.
Company contributions to the Plan were $9,000 in 1997 and 1996 and $70,000
in 1995, representing interest in 1997 and 1996, and principal and interest
of $55,000 and $15,000 in 1995, respectively.
The $133,000 receivable represents the unpaid balance of a loan made in
fiscal 1994 to an officer of the Company in connection with his purchase of
the Company's common stock, pursuant to the Officer and Director Loan Plan
approved by stockholders on October 26, 1989. The loan is full-recourse and
bears interest at the applicable federal rate determined by the Internal
Revenue Service (6.0% at June 30, 1997). The loan is due on demand but no
later than October 26, 1998.
23
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
Leases
At June 30, 1997, the Company maintained leases for certain facilities and
equipment. Minimum future rental commitments under all non-cancelable
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Amount
--------------------------------------------
<S> <C>
1998 $ 760
1999 685
2000 460
2001 456
2002 336
Thereafter 1,320
----------------
$ 4,017
================
</TABLE>
Net rental expense was $783,000, $822,000 and $1,035,000 in 1997, 1996 and
1995, respectively.
Shareholder Rights Plan
During fiscal year 1989, the Company adopted a shareholder rights plan
under which preferred stock purchase rights were distributed, one right for
each share of common stock outstanding. Each right entitles holders of the
Company's common stock to buy one one-hundredth of a newly issued share of
Series A Junior Participating Preferred Stock at an exercise price of
$17.50, following certain change of control events including a tender offer
for, or acquisition by, any entity of 20% or more of the Company's common
stock.
At any time up to ten business days following the public announcement of
certain change of control events, the Company can redeem the rights at
$.001 per right. If certain subsequent triggering events occur, the rights
will give shareholders the ability to acquire, upon payment of the
then-current exercise price, the Company's common stock or the common stock
of an acquirer having a value equal to twice the right's exercise price.
The rights will expire June 25, 1999.
Severance Benefit Agreements
The Company has entered into annually-renewable severance benefit
agreements with certain key employees which, among other things, provide
inducement to the employees to continue to work for the Company during and
after any period of threatened takeover. The agreements provide the
employees with specified benefits upon the subsequent severance of
employment in the event of change in control of the Company and are
effective for 24 months thereafter. The maximum amount that could be
required to be paid under these contracts, if such events occur, aggregated
approximately $1,846,000 as of June 30, 1997.
Employment Agreements
Effective July 1, 1993, the Company entered into five-year employment
agreements with two of its executive officers. The agreements provide for
base salary plus 1) an annual incentive bonus to be paid in cash based on
the achievement of specified returns on equity and growth in share price
plus dividends paid for each fiscal year, 2) a long-term incentive bonus,
3) specified benefits upon termination of employment (for reasons other
than cause or change in control) which are effective for one year
thereafter and 4) a bonus paid for gains on dispositions, if any, of
certain subsidiaries and divisions of the Company.
No annual bonus was paid in 1997, 1996 or 1995.
24
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
For the three year performance period ended June 30, 1996, the long-term
incentive bonus was payable at the end of the period in up to 210,000
shares of Company common stock based on the achievement of specified
returns on equity and share price growth plus dividends paid during the
period. At the employee's election, such payout could have been taken in
cash up to 40% of the fair market value of the total shares to be issued.
The Company recognized $71,000, ($16,000), and ($55,000) of compensation
expense (reversal of expense) in 1994, 1995 and 1996, respectively, related
to the long-term incentive plan. The amounts were reflected as adjustments
to additional paid-in capital. Because the specified performance targets
for the three year performance period were not met, no long-term incentive
bonus was paid for the three year performance period ended June 30, 1996.
To replace the expired long-term incentive bonus, on August 15, 1996 the
Board of Directors approved the issuance of 148,500 stock options to the
two executive officers at an exercise price equal to the fair market value
of $2.8125 at the grant date. The options become exercisable evenly over
three years starting one year from the date of grant and expire seven years
from the date of grant.
As of June 30, 1997, the maximum amount that could be required to be paid
under the termination clause of these agreements was approximately
$766,000.
Stock Repurchase Program
Under an employee stock repurchase program approved by the Board of
Directors, the Company may repurchase its common stock from its employees
at the current market value. Of the $1,000,000 approved for employee stock
repurchases by the Board of Directors, the Company had $55,000 available
for future repurchases at June 30, 1997. The Company's Agreement with
Midland limits employee stock repurchases to $120,000 per calendar year
($170,000 for calendar year 1996) as long as the Company is in violation of
the cash flow coverage covenant contained in the Agreement (Note 4). As of
June 30, 1997, $99,000 was available under the calendar year 1997 limit.
Effective June 30, 1995 the Board of Directors discontinued the previously
authorized public stock repurchase program. Under Colorado law enacted in
July 1994, repurchased shares of capital stock are considered authorized
and unissued shares and have the same status as shares that have never been
issued.
25
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. GEOGRAPHIC SEGMENT DATA
The Company's wholly-owned foreign subsidiaries have been based in Europe
and Canada and are included in the accompanying consolidated financial
statements. The Company closed its Canadian operating facility in 1997.
Financial information for the foreign subsidiaries is summarized below (in
thousands):
<TABLE>
<CAPTION>
For the Years Ended June 30,
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Revenues $ 7,031 $ 7,261 $ 8,879
Income (loss) before income taxes 275 (238) 373
Identifiable assets 4,335 4,636 5,744
</TABLE>
The Company's export sales from domestic operations were approximately
$7,169,000 in 1997, $6,753,000 in 1996 and $7,265,000 in 1995, each
representing 22%, 24%, and 23%, respectively, of total sales from domestic
operations. The profitability of domestic sales is approximately the same
as that of export sales, and the Company foresees no unusual risks
associated with its export sales.
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected Quarterly Financial Data for each of the four quarters in 1997 and
1996 is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 8,818 $ 10,368 $ 9,443 $ 11,317
Operating income (loss) (540) (425) (1,186) 102
Net income (loss) (375) (226) (936) 108
Primary and fully diluted net
income (loss) per share $ (0.09) $ (0.05) $ (0.21) $ 0.02
<CAPTION>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 7,511 $ 9,678 $ 8,274 $ 9,948
Operating income (loss) (1,105) 121 (694) (61)
Net income (loss) (751) 7 (507) 238
Primary and fully diluted net
income (loss) per share $ (0.18) $ (0.00) $ (0.12) $ 0.06
</TABLE>
11. RESTRUCTURING OF OPERATIONS
In the first quarter of 1997, management decided to restructure the power
products manufacturing operations to produce operating efficiencies and to
better utilize local management talent and expertise. Accordingly, the
manufacturing operation located in Denver, Colorado was consolidated in
1997 into two manufacturing facilities located in Seattle, Washington and
Belfast, Northern Ireland. The cost of consolidating these manufacturing
facilities was not material and was paid in fiscal year 1997.
The Company recorded a $338,000 restructuring charge in the fourth quarter
of fiscal 1996 in connection with the reorganization of its Canadian and
U.K. operations. Effective June 30, 1996 the net assets and substantially
all operations of Hathaway Instruments Limited (HIL), the Company's
subsidiary located in Hoddesdon, England, were transferred to Hathaway
Systems, Limited (HSL), the Company's Belfast, Northern Ireland subsidiary.
In connection with the asset transfer, substantially all operations of HIL
were combined with the operations of HSL. In addition, the Company decided
to close its Toronto, Canada facility and to combine substantially all of
its operations with the operations of Hathaway Process Instrumentation, the
Dallas, Texas division. The initiatives were aimed at reducing costs and
enhancing productivity and efficiency. The restructuring provision was
primarily comprised of estimated costs for employee severance benefits and
fixed asset writeoffs. The payouts related to the restructuring charge were
made in 1996 and 1997.
26
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure.
The Company has not changed its accounting or auditing firm during the past 24
months, nor has it had any material disagreements with its accountants or
auditors regarding any accounting or financial statement disclosure matters.
PART III
The information required by Part III is included in the Company's Proxy
Statement, and is incorporated herein by reference.
Item 10. Directors and Executive Officers of the Registrant.
Information required by this item is set forth in the sections entitled
"Election of Directors" (page 2), "Executive Officers" (page 3) and "Compliance
with Section 16(a) of the Securities Exchange Act of 1934" (page 10) in the
Company's Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this item is set forth in the section entitled
"Executive Compensation" (pages 5 through 8) in the Company's Proxy Statement
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is set forth in the section entitled
"Security Ownership of Certain Beneficial Owners and Management" (pages 4 and 5)
in the Company's Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Since July 1, 1996, the Company has not entered into any material related party
transactions.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
a) The following documents are filed as part of this Report:
1. Financial Statements
g) Consolidated Balance Sheets as of June 30, 1997 and June 30, 1996.
h) Consolidated Statements of Operations for each of the years in the
three-year period ended June 30, 1997.
i) Consolidated Statements of Cash Flows for each of the years in the
three-year period ended June 30, 1997.
j) Consolidated Statements of Stockholders' Investment for each of the
years in the three-year period ended June 30, 1997.
k) Notes to Consolidated Financial Statements.
l) Report of Independent Public Accountants.
2. Financial Statement Schedules
None.
27
<PAGE>
3. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Subject Page
----------- ------- ----
<S> <C> <C>
3.1 Restated Articles of Incorporation. *
3.2 Amendment to Articles of Incorporation, dated September 24, 1993. *
3.3 By-laws of the Company adopted August 11, 1994. *
4 Rights Agreement between Hathaway Corporation and Bank of *
America National Trust and Savings Association, dated
June 15, 1989. Incorporated by reference to the Company's
1989 Annual Report and Form 10-K for the fiscal year ended
June 30, 1989.
10.1 Severance Agreement dated June 15, 1989 between Hathaway *
Corporation and Eugene E. Prince. Incorporated by
reference to Exhibit 10n(i) to the Company's 1989 Annual
Report and Form 10-K for the fiscal year ended June 30,
1989.
10.2 Severance Agreement dated June 15, 1989 between Hathaway *
Corporation and Richard D. Smith. Incorporated by
reference to Exhibit 10n(ii) to the Company's 1989 Annual
Report and Form 10-K for the fiscal year ended June 30,
1989.
10.3 Lease Agreement between Circuits and Systems Design *
Limited and Department of Economic Development (Northern
Ireland) dated April 7, 1992. Incorporated by reference to
Exhibit 10(iii)D to the Company's 1992 Annual Report and
Form 10-K for the fiscal year ended June 30, 1992.
10.4 The Hathaway Corporation Amended 1980 Non-Incentive Stock Option *
Plan. Incorporated by reference to the Company's Form S-8 filed
August 3, 1981.
10.5 The 1983 Incentive and Non-Qualified Stock Option Plan *
dated September 22, 1983. Incorporated by reference to the
Company's Form S-8 filed May 10, 1984.
10.6 Amendment to the 1983 Incentive and Non-Qualified Stock *
Option Plan dated January 4, 1989. Incorporated by
reference to the Company's Form S-8 filed October 25,
1990.
10.7 The 1989 Incentive and Non-Qualified Stock Option Plan dated *
August 10, 1989. Incorporated by reference to the Company's
Form S-8 filed October 25, 1990.
10.8 The 1991 Incentive and Non-Statutory Stock Option Plan dated *
September 19, 1991. Incorporated by reference to the Company's
Form S-8 filed January 8, 1992.
10.9 Joint Venture Agreement between Zibo Kehui Electric *
Company and Hathaway Instruments Limited, for the
establishment of Zibo Kehui Electric Company Ltd., dated
July 25, 1993. Incorporated by reference to Exhibit 10.15
to the Company's Form 10-K for the fiscal year ended June
30, 1994.
10.10 Employment Agreement between Hathaway Corporation and *
Eugene E. Prince, dated July 1, 1993. Incorporated by
reference to Exhibit 10.17 to the Company's Form 10-K for
the fiscal year ended June 30, 1994.
10.11 Employment Agreement between Hathaway Corporation and *
Richard D. Smith, dated July 1, 1993. Incorporated by
reference to Exhibit 10.18 to the Company's Form 10-K for
the fiscal year ended June 30, 1994.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Subject Page
----------- ------- ----
<S> <C> <C>
10.12 Loan and Security Agreement dated August 2, 1993 between Hathaway Corporation, *
certain subsidiaries of Hathaway Corporation and Marine Midland Business Loans,
Inc. Incorporated by reference to Exhibit 10.18 to the Company's Form 10-K for
the fiscal year ended June 30, 1993.
10.13 Loan Facility Agreement dated August 2, 1993 between CSD Hathaway Limited and Forward *
Trust Limited. Incorporated by reference to Exhibit 10.19 to the Company's Form 10-K
for the fiscal year ended June 30, 1993.
10.14 Reimbursement Agreement dated August 2, 1993 between CSD Hathaway Limited and Marine *
Midland Business Loans, Inc. Incorporated by reference to Exhibit 10.20 to the
Company's Form 10-K for the fiscal year ended June 30, 1993.
10.15 Promissory Note from Richard D. Smith to Hathaway Corporation, dated October 26, *
1993. Incorporated by reference to Exhibit 10.23 to the Company's Form 10-K for
the fiscal year ended June 30, 1994.
10.16 Joint Venture Contract between Si Fang Protection and Control Company Limited and *
Hathaway Corporation for the establishment of Beijing Hathaway Si Fang Protection
and Control Company, Ltd., dated March 2, 1994. Incorporated by reference to
Exhibit 10.26 to the Company's Form 10-K for the fiscal year ended June 30, 1994.
10.17 Assignment and Assumption of Lease Agreement, Letter Agreement, Collateral *
Assignment and Amendment to Lease Agreement between Trammel Crow Company
No. 91, Petula Associates, Ltd., Symantec Corporation and Hathaway Systems
Corporation-Beta Products Division, dated June 1, 1994. Incorporated by
reference to Exhibit 10.27 to the Company's Form 10-K for the fiscal year
ended June 30, 1994.
10.18 Joint Venture Contract between Wuhan Electric Power Instrument Factory, Beijing *
Huadian Electric Power Automation Corporation and Hathaway Corporation for the
establishment of Hathaway Power Monitoring Systems Company, Ltd., dated
June 12, 1995. Incorporated by reference to Exhibit 10.29 to the Company's
Form 10-K for the fiscal year ended June 30, 1995.
10.19 Technology License Contract between Wuhan Electric Power Instrument Factory and *
Beijing Huadian Electric Power Automation Corporation on behalf of Hathaway Power
Monitoring Systems Company, Ltd. and Hathaway Corporation, dated
June 12, 1995. Incorporated by reference to Exhibit 10.30 to the Company's
Form 10-K for the fiscal year ended June 30, 1995.
10.20 Supplementary Agreement between Wuhan Electric Power Instrument Factory, Beijing *
Huadian Electric Power Automation Corporation and Hathaway Corporation, dated
August 30, 1995. Incorporated by reference to Exhibit 10.31 to the Company's
Form 10-K for the fiscal year ended June 30, 1995.
10.21 Management Incentive Bonus Plan for the fiscal year ending June 30, 1996. *
Incorporated by reference to Exhibit 10.28 to the Company's Form 10-K for
the fiscal year ended June 30, 1995.**
10.22 Purchase Agreement between Hathaway Corporation and Tate Engineering Services *
Corporation dated October 10, 1996, for the Company's purchase of all the
issued and outstanding stock of Tate Integrated Systems, Inc. Incorporated by
reference to the Company's Form 8-K dated October 25, 1996.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Subject Page
----------- ------- ----
<S> <C> <C>
10.23 Joint Venture Agreement between KUB Holdings Bhd. And Tate Integrated Systems,
L.P. dated March 9, 1995 and Supplement dated June 15, 1995.
10.24 License Agreement between Tate Integrated Systems, L.P. and KUB-TIS Controls Sdn.
Bhd. dated March 9, 1995.
10.25 Commercial Lease Agreement between Commerce Square Associates LLC and Hathaway
Corporation dated October 24, 1996.
10.26 Industrial Lease Agreement between Lakefront Limited Partnership and Hathaway
Industrial Automation dated April 30, 1997.
21 List of Subsidiaries 33
22 Definitive Proxy Statement, dated September 18, 1997 for the Registrant's 1997 Annual *
Meeting of Shareholders.
23 Consent of ARTHUR ANDERSEN LLP. 31
27 Financial Data Schedule
* These documents have been filed with the Securities and
Exchange Commission and are incorporated herein by
reference.
** The Management Incentive Bonus Plans for the fiscal years
ending June 30, 1997 and 1998 are omitted because they are
substantially identical in all material respects to the
Management Incentive Bonus Plan for the fiscal year ending
June 30, 1996 previously filed with the Commission, except
for the fiscal years to which they apply.
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of fiscal
1997.
30
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated July 30, 1997 included in this Form 10-K, into the Company's
previously filed Registration Statement on Form S-8 (No. 2-73235) of the
Hathaway Corporation Amended 1980 Non-Incentive Stock Option Plan dated August
3, 1981, into the Registration Statement on Form S-8 (No. 2-90687) of the 1983
Incentive and Non-Qualified Stock Option Plan of Hathaway Corporation dated May
10, 1984, into the Registration Statement on Form S-8 (No. 3344998) of the 1992
Employee Stock Purchase Plan of Hathaway Corporation dated January 8, 1992, into
the Registration Statement on Form S-8 (No. 33-37473) of the 1989 Incentive and
Non-Qualified Stock Option Plan of Hathaway Corporation dated October 25, 1990,
and into the Registration Statement on Form S-8 (No. 3344997) of the 1991
Incentive and Non-Statutory Stock Option Plan of Hathaway Corporation dated
January 8, 1992.
ARTHUR ANDERSEN LLP
Denver, Colorado,
September 18, 1997.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HATHAWAY CORPORATION
By /s/ Eugene E. Prince
-------------------------------------
Eugene E. Prince
President, Chief Executive
Officer and Chairman of the
Board of Directors
Date: September 18, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ Eugene E. Prince President, Chief Executive September 18, 1997
- -------------------- Officer, and Chairman of the
Eugene E. Prince Board of Directors
/s/ Richard D. Smith Executive Vice President, September 18, 1997
- -------------------- Treasurer, Chief Financial
Richard D. Smith Officer (Principal Accounting
Officer) and Director
/s/ George J. Pilmanis Director September 18, 1997
- ----------------------
George J. Pilmanis
/s/ Del D. Hock Director September 18, 1997
- ---------------
Del D. Hock
/s/ Chester H. Clarridge Director September 18, 1997
- ------------------------
Chester H. Clarridge
/s/ Graydon D. Hubbard Director September 18, 1997
- ----------------------
Graydon D. Hubbard
</TABLE>
32
<PAGE>
OFFICERS AND DIRECTORS / INVESTOR INFORMATION
BOARD OF DIRECTORS
Eugene E. Prince
Chairman of the Board,
President and Chief Executive Officer
Richard D. Smith
Executive Vice President, Treasurer
and Chief Financial Officer
Delwin D. Hock
Former Chairman of the Board of Directors,
President and CEO of Public Service Company
of Colorado
Chester H. Clarridge
Consultant
Graydon D. Hubbard
Retired Partner, Arthur Andersen LLP
George J. Pilmanis
President of Balriga International Corporation
Business Development in the Far East and Eastern Europe
INVESTOR INFORMATION
Annual Meeting
The Annual Meeting of Shareholders of Hathaway Corporation will be held at 3:00
p.m., on Thursday, October 23, 1997 at Lone Tree Country Club, 9808 Sunningdale
Boulevard, Littleton, Colorado.
Information Requests
Copies of the Company's reports to the Securities and Exchange Commission,
excluding exhibits, on Form 10-K and Form 10-Q may be obtained from the Company
without charge. Direct your written request to: Hathaway Corporation, 8228 Park
Meadows Drive, Littleton, Colorado 80124.
Transfer Agent
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Independent Public Accountants
ARTHUR ANDERSEN LLP
Denver, Colorado
CORPORATE OFFICERS
Eugene E. Prince
Chairman of the Board,
President and Chief Executive Officer
Richard D. Smith
Executive Vice President, Treasurer
and Chief Financial Officer
Herbert Franson
Assistant Treasurer, Corporate Controller
and Assistant Secretary
Susan M. Chiarmonte
Secretary
SUBSIDIARIES AND DIVISIONS
Domestic Subsidiaries and Divisions
Computer Optical Products, Inc.
Chatsworth, California
Hathaway Industrial Automation, Inc.
Baltimore, Maryland
Hathaway Motion Control Division
Tulsa, Oklahoma
Hathaway Motors and Instruments Division
Tulsa, Oklahoma
Hathaway Power Instrumentation
Littleton, Colorado
Hathaway Process Instrumentation
Dallas, Texas
Hathaway Automation Technology Division
Seattle, Washington
International Subsidiary
Hathaway Systems Limited
Belfast, Northern Ireland
33
<PAGE>
KUB HOLDINGS BHD.
AND
TATE INTEGRATED SYSTEMS, L.P.
JOINT VENTURE AGREEMENT
1
<PAGE>
THIS AGREEMENT is made the 9th day of March, 1995
BETWEEN
KUB HOLDINGS BHD., a company incorporated in Malaysia and having its registered
office at 1st Floor, Bangunan UMNO, Jalan Tuanku Abdul Rahman, 50100 Kuala
Lumpur, Malaysia (hereinafter called "KUBH") of the one part;
AND
TATE INTEGRATED SYSTEMS, L.P., a limited partnership under the laws of the State
of Delaware and having its office at 11431 Cronhill Drive, Suite J, Owings
Mills, Maryland 21117, United States of America (hereinafter called "TIS") of
the other part.
ARTICLE I
---------
RECITALS
--------
(S) 1.1 Business of KUBH
----------------
KUBH is presently engaged in the business of education and training, information
technology, property development and plantation.
(S) 1.2 Business of TIS
---------------
TIS is engaged in the design, manufacture, licensing, marketing, sale and/or
servicing of software and complete computer-based automation systems which are
used for process monitoring and control.
(S) 1.3 Joint Venture
-------------
KUBH and TIS are desirous of creating a joint venture for the purpose of
manufacturing, marketing and selling TIS 4000 Systems (hereinbelow defined)
which use the TIS 4000 Technology (hereinbelow defined) in the ASEAN Territory
(hereinbelow defined) [hereinafter referred to as "the Project"].
(S) 1.4 Joint Venture Company
---------------------
In order to carry out the joint venture in relation to the Project, the Parties
hereto have agreed to form a joint venture company (hereinafter referred to as
"the JVC") to undertake such task and have agreed to enter into this Agreement
for the purpose of regulating their relationship with one another and certain
aspects of the affairs and their dealings in the JVC.
(S) 1.5 License Agreement
-----------------
By a written agreement dated the 9th day of March, 1995 (hereinafter referred to
as "the License Agreement") entered into between TIS of the one part and the JVC
of the other part, TIS agreed to grant to the JVC and the JVC agreed to accept
the exclusive license to use the TIS 4000 Technology in TIS 4000 Systems
manufactured, marketed and sold in the ASEAN Territory upon payment of a
licensing fee of United States Dollars Two Million and Five Hundred Thousand
(USD 2,500,000.00) only (hereinafter referred to as "the Licensing Fee") and
subject to the terms and conditions therein contained.
2
<PAGE>
ARTICLE II
----------
DEFINITIONS/INTERPRETATION
--------------------------
(S) 2.1 Definitions
-----------
In this Agreement the following words and expressions shall, where not
inconsistent with the context, have the following meanings respectively:
2.1.1 Agreed Proportions means the agreed proportions of the issued share
-------------------
capital of the JVC to be held by each of the Parties hereto and
referred to in (S)5.1.2 hereof.
2.1.2 ASEAN Territory means the following countries:
---------------
(a)Thailand;
(b)Malaysia;
(c)Indonesia;
(d)Philippines;
(e)Singapore;
(f)Brunei; and
(g)such other countries in Asia as TIS may approve in writing.
2.1.3 BLR means the base lending rate of Malayan Banking Berhad quoted
---
from time to time.
2.1.4 Board means the board of directors of the JVC or the directors
-----
present (personally or by their alternates) at any meeting of the
directors of the JVC duly convened and held.
2.1.5 Business Day means a day, other than Saturday, on which commercial
------------
banks are open for business in Kuala Lumpur, Malaysia for
transaction of business.
2.1.6 Companies Act means the Companies Act, 1965 of Malaysia and any
-------------
statutory modification or reenactment thereof for the time being in
force.
2.1.7 Cut-Off Period means the period of three (3) months from the date of
--------------
this Agreement being the time for fulfilling the condition precedent
as stipulated in (S)4.1 of this Agreement subject to such extension
as the Parties thereto may agree.
2.1.8 Effective Date means the day falling within the Cut-Off Period when
--------------
the condition precedent stipulated in (S)4.1 hereof has been
fulfilled.
2.1.9 FIC means the Foreign Investment Committee established by the
---
Government of Malaysia to regulate the acquisition of assets,
mergers and take-overs in Malaysia in accordance with the
Government's Guidelines for the Regulations of Acquisitions of
Assets, Mergers and Take-overs.
2.1.10 Financial Year means the period of twelve (12) months commencing
--------------
from the 1st day of January and ending on the 31st day of December
of the same year.
2.1.11 JVC means the joint venture company set up by the Parties hereto and
---
referred to in (S)1.4 and (S)3.1 hereof.
3
<PAGE>
2.1.12 KUBH means KUB HOLDINGS BHD., a company incorporated in Malaysia and
----
having its registered office at 1st Floor, Bangunan UMNO, Jalan
Tuanku Abdul Rahman, 50100 Kuala Lumpur, Malaysia and shall, where
the context so admits, include its successors in title.
2.1.13 License means the exclusive license to use the TIS 4000 Technology
-------
in TIS 4000 Systems manufactured, marketed and sold in the ASEAN
Territory which TIS has agreed to grant to the JVC pursuant to the
License Agreement.
2.1.14 License Agreement means the written agreement dated the 9th day of
-----------------
March, 1995 entered into between TIS of the one part and the JVC of
the other part whereby TIS granted to the JVC the License upon the
terms and conditions therein contained.
2.1.15 Licensing Fee means the sum of United States Dollars Two Million and
-------------
Five Hundred Thousand (USD 2,500,000.00) only and referred to in
(S)1.5 hereof.
2.1.16 Malaysia means the Federation of Malaysia.
--------
2.1.17 Malaysian Laws means all the laws, regulations, orders and decrees
--------------
of Malaysia, whether Federal or State, including those to be enacted
during the term of this Agreement.
2.1.18 Memorandum and Articles of Association means the Memorandum of
--------------------------------------
Association and the Articles of Association to be adopted by the
JVC.
2.1.19 Parties means KUBH and TIS, collectively and individually, "Party".
-------
2.1.20 Project means the joint venture for the purpose of manufacturing,
-------
marketing and selling TIS 4000 Systems which use the TIS 4000
Technology in the ASEAN Territory.
2.1.21 Relevant Authorities means the relevant government ministries
--------------------
whether federal or state and other governmental statutory bodies of
Malaysia.
2.1.22 Ringgit Malaysia or RM means the lawful currency for the time being
----------------------
and from time to time of Malaysia.
2.1.23 Subsidiaries means as defined under (S)5 of the Companies Act.
------------
2.1.24 Supermajority means a simple majority of the Directors of the JVC
-------------
present (personally or by their alternate) and entitled to vote on
matters that come before any meeting of the Board; provided,
however, that such majority shall include the vote of at least one
(1) TIS Director and KUBH Director in order to constitute a
Supermajority.
2.1.25 TIS means TATE INTEGRATED SYSTEMS, L.P., a limited partnership under
the laws of the State of Delaware and having its office at 11431
Cronhill Drive, Suite J,
4
<PAGE>
Owings Mills, Maryland 21117, United States of America and shall,
where the context so admits, include its successors in title.
2.1.26 TIS 4000 System or TIS 4000 Systems means the computer based
-----------------------------------
automation systems for process monitoring and control which use the
TIS 4000 Technology, in all forms and applications.
2.1.27 TIS 4000 Technology means TIS developed software including packages
-------------------
such as DataVu, TrendVu, SNLVu, AlarmVu, ReportVu, TankFarmTools and
other software packages which may be developed by TIS in the future
which are proprietary to TIS and any modifications, improvements and
enhancements to any of the foregoing made by TIS, which, in TIS's
and KUBH's mutual opinion expressed in writing, is or are necessary
in the manufacture, marketing and sale of TIS 4000 Systems.
2.1.28 United States Dollars or USD means the lawful currency for the time
----------------------------
being and from time to time of United States of America.
(S) 2.2 Interpretation
--------------
2.2.1 Words denoting the singular number only includes the plural number
and vice versa.
2.2.2 Words denoting the neuter gender shall include the masculine and
feminine genders and vice versa.
2.2.3 Headings of Articles and Sections are for ease of reference only and
shall be ignored in interpreting the provisions hereof. References
to Articles and Sections are, except where the context otherwise
requires, references to Articles and Sections hereof.
2.2.4 References to Articles and Sections are to be construed as
references to Articles and Sections of this Agreement.
2.2.5 References to the provisions of any legislation includes a reference
to any statutory modification and re-enactment thereof and any
regulations thereunder.
ARTICLE III
-----------
FORMATION OF JVcC
----------------
(S) 3.1 Name of JVC
-----------
KUBH shall use its best efforts to (i) incorporate the JVC registered in
Malaysia under the Companies Act, (ii) maintain the corporate existence of the
JVC in Malaysia and (iii) obtain FIC approval of the transactions contemplated
by this Agreement and the License Agreement on or before the expiration of the
Cut-Off Period. The name of the proposed JVC shall be KUB-TIS CONTROLS SDN. BHD.
or such other name as may be approved by the Registrar of Companies and agreed
to by the Parties hereto. KUBH will incur the registration fee for the JVC in
the first instance and will be reimbursed by the JVC after the JVC has been
funded by the Parties hereto, in accordance with (S)11.3 hereof.
(S) 3.2 Registered Office of JVC
------------------------
5
<PAGE>
The registered office of the JVC shall be at 1st Floor, Bangunan UMNO, Jalan
Tuanku Abdul Rahman, 50100 Kuala Lumpur, Malaysia or such other place as the
Parties hereto may agree.
(S) 3.3 Main Object of JVC
------------------
The main object of the JVC shall be to implement the Project and to undertake
related activities.
(S) 3.4 Memorandum and Articles of Association of the JVC
-------------------------------------------------
3.4.1 The Memorandum and Articles of Association of the JVC shall reflect
the understanding between the Parties hereto and as contained
herein.
3.4.2 The Memorandum and Articles of Association of the proposed JVC shall
be unanimously agreed to by the Parties hereto. These documents may
be amended from time to time by written agreement between the
Parties hereto, subject to the provisions of the Companies Act. Any
understanding herein not reflected in the Memorandum and Articles of
Association of the JVC shall nevertheless be binding on the Parties
hereto. In the event of any conflict between any of the provisions
of this Agreement and the Memorandum and Articles of Association,
the former shall prevail.
ARTICLE IV
----------
CONDITION PRECEDENT
-------------------
(S) 4.1 Condition Precedent
-------------------
This Agreement is conditional upon the approval of the FIC being obtained within
the Cut-Off Period.
(S) 4.2 Effective Date
--------------
The Parties' obligations to subscribe for shares as provided in (S)5.2.2 hereof
and all their obligations and rights thereafter as shareholders in the JVC and
Parties to the joint venture or otherwise arising therefrom, shall take effect
from (and including) the Effective Date.
(S) 4.3 Application for Approval
------------------------
As soon as practicable after the execution of this Agreement, KUBH shall take
the necessary steps to apply for the approval of the FIC for the joint venture
under this Agreement. The Parties hereto shall exercise respectively, their best
endeavors to assist one another in the aforesaid application.
(S) 4.4 Notification
------------
Upon the approval of the FIC being refused or given or granted upon the
fulfillment of any conditions therein referred to, the Party being notified of
such refusal or given such approval or granted such approval subject to the
fulfillment of any conditions shall immediately notify the other Party in
writing and, where relevant, shall forward a copy thereof to the other Party.
(S) 4.5 The Option Period
-----------------
In the event that a condition is imposed in respect of the approval of the FIC
which affects any of the Parties hereto, that Party shall have the option, to be
exercised within sixty (60) days from the date on which the condition is made
known to such Party (hereinafter referred to as "the Option Period") by written
notice in writing to the other Party, to reject such condition, whereupon the
approval in respect of which the said condition is imposed shall be deemed not
to have been obtained for the purpose hereof. If such option is not exercised
within the Option Period such
6
<PAGE>
approval of the FIC in respect of which the said condition is imposed shall be
deemed to have been obtained for the purpose hereof and the Effective Date shall
be deemed to occur upon the expiration of such Option Period.
(S) 4.6 Cut-Off Period
--------------
In the event that the approval of the FIC is not obtained or fulfilled on the
expiry of the Cut-Off Period (i) this Agreement shall be deemed to have lapsed
and be of no further force and effect and the Parties hereto shall not have any
claim against each other and (ii) each Party shall bear its own costs and
expenses incurred prior to such date in connection with the transactions
contemplated hereby.
ARTICLE V
---------
SHARE CAPITAL AND ADDITIONAL FUNDING
------------------------------------
(S) 5.1 Authorized Capital
------------------
5.1.1 The initial authorized capital of the JVC shall be Ringgit Malaysia
Five Hundred Thousand (RM 500,000.00) only divided into Five Hundred
Thousand (500,000) ordinary shares of Ringgit Malaysia One (RM 1.00)
each at par value and which shall be increased to Ringgit Malaysia
Ten Million (RM 10,000,000.00) only within one (1) week from the
Effective Date.
5.1.2 The Parties hereto have agreed to subscribe for the following
proportions (hereinafter referred to as "the Agreed Proportions") of
the issued share capital of the JVC:
5.1.2.1 KUBH - 87.1%.
5.1.2.2 TIS - 12.9%.
(S) 5.2 Paid Up Capital
---------------
5.2.1 The initial paid up capital of the JVC shall be Ringgit Malaysia Two
(RM 2.00) only which will be held by the nominees of KUBH.
5.2.2 The paid up capital of the JVC shall be increased to Ringgit
Malaysia Eight Million and Sixty Thousand (RM 8,060,000.00) only by
the allotment and issue of Eight Million Fifty Nine Thousand Nine
Hundred and Ninety Eight (8,059,998) ordinary shares of Ringgit
Malaysia One (RM 1.00) each at par to the Parties hereto on or
before two (2) Business Days after the occurrence of the Effective
Date in the following proportions:
KUBH - 7,019,998 ordinary shares.
TIS - 1,040,000 ordinary shares.
5.2.3 In addition to the initial subscription as mentioned in (S)5.2.2
hereof, the Parties hereto agree to subscribe to any further issue
of share capital of the JVC so as to maintain the Agreed Proportions
referred to in (S)5.1.2 hereof. Subject to (S)5.2.5 hereof, the
Parties hereto hereby agree that except with the unanimous agreement
of the Parties hereto, (a) the Agreed Proportions shall not be
changed and accordingly, no new shares in the JVC shall be issued
and allotted to the Parties hereto (or any of them) unless the
Agreed Proportions shall be maintained, and (b) no new shares in the
JVC shall be issued or allotted to any third party.
7
<PAGE>
5.2.4 The JVC shall be responsible and at its own costs and expenses,
procure whatever funds as may be necessary for it to conduct its
business operations over and above its paid up capital and retained
earnings.
5.2.5 Notwithstanding the provision of (S)5.1.2 hereof, TIS shall be
entitled within one (1) year from the Effective Date to increase its
shareholding to forty per centum (40%) of the issued and paid up
capital of the JVC by subscribing for further ordinary shares in the
JVC at par value subject to the prior written approval of the FIC.
(S) 5.3 Financing
---------
5.3.1 Subject to the provisions of (S)5.3.3 hereof, if at any time, or
from time to time, a Supermajority of the Board determines that
additional funds are reasonably necessary for the continued
operation of the JVC, the Parties shall cause the JVC to borrow the
required additional funds from any willing third party lender, on
such terms and conditions as are approved by a Supermajority of the
Board. If a Supermajority of the Board determines (i) that funds are
not reasonably available to the JVC as described above in the
immediately preceding sentence or (ii) that additional capital
contributions are reasonably necessary to the continued operation of
the JVC then each Party agrees to contribute in accordance with the
Agreed Proportions such additional funds or capital contributions as
may be necessary for the sound operation of the JVC as determined by
a Supermajority of the Board from time to time. If either Party
fails to contribute its full share toward such additional
capitalization of the JVC, then the other Party may advance such
funds for the defaulting Party. Any such funds so advanced shall, at
the time the JVC distributes cash to the Parties, be repaid from the
share of the defaulting Party, together with interest at an amount
equal to the sum of the BLR of Malayan Banking Berhad on the date of
such loan plus three per centum (3%) per annum, from the date of the
advance. If the Party making such advances has not been repaid such
advance amount at the time of termination of this Agreement, then
the defaulting Party shall be obligated to pay such advance amount,
together with interest accrued and unpaid to the date of payment at
the rate described in the immediately preceding sentence, to the
other Party upon termination of this Agreement.
5.3.2 None of the Parties hereto undertakes to provide any loan or share
capital to the JVC nor to give any guarantee or indemnity in respect
of any of the JVC's liabilities or obligations.
5.3.3 The Parties hereto agree that to the extent that any of them suffers
any loss in relation to loans made or credit given to the JVC
pursuant to this Agreement (or with the written consent of the other
Party hereto) then they shall make contributions to each other to
the intent and effect that such losses are borne in the Agreed
Proportions.
(S) 5.4 Guarantees and Indemnities
--------------------------
5.4.1 The Parties hereto agree that; subject to Sections 5.4.2 and 5.4.3
hereof, the aggregate amount of any actual liability incurred by
them pursuant to any joint and several guarantee or indemnity given
by them to any third party in respect of any liabilities or
obligations of the JVC or pursuant to any guarantee or indemnity
(whether several or joint and several) given in respect of such
obligations or liabilities
8
<PAGE>
by any of them with the written consent of the other shall be borne
by them in the Agreed Proportions and each shall indemnify and keep
indemnified the other accordingly which indemnity shall include
costs incurred by the other Party.
5.4.2 If any liability incurred as aforesaid is solely attributable to the
act or default of one of the Parties hereto then, notwithstanding
(S)5.4.1 hereof, the whole of such liability shall be borne by such
Party hereto who shall indemnify and keep indemnified the other
Party accordingly.
5.4.3 In the event that a Party ("Selling Party") hereto disposes of all
its shares to the other Party ("Acquiring Party") hereto then the
Acquiring Party will use all reasonable endeavors to obtain the
release of that the Selling Party from any guarantees and
indemnities which he may have given pursuant to this Agreement or
with the written consent of the both Parties hereto in respect of
any of the liabilities or obligations of the JVC to third parties
and pending the obtaining of such release shall keep that the
Selling Party fully and effectively indemnified against any
liability pursuant to any such guarantees or indemnities.
ARTICLE VI
----------
INDEMNITY
---------
(S) 6.1 Indemnity by KUBH
-----------------
KUBH shall indemnity, defend and hold harmless TIS and TIS's directors,
officers, employees and agents from and against all claims, actions or causes of
action, suits and proceedings and all loss, assessments, liability, damages,
costs and expenses incurred in connection therewith (including reasonable
attorney's fees) for which TIS or its directors, officers, employees or agents
may become liable or incur or be compelled to pay, in each case, to the extent
caused, (i) by a breach of this Agreement by KUBH, or (ii) by the willful
misconduct or negligent acts or omissions of KUBH, their agents, contractors or
employees, in connection with or as a result of this Agreement or the
performance of its obligations hereunder, unless, in each case, such claim
results from the willful misconduct or negligent acts or omissions of TIS.
(S) 6.2 Indemnity by TIS
----------------
TIS shall indemnify, defend and hold harmless KUBH and KUBH's directors,
officers, employees and agents from and against all claims, actions or causes of
action, suits and proceedings and all loss, assessments, liability, damages,
costs and expenses incurred in connection therewith (including reasonable
attorney's fees) for which KUBH or its directors, officers, employees or agents
may become liable or incur or be compelled to pay, in each case, to the extent
caused, (i) by a breach of this Agreement by TIS, or (ii) by the willful
misconduct or negligent acts or omissions of TIS, their agents, contractors or
employees, in connection with or as a result of this Agreement or the
performance of its obligations hereunder, unless, in each case, such claim
results from the willful misconduct or negligent acts or omissions of KUBH.
(S) 6.3 Survival of indemnity
---------------------
The indemnifications provided in this Article VI, shall survive termination of
this Agreement.
ARTICLE VII
-----------
MANAGEMENT OF JVC AND BOARD OF DIRECTORS
----------------------------------------
9
<PAGE>
(S)7.1 Number of Directors
-------------------
7.1.1 Unless otherwise determined by a general meeting of the JVC, the
Board shall comprise of not less than two (2) but not more than
ten (10) members (excluding Alternate Directors).
7.1.2 The initial composition of the Board shall be up to seven (7)
Directors to be nominated by the Parties hereto in the following
proportion:
7.1.2.1 KUBH - up to five (5) only
("KUBH Directors").
7.1.2.2 TIS - up to two (2) only
("TIS Directors")
7.1.3 In the event of any changes to the Agreed Proportions as stated in
(S)5.1.2 hereof then the number of Directors shall be revised
accordingly in proportion to their respective shareholdings in the
JVC.
7.1.4 The Directors shall not be compensated for their services as
members of the Board. The JVC shall be, however, responsible for
all reasonable out-of-pocket expenses as approved by the Board
incurred by members of the Board in attending regular or special
meetings of the Board.
(S)7.2 Qualification of Directors
--------------------------
Subject to the fulfillment of all the requirements of the Companies Act the
Directors shall not be required to hold any qualification shares.
(S)7.3 Chairman
--------
The Chairman of the Board and the Chairman of all Board meetings of the JVC
shall be elected by the Board. The Chairman shall have a casting vote.
(S)7.4 Change of Nominee Directors
---------------------------
7.4.1 The Parties hereto shall have the option to renominate their
retiring Directors, or suitable replacement thereof, and the
appointments to be made by the shareholders shall be in accordance
with the recommendations of these Parties in respect of Directors
they are entitled to nominate.
7.4.2 The Parties hereto shall respectively have the right to remove
their respective nominee Directors so appointed and to appoint
others in their place. Appointment or removal of nominee Directors
shall be effected in writing, or by telex or telefax addressed to
the Chairman of the Board of the JVC by KUBH or TIS, as the case
may be and the same shall take effect upon being received by the
JVC in accordance with the procedures laid down in the Companies
Act. Neither Party hereto shall have the right, and shall not sign,
do or execute any document act or thing, to remove the nominee
Directors of or representing the other Party hereto.
(S)7.5 Board Meetings
--------------
7.5.1 Unless otherwise agreed, written notice of every meeting of the
Board shall be received by every Director at least fourteen (14)
days in advance thereof. However,
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if an emergency meeting of the Board convenes at the request of the
Chairman of the Board or the Managing Director, the notice period
to every Director shall be at least ten (10) days.
7.5.2 Every notice convening a meeting of the Board shall set out the
agenda of the business to be transacted. No item of business shall
be transacted at such meeting, unless the same has been stated in
the said notice convening the meeting. PROVIDED that:
7.5.2.1 additional item(s) of business may be inserted in the
agenda of the business to the transacted if notice of
such additional item is given to all the Directors at
least seven (7) days before meeting of the Board; or
7.5.2.2 with the unanimous consent of all the Directors present,
any item of business not included in the agenda may be
transacted at the meeting.
7.5.3 The quorum for a meeting of the Board shall be three (3) Directors
who are present in person or by their alternate. PROVIDED further
that no quorum for a meeting of the Board shall be constituted and
no such meeting shall proceed to transact any business unless at
least one (1) Director (or his alternate) representing each of the
Parties hereto are present at such meeting. If there is no quorum
for a duly convened meeting of the Board of which notice has been
given to all the Directors, then such meeting shall stand adjourned
to the same day in the next week at the same time and place or to
such other day and at such other time and place as the majority of
the directors for the time being shall decide, and at such
adjourned meeting, the quorum shall be any three (3) Directors.
(S)7.6 Circular Resolution
-------------------
A resolution in writing, signed by a Supermajority of the Directors for the time
being entitled to receive notice of a meeting of the Directors, shall be as
valid and effective as if it had been passed at a meeting of the Directors duly
convened and held. Any such resolution may consist of several documents in like
form, each signed by one or more Directors.
(S)7.7 Decision of the Board
---------------------
All the important matters of business of the JVC shall be decided by the Board
of the JVC. In the meetings of the Board, normally all the matters should be
decided unanimously. However, in case of difference of opinion, matters may be
decided by majority of the Directors present in the meeting except for those
matters enumerated below which no resolution shall be passed or approved or
treated as passed, approved or effective unless with the approval of at least
one (1) Director representing each of the Parties hereto:
7.7.1 acquisition by the JVC of any land, or other improved or unimproved
immovable property, or any improvements thereon or interest
therein, in each case, having an individual value of Ringgit
Malaysia Six Hundred and Twenty Five Thousand (RM 625,000.00) only
or more;
7.7.2 approval of operating budgets for the JVC (which shall be
further subject to approval by the Board of Directors of KUBH);
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7.7.3 making of any expenditure or the incurrence of any obligation
during any Financial Year which, when added to other expenditures
made or obligations incurred for such Financial Year, exceeds by
more than ten per centum (10%) the amount provided for such
expenditure in the annual budget approved by the Board for such
Financial Year;
7.7.4 entering into by the JVC of any management, development, technical
services, consulting, advisory, marketing or similar contract or
agreement that, in each case, calls for annual payments of Ringgit
Malaysia One Hundred and Twenty Five Thousand (RM 125,000.00) only
or more, or any termination or modification of such contract or
agreement;
7.7.5 any modification of the insurance required to be maintained by the
JVC pursuant to (S)10.1.3 hereof if such modification will
materially increase the cost of such insurance;
7.7.6 hiring by the JVC of any key employee;
7.7.7 approval of marketing, advertising and other business plans of the
JVC;
7.7.8 incurrence of any long-term debt by the JVC;
7.7.9 determinations with respect to additional capitalization or
additional funds of the JVC in accordance with and as more
particularly described in (S)5.3.1 hereof;
7.7.10 amendment, revision, modification or deletion of any of the
provisions of the Memorandum and Articles of Association of the
JVC;
7.7.11 approval of any plan to list the shares of the JVC on any stock
exchange and for sale to the public; and
7.7.12 the making of any other decision or taking of any other action
which, by any provision of this Agreement, materially adversely
effects the JVC or the assets or operations thereof.
(S)7.8 Management Committee
--------------------
7.8.1 The management committee of the JVC shall comprise the following
persons each of whom shall be appointed by a Supermajority of the
Board:
7.8.1.1 the Managing Director;
7.8.1.2 the General Manager (if-any);
7.8.1.3 the Financial Controller or Accountant; and
7.8.1.4 such other persons as may be approved by the Board.
7.8.2 The Managing Director shall be responsible for the general
supervision of the daily affairs of the JVC and shall oversee all
aspects of the development of the business of
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the JVC, and, in general, shall perform all duties incident to the
office of the Managing Director. The Managing Director shall have
such authority as may from time to time be delegated to him by a
Supermajority of the Board.
7.8.3 The Financial Controller or the Accountant shall have custody of
all funds and of all financial records of the JVC.
7.8.4 The Managing Director, the General Manager, the Financial
Controller or Accountant and other officers, employees and agents
shall be remunerated in line with KUB group policy.
7.8.5 Notwithstanding any other provision of this Agreement to the
contrary, (i) no Affiliate of either Party may act as an officer,
employee, agent or contractor of the JVC and (ii) no person who is
related to any officer, director or employee of KUBH or TIS may
serve as an officer or director of the JVC, in each case, without
Supermajority approval of the Board; provided, however, that any of
the current officers and directors of KUBH or TIS may serve as
officers and/or directors of the JVC without the approval of the
Board.
7.8.6 The management committee of the JVC shall hold meetings at such
times as the members of the management committee deem appropriate;
provided, however, that the management committee shall meet at
least once every three (3) months to review and discuss matters
relevant to the operation and business affairs of the JVC. The
Managing Director shall record and maintain minutes of each
management committee meeting and shall provide copies of each set
of minutes, signed by the Managing Director, to each of the Parties
hereto within fourteen (14) days of each management committee
meeting.
(S)7.9 Books and Records
-----------------
7.9.1 At all times during the term of the JVC, the JVC shall keep or
cause to be kept accurate and complete books of account in which
shall be entered fully and accurately the transactions of the JVC,
and all of said books shall at all times be maintained at the
principal office of the JVC. The JVC's books of account shall be
open to the inspection and examination of Parties or their
respective representatives during all reasonable business hours.
The JVC's Financial Year shall be the twelve (12) months ending
31st day of December.
7.9.2 The JVC shall comply with all applicable tax laws and regulations
and shall file all tax information or tax returns required to be
filed by the JVC and/or the Parties with the appropriate taxing
authorities within the time periods established by the laws and
regulations of each relevant jurisdiction; provided, however, that
all tax information and tax returns shall be subject to the prior
review and approval of the Parties. The JVC's independent
accountants shall prepare such tax returns, and the costs of
preparing and filing such tax returns shall be borne by the JVC.
7.9.3 All books and records of the JVC shall be maintained by the
accounts department of the JVC (i) in the English language and (ii)
in accordance with generally accepted accounting principles. All
agreements entered into by the JVC shall be written in the English
language.
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ARTICLE VIII
------------
TRANSFER AND TRANSMISSION OF SHARES
-----------------------------------
(S)8.1 Right of First Refusal
----------------------
8.1.1 No Party hereto shall, without the prior written consent of the
other Party, sell, transfer, assign, contribute, mortgage,
hypothecate or otherwise encumber, transfer or permit to be
transferred, either voluntarily or involuntarily, or otherwise
dispose its equity shares or any part thereof without first
offering to sell the same to the other Party or its nominee in
accordance with (S)8.1.3 hereof. PROVIDED that no such consent of
the other Party shall be required in case the said shares are to be
transferred, sold or otherwise disposed of to any of the
Subsidiaries of the Party concerned.
8.1.2 Any transfer or sale referred to in (S)8.1.1 hereof shall be
effected only on the condition that the purchaser or the transferee
agrees to abide by and observe all the terms and conditions of this
Agreement and such purchaser or transferee shall enter into an
agreement incorporating the terms and conditions and covenants
herein contained.
8.1.3 Any offer of sale for any of the shares subject to the right of
first refusal provided for in Sections 8.1.1 and 8.1.2 hereof shall
be made in the following manner:
8.1.3.1 such offer shall be made in writing addressed to the
other Party for which it is intended;
8.1.3.2 such offer shall indicate, among other things the price
at which the shares are offered for sale. The Parties
hereto shall within thirty (30) days from the date of
such offer negotiate and agree upon the price at which
the shares will be sold. In default of agreement between
the Parties the price shall be a fair price determined by
a firm of Accountants of international repute, (to be
unanimously agreed upon by the Parties hereto) within
sixty (60) days from the date of such offer and on the
basis of accepted standards, whose decision shall be
final and binding;
8.1.3.3 if any such offer shall not be accepted by the other
Party hereto in writing within a period of ninety (90)
days from the date of receipt thereof or the date of
fixation of price by the abovesaid firm of Accountants as
aforesaid; as the case may be, then in such case the
offer shall be deemed to have been declined and the Party
by whom the offer is made shall thereafter be free to
sell the shares to any third parties but not on terms
relating to price and payment more favourable than that
previously offered to the other Party hereto;
8.1.3.4 in the event of any such offer being accepted, completion
of the sale and purchase of the shares comprised therein
shall take place within such time as the Parties hereto
may agree or in default of agreement within not more than
fifteen (15) days after the date of acceptance (excluding
the time taken for obtaining the permission of any
Government authority, if applicable);
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8.1.3.5 at such completion the vendor shall deliver to the
purchasers:
8.1.3.5.1 the certificates for the shares to be sold;
and
8.1.3.5.2 transfer forms of such shares duly executed
by vendor. Before such completion, the
purchasers shall obtain such Government
consent and permission as may be required,
to enable the shares to be sold and
transferred to the purchasers and deliver to
the vendor in exchange thereof a Bankers
Draft or other method acceptable to the
Parties for the amount of the purchase price
payable.
In this clause the expression "vendor" means any of the
Parties hereto by which any offer for sale of shares is
made pursuant to the foregoing provisions and the
expression "the purchaser or transferee" shall mean any
of the Parties hereto or such third party(ies) who agreed
to purchase the shares from vendor.
8.1.4 An offer made by one (1) Party to the other Party shall be open for
acceptance only as to the whole of the shares so offered and not
any lesser number thereof, unless the offeror agrees at its
discretion.
8.1.5 The Parties hereby agree that the Board shall not be entitled to
refuse to register any transfer of shares by a Party hereto to a
third party if (a) that Party has, in connection with such
transfer, complied with the foregoing provisions prior to the sale
and transfer of shares to that third party, (b) that third party
has delivered to the Board its written agreement as referred to
in (S)8.1.2 hereof, and (c) the transferor and transferee have
furnished to the Board evidence that the price paid by the third
party and the terms of payment thereof are not more favourable than
the price and terms of payment offered by the transferor to the
other Party.
(S)8.2 Transfer to Successors in Title
-------------------------------
Any of the Parties hereto shall be entitled to transfer its shares in the JVC to
any of its successors by amalgamation, merger or to the purchaser of all or
substantially all of its property, business and assets of the Party subject to
the condition that the transferee shall agree to be bound by all the terms and
conditions herein contained. A transfer under this Section will not be covered
by the restriction and conditions contained in (S)8.1 hereof.
(S)8.3 Covenant not to create lien
---------------------------
A Party hereto shall not create a general lien over the shares owned by them in
the JVC except with the prior consent of the other Party hereto.
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ARTICLE IX
----------
MUTUAL COVENANT8
----------------
(S)9.1 Exercise of powers
------------------
9.1.1 Except as the Parties hereto may otherwise agree in writing or save
as otherwise provided or contemplated in this Agreement the Parties
hereto shall exercise their powers in relation to the JVC so as to
ensure that:
9.1.1.1 the JVC carries on and conducts it business and affairs
in a proper and efficient manner and for its own
benefit;
9.1.1.2 the JVC transacts all its business on arm's length
terms;
9.1.1.3 the JVC shall not enter into any agreement or
arrangement restricting its competitive freedom to
provide and take goods and services by such means and
from and to such persons as it may think fit;
9.1.1.4 all business of the JVC, other than routine day to day
business, shall be undertaken and transacted by the
directors;
9.1.1.5 the business of the Company shall be carried on
pursuant to policies laid down from time to time by the
Board;
9.1.1.6 the JVC shall maintain with a well established and
reputable insurer adequate insurance against all risks
usually insured against by companies carrying on the
same or a similar business and (without prejudice to
the generality of the foregoing) for the full
replacement or reinstatement value of all its assets of
an insurable nature;
9.1.1.7 the JVC allots and issues its shares and other
securities at the best price reasonably obtainable in
the circumstances;
9.1.1.8 the JVC shall not acquire, dispose, hire, lease,
license or receive licenses of any assets, goods,
rights or services otherwise than at the best price
reasonably obtainable in the circumstances;
9.1.1.9 the JVC shall keep books of account and therein make
true and complete entries of all its dealings and
transactions of and in relation to its business;
9.1.1.10 the JVC shall provide each Parties hereto within two
(2) weeks of the end of each calendar month with
unaudited management accounts for such month in a form,
acceptable to the Parties hereto, rolling cash flow
forecasts for a period of twelve (12) months from the
end of each month and with details of its order book at
such date;
9.1.1.11 the JVC shall prepare its accounts on an historical cost
basis or any other basis agreed by the Parties hereto
and shall adopt such accounting policies as may from
time to time be generally accepted in Malaysia;
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9.1.1.12 the JVC shall prepare such accounts in respect of each
accounting reference period as are required by statute
and procure that such accounts are audited as soon as
practicable and in any event not later than three (3)
months after the end of the relevant accounting
reference period;
9.1.1.13 each accounting reference period of the Company shall be
a period of twelve (12) calendar months;
9.1.1.14 the JVC shall keep each of the Parties hereto fully
informed as to all its financial and business affairs;
and
9.1.1.15 if the JVC requires any approval, consent or licence for
the carrying on of its business in the places and in the
manner in which it is for the time being carried on or
proposed to be carried on the JVC will use its best
endeavours to maintain the same in full force and
effect.
9.1.2 Each Party hereto shall use all reasonable and proper means in its
power to maintain, improve and extend the business of the JVC and
its subsidiaries (if any) and to further the reputation and
interests of the JVC and its subsidiaries (if any).
9.1.3 Where any of the Parties hereto is required under this Agreement to
exercise its powers in relation to the JVC to procure a particular
matter or thing, such obligation shall be deemed to include an
obligation to exercise its powers both as a shareholder and as a
director (where applicable) of the JVC and to procure that any
director appointed by it (whether alone or jointly with any other
person) shall procure such matter or thing.
(S)9.2. Further assurance
-----------------
The Parties hereto shall use their respective reasonable endeavours to procure
that any necessary third parties shall, do, execute and perform all such further
deeds, documents, assurances, acts and things as any of the Parties hereto may
reasonably require by notice in writing to the others to carry the provisions of
this Agreement and the Articles of Association into full force and effect.
(S)9.3 Parties bound
-------------
9.3.1 The Parties hereto shall cause the JVC to observe and comply with
the terms and conditions of this Agreement insofar as the same
relate to the JVC and to act in all respects as contemplated by
this Agreement.
9.3.2 The Parties hereto undertake with each other to exercise their
powers and carry out their obligations in relation to the JVC so as
to ensure that the JVC fully and promptly observes, performs and
complies with its obligations under this Agreement.
9.3.3 Each of the Parties hereto undertakes with each other that whilst
it remains a party to this Agreement it will not (except as
expressly provided for in this Agreement) agree to cast any of the
voting rights exercisable in respect of any of the shares held by
it in accordance with the directions, or subject to the consent of,
any other person (including another party hereto).
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(S)9.4 Cooperation
-----------
Each of the Parties hereto hereby undertakes with one another as follows:
9.4.1 to do all things reasonably within its power which are necessary or
desirable to give effect to the spirit and intent of this
Agreement;
9.4.2 in the event that the JVC experiences difficulties and problems in
its functioning and/or operations and the like, the Parties hereto
will discuss and use their best efforts to find a solution in the
best interests of the JVC.
(S)9.5 Dividend policy
---------------
If in respect of any accounting period a Supermajority of the Board determines
that the JVC has profits available for distributions the Parties hereto shall
procure that in the absence of agreement to the contrary at least ten per centum
(10%) of the same are distributed by way of cash dividends by the JVC within
four (4) months after the end of such period. In deciding whether in respect of
any accounting period the JVC had profits available for distributions the
Parties hereto shall procure that the Auditors shall certify whether such
profits are available or not and the amount thereof (if any). In giving such
certificate the Auditors shall act as experts and not arbitrators and their
determination shall be binding on the Parties hereto.
(S)9.6 Auditors
--------
The Auditors of the JVC shall be Accountants of repute as may be agreed to by
the Parties hereto to be appointed in accordance with the relevant provisions of
the Companies Act.
(S)9.7 Non-competition
---------------
9.7.1 During the term of this Agreement and for a period of two (2) years
following the termination of this Agreement, each Party hereto
agrees that without the prior written consent of the other Party
hereto (which consent may be withheld in such other Party' s sole
discretion), such Party shall not, for its own account or jointly
with another, directly or indirectly, on behalf of any individual,
partnership, corporation, limited liability company or other legal
entity, as principal or agent or otherwise engage in, consult with
or own, control or manage or otherwise participate in the
ownership, control or management of a business manufacturing,
marketing or selling computer- based automation systems for process
monitoring and control in the ASEAN Territory; provided that such
restriction shall not apply to KUBH doing such business in Malaysia
only.
9.7.2 Each Party hereto agrees for itself and its related persons that
none of them shall utilize the name "KUB-TIS CONTROLS SDN. BHD." or
any name similar thereto for any purpose in the ASEAN Territory
during the term of this Agreement. Upon termination of this
Agreement:
9.7.2.1 KUBH shall not use any name which contains any reference
to "TIS"; and
9.7.2.2 TIS shall not use any name which contains any reference
to "KUB".
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9.7.3 Notwithstanding anything to the contrary set forth above, in the event
that any Party hereto shall purchase the shares of the other Party in
the JVC, such Party shall not be bound by this (S)9.7.
9.7.4 Notwithstanding the foregoing, TIS shall have the right to purchase
TIS 4000 Systems, software or equipment, at competitively mutually
negotiated prices not to exceed published prices for such TIS 4000
Systems, software or equipment at the time, manufactured by the JVC
for sale by TIS in areas outside the ASEAN Territory.
ARTICLE X
---------
COVENANTS BY KUBH
-----------------
(S) 10.1 Covenants by KUBH
-----------------
KUBH shall use its best endeavours, at the expense of the JVC, to:
10.1.1 establish and maintain all governmental contacts in the countries of
the ASEAN Territory and in such other locations as may be required to
obtain the permits, licenses and other authorisations and privileges
necessary or desirable for conducting the business of the JVC, subject
to the approval of TIS which approval shall not be unreasonably
withheld, and shall take all necessary action to ensure the continuing
compliance of the JVC with applicable law;
10.1.2 procure on behalf of the JVC liability insurance that satisfied
applicable requirements of the laws of Malaysia and provides full
coverage for injury or death to a person or persons or loss or damage
to property occurring in or about the JVC premises or in any manner
connected therewith, in an amount to be decided by the Board having
regard to the applicable Malaysian Laws;
10.1.3 engage an independent certified public accounting firm on behalf of
the JVC to review the JVC's books of account on an annual basis;
10.1.4 assist TIS with logistical matters, including, but not limited to,
obtaining telemarketers, translators, clerical personnel, materials,
supplies, printing and such other goods and services as TIS may
request from time to time;
10.1.5 provide liaison with all governmental authorities, including police,
fire and security officials, necessary to insure the safety of the
business of the JVC;
10.1.6 to expedite the securing of appropriate and adequate land either by
purchase or lease or rental of suitable premises for the setting up of
the JVC's office and provide facilities, furnishings, office
equipment, telephone and facsimile services to the JVC; and
10.1.7 in recruiting suitable and qualified personnel for the management of
the JVC including without limitation experienced personnel for
attending to the marketing and sales of the TIS 4000 Systems.
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ARTICLE XI
----------
COVENANTS BY TIS
----------------
(S) 11.1 Covenants by TIS
----------------
TIS shall at the expense of the JVC, provide services to the JVC, which services
may include, but shall not be limited to the following:
11.1.1 provide the JVC with a complete set of user's materials (as described
in the Licence Agreement) on the use and operations of the TIS 4000
Technology and for use as developer tools as well as for diagnostic
purpose;
11.1.2 provide training for personnel of the JVC on the use and incorporation
of the TIS 4000 Technology into TIS 4000 systems in the English
language at TIS's then current published rates for such services;
11.1.3 provide the JVC with reasonable technical consultation and support,
including diagnostic support, via modem telecommunications at TIS's
then current published rates for such services;
11.1.4 provide technical support, support systems and designs and
modifications made specifically to meet the requirements of the ASEAN
Territory at TIS's then current published rates for such services;
11.1.5 supply or arrange to supply to the JVC at reasonable and favourable
terms and conditions up to date and modern machinery and equipment
required by the JVC for the production of the TIS 4000 Systems;
11.1.6 organize training for the engineers, technicians and officers of the
JVC to operate efficiently all the machinery and equipment at the JVC
premises in accordance with the terms and conditions of the Licence
Agreement;
11.1.7 transfer requisite and up to date technology and know how to the
employees of the JVC in relation to the TIS 4000 Technology which
technology shall in no event include the TIS 4000 Technology source
code except as provided under the Licence Agreement;
11.1.8 provide technical support to assist the JVC in the creation of an
engineering and technical training group for the JVC;
11.1.9 provide internal and external sales and marketing support to the JVC,
including, but not limited to, staging marketing and sales campaigns
for the JVC; and
11.1.10 second suitable, qualified and experienced personnel to the JVC to
provide the necessary technical and marketing support to the JVC.
(S) 11.2 Payment for services
--------------------
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11.2.1 The JVC shall pay TIS for all services rendered to the JVC pursuant to
this Agreement at TIS' then current published rates for such services
on a monthly basis, in arrears and upon receipt by the JVC of invoices
therefor.
11.2.2 In accordance with the annual budgets approved by a Supermajority of
the Board, KUBH and TIS shall be reimbursed by the JVC for all
properly documented and budgeted out-of-pocket expenses incurred with
respect to the discharge of their respective responsibilities under
this Agreement. Reimbursement shall be made on a monthly basis, in
arrears and in accordance with the annual budget approved by a
Supermajority of the Board, upon receipt by the JVC of appropriate
invoices and supporting documentation.
ARTICLE XII
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
(S) 12.1 KUBH Representations and Warranties
-----------------------------------
KUBH hereby represents and warrants to TIS that:
12.1.1 KUBH is a corporation duly organized under the laws of Malaysia and
has full legal right, power and authority to enter into and perform
its obligations under this Agreement.
12.1.2 This Agreement has been duly authorised, executed and delivered by
KUBH and, assuming the valid execution and delivery hereof by TIS,
constitutes a legal, valid and binding obligation of KUBH.
12.1.3 Except as disclosed in writing, there is no action before any court or
governmental authority, pending or, to the best of KUBH's knowledge,
threatened against KUBH, wherein an unfavourable decision, ruling or
finding would materially adversely affect the performance of its
obligations hereunder.
12.1.4 Neither the execution or delivery by KUBH of this Agreement, nor the
performance of its obligations contemplated hereby nor its fulfillment
of the terms or conditions of this Agreement (a) conflicts with,
violates or results in a breach of any applicable law, or (b)
conflicts with, violates or results in a breach of any term or
condition of any judgment or decree, or any agreement or instrument,
to which KUBH is a party or by which KUBH or any of its properties or
assets are bound, or constitutes a default thereunder.
12.1.5 Subject to (S)4.1 hereof, no approval, authorisation, order or
consent of, or declaration, registration of filing with, any
governmental authority is required for the valid execution and
delivery by KUBH of this Agreement except those that have been duly
obtained or made.
21
<PAGE>
(S) 12.2 TIS Representations and Warranties
----------------------------------
TIS hereby represents and warrants to KUBH that:
12.2.1 TIS is a limited partnership duly organized under the laws of the
State of Delaware and has full legal right, power and authority to
enter into and perform its obligations under this Agreement.
12.2.2 This Agreement has been duly authorised, executed and delivered by TIS
and, assuming the valid execution and delivery hereof by KUBH,
constitutes a legal, valid and binding obligation of TIS.
12.2.3 Except as disclosed in writing, there is no action before any court or
governmental authority, pending or, to the best of TIS's knowledge,
threatened against TIS, wherein an unfavourable decision, ruling, or
finding would materially adversely affect the performance of its
obligations hereunder.
12.2.4 Neither the execution or delivery by TIS of this Agreement, nor the
performance of its obligations contemplated hereby nor its fulfillment
of the terms or conditions of this Agreement (a) conflicts with,
violates or results in a breach of any applicable law, or (b)
conflicts with, violates or results in a breach of any term or
condition of any judgment or decree, or any agreement or instrument,
to which TIS is a party or by which TIS or any of its properties or
assets are bound, or constitutes a default thereunder.
12.2.5 No approval, authorisation, order or consent of, or declaration,
registration of filing with, any governmental authority is required
for the valid execution and delivery by TIS of this Agreement except
those that have been duly obtained or made.
12.2.6 TIS is the absolute proprietor and copyright owner of the TIS 4000
Technology only and TIS makes no representation or warranty with
respect to ownership rights of TIS in or to any TIS 4000 System or any
third party software or hardware used in a TIS 4000 System.
ARTICLE XIII
------------
ARBITRATION
-----------
(S) 13.1 Arbitration
-----------
13.1.1 Any dispute, controversy or claim between or among the Parties hereto
arising out of or in relation to this Agreement, or the breach,
termination or invalidity thereof shall be settled, in so far as it is
possible, by mutual consultation and consent.
13.1.2 If the Parties hereto should be unable to reach mutual consent, the
question shall be settled by arbitration.
13.1.3 Any arbitration shall be conducted by a single arbitrator in the case
the Parties can agree upon one or otherwise to two arbitrators one to
be appointed by each Party in accordance with and subject to the
provisions of the Arbitration Act, 1952 of
22
<PAGE>
Malaysia or any statutory modification or re-enactment thereof for
the time being in force.
ARTICLE XIV
-----------
TERMINATION
-----------
(S) 14.1 Termination of this Agreement
-----------------------------
This Agreement will continue in effect until terminated in any of the following
events:
14.1.1 by any Party, in the event of a material breach of the terms and
conditions contained in this Agreement by the other Party hereto; or
14.1.2 by any Party, upon seven (7) days' prior written notice to such effect
to the other Party in the event of dissolution, insolvency or
bankruptcy (except for amalgamation) proceedings or any other
proceedings analogous in nature or effect are instituted by or against
the other Party hereto, any Party is dissolved or liquidated whether
voluntarily or involuntarily, a receiver or trustee is appointed for
all or a substantial part of the assets of any Party or a Party makes
an assignment for the benefit of creditors; or
14.1.3 upon the termination of the Licence Agreement in accordance with its
terms; or
14.1.4 in the event that the JVC's independent auditors determine that the
JVC requires additional capital to avoid insolvency of the JVC and a
majority of the Board fails to agree to require such additional
capitalization.
(S) 14.2 Notice of Termination
---------------------
In the event of a material breach of the terms and conditions contained in this
Agreement by a Party hereto (the "defaulting Party"), the other Party (the
"aggrieved Party") if it wishes to terminate this Agreement by reason of such
material breach, shall first give to the defaulting Party not less than thirty
(30) days' prior written notice requiring the defaulting Party to remedy or
rectify such breach within such thirty (30) days period to the satisfaction of
the aggrieved Party, and if the defaulting Party fails or refuses to cure or
have undertaken to cure the same, the aggrieved Party shall be entitled after
such thirty (30) days period to terminate this Agreement by giving to the
defaulting Party, written notice of such termination whereupon this Agreement
shall be treated as terminated on the date of the said written notice of
termination.
(S) 14.3 Effect of Termination
---------------------
14.3.1 Upon termination of this Agreement pursuant to (S)14.2 hereof, the
Party giving notice of termination shall have the option to acquire
the entire shareholding of the defaulting Party in the JVC at the
price to be determined in accordance with (S)8.1.3.2 hereof, or shall
have the right, exercisable by notice in writing to the defaulting
Party to require that the JVC be wound up; provided that no such right
shall exist unless the Party giving such notice is a member of the JVC
at the time of such notice, the Parties hereto shall join in procuring
the prompt and due convening of an extraordinary general meeting of
the JVC for the purpose of proposing a special resolution for the
winding up of the JVC, and shall procure that such extraordinary
general meeting is held at the place and time for which it is convened
and that such special resolution is duly passed.
23
<PAGE>
14.3.2 Any termination of this Agreement shall without prejudice to and shall
not affect any rights or remedies which any Party hereto may be
entitled to against the other Party in respect of or arising from or
in connection with any antecedent breach of this Agreement by such
other Party.
(S) 14.4 Agreement to Terminate
----------------------
Notwithstanding any other provisions in this Agreement to the contrary, the
Parties hereto may by unanimous consent terminate this Agreement at any time.
ARTICLE XV
----------
GENERAL TERMS
-------------
(S) 15.1 Remedies and Waivers
---------------------
Time shall be of the essence of this Agreement but a failure to exercise and a
delay in exercising any right, power or privilege under this Agreement shall not
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege preclude any other or further exercise thereof or the
exercise of any other right power or privilege. The rights and remedies herein
provided are cumulative and not exclusive of any rights or remedies provided by
law.
(S) 15.2 Restriction on Assignment
-------------------------
The rights and obligations arising hereunder shall not be assignable by any
Party hereto without the prior written consent of the other Party hereto.
(S) 15.3 Entire Agreement
----------------
This Agreement constitutes the entire agreement between the Parties hereto with
respect to the matters dealt with therein. No variation of this Agreement shall
be valid or effective unless made by one or more instruments in writing and
signed by such of the Parties hereto which would be affected by such variation.
(S) 15.4 Governing Law
-------------
15.4.1 This Agreement shall be governed by and construed in all respects in
accordance with the laws of Malaysia.
15.4.2 TIS hereby irrevocably agrees that any legal action or proceedings
against it with respect to this Agreement may be brought in the courts
of Malaysia and TIS hereby:
15.4.2.1 irrevocably submits itself unconditionally to the non-
exclusive jurisdiction of the aforesaid courts;
15.4.2.2 irrevocably appoints Messrs Shearn Delamore & Co of No.
2, Benteng, 50050 Kuala Lumpur, Malaysia as its agents to
receive service of process in Kuala Lumpur, Malaysia and
such appointment shall not be revoked without the consent
in writing of KUBH; and
15.4.2.3 acknowledges the competence of any such courts, and agree
that a final judgment in any such suit, action or
proceeding brought in such courts shall be conclusive and
binding upon TIS and may be enforced
24
<PAGE>
in the Courts of the State of Delaware and/or any other
states in the United States of America (to the extent (if
any) permissible under the Laws of State of Delaware
and/or the other states of the United States of America,
as the case may be) or in any other courts to the
jurisdiction or which TIS is or may be subject by a suit
upon such judgment, a certified or exemplified copy of
which shall be conclusive evidence of the fact and of the
amount of TIS's indebtedness.
(S) 15.5 No Partnership
--------------
Nothing in this Agreement shall constitute or be deemed to constitute a
partnership between any of the Parties hereto and none of them shall have any
Authority to bind the others in any way.
(S) 15.6 Force Majeure
-------------
No Party shall be liable for failure to perform its obligations under this
Agreement if and to the extent the failure is due to acts of God, causes beyond
its reasonable control such as, but not limited to, fire, flood or other natural
catastrophes insurrection, industrial disturbance, inevitable accidents, war
(undeclared or declared), embargoes, blockages, legal prohibitions, riots or
strikes acts of the government in either its sovereign or contractual capacity
(each a "Force Majeure").
(S) 15.7 Confidentiality
---------------
15.7.1 Except as required by any governmental or other regulatory authority,
or any competent court having jurisdiction, no public announcement or
press release shall be made by or on behalf of any Party hereto about
the existence or contents of this Agreement, or the negotiations
hereunder, without the prior written consent of the other Party
hereto. Furthermore, any proposed announcement or press release shall
be discussed among all the Parties hereto with the views and wishes of
each Party being duly taken into account in the drafting of such
announcement or press release.
15.7.2 The Parties hereto undertake to each other and the JVC that they will
not at any time hereafter use or divulge or communicate to any persons
other than to officers or employees of the group whose province it is
to know the same or on the instructions of the Directors any
confidential information concerning the business, accounts, finance or
contractual arrangements or other dealings, transactions or affairs of
the group which may come to their knowledge and they shall use their
best endeavours to prevent the publication or disclosure of any
confidential Information concerning such matters.
(S) 15.8 Severability
------------
Any term, condition, stipulation, provision, covenant or undertaking of this
Agreement which is illegal, prohibited or unenforceable in any jurisdiction of
the United States, Malaysia or any country in the ASEAN Territory shall as to
such jurisdiction be ineffective to the extent of such illegality, voidness,
prohibition or unenforceability without invalidating the remaining provisions
hereof and any such illegality, voidness, prohibition or unenforceability1ity in
any unenforceable any such term condition stipulation provision covenant or
undertaking in any other jurisdiction.
(S) 15.9 Specific Performance
--------------------
Each Party hereto shall be entitled to the right of specific performance against
the other Party hereto under the provisions of this Agreement and it is hereby
agreed that an alternative remedy of
25
<PAGE>
monetary compensation shall not be regarded as compensation or sufficient
compensation for such Party's default in the performance of the terms and
conditions of this Agreement.
(S) 15.10 Costs
-----
All costs and expenses agreed by the Parties hereto as follows shall be borne by
the JVC:
15.10.1 the stamping of this Agreement;
15.10.2 pre-operating costs and expenses incurred by any of the Parties as
agreed prior to the Effective Date.
(S) 15.11 Notices
-------
Any notice required to be given by one Party hereto to the other Party hereto
hereunder shall be in the English Language and shall be sufficient given if
forwarded by hand or prepaid registered post or by telex or telegram or cable or
telefax to the address or addresses hereinbelow stated of the other Party and
shall be deemed to be duly served:
15.11.1 if delivered by hand, on delivery and acknowledged receipt thereof, or
15.11.2 if it is sent by prepaid registered post, five (5) days after posting
thereof; or
15.11.3 if it is sent by telegram or cable or telefax on the Business Day next
after the date of dispatch; or
15.11.4 if it is sent by telex, immediately after transmission thereof and
confirmed by the answer back, if the date of transmission is not a
Business Day, then the notice by telex shall be deemed to be served on
the immediately following Business Day.
For KUBH:
- --------
1st Floor, Bangunan UMNO,
Jalan Tuanku Abdul Rahman,
50100 Kuala Lumpur,
Malaysia.
Telefax: (603) 2911539
For TIS:
- -------
11431 Cronhill Drive,
Suite J,
Owings Mills,
Maryland 21117,
United States of America.
Telefax: (410) 3851871
(S) 15.12 Designation of Representative
-----------------------------
Each Party shall designate to the other in writing a representative to whom all
communications shall be addressed and who has the authority to make decisions
and execute documents on behalf of the Party. KUBH hereby designates Megat Ahmad
Sani and TIS hereby designates William Timothy Shaw, President of TIS. Each
Party may designate a different representative by giving prior written notice to
the other Party. All consents given by the representative on behalf of each
Party hereto shall be considered valid and binding and may be relied upon by the
other Party.
26
<PAGE>
IN WITNESS WHEREOF the Parties hereto have executed this Agreement the day and
year first abovewritten.
SIGNED by EDWARD O. McNICHOLAS
for and on behalf of )
TATE INTEGRATED SYSTEMS, L.P. )
in the presence of: ) /s/ Edward O. McNicholas
------------------------
(Signatory)
- ---------------------------------
(Witness)
Name:
SIGNED by HASSAN HARUN )
for and on behalf of )
KUB-TIS CONTROLS SDN.BED. )
in the presence of: ) /s/ Hassan Harun
----------------
(Signatory)
- ---------------------------------
(Witness)
Name:
[This is the execution page of the License Agreement dated the 9th day of
March, 1995 made between Tate Integrated Systems, L.P. and KUB-TIS Controls Sdn.
Bhd.]
27
<PAGE>
KUB HOLDINGS BHD.
AND
TATE INTEGRATED SYSTEMS, L.P.
LICENSE AGREEMENT
1
<PAGE>
THIS AGREEMENT is made the 9th day of March, 1995
BETWEEN
TATE INTEGRATED SYSTEMS, L.P., a limited partnership under the laws of the State
of Delaware and having its office at 11431 Cronhill Drive, Suite J, Owings
Mills, Maryland 21117, United States of America (hereinafter called "the
Licensor") of the one part;
AND
KUB-TIS CONTROLS SDN. BHD., a company incorporated in Malaysia and having its
registered office at 1st Floor, Bangunan UMNO, Jalan Tuanku Abdul Rahman, 50100
Kuala Lumpur, Malaysia (hereinafter called "the Licensee") of the other part.
ARTICLE I
---------
RECITALS
--------
(S)1.1 Business of the Licensor
------------------------
The Licensor is engaged in the design, manufacture, licensing, marketing, sale
and/or servicing of software and complete computer-based automation systems
which are used for process monitoring and control.
(S)1.2 TIS 4000 Technology
-------------------
The Licensor is the absolute proprietor and copyright owner of the TIS 4000
Technology (hereinbelow defined).
(S)1.3 Joint Venture Agreement
-----------------------
By a written agreement dated the 9th day of March, 1995 (hereinafter referred to
as "the Joint Venture Agreement") entered into between KUB HOLDINGS BHD., a
company incorporated in Malaysia and having its registered office at 1st Floor,
Bangunan UMNO, Jalan Tuanku Abdul Rahman, 50100 Kuala Lumpur, Malaysia
(hereinafter called "KUBH") of the one part and the Licensor of the other part,
KUBH and the Licensor have agreed to incorporate the Licensee as the vehicle to
carry out on a joint venture basis the manufacture, marketing and sale of TIS
4000 Systems (hereinbelow defined) which use the TIS 4000 Technology in the
ASEAN Territory (hereinbelow defined) upon the terms and conditions therein
contained.
(S)1.4 Exclusive License
-----------------
In compliance with the provisions of the Joint Venture Agreement, the Licensor
intends to grant to the Licensee and the Licensee intends to accept an exclusive
license to use the TIS 4000 Technology in TIS 4000 Systems to be manufactured,
marketed and sold by the Licensee in the ASEAN Territory subject to the terms
and conditions herein contained.
ARTICLE II
----------
DEFINITIONS/INTERPRETATION
--------------------------
(S)2.1 Definitions
-----------
2
<PAGE>
In this Agreement the following words and expressions shall, where not
inconsistent with the context, have the following meanings respectively:
2.1.1 ASEAN Territory means the following countries:
---------------
(a) Thailand;
(b) Malaysia;
(c) Indonesia;
(d) Philippines;
(e) Singapore;
(f) Brunei; and
(g) such other countries in Asia as the Licensor may approve in
writing.
2.1.2 Business Day means a day, other than Saturday, on which commercial
------------
banks are open for business in Kuala Lumpur, Malaysia for transaction
of business.
2.1.3 Companies Act means the Companies Act, 1965 Of Malaysia and any
-------------
statutory modification or reenactment thereof for the time being in
force.
2.1.4 Customers means any Third Party who purchases the TIS 4000 Systems from
---------
the Licensee.
2.1.5 Effective Date means the day when the Joint Venture Agreement becomes
--------------
effective upon fulfillment of the condition precedent stipulated in
(S)4.1 thereof.
2.1.6 Joint Venture Agreement means the joint venture agreement dated the 9th
-----------------------
day of March, 1995 entered into between KUBH of the one part and the
Licensor of the other part pertaining to the setting up of the Licensee
and referred to in (S)1.3 hereof.
2.1.7 KUBH means KUB HOLDINGS BHD., a company incorporated in Malaysia and
having its registered office at 1st Floor, Bangunan UMNO, Jalan Tuanku
Abdul Rahman, 50100 Kuala Lumpur, Malaysia and shall, where the context
so admits, include its successors in title.
2.1.8 License means the exclusive license to use the TIS 4000 Technology in
-------
TIS 4000 Systems manufactured, marketed and sold in the ASEAN Territory
which the Licensor has agreed to grant to the Licensee pursuant to this
Agreement.
2.1.9 License Fee means the sum of United States Dollars Two Million and Five
-----------
Hundred Thousand (USD 2,500,000.00) only and referred to in (S)7.1
hereof.
2.1.10 Licensee means KUB-TIS CONTROLS SDN. BHD., a company incorporated in
--------
Malaysia and having its registered office at 1st Floor, Bangunan UMNO,
Jalan Tuanku Abdul Rahman, 50100 Kuala Lumpur, Malaysia and shall,
where the context so admits, include its successors in title.
2.1.11 Licensor means TATE INTEGRATED SYSTEMS, L.P., a limited partnership
--------
under the laws of the State of Delaware and having its office at 11431
Cronhill
3
<PAGE>
Drive, Suite J, Owings Mills, Maryland 21117, United States of America
and shall, where the context so admits, include its successors in
title.
2.1.12 Malaysia means the Federation of Malaysia.
--------
2.1.13 Malaysian Laws means all the laws, regulations, orders and decrees of
--------------
Malaysia, whether Federal or State, including those to be enacted
during the term of this Agreement.
2.1.14 Parties means the Licensor and the Licensee.
-------
2.1.15 Person means any individual, general partnership, limited partnership,
------
corporation, joint venture, trust, business trust, limited liability
company, cooperative or association, and the successors and assigns of
any of the foregoing where the context so admits; and, unless the
context otherwise requires, the singular shall include the plural, and
the masculine gender shall include the feminine and the neuter and vice
versa.
2.1.16 Relevant Authorities means the relevant government ministries whether
--------------------
federal or state and other governmental statutory bodies of Malaysia.
2.1.17 Reverse Engineer means the act of producing computer program "source
----------------
code" which when compiled, will generate computer programs which
provide the same, or similar functions as the TIS 4000 Technology, by
means of translating the object code, which is to be provided by the
Licensor under this Agreement, (including object code in ROM memory
chips as well as object code provide on computer-readable magnetic
media), from the computer binary instructions into equivalent
programming language instructions, in assembly language or other
computer programming language. This term is also intended to include
the development of software which incorporates the methods, techniques,
styles and approaches of the TIS 4000 Technology, while performing
similar functions.
2.1.18 Subsidiaries means as defined under (S)5 of the Companies Act.
------------
2.1.19 Third Party means any Person other than the Licensor and the Licensee.
-----------
2.1.20 TIS 4000 System or TIS 4000 Systems means the computer based automation
-----------------------------------
systems for process monitoring and control which use the TIS 4000
Technology, in all forms and applications.
2.1.21 TIS 4000 Technology means the Licensor developed software including
-------------------
packages such as DataVu, TrendVu, SNLVU, AlarmVu, ReportVu,
TankFarmTools and other software packages which may be developed by the
Licensor in the future which are proprietary to the Licensor and any
modifications, improvements and enhancements to any of the foregoing
made by the Licensor, which, in the Licensor's and KUBH's mutual
opinion expressed in writing, is or are necessary in the manufacture,
marketing and sale of TIS 4000 Systems.
4
<PAGE>
2.1.22 United States Dollars or USD means the lawful currency for the time
------------------------
being and from time to time of United States of America.
2.1.23 Value Added Reseller means any Person operating or conducting business
--------------------
in the ASEAN Territory that has (a) been approved as a sub-licensee by
Licensor in a writing directed to Licensee, and (b) executed a
sublicense agreement with the Licensee which has been approved by the
Licensor.
(S) 2.2 Interpretation
--------------
2.2.1 Words denoting the singular number only includes the plural number and
vice versa.
2.2.2 Words denoting the neuter gender shall include the masculine and
feminine genders and vice versa.
2.2.3 Headings of Articles and Sections are for ease of reference only and
shall be ignored in interpreting the provisions hereof. References to
Articles and Sections are, except where the context otherwise requires,
references to Articles and Sections hereof.
2.2.4 References to Articles and Sections are to be construed as references
to Articles and Sections of this Agreement.
2.2.5 References to the provisions of any legislation includes a reference to
any statutory modification and re-enactment thereof and any regulations
thereunder.
ARTICLE III
-----------
LICENSE
-------
(S) 3.1 Exclusive License
-----------------
For the term of this Agreement and subject to the terms and conditions of this
Agreement, the Licensor hereby grants to the Licensee and the Licensee hereby
accepts the exclusive right to receive and use the TIS 4000 Technology (which
the Licensor currently owns and to which the Licensor may subsequently develop
and own sole and exclusive rights) to manufacture, market and sell TIS 4000
Systems in the ASEAN Territory ("the License") upon the terms and conditions
herein contained.
ARTICLE IV
----------
CONDITION PRECEDENT
-------------------
(S) 4.1 Condition Precedent
-------------------
This Agreement is conditional upon the Joint Venture Agreement becoming
unconditional and shall take effect on the Effective Date.
ARTICLE V
---------
COVENANTS BY THE LICENSOR
-------------------------
(S) 5.1 Supply of Materials
-------------------
In connection with the License described in (S)3.1 hereof, the Licensor shall
within thirty (30) Business Days from the Effective Date ("the Delivery Date")
provide the Licensee with software object modules for the TIS 4000, Technology,
including copy protection functions; provided,
5
<PAGE>
however but subject to (S)5.5 hereof, that the Licensor shall not provide to the
Licensee, nor shall the Licensee have any right to receive, the computer program
"source code" for the TIS 4000 Technology. The Licensor shall provide the
Licensee with software activation codes for each copy of the TIS 4000 Technology
used in a TIS 4000 System upon receipt by the Licensor of reasonable notice and
proper documentation regarding the name and location of the customer to whom the
TIS 4000 System is to be sold, as well as other information requested by the
Licensor for generation of such activation codes. The Licensor shall provide to
the Licensee a complete set of user's manuals, system documentation and other
materials related thereto as listed in the Appendix A annexed hereto, both in
printed form and on computer readable media, on the use and operation of the TIS
4000 Technology. All such printed materials furnished to the Licensee by the
Licensor hereunder shall be printed in the English Language and shall, subject
to the provisions of this Agreement permitting the use of such materials by the
Licensee, remain the sole, exclusive and proprietary property of the Licensor.
Failure by the Licensor to deliver all or any part of the TIS. 4000 Technology
or associated documentation on the Delivery Date will be deemed to be a total
failure to deliver and the Licensee shall be entitled to pursue those remedies
provided by this Agreement or at law for such failure, including termination of
this Agreement.
(S) 5.2 Upgrading of Technology
-----------------------
During the term of this Agreement, the Licensor shall as soon as practicable
provide the Licensee with the latest versions of the TIS 4000 Technology, in the
form of object modules and shall provide the Licensee with all updates,
enhancements, modifications or other changes in the TIS 4000 Technology and
related documentation and manuals provided by the Licensor to the Licensee
pursuant to this Agreement. The Licensor shall correct defects and errors in the
TIS 4000 Technology, in a timely manner, if properly documented and reported by
the Licensee to the Licensor.
(S) 5.3 Additions and Modifications
---------------------------
The Licensor shall provide the Licensee with fixed-price quotations for making
the Licensee-requested additions and/or modifications to the TIS 4000
Technology, including the development of new features and functions, provided
that the Licensee provides the Licensor with suitable Technical and functional
specifications. If the Licensee elects to purchase such additions and/or
modifications to the TIS 4000 Technology, the Licensor shall implement such
additions and/or modifications in a timely manner, and at the quoted price, and
shall maintain such modifications and/or additions in all future versions and
revisions of the TIS 4000 Technology, so long as this Agreement is in effect.
Ownership of all such additions and/or modifications shall remain with the
Licensor.
(S) 5.4 Product Development
-------------------
During the term of this Agreement, the Licensor shall continue product
development of the TIS 4000 Technology to maintain its consistency with industry
standards and to ensure that the TIS 4000 Technology remains functionally
competitive with similar products.
(S) 5.5 Escrow of Source Code and Software Activation Codes
---------------------------------------------------
5.5.1 The Licensor shall on the Delivery Date, cause a current copy of the
TIS 4000 Technology source code (the "Source Code") and software
activation code (the "Activation Code" and together with the Source
Code, the "Codes") to be delivered to a law firm with its principal
office in the United States, which law firm shall be mutually agreed
upon by the Parties, as escrow agent (the "Escrow Agent"), to be held
by such Escrow Agent in escrow until the termination of this Agreement.
6
<PAGE>
5.5.2 The Licensor shall, on deposit of the Codes with the Escrow Agent,
authorize the Escrow Agent in writing to release the Codes to the
Licensee upon:
5.5.2.1 the entry of an order or decree under Title 11 of the United
States Code by a court of competent jurisdiction that orders
the liquidation of the Licensor and the order or decree
remains unstayed and in effect for 60 days; or
5.5.2.2 the enactment, adoption, promulation, modification, change of
interpretation or repeal after the Effective Date of any
federal, state or local statute, ordinance, regulation or
executive order, of the United States or Malaysia, that in
each case, would prevent or prohibit the Licensor from
fulfilling its material obligations under this Agreement or
the Joint Venture Agreement; or
5.5.2.3 the dissolution and winding up of the Licensor in accordance
with the laws of the State of Delaware; provided, however,
that such event shall not constitute grounds for the release
of the Codes by the Escrow Agent to the Licensee unless (i)
the Licensor fails to organize or reorganize an entity to
carry on the business of the Licensor within six months of
such dissolution and winding up of the Licensor and (ii) the
Licensor delivers a written notice to the Licensee and the
Escrow Agent to the effect that the Licensor has abandoned
its business, including all business relating to the TIS 4000
Technology;
5.5.3 The Licensee shall have the right to receive and use the Codes only in
accordance with this (S)5.5 and further only to support TIS 4000
Systems marketed and sold by the Licensee in the ASEAN Territory. The
Licensee expressly acknowledges that any use of the Codes outside of
the ASEAN Territory is prohibited. The provisions of this (S)5.5.3
shall survive the termination of this Agreement.
5.5.4 The Licensee shall pay directly to the Escrow Agent all fees of the
Escrow Agent and all expenses or disbursements incurred by the Escrow
Agent in connection with the escrow of the Codes upon receipt of an
invoice therefor by the Licensee from the Escrow Agent.
5.5.5 The Parties shall, at the option of the Escrow Agent, enter into a
written tripartite agreement with the Escrow Agent in relation to the
matters described in this (S)5.5.
(S)5.6 Rights to Use Trademarks, etc.
-----------------------------
The Licensee shall have the right to use trademarks, service marks, trade names
and/or logos associated with the TIS 4000 Technology in connection with the
manufacturing, marketing and sale of TIS 4000 Systems in the ASEAN Territory.
(S)5.7 Rights to Sub-license
---------------------
The Licensor expressly agrees that the Licensee shall have the absolute right to
sub-license the TIS 4000 Technology object modules to Value Added
7
<PAGE>
Resellers for manufacture by such Value Added Resellers of TIS 4000 Systems to
be marketed and sold in the ASEAN Territory; provided, however that (a) the
Licensee shall obtain the prior written approval of the Licensor, which approval
shall not be unreasonably withheld, of any proposed agreement between the
Licensee and such Value Added Reseller prior to its execution by the Licensee,
and (b) any such sub-license agreement between the Licensee and a Value Added
Reseller shall provide for the payment by such Value Added Reseller of a license
fee to the Licensee for each TIS 4000 System Produced by such Value Added
Reseller.
(S) 5.8 Training
--------
5.8.1 The Licensor shall give the Licensee's personnel such training as the
Licensor considers necessary to enable the TIS 4000 Technology to be
used in the manner contemplated by the Licensee under this Agreement
including without limitation to enable the employees or agents of the
Licensee to properly install the TIS 4000 Technology purchased by the
Customers.
5.8.2 The Licensor shall keep the Licensee advised of all existing
educational or training courses conducted by the Licensor relating to
the TIS 4000 Technology or to the Licensee's and/or the Customers'
anticipated use of the TIS 4000 Technology.
ARTICLE VI
----------
COVENANTS BY THE LICENSEE
-------------------------
(S) 6.1 Compliance with Laws
--------------------
The Licensee hereby covenants and agrees that it shall conduct all of its
operations in connection with or relating to the TIS 4000 Technology and TIS
4000 Systems in compliance with all applicable laws, regulations and other
requirements which may be in effect from time to time, of all national
governmental authorities, and of all states, municipalities and other political
subdivisions and agencies thereof.
(S) 6.2 Acknowledgment of Interest of Licensor
--------------------------------------
The Licensee acknowledges and agrees that the TIS 4000 Technology is proprietary
to the Licensor, and the Licensee hereby covenants and agrees that the Licensee
shall not use the TIS 4000 Technology for any purpose not provided for
hereunder, shall not challenge or cause any Third Party to challenge the
Licensor's rights to the TIS 4000 Technology, or the rights therein of Third
Parties who are licensees of the TIS 4000 Technology outside the ASEAN
Territory, and the Licensee shall cooperate with the Licensor in protecting the
Licensor's rights to the TIS 4000 Technology. The provisions of this (S)3 shall
survive the termination of this Agreement.
(S) 6.3 Transfer of Technology
----------------------
Subject to (S)5.7 hereof, nothing in this Agreement shall be construed to permit
the Licensee to transfer to any Third Party, the TIS 4000 Technology. The
Licensee hereby agrees that it shall not sell, transfer, assign, contribute,
pledge, mortgage, hypothecate or otherwise encumber, transfer or permit to be
transferred, either voluntarily or involuntarily, the License except as
specifically provided in (S)5.7.
(S) 6.4 Reverse Engineering
-------------------
The Licensee shall refrain from any and all efforts to Reverse Engineer the TIS
4000 Technology, either directly or by consultants or contractors, and shall not
develop competitive software which
8
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would eliminate the use of the TIS 4000 Technology in the automation systems
manufactured and sold by Licensee.
ARTICLE VII
-----------
LICENSE FEE
-----------
(S) 7.1 Payment of License Fee
----------------------
In consideration of the Licensor's grant to the Licensee of the License pursuant
to (S)3.1 hereof, the Licensee shall pay to the Licensor, the License Fee less
any withholding taxes or imposed by any governmental authority in connection
therewith but not exceeding fifteen per centum (15%) of the License Fee within
fourteen (14) Business Days from the Effective Date.
(S) 7.2 Other Charges
-------------
The Licensee shall pay directly to the charging entity or appropriate
governmental authority all transportation, shipment, freight and insurance
charges, customs' duties, import fees, usage taxes and any other such related
taxes, fees or assessments associated with shipments of the TIS 4000 Technology
and related documents and materials to the Licensee save and except that any
charges whatsoever payable to the authorities in United States of America shall
be borne and paid by the Licensor.
(S) 7.3 Payment for Services and Reimbursement of Expenses
--------------------------------------------------
7.3.1 The Licensee shall pay the Licensor for services rendered to the
Licensee pursuant to Sections 5.3, 11.4.1 and 11.4.2 hereof at TIS's
then current published rates for such services on a monthly basis, in
arrears and upon receipt by the Licensee of invoices therefor.
7.3.2 The Licensee expressly recognizes that it, and not the Licensor, shall
be responsible for providing support services for TIS 4000 Systems that
may be required from time to time by the Customers.
7.3.3 The Licensee agrees to reimburse to the Licensor, in addition to the
amounts specified in this Article VII, all properly documented and
budgeted out-of-pocket expenses incurred by the Licensor with the
consent of the JVC in connection with the discharge by the Licensor of
its responsibilities hereunder. Reimbursement shall be made on a
monthly basis, in arrears within fifteen (15) Business Days after
receipt of an invoice therefore provided by the Licensor which invoice
shall include reasonable supporting documentation for the charges
reflected therein.
(S) 7.4 Currency Applicable
-------------------
All payments from the Licensee to the Licensor and all price quotations to the
Licensee by the Licensor shall be in United States Dollars.
ARTICLE VIII
------------
REPRESENTATIONS AND WARRANTIES BY LICENSOR
------------------------------------------
(S) 8.1 General Representations and Warranties
--------------------------------------
The Licensor hereby represents and warrants to the Licensee that:
9
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8.1.1 The Licensor is a limited partnership corporation duly organized under
the laws of the State of Delaware and has full legal right, power and
authority to enter into and perform its obligations under this
Agreement.
8.1.2 This Agreement has been duly authorized, executed and delivered by the
Licensor and, assuming the valid execution and delivery hereof by the
Licensee, constitutes a legal, valid and binding obligation of the
Licensor.
8.1.3 Except as disclosed in writing, there is no action before any court or
governmental authority, pending or, to the best of the Licensor's
knowledge, threatened against the Licensor, wherein an unfavorable
decision, ruling or finding would materially adversely affect the
performance of its obligations hereunder.
8.1.4 Neither the execution or delivery by the Licensor of this Agreement,
nor the performance of its obligations contemplated hereby nor its
fulfillment of the terms or conditions of this Agreement (a) conflicts
with, violates or results in a breach of any applicable law, or (b)
conflicts with, violates or results in a breach of any term or
condition of any judgment or decree, or any agreement or instrument, to
which the Licensor is party or by which the Licensor or any of its
properties or assets are bound, or constitutes a default thereunder.
8.1.5 No approval, authorization, order or consent of, or declaration,
registration or filing with, any governmental authority is required for
the valid execution and delivery by the Licensor of this Agreement
except-those that have been duly obtained or made.
8.1.6 The TIS 4000 Technology and enhancements, modifications and upgrades
provided by the Licensor to the Licensee shall be free from defects in
material and workmanship, under normal use and service, for a period of
one (1) year from the date of release to the Licensee of each such
version, enhancement, modification and upgrade of the TIS 4000
Technology.
8.2 Intellectual Property Rights
----------------------------
8.2.1 The Licensor warrants that the TIS 4000 Technology does not infringe
the industrial or intellectual property rights of any Person.
8.2.2 The Licensor shall hold the Licensee harmless and fully indemnify the
Licensee against any loss, costs, expenses, demands or liability,
whether direct or indirect, arising out of a claim by a Third Party
against the Licensee alleging that the TIS 4000 Technology infringes
any intellectual or industrial property right of that Third Party.
8.2.3 The indemnity referred to in (S)8.2.2 hereof shall be granted whether
or not legal proceedings are instituted and, if such proceedings are
instituted, irrespective of the means, manner or nature of any
settlement, compromise or determination.
8.2.4 The Licensee shall notify the Licensor as soon as practicable of any
infringement, suspected infringement or alleged infringement by the TIS
4000 Technology of the intellectual or industrial property rights of
any Person.
10
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8.2.5 Without prejudice to the Licensee's right to defend a claim alleging
such infringement, the Licensor shall if requested by the Licensee but
at the Licensor's own expense conduct the defense of a claim alleging
such infringement. The Licensor shall observe the Licensee's directions
relating in any way to that defense or to negotiations for settlement
of the claim.
8.2.6 The Licensee shall if requested but at the Licensor's expense provide
the Licensor with reasonable assistance in conducting the defense of
such a claim.
8.2.7 Without limiting the generality of Sections 8.2.1 to 8.2.3, if it is
determined by any independent tribunal of fact or law or if it is
agreed between the parties to the dispute that an infringement of any
industrial or intellectual property rights of any Person has occurred
on grounds in any way related to the TIS 4000 Technology, the Licensor
shall at its own expense:
8.2.7.1 modify or replace the TIS 4000 Technology so that such
infringement, defect or inadequacy is removed; or
8.2.7.2 procure for the Licensee the right to continue enjoying the
benefit of this Agreement; or
8.2.7.3 if the solutions in Sections 8.2.7.1 and 8.2.7.2 hereof cannot
be achieved, recall the TIS 4000 Technology, in which case
this Agreement is immediately terminated and the Licensee may
pursue all remedies available to it under this Agreement or at
law for the Licensor's breach of agreement.
8.2.8 The provisions of this (S)8.2 do not apply to that part of the TIS 4000
Technology which has been modified by the Licensor at the request of
the Licensee.
(S) 8.3 Further Warranties
------------------
In addition to any other warranty express or implied in this Agreement, the
following warranties shall apply:
8.3.1 The Licensor warrants that the TIS 4000 Technology will be free from
defects and errors, and will perform in accordance with Licensor's
published specifications relating to the TIS 4000 Technology attached
hereto as Appendix B.
8.3.2 If the TIS 4000 Technology is found to be defective and if the Licensee
notifies the Licensor of the defect within a reasonable time after it
is discovered by the Licensee, the Licensor shall immediately take
steps to remedy the defect at its own expense.
8.3.3 The Licensor warrants that any substitute TIS 4000 Technology supplied
to the Licensee under (S)8.3.2 hereof will be free from defects and
errors, and will perform in accordance with all relevant specifications
relating to the original TIS 4000 Technology.
11
<PAGE>
8.3.4 Without limiting the generality of the foregoing, the Licensor warrants
that the TIS 4000 Technology shall not contain any virus or built-in or
bugs, automatic and/or random expiry dates but will, however, contain
copy-protection features.
8.3.5 The Licensor warrants that the materials to be supplied to the Licensee
under (S)5.1 hereof shall contain sufficient information to enable
employees of the Licensee to use and understand the TIS 4000 Technology
provided that such employees of the Licensee are properly trained in
the use of the TIS 4000 Technology and have suitable experience, each
as determined by the Licensor.
ARTICLE IX
----------
REPRESENTATIONS AND WARRANTIES BY LICENSEE
------------------------------------------
(S) 9.1 Representations and Warranties
------------------------------
The Licensee hereby represents and warrants to Licensor that:
9.1.1 The Licensee is a private limited company incorporated under the laws
of Malaysia and has full legal right, power and authority to enter into
and perform its obligations under this Agreement.
9. 1.2 This Agreement has been duly authorized, executed and delivered by the
Licensee and, assuming the valid execution and delivery hereof by the
Licensor, constitutes a legal, valid and binding obligation of the
Licensee.
9. 1.3 Except as disclosed in writing, there is no action before any court or
governmental authority, pending or, to the best of the Licensee's
knowledge, threatened against the Licensee, wherein an unfavorable
decision, ruling or finding would materially adversely affect the
performance of its obligations hereunder .
9.1.4 Neither the execution or delivery by the Licensee of this Agreement,
nor the performance of its obligations contemplated hereby nor its
fulfillment of the terms or conditions of this Agreement (a) conflicts
with, violates or results in a breach of any applicable law, or (b)
conflicts with, violates or results in a breach of any term or
condition of any judgment or decree, or any agreement or instrument, to
which the Licensee is a party or by which the Licensee or any of its
properties or assets are bound, or constitutes a default thereunder.
9.1.5 No approval, authorization, order or consent of, or declaration,
registration or filing with, any governmental authority is required for
the valid execution and delivery by Licensee of this Agreement except
those that have been duly obtained or made.
ARTICLE X
---------
INDEMNITY
---------
(S) 10.1 Indemnity by Licensor
---------------------
The Licensor shall indemnify, defend and hold harmless the Licensee and its
directors, officers, employees and agents from and against all claims, actions
or causes of action, suits and proceedings and all loss, assessments, liability,
damages, costs and expenses incurred in connection therewith (including
reasonable solicitors' fees) for which the Licensee or its directors, officers,
12
<PAGE>
employees or agents may become liable or incur or be compelled to any in each
case, to the extent caused, (a) by a breach of this Agreement by the Licensor,
or (b) by the willful misconduct or negligent acts or omissions of the Licensor,
its agents, contractors or employees, in connection with or as a result of this
Agreement or the performance of its obligations hereunder, unless, in each case,
such claim results from the willful misconduct or negligent acts or omissions of
the Licensee.
10.2 Indemnity by Licensee
---------------------
The Licensee shall indemnify, defend and hold harmless the Licensor and the
Licensor's directors, officers, employees and agents from and against all
claims, actions or causes of action, suits and proceedings and all loss,
assessments, liability, damages, costs and expenses incurred in connection
therewith (including reasonable solicitors' fees) for which the Licensor or its
directors, officers, employees or agents may become liable or incur or be
compelled to pay, in each case, to the extent cause, (a) by a breach of this
Agreement by the Licensee, or (b) by the willful misconduct or negligent acts or
omissions of the Licensee, its agents, contractors or employees, in connection
with or as a result of this Agreement or the performance of its obligations
hereunder, unless, in each case, such claim results from the willful misconduct
or negligent acts or omissions of the Licensor.
(S) 10.3 Survival of Indemnity
---------------------
The indemnifications provided in this Article X, shall survive termination of
this Agreement.
ARTICLE XI
----------
MUTUAL COVENANTS
----------------
(S) 11.1 Duty to Maintain Confidentiality
--------------------------------
All the TIS 4000 Technology and all other information exchanged by the Parties
pursuant to, and in performance of their obligations and in exercise of their
rights under, this Agreement shall be deemed confidential. The Parties
acknowledge and agree that the value of the TIS 4000 Technology is base, to a
large extent, on maintaining the confidentiality of the TIS 4000 Technology and
preventing any unauthorized dissemination to, or use by, Third Parties of
information relating to the TIS 4000 Technology. Disclosure of confidential and
proprietary information hereunder, whether orally or in written form, shall be
safeguarded by the recipient and shall not be disclosed to Third Parties and
shall be made available only to the receiving Party's officers, directors,
employees or other agents who have a need to know such information for purposes
of performing the Party's obligations, or for purposes of exercising the Party's
rights, under this Agreement and such officers, directors, employees or other
agents shall have a legal obligation to the entity, employer or principal, as
applicable, not to disclose such information to Third Parties. Each Party shall
treat any and all such confidential information in the same manner and with the
same manner and with the same protection as such Party maintains its own
confidential information. These mutual obligations of confidentiality shall not
apply to any information to the extent that such information: (a) is or later
becomes generally available to the public, such as by publication or otherwise,
through no fault of the receiving Party; or (b) is obtained from a Third Party
having the legal obligation to make such a disclosure. The Licensee shall not
remove from any communications or other documents delivered by the Licensor to
the Licensee any proprietary notices affixed thereto by the Licensor.
(S) 11.2 Survival of Confidentiality
---------------------------
The mutual confidentiality obligations of the Parties under the provisions of
(S)11.1 hereof shall survive the termination of this Agreement and continue for
a period of fifteen (15) years following such termination.
13
<PAGE>
(S)11.3 Layered Applications
--------------------
11.3.1 The Licensee may develop layered applications using the TIS 4000
Technology.
11.3.2 The Licensor shall provide all reasonable assistance to the
Licensee, at the expense of the Licensee in accordance with (S)7.3
in relation to layered applications developed by the Licensee.
11.3.3 The Licensor shall have the right to license from the Licensee any
layered applications using the TIS 4000 Technology developed by the
Licensee upon terms and conditions not less favorable than those
terms and conditions offered by the Licensee to any third party
licensee of such layered applications.
(S)11.4 Acceptance Test
---------------
11.4.1 Prior to delivery of the TIS 4000 Technology to the Licensee
hereunder, the Licensor shall test the TIS 4000 Technology in
accordance with the Licensor's published factory acceptance testing
procedures at the Licensor's factory in the United States. At the
option of the Licensee, the Licensor shall repeat acceptance test
of the TIS 4000 Technology in accordance with the Licensor's
published factory acceptance testing procedures at the Licensor's
factory in the United States. At the option of the Licensee, the
Licensor shall repeat acceptance tests of the TIS 4000 Technology
in accordance with the Licensor's published factory acceptance
testing procedures in Malaysia, provided that the Licensee shall
pay the Licensor for such services at the Licensor's then published
rates and shall reimburse the Licensor all out-of-pocket expenses
incurred by the Licensor in connection therewith in accordance with
(S)7.3.
11.4.2 The Licensor shall comply with a request by the Licensee that the
TIS 4000 Technology be subjected to further testing of a reasonable
nature at the Licensee's expense.
11.4.3 The Licensor shall ensure that authorized representative(s) of the
Licensee be provided with the unrestricted right to observe the TIS
4000 Technology being subjected to the tests referred to in
Sections 11.4.1 and 11.4.2 hereof provided that the Licensee shall
bear all costs and expenses of its authorized representatives in
connection with or relating to the attendance of such authorized
representatives at such tests.
11.4.4 If the TIS 4000 Technology fails to satisfy the test specifications
referred to in Sections 11.4.1 and 11.4.2 hereof, the tests shall
be repeated by the Licensor at reasonable intervals until the TIS
4000 Technology meets those specifications. Any modifications or
improvements to the TIS 4000 Technology which are required to
enable those test specifications to be satisfied shall be made at
the Licensor's expense.
11.4.5 If the TIS 4000 Technology fails to satisfy the test specifications
referred to in Sections 11.4.1 and 11.4.2 hereof within two (2)
weeks after testing was commenced, the Licensee may either extend
the test period or treat the failure to satisfy the test
specifications as a failure to deliver the TIS 4000 Technology. In
the
14
<PAGE>
latter case, the Licensee may pursue the remedies applicable to
such failure under this Agreement or at law.
11.4.6 The Licensor shall give the Licensee, on request, certification
that the TIS 4000 Technology has been tested as required by this
Agreement following installation of the demonstration unit and has
satisfied the test specifications applicable to such testing under
this Agreement. The Licensor may also provide this certification of
its own volition.
11.4.7 Unless the Licensee disputes the certification referred to in
(S)11.4.6 hereof; the Licensee shall be deemed to have accepted the
TIS 4000 Technology one (1) month after receipt of such
certification, subject to the TIS 4000 Technology conforming with
the Licensor's published specifications attached hereto as Appendix
B in all material respects during such one (1) month period.
ARTICLE XII
-----------
TERM/TERMINATION
----------------
(S)12.1 Term
----
Unless terminated pursuant to (S)12.2 hereof, this Agreement shall continue to
be in force and effect, and remain valid until the Licensee has been wound-up
under the Companies Act or on the expiration of twenty (20) years from the
Effective Date, whichever is the earlier.
(S)12.2 Material Breach: Opportunity to Cure Termination
------------------------------------------------
12.2.1 If a Party shall materially fail to comply with or shall materially
breach any of its obligations and covenants hereunder and shall not
remedy such breach or failure, or have undertaken to cure the same,
and be diligently pursuing such cure, in each case, within thirty
(30) days from the receipt of a written notice of failure of
compliance or breach then (i) the other Party (the "Aggrieved
Party") may terminate this Agreement by written notice and without
judicial intervention and (ii) if the Licensor is the Aggrieved
Party, the Licensor may elect to terminate the exclusivity of the
License; provided, however, that the Licensee shall retain a non-
exclusive license to use the TIS 4000 Technology in accordance with
the terms of this Agreement.
12.2.2 In addition to the remedies provided in (S)12.2.1 hereof; (i)
either Party may terminate this Agreement upon five (5) days, prior
written notice to the other Party in the event of dissolution,
insolvency or bankruptcy of such other Party, or the appointment
of. a receiver, trustee or custodian over such other Party's
business or any assignment by such other Party for the benefit of
creditors and (ii) Licensor may terminate this Agreement upon five
(5) days prior written notice to Licensee if any of the event
described in subsection (i) above occur with respect to KUBH and
(iii) the Licensee may terminate this Agreement upon five (5) days
prior written notice to Licensor if any of the event described in
subsection (i) above occur with respect to any partner of TIS.
12.2.3 If the Licensee has given notice to the Licensor to terminate this
Agreement due to a breach of this Agreement by the Licensor or due
to the event described in Sections
15
<PAGE>
12.2.1 and or 12.2.2, then the Licensee may in addition to
terminating this Agreement:
12.2.3.1 recover any sums paid to the Licensor on any account
or for services which have not been fulfilled or
performed together with interest at the rate of three
per centum (3%) per annum above the base lending rate
of Malayan Banking Berhad on such sums from the date
they were paid to the Licensor to the date of refund;
12.2.3.2 recover from the Licensor as agreed refund of the
license Fee calculated at the rate of United States
Dollars Two Hundred and Fifty Thousand (USD
250,000.00) only per year for a maximum period of ten
(10) years less the period of time since this
Agreement became effective together with interest at
the rate of three per centum (3%) per annum above the
base lending rate of Malayan Banking Berhad on such
sums from the date of demand to the date of full and
actual receipt thereof by the Licensee;
12.2.3.3 recover from the Licensor the amount of any direct
loss or damage sustained as a result of the
termination;
12.2.3.4 be regarded as discharged from any further obligations
under this Agreement; and
12.2.3.5 pursue any additional or alternative remedies provided
by law.
12.2.4 Return of TIS 4000 Technology and Related Documentation Upon
Termination
At the termination of this Agreement, the Licensee shall, subject to payments
referred to in Sections 12.2.3.1 and 12.2.3.2 hereof, if applicable, promptly
cause the return to the Licensor of all the TIS 4000 Technology, the Codes,
documents, records, and all other property or documentation disclosed or
delivered to the Licensee pursuant to this Agreement and then in existence,
including all copies thereof, and each Party shall destroy or promptly deliver
to the other any documentary material in its possession created by the other
during the course of this Agreement, which contains information about the other
or information about matters and things in which the other has a proprietary
interest that is not in the public domain, including notes, memoranda or
correspondence, except that each party shall be permitted to retain one copy of
any such documentation belonging to the other for archival purpose only.
ARTICLE XIII
------------
GENERAL TERMS
-------------
(S)13.1 Arbitration
-----------
13.1.1 Any dispute, controversy or claim between the Parties hereto
arising out of or in relation to this Agreement, or the breach,
termination or invalidity thereof shall be settled, in so far as it
is possible, by mutual consultation and consent.
13.1.2 If the Parties hereto should be unable to reach mutual consent, the
question shall be settled by arbitration.
16
<PAGE>
13.1.3 Any arbitration shall be conducted by a single arbitrator in the
case the Parties can agree upon one or otherwise to two arbitrators
one to be appointed by each party in accordance with and subject to
the provisions of the Arbitration Act, 1952 of Malaysia or any
statutory modification or re-enactment thereof for the time being
in force.
(S) 13.2 Force Majeure
-------------
13.2.1 No party shall be liable for failure to perform its obligations
under this Agreement if and to the extent the failure is due to
causes beyond its reasonable control such as, but not limited to,
acts of God, fire, flood, or other natural catastrophes,
insurrection, industrial disturbance, inevitable accidents, war
(undeclared or declared), embargoes, blockages, legal prohibitions,
riots, strikes or acts of the government in either its sovereign or
contractual capacity (each a "Force Majeure").
13.2.2 If a delay or failure to perform a party's obligations due to force
majeure exceeds three (3) months either party may immediately
terminate this Agreement on providing notice to the other party.
13.2.3 If this Agreement is terminated pursuant to (S)13.2.2 hereof, the
Licensor shall refund moneys previously paid by the Licensee in
accordance with Sections 12.2.3.1 and 12.2.3.2 hereof.
(S) 13.3 Governing Law
-------------
13.3.1 This Agreement shall be governed by and construed in all respects
in accordance with the Malaysian Laws.
13.3.2 The Licensor hereby irrevocably agrees that any legal action or
proceedings against it with respect to this Agreement may be
brought in the courts of Malaysia and the Licensor hereby:
13.3.2.1 irrevocably submits itself unconditionally to the non-
exclusive jurisdiction of the aforesaid courts;
13.3.2.2 irrevocably appoints Messrs Shearn Delamore & Co of No.
2, Benteng, 50050 Kuala Lumpur, Malaysia as its agents
to receive service of process in Kuala Lumpur, Malaysia
and such appointment shall not be revoked without the
consent in writing of the Licensee; and
13.3.2.3 acknowledges the competence of any such courts, and
agree that a final judgment in any such suit, action or
proceeding brought in such courts shall be conclusive
and binding upon the Licensor and may be enforced in the
Courts of the State of Delaware and/or any other states
in the United States of America (to the extent (if any)
permissible under the Laws of State of Delaware and/or
the other states of the United States of America, as the
case may be) or in any other courts to the jurisdiction
of which the Licensor is or may be subject by a suit
upon such judgment, a certified or exemplified
17
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copy of which shall be conclusive evidence of the fact
and of the amount of the Licensor's indebtedness.
(S)13.4 Assignment
----------
13.4.1 The rights and obligations of the parties arising hereunder shall
not be assignable by either party hereto without the prior written
consent of the other party hereto.
13.4.2 If the Licensee assigns the benefit of this Agreement to a Third
Party, the Licensee's rights and obligations under this Agreement
will be immediately terminated on the assignment.
(S)13.5 Sub-contracts
-------------
The Licensor shall not sub-contract or otherwise arrange for another Person to
perform any of its obligations under this Agreement without the prior written
consent of the Licensee.
(S)13.6 Waiver
------
13.6.1 No right under this Agreement shall be deemed to be waived except
by notice in writing signed by each party.
13.6.2 A waiver, by other party pursuant to (S)13.6.1 hereof will not
prejudice its rights in respect of any subsequent breach of this
Agreement by the other party.
13.6.3 Subject to (S)13.6.1 hereof; any failure by other party to enforce
any provision of this Agreement, or any forbearance, delay or
indulgence granted by such party to the other will not be construed
as a waiver of such party's rights under this Agreement.
(S)13.7 Severability
------------
If any of the provisions of this Agreement are held to be invalid by any law,
rule, order or regulation of any state or federal court of the United States or
in any country in the ASEAN Territory, such invalidity shall not affect the
enforceability of any other provision or provisions not held to be invalid or
the enforceability of this Agreement generally in any jurisdiction not affected
by such law, rule, order or regulation.
(S)13.8 Amendment
---------
No amendment, waiver, alteration or modification of this Agreement shall be
valid unless in writing and signed by each Party.
(S)13.9 Construction and Entire Agreement
---------------------------------
This Agreement contains the entire understanding between the Parties hereto and
supersedes any prior understanding and/or written or oral agreements between
them respecting the subject matter hereof.
(S)13.10 Time of the Essence
-------------------
Time shall be of the essence of this Agreement.
(S)13.11 Parties' Rights
---------------
Any express statement of a right of either party under this Agreement is without
prejudice to any other right of such party expressly stated in this Agreement or
arising at law.
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(S)13.12 Notices
-------
Any notice required to be given by one party hereto to the other party hereto
hereunder shall be in the English Language and shall be sufficient given if
forwarded by hand or prepaid registered post or by telex or telegram or cable or
telefax to the address or addresses hereinbelow stated of the other party and
shall be deemed to be duly served:
13.12.1 if delivered by hand, on delivery and acknowledged receipt thereof;
or
13.12.2 if it is sent by prepaid registered post, five (5) days after
posting thereof; or
13.12.3 if it is sent by telegram or cable or telefax on the Business Day
next after the date of dispatch; or
13.12.4 if it is sent by telex, immediately after transmission thereof and
confirmed by the answer back, if the date of transmission is not a
Business Day, then the notice by telex shall be deemed to be served
on the immediately following Business Day.
For the Licensor:
- ----------------
11431 Cronhill Drive,
Suite J,
Owings Mills,
Maryland 21117,
United States of America.
(Attention: Mr. William Timothy Shaw)
Telefax: (410) 581-5738
For the Licensee:
- ----------------
1st Floor, Bangunan UMNO,
Jalan Tuanku Abdul Rahman,
50100 Kuala Lumpur,
Malaysia.
(Attention: Encik Megat Ahmad Sani)
Telefax : (603)2911539
19
<PAGE>
IN WITNESS WHEREOF the Parties hereto have executed this Agreement the day and
year first above written.
SIGNED by EDWARD O. McNICHOLAS
for and on behalf of )
TATE INTEGRATED SYSTEMS, L.P. )
in the presence of: ) /s/ Edward O. McNicholas
------------------------
(Signatory)
- ---------------------------------
(Witness)
Name:
SIGNED by HASSAN HARUN )
for and on behalf of )
KUB-TIS CONTROLS SDN. BED. )
in the presence of: ) /s/ Hassan Harun
----------------
(Signatory)
- ---------------------------------
(Witness)
Name:
[This the execution page of the License Agreement dated the 9th day of March,
1995 made between Tate Integrated Systems, L.P. and KUB-TIS Controls Sdn. Bhd.].
20
<PAGE>
PARKWAY POINT
COMMERCIAL LEASE AGREEMENT
COMMERCE SQUARE ASSOCIATES L.L.C.
a Colorado limited liability company
"LANDLORD or LESSOR"
AND
HATHAWAY CORPORATION,
a Colorado corporation
"TENANT or LESSEE"
Date: October 24, 1996
(For reference purposes only)
1
<PAGE>
COMMERCIAL LEASE AGREEMENT
ARTICLE 1
---------
BASIC LEASE TERMS
-----------------
1.01 Parties. This lease agreement ("Lease") is entered into by and
between the following Lessor and Lessee:
COMMERCE SQUARE ASSOCIATES L.L.C. ("Landlord or Lessor")
a Colorado limited liability company
HATHAWAY CORPORATION, ("Tenant or Lessee")
a Colorado corporation
1.02 Leased Premises. In consideration of the rents, terms, provisions
and covenants of this Lease, Lessor hereby leases, lets and demises to Lessee
the following described premises ("leased premises" or "Premises"):
approximately 13,713 square feet
8228 East Park Meadows Drive
Littleton, Colorado 80124
1.03 Term. Subject to and upon the conditions set forth herein, the
term of this Lease shall commence on and shall terminate sixty (60) months
thereafter on October 31, 2001.
1.04 Base Rent. Lessee shall pay to Lessor Total Base Rent of Four
Hundred Fifty-Two Thousand Nine Hundred Forty and 60/100 Dollars ($452,940.60)
payable as follows:
<TABLE>
<CAPTION>
===============================================================================================
BASE RENTAL MONTHLY TOTAL BASE
RATE/RSF/YR BASE RENT RENT FOR
PERIOD DATES NNN NNN PERIOD NNN
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12 months 11/1/1996-10/31/1997 $6.01 $6,867.93 $ 82,415.16
- -----------------------------------------------------------------------------------------------
12 months 11/1/1997-10/31/1998 $6.01 $6,867.93 $ 82,415.16
- -----------------------------------------------------------------------------------------------
12 months 11/1/1998-10/31/1999 $6.01 $6,867.93 $ 82,415.16
- -----------------------------------------------------------------------------------------------
12 months 11/1/1999-10/31/2000 $7.50 $8,570.63 $102,847.56
- -----------------------------------------------------------------------------------------------
12 months 11/1/2000-10/31/2001 $7.50 $8,570.63 $102,847.56
===============================================================================================
</TABLE>
Security Deposit Zero and 00/100 Dollars ($0.00).
1.05 Addresses.
Lessor's Address: Lessee's Address:
Integrated Property Management, Inc. Hathaway Corporation
455 Sherman Street, Suite 140 8228 East Park Meadows Drive
Denver, Colorado 80203 Littleton, Colorado 80124
1.06 Permitted Use. General office and Research and Development use,
including service and repair of electronic equipment.
2
<PAGE>
ARTICLE 2
RENT
----
2.01 Base Rent. Lessee agrees to pay monthly as base rent during the term
of this Lease the sum of money set forth in section 1.04 of this Lease, which
amount shall be payable to Lessor at the address shown above. One monthly
installment of rent shall be due and payable on the date of execution of this
Lease by Lessee for the first month's rent and a like monthly installment shall
be due and payable on or before the first day of each calendar month succeeding
the commencement date or completion date during the term of this Lease;
provided, if the commencement date or the completion date should be a date other
than the first day of a calendar month, the monthly rental set forth above shall
be prorated to the end of the calendar month, and all succeeding installments of
rent shall be payable on or before the first day of each succeeding calendar
month during the term of this Lease. Lessee shall pay, as additional rent, all
other sums due under this Lease.
2.02 Operating Expenses. Lessee shall also pay as additional rent
Lessee's pro rata share of the operating expenses of Lessor for the building
and/or project of which the leased premises are a part, except that Lessee's pro
rata share for Controllable Expenses shall be limited to an increase of no more
than six percent (6%) from the previous calendar year. Controllable Expenses
shall mean those expenses for which the Lessor contracts for services at a
negotiated price or rate for services (including professional property
management fees). Non-Controllable Expenses shall include all other expenses.
Lessor may invoice Lessee monthly for Lessee's pro rata share of the estimated
operating expenses for each calendar year, which amount shall be adjusted each
year based upon anticipated operating expenses. Within nine (9) months following
the close of each calendar year, Lessor shall provide Lessee an accounting
showing in reasonable detail all computations of additional rent due under this
section. In the event the accounting shows that the total of the monthly
payments made by Lessee exceeds the amount of additional rent due by Lessee
under this section, the accounting shall be accompanied by a refund. In the
event the accounting shows that the total of the monthly payments made by Lessee
is less than the amount of additional rent due by Lessee under this section, the
accounting shall be accompanied by an invoice for the additional rent.
Notwithstanding any other provision in this Lease, during the year in which this
Lease terminates, Lessor, prior to the termination date, shall have the option
to invoice Lessee for Lessee's pro rata share of operating expenses based upon
the previous year's operating expenses. If this Lease shall terminate on a day
other than the last day of calendar year, the amount of any additional rent
payable by Lessee applicable to the year in which the termination shall occur
shall be prorated on the ratio that the number of days from the commencement of
the calendar year to and including such termination date bears to 365. Lessee
shall have the right, at its own expense and within a reasonable time, to audit
Lessor's books relevant to the additional rent payable under this section.
Lessee agrees to pay any additional rent due under this section within ten days
following receipt of the invoice or accounting showing additional rent due. The
current estimate of Lessee's share of operating expenses is Two and 60/100
Dollars ($2.60) per square foot of the leased premises which shall be paid in
addition to and along with base rent. Lessee's prorated share of the projects
operating expenses shall be 15.20%.
2.03 Definition of Operating Expenses. The term "operating expenses"
includes all expenses incurred by Lessor with respect to the maintenance and
operation of the building of which the leased premises are a part, including,
but not limited to, the following: maintenance, repair and replacement costs;
security; management fees, wages and benefits payable to employees of Lessor
whose duties are directly connected with the operation and maintenance of the
building; all services, utilities, supplies, repairs, replacements or other
expenses of maintaining and operating the common parking and plaza areas; the
cost, including interest, amortized over its useful life, or the costs
3
<PAGE>
(amortized over their useful life) of capital improvements and structural
repairs and replacements made in or to the building (including finance costs) in
order to conform to any applicable laws, ordinances, rules, regulations, or
orders of any governmental or quasi-governmental authority having jurisdiction
over the building; the cost, including interest, amortized over its useful life,
of installation of any device or other equipment which improves the operating
efficiency of any system within the leased premises and thereby reduces
operating expenses; all other expenses which would generally be regarded as
operating and maintenance expenses which would reasonably be amortized over a
period not to exceed five (5) years; all real property taxes and installments of
special assessments, including dues and assessments by means of deed
restrictions and/or owners' associations which accrue against the building of
which the leased premises are a part during the term of this Lease; and all
insurance premiums Lessor is required to pay or deems necessary to pay,
including public liability insurance, with respect to the building. The term
operating expenses does not include the following: repairs, restoration or other
work occasioned by fire, wind, the elements or other casualty; income and
franchise taxes of Lessor; expenses incurred in leasing to or procuring of
Lessees, leasing commissions, advertising expenses and expenses for the
renovating of space for new Lessees; interest or principal payments on any
mortgage or other indebtedness of Lessor; compensation paid to any employee of
Lessor above the grade of property manager; and depreciation allowance or
expense; or operating expenses which are the responsibility of Lessee.
2.04 Late Payment Charge. Other remedies for nonpayment of rent
notwithstanding, if the monthly rental payment is not received by Lessor on or
before the fifth (5th) day of the month for which the rent is due, or if any
other payment due Lessor by Lessee is not received by Lessor on or before the
fifth (5th) day of the month next following the month in which Lessee was
invoiced, a late payment charge of five percent (5%) of such past due amount
shall become due and payable in addition to such amounts owed under this Lease.
2.05 Interest Due. If any amount due from Lessee to Lessor hereunder
whether it be rental or other charges, is not paid within five (5) days of when
due, Lessee shall pay Lessor an amount equal to eighteen percent (18%) per annum
of the total amount due Lessor, from the original due date until paid. Interest
charges shall be in addition to, and not in substitution of, late charges
imposed.
2.06 Increase in Insurance Premiums. If any increase in any insurance
premiums paid by Lessor for the building is caused by Lessee's use of the leased
premises in a manner other than as set forth in section 1.06, or if Lessee
vacates the leased premises and causes an increase in such premiums, then Lessee
shall pay as additional rent the amount of such increase to Lessor.
2.07 Security Deposit. The security deposit set forth above shall be
held by Lessor for the performance of Lessee's covenants and obligations under
this Lease, it being expressly understood that the deposit shall not be
considered an advance payment of rental or a measure of Lessor's damage in case
of default by Lessee. Upon the occurrence of any event of default by Lessee or
breach by Lessee of Lessee's covenants under this Lease, Lessor may, from time
to time, without prejudice to any other remedy, use the security deposit to the
extent necessary to make good any arrears of rent, or to repair any damage or
injury, or pay any expense or liability incurred by Lessor as a result of the
event of default or breach of covenant, and any remaining balance of the
security deposit is so used or applied, Lessee shall upon ten (10) days written
notice from Lessor, deposit with Lessor by cash or cashier's check an amount
sufficient to restore the security deposit to its original amount.
2.08 Holding Over. In the event that Lessee does not vacate the leased
premises upon the expiration or termination of this Lease, Lessee shall be a
tenant-at-will for the holdover period and all
4
<PAGE>
of the terms and provisions of this Lease shall be applicable during that
period, except that Lessee shall pay Lessor as base rental for the period of
such holdover an amount equal to one and one-half (1 1/2) times the base rent
which would have been payable by Lessee had the holdover period been a part of
the original term of this Lease. Lessee agrees to vacate and deliver the leased
premises to Lessor upon Lessee's receipt of notice from Lessor to vacate. The
rental payable during the holdover period shall be payable to Lessor on demand.
No holding over by Lessee, whether with or without the consent of Lessor, shall
operate to extend the term of this Lease.
ARTICLE 3
OCCUPANCY AND USE
-----------------
3.01 Use. Lessee warrants and represents to Lessor that the leased
premises shall be used and occupied only for the purpose as set forth in section
1.06. Lessee shall occupy the leased premises, conduct its business and control
its agents, employees, invitees and visitors in such a manner as is lawful,
reputable and will not create a nuisance. Lessee shall not permit any operation
which emits any odor or matter which intrudes into other portions of the
building, use any apparatus or machine which makes undue noise or causes
vibration in any portion of the building or otherwise interfere with, annoy or
disturb any other Lessee in its normal business operations or Lessor in its
management of the building. Lessee shall neither permit any waste on the leased
premises nor allow the leased premises to be used in any way which would, in the
opinion of Lessor, be extra hazardous on account of fire or which would in any
way increase or render void the fire insurance on the building. Lessee warrants
to Lessor that the insurance questionnaire (filled out by Lessee, signed and
presented to Lessor prior to the executing of this Lease, accurately reflects
Lessee's original intended use of the leased premises. The insurance
questionnaire is made a part of this Lease by reference as though full copied
herein. If at any time during the term of this Lease the State Board of
Insurance or other insurance authority disallows any of Lessor's sprinkler
credits or imposes an additional penalty or surcharge in Lessor's insurance
premiums because of Lessee's original or subsequent placement of use of storage
racks or bins, method of storage or nature of Lessee's inventory or any other
act of Lessee, Lessee agrees to pay as additional rent the increase (between
fire walls) in Lessor's insurance premiums.
3.02 Signs. No sign of any type or description shall be erected, placed
or painted in or about the leased premises or project except those signs
submitted to Lessor in writing and approved by Lessor in writing, and which
signs are in conformance with Lessor's sign criteria established for the
Project.
3.03 Compliance with Laws, Rules, and Regulations. Lessee shall not use
the Premises or permit anything to be done in or about the Premises which will
in any way conflict with any law, statute, ordinance or governmental rule or
regulation now in force or which may hereafter be enacted or promulgated. Lessee
shall at its sole cost and expense promptly comply with all laws, statutes,
ordinances or governmental rules, regulations and requirements now in force or
which may hereafter be in force and with the reasonable requirements of any
insurer, underwriter or other similar entity now or hereafter relating to or
affecting the condition, use or occupancy of the Premises, excluding structural
changes not related to or affected by Lessee's improvements or acts. Lessee
shall be solely responsible for compliance with the provisions of the Americans
with Disabilities Act (the "ADA") as it applies to Lessee's business and the
Premises. Lessor shall be solely responsible for compliance with the provisions
of the ADA as it applies to the Building. Lessor makes no warranty express or
implied that Lessee's intended use of the Premises is suitable or allowable
under any applicable governmental code, statute or regulation. Lessee, at
Lessee's sole cost and expense, shall comply with all laws, ordinances,
5
<PAGE>
orders, rules and regulations of state, federal, municipal or their agencies or
bodies having jurisdiction over use, condition and occupancy of the leased
premises.
Lessee will comply with the rules and regulations of the building adopted
by Lessor which are set forth on a schedule attached to this Lease. Lessor
shall have the right at all times to change and amend the rules and regulations
in any reasonable manner as may be deemed advisable for the safety, care,
cleanliness, preservation of good order and operation or use of the building or
the leased premises. All changes and amendments to the rules and regulations of
the building will be sent by Lessor to Lessee in writing and shall thereafter be
carried out and observed by Lessee.
3.04 Warranty of Possession. Lessor warrants that it has the right and
authority to execute this Lease, and Lessee, upon payment of the required rents
and subject to the terms, conditions, covenants and agreements contained in this
Lease, shall have possession of the leased premises during the full term of this
Lease as well as any extension or renewal thereof. Lessor shall not be
responsible for the acts or omissions of any other Lessee or third party that
may interfere with Lessee's use and enjoyment of the leased premises.
3.05 Inspection. Lessor or its authorized agents shall at any and all
reasonable times have the right to enter the lease premises to inspect the same,
to supply janitorial service or any other service to be provided by Lessor, to
show the leased premises to prospective purchasers or Lessees, and to alter,
improve or repair the leased premises or any other portion of the building.
Lessee hereby waives any claim for damages for injury or inconvenience to or
interference with Lessee's business, any loss of occupancy or use of the leased
premises, and any other loss occasioned thereby. Lessor shall at all times have
and retain a key with which to unlock all of the doors in, upon and about the
leased premises. Lessee shall not change Lessor's lock system or in any other
manner prohibit Lessor from entering the leased premises. Lessor shall have the
right to use any and all means which Lessor may deem proper to open any door in
an emergency without liability therefore.
ARTICLE 4
UTILITIES AND SERVICE
---------------------
4.01 Building Services. Lessor shall provide the normal utility service
connections to the building. Lessee shall pay the cost of all utility services,
including, but not limited to, initial connection charges, all charges for gas,
electricity, water, sanitary and storm sewer service, and for all electric
lights. However, in a multi-occupancy building, Lessor may provide water to the
leased premises, in which case Lessee agrees to pay to Lessor its pro rata share
of the cost of such water. Lessee shall be responsible for the installation and
maintenance of any dilution tanks, holding tanks, settling tanks, sewer sampling
devices, sand traps, grease traps or similar devices as may be required by any
governmental subdivision for Lessee's use of the sanitary sewer system. If the
leased premises are in a multi-occupancy building, Lessee shall pay all
surcharges levied due to Lessee's use or sanitary or waste removal services
insofar as such surcharges affect Lessor or other Lessees in the building.
Lessor shall not be required to pay for any utility services, supplies or up
keep in connection with the leased premises or building.
4.02 Theft or Burglary. Lessor shall not be liable to Lessee for losses
to Lessee's property or personal injury caused by criminal acts or entry by
unauthorized persons into the leased premises or the building.
6
<PAGE>
ARTICLE 5
REPAIRS AND MAINTENANCE
-----------------------
5.01 Lessor Repairs. Lessor shall not be required to make any
improvements, replacements or repairs of any kind or character to the leased
premises or the project during the term of this Lease except as are set forth in
this section. Lessor shall maintain only the roof, foundation, parking and
common areas, and the structural soundness of the exterior walls (excluding
windows, windowglass, plate glass and doors). Lessor's costs of maintaining the
items set forth in this section are subject to the additional rent provisions in
section 2.02. Lessor shall not be liable to Lessee, except as expressly provided
in this Lease, for any damage or inconvenience, and Lessee shall not be entitled
to any abatement or reduction of rent by reason of any repairs, alterations or
additions made by Lessor under this Lease.
5.02 Lessee Repairs. Lessee shall, at its sole cost and expense,
maintain, repair and replace all other parts of the leased premises in good
repair and condition, including, but not limited to, heating, ventilating and
air conditioning systems, fire sprinkler system, dock bumpers, pest control and
extermination and trash pick-up and removal. Lessee shall repair and pay for any
damage caused by any act or omission of Lessee or Lessee's agents, employees,
invitees, licensees or visitors. If Lessee fails to make the repairs of
replacements promptly as required herein, Lessor may, at its option, make the
repairs and replacements and the cost of such repairs and replacements shall be
charged to Lessee as additional rent and shall become due and payable to Lessee
within ten (10) days from receipt of Lessor's invoice. Costs incurred under this
section are the total responsibility of Lessee and do not constitute operating
expenses under section 2.02.
5.03 Request for Repairs. All requests for repairs or maintenance that
are the responsibility of Lessor pursuant to any provision of this Lease must be
made in writing to Lessor at the address in section 1.05.
5.04 Lessee Damages. Lessee shall not allow any damage to be committed
on any portion of the leased premises or building, and at the termination of
this Lease, by lapse of time or otherwise, Lessee shall deliver the leased
premises to Lessor in as good condition as existed at the commencement date of
this Lease, ordinary wear and tear excepted. The cost and expense of any repairs
necessary to restore the condition of the leased premises shall be borne by
Lessee.
5.05 Maintenance Contract. Lessee shall, at its sole cost and expense,
during the term of this Lease maintain a regularly scheduled preventative
maintenance/service contract with a maintenance contractor for the servicing of
all heating and air conditioning systems and equipment within the leased
premises. The maintenance contractor and contract must be approved by Lessor and
must include quarterly servicing, replacement of filters, replacement or
adjustment of drive belts, periodic lubrication and oil change and any other
services suggested by the equipment manufacturer.
7
<PAGE>
ARTICLE 6
ALTERATIONS AND IMPROVEMENTS
----------------------------
6.01 Lessor Improvements. If construction to the leased premises is to
be performed by Lessor prior to or during Lessee's occupancy, Lessor will
complete the construction of the improvements to the leased premises, in
accordance with plans and specification agreed to by Lessor and Lessee, which
plans and specifications are made a part of this Lease by reference. Lessee
shall execute a copy of the plans and specifications and change orders, if
applicable, setting forth the amount of any costs to be borne by Lessee with
seven (7) days of receipt of the plans and specifications. In the event Lessee
fails to execute the plans and specifications and change orders within the seven
(7) day period, Lessor may at its sole option, declare this Lease canceled or
notify Lessee that the base rent shall commence on the completion date even
thought the improvements to be constructed by Lessor may not be complete. Any
changes or modifications to the approved plans and specifications shall be made
and accepted by written change order or agreement signed by Lessor and Lessee
and shall constitute an amendment to this Lease.
6.02 Lessee Improvements. Lessee shall not make or allow to be made any
alterations or physical additions in or to the leased premises without first
obtaining the written consent of Lessor, which consent shall not unreasonably be
withheld except for alterations or additions that affect the structural,
electrical or mechanical systems, the consent of which may in the sole and
absolute discretion of Lessor be denied. Any alterations, physical additions or
improvements to the leased premises made by Lessee shall at once become the
property of Lessor and shall be surrendered to Lessor upon the termination of
this Lease; provided, however, Lessor at its option, may require Lessee to
remove any physical additions and/or repair any alterations in order to restore
the leased premises to the condition existing at the time Lessee took
possession, all costs of removal and/or alterations to be borne by Lessee. This
clause shall not apply to moveable equipment or furniture owned by Lessee, which
may be removed by Lessee at the end of the term of this Lease if Lessee is not
then in default and if such equipment and furniture are not then subject to any
other rights, liens and interest of Lessor.
6.03 Mechanics Lien. Lessee will not permit any mechanic's or
materialman's lien(s) or other lien to be placed upon the leased premises or the
building in connection with work performed by Lessee or at Lessee's direction,
and nothing in this Lease shall be deemed to construed in any way as
constituting the consent or request of Lessor, express or implied, by inference
or otherwise, to any person for the performance of any labor or the furnishing
of any materials to the leased premises, or any part thereof, nor as giving
Lessee any right, power, or authority to contract for or permit the rendering of
any services of the furnishing of any materials that would give rise to any
mechanic's, materialman's or other lien against the leased premises. In the
event any such lien is attached to the leased premises, then, in addition to any
other right or remedy of Lessor, Lessor may, but shall not be obligated to,
obtain the release of or otherwise discharge the same. Any amount paid by Lessor
for any of the aforesaid purposes shall be paid by Lessee to Lessor on demand as
additional rent.
8
<PAGE>
ARTICLE 7
CASUALTY AND INSURANCE
----------------------
7.01 Substantial Destruction. If the leased premises should be totally
destroyed by fire or other casualty, or if the leased premises should be damaged
so that rebuilding cannot reasonably be completed within ninety (90) working
days after the date of written notification by Lessee to Lessor of the
destruction, this Lease shall terminate and the rent shall be abated for the
unexpired portion of the Lease, effective as of the date of the written
notification. Notwithstanding the foregoing there shall be not abatement of
rent in the event Tenant is responsible in whole or in part for the casualty or
destruction.
7.02 Partial Destruction. If the leased premises should be partially
damaged by fire or other casualty, and rebuilding or repairs can reasonably be
completed with ninety (90) working days from the date of written notification by
Lessee to Lessor of the destruction, this Lease shall not terminate, and Lessor
shall at its sole risk and expense proceed with reasonable diligence to rebuild
or repair the building or other improvements to substantially the same condition
in which they existed prior to the damage. If the leased premises are to be
rebuilt or repaired and are untenantable in whole or in part following the
damage, and the damage or destruction was not caused or contribute to by act or
negligence of Lessee, its agents, employees, invitees, or those for whom Lessee
is responsible, the rent payable under this Lease during the period for which
the leased premises are untenantable shall be adjusted to such an extent as may
be fair and reasonable under the circumstances. In the event that Lessor fails
to complete the necessary repairs or rebuilding within ninety (90) working days
from the date of written notice of termination to Lessor whereupon all rights
and obligations under this Lease shall cease to exist.
7.03 Waiver of Subrogation. Anything in this Lease to the contrary
notwithstanding, Lessor and Lessee hereby waive and release each other of and
from any and all right of recovery, claim, action or cause of action, against
each other, their agents, officers and employees, for any loss or damage that
may occur to the leased premises, improvements to the building of which the
leased premises are a part, or personal property within the building, by reason
of fire or the elements, regardless of cause or origin, including negligence of
Lessor or Lessee and their agents, officers and employees. Lessor and Lessee
agree immediately to give their respective insurance companies which have issued
policies of special covered causes of loss insurance of direct physical loss,
written notice of the terms of the mutual waivers contained in this section, and
to have the insurance policies property endorsed, if necessary, to prevent the
invalidation of the insurance coverages by reason of the mutual waivers.
7.04 Hold Harmless. Lessor shall not be liable to Lessee's employees,
agents, invitees, licensees or visitors, or to any other person, for an injury
to any other person, for an injury to person or damage to property on or about
the leased premises caused by any act or omission of Lessee, its agents,
servants or employees, or of any other person entering upon the leased premises
under express or implied invitation by Lessee, or caused by the improvements
located on the leased premises becoming out of repair, the failure or cessation
of any service provided by Lessor (including security service and devices), or
caused by leakage of gas, oil, water or steam or by electricity emanating from
the leased premises except to the extent that the failure or cessation of any
service, which the Landlord is obligated to provide hereunder, is caused by the
negligence or intentional misconduct of the Landlord. Lessee agrees to
indemnify and hold harmless Lessor of and from any loss, attorney's fees,
expenses or claims arising out of any such damage or injury.
9
<PAGE>
Landlord, its agents and employees shall not be liable, and Tenant hereby
waives its rights, if any, to claim for any damage or loss as a result of any
failure of the Building to comply strictly with the ADA as it applies to the
Building. Tenant hereby agrees to save, hold harmless and defend Landlord from
any claims, suits or liabilities made against the Landlord by any of Tenant's
existing or prospective clients, employees, agents, servants or invitees as a
result of or in connection with any non-compliance of the Premises with the ADA.
In the event of any failure of the Building to comply with the ADA, if such
alleged defect was not apparent at the date of execution hereof, and if such
failure substantially interferes with the operation of Tenant's business in the
Premises, Tenant's sole remedy shall be for termination of this Lease, provided
that, Tenant shall have no claim for termination of this Lease based on the non-
compliance with the ADA by the Building unless Tenant (i) promptly gives notice
of any such non-compliance and allows Landlord a reasonable time to correct any
such non-compliance, and (ii) if such compliance is not effected within a
reasonable time, Tenant gives no less than ninety (90) days prior written notice
of the termination date, Tenant actually vacates the Premises on or before such
termination date, and Tenant is in compliance with its obligations under this
Lease on the date the notice is given and on the termination date.
In case any claim, demand, action or proceeding is made or brought against
Landlord, its agents or employees, as a result of Tenant's default or alleged
default of any obligation on Tenant's part to be performed under the terms of
this Lease, or arising from any act, omission or negligence of Tenant, its
agents or employees, or which gives rise to Tenant's obligation to indemnify
Landlord, Tenant shall be responsible for all costs and expenses, including but
not limited to reasonable attorneys' fees incurred in defending or prosecution
of the same, as applicable.
7.05 Tenant's Insurance. Tenant shall, at its own cost, at all times
during the term of this Lease and any extensions hereof, procure and maintain
special covered causes of loss insurance on Tenant's Property and the contents
of the Premises in an amount equal to full replacement cost thereof Tenant shall
also maintain workers' compensation and employers' liability insurance in the
minimum statutory amount Tenant shall also maintain commercial general liability
insurance on an occurrence basis, including coverage for bodily injury, property
damage, personal injury products and completed operations, liability assumed
under an insured contract host liquor legal liability and cross liability with
the following limits of liability: One Million Dollars ($1,000,000.00) combined
single limit for each occurrence of bodily injury and property damage and
personal injury; Two Million Dollars ($2,000,000.00) aggregate for bodily injury
and property damage for products and completed operations. Tenant shall
further, at its own cost, at all times during the term of this Lease and any
extensions hereof, procure and maintain insurance for automobile liability
including coverage for bodily injury and property damage for owned and hired
autos with the following limits of liability: One Million Dollars
($1,000,000.00) combined single limit for each occurrence of bodily injury and
property damage. Tenant shall also maintain business interruption insurance in
an amount sufficient to reimburse Tenant for direct and indirect loss of
earnings attributable to prevention of access to the Building or Premises as a
result of such perils, and such other forms and amounts of insurance as Landlord
or its mortgagee may reasonably require from time to time. All such insurance
shall be procured from a responsible insurance company or companies authorized
to do business in the State where the Premises are located, with general
policyholder's ratings of not less than "A-" and a financial rating of not less
than "VI" in the most current available Best's Insurance Reports, and shall be
otherwise reasonably satisfactory to Landlord. All such policies except Workers
Compensation shall name Landlord and Landlord's property management agent as
additional insureds, and shall provide that the same may not be canceled except
upon thirty (30) days prior written notice to Landlord. All insurance
maintained by Tenant shall be primary to any insurance provided by Landlord.
Tenant shall provide certificate(s) of such insurance to Landlord prior to
occupancy of the Premises and commence-
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<PAGE>
ment of the Lease term and at least thirty (30) days prior to the annual renewal
date thereof and upon request from time to time and such certificate(s) shall
disclose that such insurance names Landlord and Landlord's designated property
management agent as an additional insured, in addition to the other requirements
set forth herein. The limits of such insurance shall not, under any
circumstances, limit the liability of Tenant hereunder.
Should Tenant fail to procure such insurance within the time period
hereinbefore specified, Landlord may, at its option, but Landlord shall have no
obligation to do so, procure such insurance and pay the premiums therefor and
Tenant agrees to reimburse Landlord for the cost thereof plus interest thereon
at the rate of eighteen percent (18%) per annum (but in no event in excess of
the maximum rate permitted under law), as Additional Rent on the first day of
the calendar month following the rendition of the bill or bills therefor and
Landlord shall have the same rights and remedies in enforcing the payment of
such additional rent as in the case of Tenant's failure to pay the rent herein
reserved.
7.06 Landlord's Insurance. Landlord agrees to carry and maintain the
following insurance during the term of this Lease and any extension hereof:
general public liability insurance against claims for personal injury, including
death and property damage in or about the Premises and the Building or the
Building Complex (excluding Tenant's Property), such insurance to be in an
amount not less than One Million Dollars ($1,000,000.00) combined single limit.
Landlord shall also carry fire and a casualty insurance covering the Building in
an amount not less than eighty percent (80%) of the replacement cost of same.
Such insurance may expressly exclude property paid for by tenants or paid for by
Landlord for which tenants have reimbursed Landlord located in, or constituting
a part of the Building or the Building Complex. Such insurance shall afford
coverage for damages resulting from (a) fire, (b) perils covered by extended
coverage insurance, and (c) explosion of steam and pressure boilers and similar
apparatus located in the Building or the Building Complex. Landlord may carry
such other additional insurance coverage as Landlord or Landlord's mortgagee
deems appropriate including coverage for loss of rents. All such insurance
shall be procured from a responsible insurance company or companies authorized
to do business in the State where the Premises are located, with general
policyholder's ratings of not less than "A-" and a financial rating of not less
than "XI" in the most current available Best's Insurance Reports.
ARTICLE 8
CONDEMNATION
------------
8.0 Condemnation
------------
8.01 Substantial Taking. If all or a substantial part of the leased
premises are taken for any public or quasi-public use under any governmental
law, ordinance or regulation, or by right of eminent domain or by purchase in
lieu thereof, and the taking would prevent or materially interfere with the use
of the leased premises for the purpose for which it is then being used, this
Lease shall terminate and the rent shall be abated during the unexpired portion
of this Lease effective on the date physical possession is taken by the
condemning authority. Lessee shall have no claim to the condemnation award or
proceeds in lieu thereof. Lessee shall have the right, in a separate legal
action, to make claim for its personal property so long as the award in no way
reduces the award to Lessor.
8.02 Partial Taking. If a portion of the leased premises shall be taken
for any public or quasi-public use under any governmental law, ordinance, or
regulation, or by right of eminent domain or by purchase in lieu thereof, and
this Lease is not terminated as provided in Section 8.01 above,
11
<PAGE>
Lessor shall at Lessor's sole risk and expense, restore and reconstruct the
building and other improvements on the leased premises to the extent necessary
to make it reasonable tenantable. The rent payable under this Lease during this
unexpired portion of the term shall be adjusted to such an extent as may be fair
and reasonable under the circumstance. Lessee shall have no claim to the
condemnation award or proceeds in lieu thereof. Lessee shall have the right, in
a separate legal action, to make claim for its personal property so long as the
award in no way reduces the award to Lessor.
ARTICLE 9
ASSIGNMENT OR SUBLEASE
----------------------
9.0 Assignment or Sublease
----------------------
9.01 Lessor Assignment. Lessor shall have the right to sell, transfer or
assign, in whole or in part, its rights and obligations under this Lease and in
the building. Any such sale, transfer or assignment shall operate to release
Lessor from any and all liabilities under this Lease arising after the date of
such sales, assignment or transfer.
9.02 Lessee Assignment. Lessee shall not assign, in whole or in part,
this Lease, or allow it to be assigned, in whole or in part, by operation of law
or otherwise (excluding the transfer of a majority interest of stock, or merger
which shall be deemed an assignment but will not require the consent of Landlord
provided Tenant notifies Lessor, in writing, at least thirty (30) days in
advance of the date on which Lessee desires to make such assignment) or mortgage
or pledge the same, or sublet the leased premises, in whole or in part, without
the prior written consent of Lessor (which consent shall not be unreasonably
withheld or delayed), and in no event shall any such assignment or sublease ever
release Lessee or any guarantor from any obligation or liability hereunder. No
assignee or sublessee of the leased premises or any portion thereof may assign
or sublet the leased premises or any portion thereof.
9.03 Condition of Agreement. If Lessee desires to assign or sublet all
or any part of the leased premises, it shall so notify Lessor at least thirty
(30) days in advance of the date on which Lessee desires to make such assignment
or sublease. Lessee shall provide Lessor with a copy of the proposed assignment
or sublease and such information as Lessor might request concerning the proposed
sublessee or assignee to allow Lessor to make informed judgments as to the
financial condition, reputation, operations and general desirability of the
proposed sublessee or assignee. Within fifteen (15) days after Lessor's receipt
of Lessee's proposed assignment or sublease and all required information
concerning the proposed sublessee or assigner, Lessor shall have the following
options: (1) cancel this Lease as to the leased premises or portion thereof
proposed to be assigned or sublet; (2) consent to the proposed assignment or
sublease, and, if the rent due and payable by any assignee or sublessee under an
such permitted assignment or sublease (or a combination of the rent payable
under such assignment of sublease plus any bonus or any other consideration or
any payment incident thereto) exceeds the rent payable under this Lease for such
space, Lessee shall pay to Lessor one-half ( 1/2) of such excess rent and other
excess consideration within ten (10) days following receipt thereof by Lessee;
or (3) refuse, in its reasonable judgment, to consent to the proposed assignment
or sublease, which refusal shall be deemed to have been exercised unless Lessor
give Lessee written notice providing otherwise. Upon the occurrence of an event
of default, if all or any part of the leased premises are then assigned or
sublet, Lessor in addition to any other remedies provided by this Lease or
provided by law, may, at its option, collect directly from the assignee or
sublessee all rents becoming due to Lessee by reason of the assignment or
sublease, and Lessor shall have a security interest in all properties on the
leased premises
12
<PAGE>
to secure payment of such sums. Any collection directly by Lessor from the
assignee or sublessee shall not be construed to constitute a novation or release
of Lessee or any guarantor from the further performance of its obligation under
this Lease.
9.04 Subordination. Lessee accepts this Lease subject and subordinate to
any recorded mortgage or deed of trust lien presently existing or hereafter
created upon the building or project and to all existing recorded restrictions,
covenants, easements and agreements with respect to the building or project.
Lessor is hereby irrevocably vested with full power and authority to subordinate
Lessee's interest under this Lease to any first mortgage or deed of trust lien
hereafter placed on the leased premises, and Lessee agrees upon demand to
execute additional instruments subordinating this Lease as Lessor may require.
If the interests of Lessor under this Lease shall be transferred by reason of
foreclosure or other proceedings for enforcement of any first mortgage or deed
of trust lien on the leased premises, Lessee shall be bound to the transferee
(sometimes call the "Purchaser") at the option of the Purchaser, under the
terms, covenants and conditions of this Lease for the balance of the term
remaining, including any extensions or renewals, with the same force and effect
as if the Purchaser were Lessor under this Lease, and, if requested by the
Purchaser, Lessee agrees to attorn to the Purchaser, including the first
mortgagee under any such mortgage if it be the Purchaser, as its Lessor.
9.05 Estoppel Certificates. Lessee agrees to furnish, from time to time,
within ten (10) days after receipt of a request from Lessor or Lessor's
mortgagee, a statement certifying, if applicable, the following: Lessee is in
possession of the leased premises; the leased premises are acceptable; the Lease
is in full force and effect, the Lease is unmodified; Lessee claims no present
charge, lien, or claim of offset against rent; the rent is paid for the current
month, but is not prepaid for more than one (1) month and will not be prepaid
for more than one (1) month in advance; there is no existing default by reason
of some act or omission by Lessor; and such other matters as may be reasonable
required by Lessor or Lessor's mortgagee. Lessee's failure to deliver such
statement, in addition to being a default under this Lease, shall be deemed to
establish conclusively that this Lease is in full force and effect except as
declared by Lessor, that Lessor is not in default of any of its obligations
under this Lease, and the Lessor has not received more than one month rent in
advance.
ARTICLE 10
LIENS
-----
ARTICLE 11
DEFAULT AND REMEDIES
--------------------
11.01 Default by Lessee. The following shall be deemed to be events of
default by Lessee under this Lease: (1) Lessee shall fail to pay when due any
installment of rent or any other payment required pursuant to this Lease; (2)
Lessee shall abandon any substantial portion of the leased premises; (3) Lessee
shall fail to comply with any term, provision or covenant of this Lease, other
than the payment of rent, and the failure is not cured within thirty (30) days
after written notice to Lessee; (4) Lessee shall file a petition or be adjudged
bankrupt or insolvent under any applicable federal or state bankruptcy or
insolvency law or admit that it cannot meet its financial obligations as they
become due; or a receiver or trustee shall be appointed for all or substantially
all of the assets of Lessee; or Lessee shall make a transfer in fraud of
creditors or shall make an assignment for the benefit of creditors; or (5)
Lessee shall do or permit to be done any act which results in a lien being filed
against the leased premises or the building and/or project of which the leased
premises are a part.
13
<PAGE>
11.02 Remedies for Lessee's Default. Upon the occurrence of any event of
default set forth in this Lease, Lessor shall have the option to pursue any one
or more of the remedies set forth herein without any notice or demand. (1)
Lessor may enter upon and take possession of the leased premises, by picking or
changing locks if necessary, and lock out, expel or remove Lessee and any other
person who may be occupying all or any part of the leased premises without being
liable for any claim for damages, and relet the leased premises on behalf of
Lessee and all or any part of the leased premises without being liable for any
claim for damages, and relet the leased premises on behalf of Lessee and receive
the rent directly by reason of the reletting. Lessee agrees to pay Lessor on
demand any deficiency that may arise by reason of any reletting of the leased
premises; further, Lessee agrees to reimburse Lessor for any expenditures made
by it in order to relet the leased premises, including, but not limited to
remodeling and repair costs. (2) Lessor may enter upon the leased premises,
by picking or changing locks if necessary, and do whatever Lessee is obligated
to do under the terms of this Lease. Lessee agrees to reimburse Lessor on
demand for any expenses which Lessor may incur in effecting compliance with
Lessee's obligations under this Lease; further, Lessee agrees that Lessor shall
not be liable for any damages resulting to Lessee from effecting compliance with
Lessee's obligations under this Lease caused by the negligence of Lessor or
otherwise. (3) Lessor may terminate this Lease, in which event Lessee shall
immediately surrender the leased premises to Lessor, and if Lessee fails to
surrender the leased premises, Lessor may, without prejudice to any other remedy
which it may have for possession or arrearages in rent, enter upon and take
possession of the leased premises, by picking or changing locks if necessary,
and lock out, expel or remove Lessee and any other person who; may be occupying
all or any part of the leased premises without being liable for any claim for
damages. Lessee agrees to pay on demand the amount of all loss and damage which
Lessor may suffer by reason of the termination of this Lease under this section,
whether through inability to relet the leased premises on satisfactory terms or
otherwise. Notwithstanding any other remedy set forth in this Lease, in the
event Lessor has made rent concessions of any type or character, or waived any
base rent, and Lessee fails to take possession of the leased premises on the
commencement or completion date or otherwise defaults at any time during the
term of this Lease, the rent concessions, including any waived base rent, shall
be canceled and the amount of the base rent or other rent concessions shall be
due and payable immediately as if no rent concessions or waiver of any base rent
had ever been granted. A rent concession or waiver of the base rent shall not
relieve Lessee of any obligation to pay any other charge due and payable under
this Lease including without limitation any sum due under Section 2.02.
Notwithstanding anything contained in this Lease to the contrary, this Lease may
be terminated by Lessor only by mailing or delivering written notice of such
termination to Lessee, and no other act or omission of Lessor shall be construed
as a termination of this Lease.
ARTICLE 12
RELOCATION
----------
12.01 Relocation Option. In the event Lessor determines to utilize the
leased premises for other purposes during the term of this Lease, Lessee agrees
to relocate to other space in the building and/or project designed by Lessor,
provided such other space is of equal or larger size than the leased premises.
12.02 Expense. Lessor shall pay all out of pocket expenses of any such
relocation, including the expenses of moving and reconstruction of all Lessee
furnished and Lessor furnished improvements if the event of such relocation,
this Lease shall continue in full force and effect without any change in the
terms or conditions of this Lease, but with the new location substituted for the
old location set forth in Section 1.02 of this Lease.
14
<PAGE>
ARTICLE 13
DEFINITIONS
-----------
13.01 Abandon. "Abandon" means the vacating of all or a substantial
portion of the leased premises by Lessee, when Lessee is in default of the
rental payments due under this Lease.
13.02 Act of God or Force Majeure. An "act of God" or "force majeure" is
defined for purposes of this Lease as strikes, lockouts, sitdowns, material or
labor restrictions by any governmental authority, unusual transportation delays,
riots, floods, washouts, explosions, earthquakes, fire, storms, weather
(including wet grounds or inclement weather which prevents construction), acts
of the public enemy, wars, insurrections and any other cause not reasonably
within the control of Lessor and which by the exercise of due diligence Lessor
is unable, wholly or in part, to prevent or overcome.
13.03 Building or Project. "Building" or "Project" as used in this Lease
means the building and/or project described in Section 1.02, including the
leased premises and the land upon which the building or project is situated.
13.04 Commencement Date. "Commencement date" shall be the date set forth
in Section 1.03. The commencement date shall constitute the commencement of the
term of this Lease for all purposes, whether or not Lessee has actually taken
possession.
13.05 Completion Date. "Completion date" shall be the date on which the
improvements erected and to be erected upon the leased premises shall have been
completed in accordance with the plans and specifications described in Article
6.00. The completion date shall constitute the commencement of the term of this
Lease for all purposes, whether or not Lessee has actual taken possession.
Lessor shall use its best efforts to establish the completion date as the date
set forth in Section 1.03. In the event that the improvements have not in fact
been completed as of that date, Lessee shall notify Lessor in writing of its
objections. Lessor shall have a reasonable time after delivery of the notice in
which to take such corrective action as may be necessary and shall notify Lessee
in writing as soon as it deems such corrective action has been completed and the
improvements are ready for occupancy. Upon completion of construction, Lessee
shall deliver the Lessor a letter accepting the leased premises as suitable for
the purposes for which they are let and the date of such letter shall constitute
the commencement of the term of this Lease. Whether or not Lessee has executed
such letter of acceptance, taking possession of the leases premises by Lessee
shall be deemed to establish conclusively that the improvements have been
completed in accordance with the plans and specification, are suitable for the
purposes for which the leased premises are let, and that the leased premises are
in good and satisfactory condition as to the date possession was so taken by
Lessee, except for latent defaults, if any.
13.06 Square Feet. "Square feet" or "square foot" as used in this Lease
includes the area contained within the leased premises together with a common
area percentage factor of the leased premises proportionate to the total
building area.
ARTICLE 14
MISCELLANEOUS
-------------
14.01 Waiver. Failure of Lessor to declare an event of default
immediately upon its occurrence, or delay in taking any action in connection
with an event of default, shall not constitute a
15
<PAGE>
waiver of the default, but Lessor shall have the right to declare the default at
any time and take such action as is lawful or authorized under this one or more
of the other remedies provided elsewhere in this Lease or provided by law, nor
shall pursuit of any remedy constitute forfeiture or waiver of any rent or
damages accruing to Lessor by reason of the violation of any of the terms,
provisions or covenants of this Lease. Failure by Lessor to enforce one or more
of the remedies provided upon an event of default shall not be deemed or
construed a waiver or the default or of any other violation or breach of any of
the terms, provisions and covenants in this Lease.
14.02 Act of God. Lessor shall not be required to perform any covenant
or obligation in this Lease, or be liable in damages to Lessee, so long as the
performance or non-performance of the covenant or obligation is delayed, caused
or prevented by an act of God, force majeure or by Lessee.
14.03 Attorney's Fees. In the event of any arbitration, mediation or
litigation arising under this Lease, the prevailing party shall be entitled to
an award of its attorney's fees, costs and expenses.
14.04 Successors. This Lease shall be finding upon and inure to the
benefit of Lessor and Lessee and their respective heirs, personal
representative, successors and assigns. It is hereby covenanted and agreed that
should Lessor's interest in the leased premises cease to exist for any reason
during the term of this Lease, then notwithstanding the happening of such event
this Lease nevertheless shall remain unimpaired and in full force and effect,
and Lessee hereunder agrees to attorn to the then owner of the leased premises.
14.05 Rent Tax. If applicable in the jurisdiction where the leased
premises are situated, Lessee shall pay and be liable for all rental, sales and
use taxes or other similar taxes, if any, levied or imposed by any city, state,
county or other governmental body having authority, such payments to be in
addition to all other payments required to be paid to Lessor by Lessee under the
terms of this Lease. Any such payment shall be paid concurrently with the
payment of the rent, additional rent, operating expenses or other charges upon
which the tax is based as set forth above.
14.06 Captions. The captions appearing in this Lease are inserted only as
a matter of convenience and in no way define, limit construe or describe the
scope or intent of any section.
14.07 Notice. All rent and other payments required to be made by Lessee
shall be payable to Lessor at the address set forth in Section 1.05. All
payments required to be made by Lessor to Lessee shall be payable to Lessee at
the address set forth in Section 1.05, or at any other address within the United
States as Lessee may specify from time to time by written notice. Any notice or
document required or permitted to be delivered by the terms of this Lease shall
be deemed to be delivered (whether or not actually received) when deposited in
the United States Mail, postage prepaid, certified mail, return receipt
requested, addressed to the parties at the respective addresses set forth in
Section 1.05.
14.08 Submission of Lease. Submission of this Lease to Lessee for
signature does not constitute a reservation of space or an option to lease.
This Lease is not effective until execution by and delivery to both Lessor and
Lessee.
14.09 Corporate Authority. If Lessee executes this Lease as a
corporation, each of the persons executing this Lease on behalf of Lessee does
hereby personally represent and warrant that Lessee is a duly authorized and
existing corporation, that Lessee is qualified to do business in the state in
which the leased premises are located, that the corporation has full right and
authority to enter into
16
<PAGE>
this Lease, and that each person signing on behalf of the corporation is
authorized to do so. In the event any representation or warranty is false, all
persons who execute this Lease shall be liable, individually, as Lessee.
14.10 Severability. If any provision of this Lease or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Lease and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
14.11 Lessor's Liability. If Lessor shall be in default under this Lease
and, if as a consequence of such default, Lessee shall recover a money judgment
against Lessor such judgment shall be satisfied only out of the right, title and
interest of Lessor in the building as the same may then be encumbered and
neither Lessor nor any person or entity comprising Lessor shall be liable for
any deficiency. In no event shall Lessee have the right to levy execution
against any property of Lessor nor any person or entity comprising Lessor other
than its interest in the building as herein expressly provided.
14.12 Indemnity. Lessor agrees to indemnify and hold harmless Lessee from
and against any liability or claim, whether meritorious or not, arising with
respect to any broker whose claim arises by, through or on behalf of Lessor.
Lessee agrees to indemnify and hold harmless Lessor from and against any
liability or claim, whether meritorious or not, arising with respect to any
broker whose claim arises by, through or on behalf of Lessee.
14.13 If the Building is, at the execution hereof or at any time during
the term hereof, subject to a mortgage or deed of trust, the Lessee agrees to
give the holder thereof (the "Note Holder") written notice of each and every
alleged default by Lessor under the Lease and agrees not to exercise any of
Lessee's remedies under the Lease unless the Note Holder fails to cure such
default within ten (10) days after the time for cure thereof allotted to the
Lessor under the forgoing subparagraph or within such longer period as may be
reasonably necessary if such default cannot be cured within such ten (10) days.
The Tenant understands that the Note Holder shall have the right but not the
obligation or duty to cure any such default by the Lessor.
14.14 Hazardous Waste. Lessee shall not bring or allow any of its agents,
employees, contractors or invitees to bring, onto or about the leased premises
or the Building, any Hazardous Materials. For purposes of this Lease, the term
"Hazardous Materials" shall mean any one or more of the following: (a) any
"hazardous waste" as defined by the Resource Conservation and Recovery Act of
1976 (42 U.S.C. Section 6901 et seq.), as amended from time to time, and
regulations promulgated thereunder; (b) any "hazardous substance" as defined by
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
(42 U.S.C. Section 9601 et seq.) ("CERCLA"), as amended from time to time and
regulations promulgated thereunder; (c) asbestos; (d) polychlorinated biphenyls;
and (e) any other substance, in a quantity which, by any governmental rules,
statutes or regulations, requires special handling or notification of any
federal, state or local governmental entity in its collection, storage,
treatment or disposal.
Each party herein shall immediately advise the other, in writing, in the
event such party becomes aware that there is located on or about the Leased
Premises or the Building, or that such party or other lessee or any other person
intends or may bring onto or about the leased premises or the Building any
Hazardous Materials without being in full compliance of all governmental rules
and regulations regarding Hazardous Materials. Each party herein shall save,
hold harmless and indemnify
17
<PAGE>
the other from all claims, suits and liabilities which may be brought as a
result of the use, storage or transportation of any Hazardous Materials in or
about the leased premises or the Building by such party, its agents, contractors
or invitees.
ARTICLE 15
AMENDMENT AND LIMITATION OF WARRANTIES
--------------------------------------
15.01 Entire Agreement. IT IS EXPRESSLY AGREED BY LESSEE, AS A MATERIAL
CONSIDERATION FOR THE EXECUTION OF THIS EASE, THAT THIS LEASE, WITH THE SPECIFIC
REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF THE
PARTIES; THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES,
UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE OR
TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN
WRITING IN THIS LEASE.
15.02 Amendment. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR
EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE.
15.03 Limitation of Warranties. LESSOR AND LESSEE EXPRESSLY AGREE THAT
THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE,
AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN
THIS LEASE.
ARTICLE 16
----------
OTHER PROVISIONS
----------------
ARTICLE 17
SIGNATURES
----------
17.0 Signatures
----------
LESSOR: LESSEE:
COMMERCE SQUARE ASSOCIATES HATHAWAY CORPORATION,
L.L.C., a Colorado limited a Colorado corporation
liability company
By: /s/ Bruce D. Deifik By: /s/ Richard D. Smith
------------------------------- -------------------------------
Name: Bruce D. Deifik Name: Richard D. Smith
------------------------------ -----------------------------
Title: Manager Title: Executive Vice President
----------------------------- ----------------------------
Date: November 12, 1996 Date: November 8, 1996
------------------------------ -----------------------------
18
<PAGE>
INDUSTRIAL LEASE AGREEMENT
between
Lakefront Limited Partnership
(Landlord)
and
Hathaway Industrial Automation
(Tenant)
Lakefront I
(Building)
102-108 Lakefront Drive
Hunt Valley, MD 21030
(Address)
1
<PAGE>
INDUSTRIAL LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made this 30th day of April, 1997, by and
between Lakefront Limited Partnership (the "Landlord") and Hathaway Industrial
Automation, a corporation, formed and existing under the laws of the State of
Colorado (the "Tenant").
WITNESSETH, that for good and valuable consideration, the Landlord hereby
leases to the Tenant, and the Tenant hereby leases from the Landlord, certain
space containing an agreed-upon amount of 13,650 square feet of floor area (the
"Premises") in an industrial building known as Lakefront I(the "Building"), as
more particularly shown on the floor plan attached hereto as Exhibit A, which
Building together with other real property and improvements is located at
102-108 Lakefront Drive in Hunt Valley, MD (collectively the "Property"), all
upon the following terms and conditions:
ARTICLE I - TERM
----------------
(S)1.01 Length.
This Lease shall be for a term (the "Term") which begins on that date (the
"Commencement Date") which is the earlier of (i) May 1, 1997 (the "Target
Date"), or (ii) the first date on which the initial improvements to the Premises
described in (S)5.01 below are substantially complete. The Term shall be for
five (5) years and one (1) month and shall expire at midnight on the last day of
the calendar month in which the term shall end (the "Expiration Date"). In the
event that the Tenant enters into occupancy of the Premises prior to the
Commencement Date for the purpose of constructing improvements or installing
fixtures therein (and without conducting business therein), then all terms of
this Lease except that regarding the payment of rent and other charges shall
apply to such occupancy.
(S)1.02 Confirmation.
Landlord shall, within 30 days after the commencement of the Term, confirm
to Tenant in writing the actual dates of the Commencement Date and the
Expiration Date.
(S)1.03 Surrender.
The Tenant shall at the expiration of the Term or any earlier termination
of this Lease (a) promptly surrender to the Landlord possession of the Premises,
including any fixtures or other improvements which under the provisions of this
Lease are property of the Landlord, all in good order and repair (ordinary wear
and tear excepted) and broom clean, (b) remove therefrom the Tenant's signs,
goods and effects and any machinery, trade fixtures and equipment used in
conducting the Tenant's trade or business and not owned by the Landlord, and (c)
repair any damage to the Premises or the Building caused by such removal.
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(S)1.04 Holding Over.
If the Tenant continues to occupy the Premises beyond the Expiration Date
or any earlier termination of this Lease, such occupancy shall be subject to all
of the same terms and conditions as are contained in this Lease, except that the
rental payable during the period of such occupancy shall be equal to one and one
half times the amount of all Rent (defined herein) which was last in effect
during the Term. Nothing in the foregoing shall be deemed in any way to limit or
impair the Landlord's right to immediately evict the Tenant or exercise its
other rights and remedies under the provisions of this Lease or applicable law,
including collection of consequential damages, on account of the Tenant's
occupancy of the Premises without having obtained Landlord's prior consent.
ARTICLE II - RENT
-----------------
(S)2.01 Base Rent.
Tenant shall pay a minimum annual rental in each one-year period during the
Term hereof which shall be referred to hereinafter as "Base Rent." Base Rent
shall be calculated and increased for each such year as follows:
(1) Base Rent for the first one-year period in the Lease Term shall be
the sum of $137,353.13, payable as follows: First and second month at $6,540.63
each; third through twelfth month at $12,427.19 each.
(2) Base Rent for the second one-year period in the Lease Term shall
be the sum of $161,684.25, payable in equal monthly installments of $13,473.69
each.
(3) Base Rent for the third one-year period in the Lease Term shall be
the sum of $166,530.00, payable in equal monthly installments of $13,877.50
each.
(4) Base Rent for the fourth one-year period in the Lease Term shall
be the sum of $171,580.50, payable in equal monthly installments of $14,298.38
each.
(5) Base Rent for the fifth one-year period in the Lease Term shall be
the sum of $176,631.00, payable in equal monthly installments of $14,719.25
each.
(S)2.02 Real Estate Taxes.
Commencing after the end of the tax/fiscal year in which the Commencement
Date falls, Tenant shall pay to Landlord in each year of the Term a
proportionate share of the amount, if any, by which the Real Estate Taxes
(defined below) applicable to the Property in each such year or part year
exceeds $0.65 per square foot. For these purposes, the fraction used in
determining the Tenant's proportionate share of such items shall be 26.45% (the
"Proportionate Share"), which is the fraction reached by dividing the number of
rentable square feet of the Premises set forth on page 1 hereof by 51,610, which
is the total number of rentable square feet in the Building. The term "Real
Estate Taxes" shall be construed to mean any and all real property taxes,
assessments, sewer rates, ad valorem charges, rents and charges, front foot
benefit charges, all other governmental impositions in the nature of any of the
foregoing, and all costs and expenses (including attorneys' fees and costs of
court or other proceedings) incurred in contesting property tax assessments or
any other such governmental impositions. Tenant shall not be entitled to any
credit or rebate in the event Real Estate Taxes during any one year in the Term
are lower than the Base Real Estate Taxes. Notwithstanding anything herein to
the contrary, in calculating the
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Tenant's Proportionate Share for any year, Landlord shall have the right to
include in "Real Estate Taxes" all of the same taxes and assessments that are
imposed on other real property which is adjacent to the Property or part of the
same complex, provided that for such calculations the denominator used in
determining the Tenant's Proportionate Share shall include the rentable square
footage of all buildings on such adjacent property.
(S)2.03 Insurance Costs.
Commencing after the end of the calendar year in which the Commencement
Date falls, Tenant shall pay to Landlord in each year of the Term a
proportionate share of the amount, if any, by which the Insurance Costs (defined
below) applicable to the Property in each such year or part year exceeds $0.04
per square foot. For these purposes, the fraction used in determining the
Tenant's proportionate share of such items shall be the Proportionate Share set
forth in (S)2.02 above. The term "Insurance Costs" shall be construed to mean
any and all costs of liability, casualty and other insurance obtained by
Landlord in connection with the Building and the Property. Tenant shall not be
entitled to any credit or rebate in the event Insurance Costs during any one
year in the Term are lower than the Base Insurance Costs. Notwithstanding
anything herein to the contrary, in calculating the Tenant's Proportionate Share
for any year, Landlord shall have the right to include in "Insurance Costs" all
of the same costs of insurance for other real property which is adjacent to the
Property or part of the same complex, provided that for such calculations the
denominator used in determining the Tenant's Proportionate Share shall include
the rentable square footage of all buildings on such adjacent property.
(S)2.04 Operating Expenses.
Tenant shall pay to Landlord in each year or part year of the Term a
proportionate share of the Operating Expenses (defined below) over and above the
amount of $0.56 per rentable square foot in the Property for each such year or
part year. Tenant shall pay its Proportionate Share of snow and ice removal for
each such year within thirty (30) days of billing. For these purposes, the
fraction used in determining the Tenant's proportionate share of such items
shall be the Proportionate Share set forth in (S)2.02 above. "Operating
Expenses" shall mean all expenses, costs and disbursements of every kind and
nature incurred in connection with the ownership, management, maintenance,
repair and operation of the Building and Property, including but not limited to
the following: (1) cost of wages and salaries of all employees engaged in the
operation and maintenance of the Building and surrounding grounds and common
areas, including but not limited to payroll taxes, insurance and benefits; (2)
cost of all supplies and materials used in the operation, maintenance and repair
of the Building and all other portions of the Property; (3) cost of any
utilities which are not submetered directly to tenant spaces; (4) costs incurred
under all maintenance and service agreements for the Building, including but not
limited to security (if any), trash removal and landscaping; (5) cost of repairs
and general maintenance to the Building; (6) costs of restriping, repairing and
replacing the parking areas at the Property and the removal of snow and ice
therefrom; (7) property management fees and expenses; (8) cost of audit and
accounting services; (9) the costs of any repairs, replacements or capital
improvements required or made necessary by law or changes in law; (10) cost of
any capital improvements made to the Building that, in Landlord's reasonable
judgment, will reduce other operating expenses or increase energy efficiency,
provided such costs are amortized in accordance with generally accepted
accounting principles ("GAAP") at such rates as may have been paid by Landlord
on funds borrowed for the purpose of constructing such capital improvements or,
if no such funds were borrowed, at such reasonable rates as are not in conflict
with GAAP; and (11) cost of any licenses or permits required by any public
authority. For purposes of this provision, Operating Expenses shall not include
(a) the cost of capital improvements (except as expressly provided above), (b)
the costs of tenant improvements within tenant spaces, (c) ground rent or debt
service, or (d) depreciation. Notwithstanding anything herein to the contrary,
in calculating the Tenant's
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Proportionate Share for any year, Landlord shall have the right to include in
"Operating Expenses" all of the same operating expenses as are described above
that are incurred in connection with other real property which is adjacent to
the Property or part of the same complex, provided that for such calculations
the denominator used in determining the Tenant's Proportionate Share shall
include the rentable square footage of all buildings on such adjacent property.
(S)2.05 When Due and Payable.
(A) All rent, charges, expenses and other sums due in any connection with
this Lease, except for Base Rent, are deemed to be rental obligations and shall
be referred to hereinafter as "Additional Rent." All Base Rent and Additional
Rent are sometimes hereinafter together referred to as "Rent."
(B) The Base Rent for each year (or part thereof) during the Term shall be
due and payable in 12 consecutive, equal monthly installments, in advance, on
the first day of each calendar month during the Term, provided that the first
two full month's installment of Rent shall be due upon execution of this Lease.
All payments shall be sent to the notice address shown in this Lease, or to such
other address as Landlord may designate in writing.
(C) Tenant shall pay all Additional Rent within 30 days after being billed
therefor by Landlord. However, Landlord may, at its discretion, (a) make from
time to time during the Term a reasonable estimate of the Additional Rent which
may become due for any year, (b) require the Tenant to pay to the Landlord such
Additional Rent in equal installments at the time and in the manner that the
Tenant is required hereunder to pay monthly installments of Base Rent, and (c)
at the Landlord's reasonable discretion, increase or decrease from time to time
during such year the amount initially estimated for such year, all by giving the
Tenant written notice thereof. In such event, the Landlord shall cause the
actual amount of such Additional Rent to be calculated, and the Tenant or the
Landlord shall within 30 days pay to the other the amount of any deficiency or
overpayment, whichever the case may be.
(D) Landlord shall have the right to apply any payment of Rent by Tenant to
any amounts outstanding, in any order, in Landlord's sole discretion. Acceptance
by Landlord of any partial payment of Rent shall not be deemed a waiver or
satisfaction of the Tenant's obligation to pay all remaining amounts of Rent
hereunder, which amounts shall remain due in their entirety according to the
terms of this Lease.
(S)2.06 Proration.
All items of Rent shall be prorated, based on actual days elapsed, for any
month during the Term which is not a full calendar month or in which two
different rental rates are applicable. Appropriate prorations shall also be made
in determining the Tenant's Proportionate Share of increases in Real Estate
Taxes to the extent the tax/fiscal year is not a calendar year. If only part of
any calendar year falls within the Term, the amount computed as Additional Rent
for such calendar year under the foregoing provisions of this section shall be
appropriately prorated, but the expiration of the Term before the end of a
calendar year shall not limit the Tenant's obligation hereunder to pay the
prorated portion of Additional Rent applicable to that portion of such calendar
year falling within the Term.
(S)2.07 Late Penalties.
Each such payment of Rent shall be made promptly when due, without any
demand, deduction or setoff whatsoever, at the place directed by Landlord. Any
payment of Rent not made when due shall, at Landlord's sole option, bear
interest at the rate of 18% per annum from the due date until paid.
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Additionally, any payment of Rent not paid within 10 days of when due shall be
considered delinquent and subject to a late payment charge, for each occurrence
of delinquency, of 5% of the amount overdue and payable. This late payment
charge shall be in addition to the interest provided for above and shall be due
and payable with the next succeeding Rent payment. The obligation to pay Rent
shall survive termination of this Lease.
(S)2.08 Security Deposit.
Upon signing this Lease, Tenant shall deposit with the Landlord the sum of
$13,081.25, which shall be retained by the Landlord as security for the Tenant's
payment of Rent and performance of all of its other obligations under the
provisions of this Lease. On the occurrence of an Event of Default (as defined
herein), the Landlord shall be entitled, at its sole discretion, to (i) apply
any or all of such sum in payment of any Rent then due and unpaid, any expense
incurred by the Landlord in curing any such default, and/or any damages incurred
by the Landlord by reason of such default (including but not limited to
attorneys' fees), in which event Tenant shall immediately restore the amount so
applied, and/or (ii) to retain any or all of such sum in liquidation of any or
all damages suffered by the Landlord by reason of such default. However, the
foregoing shall not serve in any event to limit the rights, remedies and damages
accruing to Landlord under Article XIV or any other provision of this Lease on
account of default by Tenant. The security deposit shall not be applied to the
last month's installment of Rent; rather, upon the termination of this Lease,
any of such security deposit then remaining shall be returned to the Tenant.
Such security deposit shall not bear interest while being held by the Landlord
hereunder.
ARTICLE III - USE OF PREMISES
-----------------------------
(S)3.01 Use.
The Tenant shall use the Premises as general office use, engineering and
light assembly and not for any other purpose whatsoever.
(S)3.02 Laws.
Tenant shall comply with any and all federal, state and local laws,
ordinances and regulations, including but not limited to zoning laws and the
Americans With Disabilities Act, applicable to the Premises, to the Tenant's use
of the Premises or to any common areas of the Property, and Tenant shall make
any changes or improvements to the Premises required thereby, subject to (S)5.03
hereof.
(S)3.03 Common Areas.
The Landlord hereby grants to the Tenant a non-exclusive license to use all
common areas of the Building and the surrounding grounds which are manifestly
designed and intended for common use by the occupants of the Building, all for
pedestrian ingress and egress to and from the Premises. Such license shall be
exercised in common with the Landlord and other tenants and their respective
employees and invitees and in accordance with any Rules and Regulations
promulgated from time to time pursuant to the provisions of Article XI.
(S)3.04 Relocation.
INTENTIONALLY DELETED
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ARTICLE IV - INSURANCE AND INDEMNIFICATION
------------------------------------------
(S)4.01 Tenant's Insurance.
The Tenant shall procure and maintain, at its expense and throughout the
Term, the following insurance:
(a) Commercial General Liability against loss for bodily
injury and property damage in conjunction with the Lease of
Premises as described herein or arising out of the use thereof
by the Tenant or its agents, employees, invitees and
licensees, with limits of $1,000,000 Each Occurrence
$2,000,000 General Aggregate.
(b) Intentionally deleted
(c) All-risk casualty insurance covering all alterations and
improvements to the Premises (regardless of ownership) and all
inventory, equipment and other property of the Tenant in the
Premises up to the replacement value of such property.
Property coverage shall be written on an ISO Special Form or
its equivalent. Insurance coverage shall extend to all tenant
improvements and betters to the Premises (regardless of
ownership) and all furniture, fixtures, stock and other
property of the Tenant on the Premises for its replacement
cost. The Commercial General Liability policy shall name the
Landlord, the Landlord's managing agent as additional
insureds. The policy shall not be canceled or non-renewed
without giving 30 days prior written notice to Landlord. At
least 30 days before the commencement date, the Tenant shall
provide to Landlord a certificate of insurance. Tenant shall
provide renewal certificate of insurance within 30 days after
policy expiration to Landlord. The policy be issued by an
insurer of recognized responsibility licensed to issue such
policy in the state in which the premises are located and
having a Best's rating of A- or better.
(S)4.02 Landlord's Insurance.
The Landlord shall maintain throughout the Term all-risk or fire and
extended coverage insurance upon the Building in an amount of at least 80% of
the replacement value thereof. The cost of the premiums for such insurance and
of each endorsement thereto shall be deemed to be Insurance Costs, of which
Tenant pays a proportionate share, for purposes of (S)2.03 hereof. Furthermore,
Tenant shall pay, as Additional Rent and as billed by Landlord, the entire
amount of any increase in premiums for any insurance obtained by Landlord which
occurs solely due to the particular use of the Premises by Tenant.
(S)4.03 Waiver of Subrogation.
Landlord and Tenant agree that neither shall be liable to the other for
loss or injury to the extent such loss or injury is required to be insured
against hereunder. This agreement shall be binding whether or not such loss or
injury is caused by negligence of either party or their contractors, agents,
employees, invitees or licensees. Each party further agrees that each will cause
its policies of insurance to contain a clause providing that the insurance shall
not be invalidated should the insured waive in writing prior to a loss any or
all right of recovery against any person or entity for loss covered by such
insurance.
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(S)4.04 Indemnification.
Landlord and Tenant each hereby each agree to indemnify and hold the other
party harmless from and against any cost, damage, claim, liability or expense
(including attorney's fees) incurred by or claimed against such other party,
directly, as a result of or in any way arising from such party's use and
occupancy of the Premises or in any other manner which relates to the business
of Tenant. The liability of Landlord and Tenant to indemnify the other shall not
extend to any matter against which such other party shall be effectively
protected by insurance, provided however, that if any such liability exceeds the
amount of effective and collectable insurance, said liability shall apply to
such exce(S) Furthermore, Tenant acknowledges that Landlord is not responsible
for any theft, damage, or other loss, regardless of the reason or cause, to the
equipment, appliances, furniture, or other personal property of the Tenant or
Tenant's employees or customers occurring in or about the Premises except for
the Landlord's gross negligence or misconduct.
ARTICLE V - IMPROVEMENTS TO PREMISES
------------------------------------
(S)5.01 Initial Improvements.
(A) Certain improvements shall be constructed in the Premises
according to the space plan attached hereto as Exhibit B-1 (the
"Space Improvements") for the purpose of initially preparing the
Premises for occupancy by Tenant, at a total cost to the Landlord
not to exceed $120,895.00 for building standard improvements as
outlined on Exhibit B-2 attached hereto. Any space improvement
costs over $120,895.00 shall be paid by Tenant.
(B) All costs and expenses of designing and constructing the
Space Improvements described in P. (A) above shall be paid as
follows:
(1) Any amount to be paid by Landlord as an allowance for
construction of the Space Improvements (the "Allowance") shall be as set forth
on Exhibit B-1 hereto. Such Allowance may be applied towards (i) the costs of
designing the space plan in Exhibit B-1 and all of the plans and specifications
for the Space Improvements, including mechanical and electrical drawings, and
(ii) the costs of constructing the Space Improvements, including but not limited
to all fees, costs and expenses paid under construction contracts and
subcontracts, construction managers' fees, costs and expenses, the costs of
materials, supplies, permits and other items, and any other out-of-pocket
expenditures incurred in connection with such construction. Such Allowance shall
not be paid for any other costs or purposes. Tenant shall pay any and all costs
of designing and constructing the Space Improvements which are in excess of the
Allowance of $120,895.00.
(2) If the Space Improvements are to be constructed by Landlord,
Tenant shall pay to Landlord the amount by which the total costs to Landlord of
designing and constructing the Space Improvements exceeds the Allowance within
15 days after receiving Landlord's written statement of such costs.
(C) If the Space Improvements are to be constructed by Landlord, Landlord
shall use commercially reasonable efforts to complete such improvements on or
before the Target Date set forth in (S)1.01 hereof, but Landlord shall have no
liability to the Tenant hereunder if prevented from doing so due to strike or
other labor troubles, governmental restrictions, failure or shortage of utility
service, national or local emergency, accident, flood, fire or other casualty,
adverse weather condition, other act of God, inability to obtain a building
permit or a certificate of occupancy, or any other cause beyond the
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Landlord's reasonable control. In such event, the Commencement Date and
Expiration Date shall be postponed for a period equaling the length of such
delay. However, if any delay in completion of the Space Improvements or in
delivering possession of the Premises to Tenant are caused by Tenant, including
but not limited to failure of Tenant to timely respond to submissions by
Landlord under P. (A) of this section above or Tenant's requesting changes in
the Space Improvements which delay completion thereof, then Tenant shall
commence all of its obligations hereunder (including the payments of Rent), and
all terms herein shall be effective and binding, on that date reasonably
calculated by Landlord or its contractor as the date on which Landlord would
have substantially completed the Space Improvements if not for such delay.
(S)5.02 Signs.
Tenant shall not install or erect any signs or advertisements at or on the
Premises or which are visible from the exterior thereof without the prior
written approval of Landlord. All signs shall be in strict conformity with
guidelines or sign criteria as outlined on Exhibit D attached hereto, adopted by
Landlord with respect to the Building.
(S)5.03 As-is Condition.
Except for any work described in Exhibit B-1 which is to be performed by
Landlord, Tenant acknowledges and agrees that the Premises shall be leased
hereunder in as-is condition without warranty as to condition, suitability for a
particular purpose or any other matter whatsoever.
(S)5.04 Tenant's Alterations.
The Tenant shall not make any alteration, addition or improvement to the
Premises, whether structural or nonstructural and including any signs or other
items which may be visible from the exterior of the Premises, without the
Landlord's prior written consent. Tenant shall provide such drawings, plans and
specifications as are requested by Landlord in reviewing any such proposed
improvements. If the Landlord consents to any such proposed alteration, addition
or improvement, it shall be made at the Tenant's sole expense (and the Tenant
shall hold the Landlord harmless from any cost incurred on account thereof), and
at such time and in such manner as to not unreasonably interfere with the use
and enjoyment of the remainder of the Property by any other tenant or other
person. All such alterations and improvements shall comply in all respects with
any and all applicable federal, state and local laws, ordinances and
regulations, including but not limited to zoning laws and the Americans With
Disabilities Act and regulations promulgated thereunder. Furthermore, Tenant
shall indemnify Landlord from all damages, losses or liability arising from such
alterations or improvements or the construction thereof by Tenant or by any
other party other than Landlord.
(S)5.05 Mechanics' Liens.
The Tenant shall (a) immediately bond or have released any mechanics',
materialman's or other lien filed or claimed against any or all of the Premises,
the Building, or any other property owned or leased by the Landlord by reason of
labor or materials provided for the Tenant or any of its contractors or
subcontractors, or otherwise arising out of the Tenant's use or occupancy of the
Premises, and (b) defend, indemnify and hold harmless the Landlord against and
from any and all liability or expense (including but not limited to attorneys'
fees) incurred by the Landlord on account of any such lien or claim.
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(S)5.06 Fixtures.
Any and all improvements, repairs, alterations or other property attached
to, used in connection with or otherwise installed within the Premises by the
Landlord or the Tenant shall, immediately on the completion of their
installation, become the Landlord's property without payment therefor by the
Landlord. However, upon the expiration of the Term, Tenant shall have the right
to remove any furniture, inventory and equipment which is not affixed to the
Premises or paid for by Landlord through the Allowance or otherwise.
ARTICLE VI - UTILITIES AND MAINTENANCE
--------------------------------------
(S)6.01 Utilities.
Tenant shall be responsible for arranging directly with suppliers to
provide, at Tenant's expense, any electricity, gas or other services which are
required by Tenant in its operations and metered to the Premises. In addition,
Tenant shall pay the costs of upgrading or extending utility pipes, wires, lines
and the like to the Premises as necessary, and all such work shall be performed
in accordance with (S)5.03 hereof. Any water or other utilities not metered
directly to the Premises shall be charged to Tenant as part of its Proportionate
Share of Operating Expenses pursuant to (S)2.04 above.
(S)6.02 Disproportionate Use.
Landlord shall have the right from time to time, using meters or other
methods, to measure the consumption of any utilities at the Premises which have
not been previously metered. In the event Landlord determines Tenant is
consuming a disproportionate amount of any utility at the Premises in relation
to other tenants, Landlord may, at its option, either (a) require Tenant to pay
monthly as Additional Rent the costs of the excess utilities consumed by Tenant
over the average of that consumed by other tenants in the Building, as estimated
by Landlord in its reasonable discretion, or (b) install at Tenant's expense a
meter gauging consumption of the respective utility at the Premises, in which
event Tenant shall arrange and pay for such utility directly with the supplier
thereof according to (S)6.01 above. Tenant shall pay any costs of metering
within 30 days after Landlord furnishes Tenant with a statement of such costs.
(S)6.03 Maintenance by Tenant.
Tenant shall at all times maintain the interior of the Premises (including
all HVAC, plumbing, sprinkler and electrical systems serving the Premises and
all plate glass or other windows and doors), together with any signs installed
by Tenant and permitted under (S)5.02 above, in a good, clean and safe repair
and condition, ordinary wear and tear excepted. In furtherance of the above,
Tenant covenants and agrees to obtain a maintenance, repair, and service
contract on the HVAC system, said contract to be on such terms and with such
company as shall be approved reasonably by Landlord and delivered to Landlord
within thirty (30) days after commencement of the Term. Tenant shall not exceed
the floor load which is standard to the Building with equipment or other heavy
objects.
(S)6.04 Maintenance by Landlord.
Landlord shall furnish, supply and maintain in good order and repair the
roof, foundation and other structural portions of the Building.
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(S)6.05 Interruption.
The Landlord shall have no liability to the Tenant on account of any
failure, modification or interruption of electricity, water or other utility or
HVAC or other service, but in the event of interruption Landlord shall take
reasonable steps to provide for the resumption of such service to the extent the
same is within Landlord's control.
ARTICLE VII - RIGHT OF ENTRY
----------------------------
(S)7.01 Right of Entry.
Landlord and its agents and contractors shall be entitled to enter the
Premises at any time (a) to inspect the Premises, (b) to exhibit the Premises to
any existing or prospective purchaser, tenant or mortgagee thereof, (c) to make
any alteration, improvement or repair to the Building or the Premises, or (d)
for any other purpose relating to the operation or maintenance of the Property,
all provided that the Landlord shall (1) give the Tenant at least 24 hours'
prior notice of its intention to enter the Premises (unless doing so is
impractical or unreasonable because of emergency), and (2) use reasonable
efforts to avoid interfering with the Tenant's use and enjoyment thereof.
ARTICLE VIII - CASUALTIES
-------------------------
(S)8.01 General.
If the Premises are damaged by fire or other casualty during the Term, then
the following shall apply:
(A) The Landlord shall restore the Premises with reasonable promptness,
taking into account the time required by the Landlord to effect a settlement
with, and to procure any insurance proceeds from, any insurer against such
casualty, to substantially the same condition as existed immediately before such
casualty. Landlord may temporarily enter and possess any or all of the Premises
for such purpose. The Landlord shall not be obligated to repair, restore or
replace any fixture, improvement, alteration, furniture or other property owned
or installed by the Tenant.
(B) The times for commencement and completion of any such restoration shall
be extended for the period of any delay arising due to force majeure causes
beyond the Landlord's control. If the Landlord undertakes to restore the
Premises and such restoration is not accomplished within 180 days plus the
period of any extension for force majeure as aforesaid, the Tenant may terminate
this lease by giving written notice thereof to the Landlord within 30 days after
the expiration of such period as so extended.
(C) From the time of such casualty to the completion of restoration as
described above, Tenant's rental obligations shall be abated proportionately
from that portion of the Premises which is rendered untenantable as a result of
the casualty.
(S)8.02 Substantial Destruction.
Anything contained in the foregoing provisions of this section to the
contrary notwithstanding:
(A) If during the Term the Building is so damaged by fire or other casualty
that (a) either the Premises or the Building are rendered substantially unfit
for occupancy, as reasonably determined by the
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Landlord, or (b) the Building is damaged to the extent that the Landlord elects
to demolish the Building, or if any mortgagee or lender requires that any or all
of the insurance proceeds issued on account thereof be used to retire any or all
of the debt secured by its mortgage, then in any such case the Landlord may
elect to terminate this Lease as of the date of such casualty by giving written
notice thereof to the Tenant within 60 days after such date; and
(B) In such event, (1) the Tenant shall pay to the Landlord the Base Rent
and any Additional Rent payable by the Tenant hereunder and accrued through the
date of such casualty, (2) the Landlord shall repay to the Tenant any and all
prepaid Rent for periods beyond such casualty, and (3) the Landlord may enter
upon and repossess the Premises without further notice.
(S)8.03 Tenant's Negligence.
Anything contained in any provision of this Lease to the contrary
notwithstanding, to the extent such damage to the Premises, the Building or
Property are caused by or result from the negligent or intentional act or
omission of the Tenant or any of its employees, contractors, agents, invitees or
licensees, then (a) the Rent shall not be abated or apportioned as aforesaid,
and (b) the Tenant shall pay to the Landlord upon demand, as Additional Rent,
the cost of (i) any repairs and restoration made or to be made as a result of
such damage, or (ii) (if the Landlord elects not to restore the Building) any
damage or loss which the Landlord incurs as a result of such damage, except if
and to the extent that the Tenant is released from liability therefor pursuant
to the provisions of (S)4.03 hereof.
ARTICLE IX - CONDEMNATION
-------------------------
(S)9.01 Right to Award.
If any or all of the Premises are taken by the exercise of any power of
eminent domain or are conveyed to or at the direction of any governmental entity
under a threat of any such taking (each of which a "Condemnation"), the Landlord
shall be entitled to collect from the condemning authority thereunder the entire
amount of any award or consideration for such conveyance, without deduction
therefrom for any leasehold or other estate held by the Tenant under this Lease.
The Landlord shall be entitled to conduct any condemnation proceeding and any
settlement connected therewith free of interference from the Tenant, and the
Tenant hereby waives any right which it has to participate therein. However, the
Tenant may seek, in a separate proceeding, a separate award on account of any
damages or costs incurred by the Tenant as a result of any such Condemnation, so
long as such separate award in no way diminishes any award or payment which the
Landlord would otherwise receive as a result of such Condemnation.
(S)9.02 Effect of Condemnation.
If (a) all of the Premises are covered by a Condemnation, or (b) any part
of the Premises is covered by a Condemnation and the remainder is insufficient
for the reasonable operation of the Tenant's business, or (c) any of the
Building is covered by a Condemnation and, in the Landlord's reasonable opinion,
it would be impractical to restore the remainder thereof, or (d) any of the rest
of the Property is covered by a Condemnation and, in the Landlord's reasonable
opinion, it would be impractical to continue to operate the remainder of the
Property thereafter, then, in any such event, the Term shall terminate on the
date on which possession of the property covered by such Condemnation is taken
by the condemning authority thereunder, and all Rent (including any Additional
Rent and other charges payable hereunder) shall be apportioned and paid to such
date. If there is a Condemnation and the Term does not terminate pursuant to the
foregoing provisions of this subsection, the operation and effect of this Lease
12
<PAGE>
shall be unaffected by such Condemnation, except that the Base Rent shall be
reduced in proportion to the square footage of floor area, if any, of the
Premises covered by such Condemnation.
(S)9.03 Interruption.
If there is a Condemnation, the Landlord shall have no liability to the
Tenant on account of any (a) interruption of the Tenant's business upon the
Premises, (b) diminution in the Tenant's ability to use the Premises, or (c)
other injury or damage sustained by the Tenant as a result of such Condemnation.
ARTICLE X - ASSIGNMENT AND SUBLETTING
--------------------------------------
(S)10.01 Consent.
Tenant agrees to not (a) assign any of its rights under this Lease or (b)
make or permit any sublease, license, mortgage, pledge or other transfer of any
part of the Premises (any of the foregoing in (a) or (b) hereinafter referred to
as a "Transfer"), without first obtaining the Landlord's written consent
thereto, which shall not be unreasonably withheld by the Landlord. If consent to
any one Transfer is given, such consent shall not extend to any subsequent
Transfer. The Landlord shall be entitled, at its sole discretion, to condition
any such consent upon the entry by such person into an agreement with (and in
form and substance satisfactory to) the Landlord, by which it assumes all of the
Tenant's obligations hereunder. Any person to whom any Transfer is attempted
without such consent shall have no claim, right or remedy whatsoever hereunder
against the Landlord, and the Landlord shall have no duty to recognize any
person claiming under or through such Transfer. The sale, assignment or other
transfer of a controlling interest in the ownership of Tenant (if a
corporation), the sale, assignment or other transfer of any general partnership
interest in Tenant (if a partnership), the sale of substantially all of Tenant's
assets, and the merger of Tenant into another organization, after which merger
Tenant shall not be the surviving corporation or partnership, shall each be
considered a Transfer for the purposes of this Lease.
(S)10.02 No Release.
No such Transfer or other action taken with or without the Landlord's
consent shall in any way relieve or release the Tenant from full liability for
the timely performance of all of the Tenant's obligations under this Lease.
(S)10.03 Excess Rents.
In the event that Tenant effects a Transfer and at any time receives
periodic rent and/or other consideration which exceeds that which Tenant is
obligated to pay to Landlord hereunder, Tenant shall pay to Landlord all of such
excess rent or other consideration promptly (but in no event later than 2 days)
after receipt of such monies.
(S)10.04 Landlord's Transfers.
Landlord shall have the unrestricted right to assign or transfer this Lease
to purchasers of the Building, to holders of mortgages or deeds of trust on the
Building, or to any other party.
13
<PAGE>
ARTICLE XI - RULES AND REGULATIONS
----------------------------------
(S)11.01 Landlord's Rules.
The Landlord shall have the right to impose and subsequently modify, from
time to time and at its sole discretion, reasonable rules and regulations as
outlined on Exhibit C attached hereto, (hereinafter referred to as the "Rules
and Regulations") having uniform applicability to all tenants of the Building
(subject to the provisions of their respective leases) and governing their use
and enjoyment of the Building and the remainder of the Property. The Tenant and
its agents, employees, invitees and licensees shall comply with such Rules and
Regulations.
ARTICLE XII - MORTGAGE LENDERS
------------------------------
(S)12.01 Subordination.
This Lease shall be subject and subordinate to the lien, operation and
effect of each mortgage, deed of trust, ground lease and/or other similar
instrument covering any or all of the Premises or the Property, and each
renewal, modification or extension thereof (each of which referred to as a
"Mortgage"), all automatically and without the necessity of any further action
by either party hereto, provided, however, that in the event the beneficiary
under any such Mortgage (referred to as a "Mortgagee") succeeds to the interest
of Landlord hereunder through foreclosure or otherwise, such Mortgagee shall
honor this Lease and not disturb Tenant in its possession of the Premises except
upon an Event of Default (defined in (S)14.01 below). In addition, Tenant shall
attorney to any such Mortgagee and agrees that such Mortgagee shall not be
liable to Tenant for any defaults by Landlord under this Lease or for any other
event occurring prior to such Mortgagee's succeeding to the interest of Landlord
hereunder.
(S)12.02 Written Agreement.
The Tenant shall, within 7 days after request by the Landlord or any
Mortgagee, execute, acknowledge and deliver such further instrument as is
requested by Landlord or any Mortgagee to acknowledge the rights of the parties
described in (S)12.01 above and providing such other information and
certifications as is reasonably requested. Any Mortgagee may at any time
subordinate the lien of its Mortgage to the operation and effect of this Lease
without obtaining the Tenant's consent thereto, in which event this Lease shall
be deemed to be senior to such Mortgage without regard to their respective dates
of execution, delivery and/or recordation among the land records of the
jurisdiction in which the Property is located.
(S)12.03 Estoppel Certificate.
The Tenant shall from time to time, within 7 days after request by the
Landlord or any Mortgagee, execute, acknowledge and deliver to the Landlord (or,
at the Landlord's request, to any existing or prospective purchaser, assignee or
Mortgagee) a written certification (a) that this Lease is unmodified and in full
force and effect (or, if there has been any modification, stating the nature of
such modification), (b) as to the dates to which the Base Rent and any
Additional Rent and other charges arising hereunder have been paid, (c) as to
the amount of any prepaid Rent or any credit due to the Tenant hereunder, (d)
that the Tenant has accepted possession of the Premises and all improvements
thereto are as required hereunder, and the date on which the Term commenced, (e)
as to whether, to the best knowledge, information and belief of the Tenant, the
Landlord or the Tenant is then in default in performing any of its obligations
hereunder (and, if so, specifying the nature of each such default), and
14
<PAGE>
(f) as to any other fact or condition reasonably requested by the Landlord or
such other party. Any such certificate may be relied upon by the Landlord and
any such other party to whom the certificate is directed.
ARTICLE XIII - ENVIRONMENTAL COVENANTS
--------------------------------------
(S)13.01 Prohibitions.
Without the Landlord's express written consent, Tenant agrees that Tenant,
its employees, licensees, invitees, agents and contractors shall not use,
manufacture, release, store or dispose of on, under or about the Premises any
explosives, flammable substances, radioactive materials, asbestos in any form,
paint containing lead, materials containing urea formaldehyde, polychlorinated
biphenyls, oil or petroleum products or byproducts, or any other hazardous,
toxic or dangerous substances, wastes or materials, whether having such
characteristics in fact or defined as such under federal, state or local laws or
regulations and any amendments thereto, including but not limited to (a) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. (S)(S) 9061 et seq., (b) the Hazardous Materials
Transportation Act, 49 U.S.C. (S)(S) 1802 et seq., (c) the Resources
Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901 et seq., (d) the Toxic
Substance Control Act of 1976, as amended, 15 U.S.C. (S)(S) 2601 et seq., (e)
the Federal Water Pollution Control Act, 33 U.S.C. (S)(S) 1251 et seq., (f) the
Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq., (g) the Superfund Amendments and
Reauthorization Act, Public Law 99-499, 100 Stat. 1613, (h) the National
Environmental Policy Act, 42 U.S.C. Section 4321, (i) the Safe Drinking Water
Act, 42 U.S.C. Sections 300F, et seq., (j) the Environmental Protection Agency
regulations pertaining to asbestos (including, without limitation, 40 C.F.R.
Part 61, Subpart M), and (k) the Occupational Safety and Health Administration
regulations pertaining to asbestos, including without limitation 29 C.F.R.
Sections 1910.1001 and 1926.58 (all such materials and substances being
hereinafter referred to as "Hazardous Materials").
(S)13.02 Inspection.
Landlord, in addition to its other rights under this Lease, may enter upon
the Premises at any time for the purposes of inspecting to determine whether the
Premises or the environment have become contaminated with Hazardous Materials.
In the event Landlord discovers the existence of any such Hazardous Materials
due to fault or other act of Tenant or its agents, employees, invitees or
licensees, Tenant shall reimburse Landlord upon demand for the costs of such
inspection, sampling and analysis.
(S)13.03 Indemnification.
Without limiting the above, Tenant shall indemnify and hold harmless
Landlord from and against any and all claims, losses, liabilities, damages,
costs and expenses, including without limitation attorneys' fees and the costs
of any required or necessary repair, cleanup or detoxification, arising out of
or in any way connected with the existence, use, manufacture, storage or
disposal of Hazardous Materials by Tenant or its employees, agents, invitees,
licensees or contractors on, under or about the Premises, the Building or the
Property. The indemnity obligations of Tenant under this clause shall survive
any termination of this Lease, and the Tenant will not be responsible for any
pre-existing conditions.
15
<PAGE>
ARTICLE XIV - DEFAULT AND REMEDIES
----------------------------------
(S)14.01 Defaults.
As used in the provisions of this Lease, each of the following events shall
constitute, and is hereinafter referred to as, an "Event of Default":
(A) If the Tenant fails to (1) pay any Rent or any other sum which it is
obligated to pay by any provision of this Lease, when and as due and payable
hereunder, or (2) perform any of its other obligations under the provisions of
this Lease; or
(B) If the Tenant or any guarantor of this Lease (1) applies for or
consents to the appointment of a receiver, trustee or liquidator of the Tenant
or of all or a substantial part of its assets, (2) is subject to a petition in
bankruptcy, if not dismissed within 120 days or admits in writing its inability
to pay its debts as they come due, (3) makes an assignment for the benefit of
its creditors, (4) files a petition or an answer seeking a reorganization or an
arrangement with creditors, or seeks to take advantage of any insolvency law,
(5) performs any other act of bankruptcy, or (6) files an answer admitting the
material allegations of a petition filed against the Tenant in any bankruptcy,
reorganization or insolvency proceeding; or
(C) If the Tenant fails to assume possession and occupy of the Premises
within 15 days after the Commencement Date, or if thereafter the Tenant vacates
or abandons the Premises for more than 15 continuous days.
(S)14.02 Grace Period.
Anything contained in the provisions of this article to the contrary
notwithstanding, on the occurrence of an Event of Default, the Landlord shall
not exercise any right or remedy which it holds under any provision of this
Lease or applicable law unless and until:
(A) The Landlord has given written notice thereof to the Tenant, and
(B) The Tenant has failed, (1) if such Event of Default consists of a
failure to pay money, to pay all of such money within 5 days after such notice,
or (2) if such Event of Default consists of something other than a failure to
pay money, to fully cure such Event of Default within 15 days after such notice
or, if such Event of Default cannot be cured within 15 days and Tenant commences
to cure same within 15 days, to fully cure such Event of Default within 30 days;
all provided, that
(C) No such notice shall be required, and the Tenant shall be entitled to
no such grace period, (1) in any emergency situation in which the Landlord acts
to cure such Event of Default pursuant to the provisions of P. (B) in (S)14.03
below, or (2) an Event of Default occurs more than twice during any 12 month
period, or (3) if the Tenant has substantially terminated or is in the process
of substantially terminating its continuous occupancy and use of the Premises,
or (4) in the case of any Event of Default enumerated in the provisions of P.
(B) in (S)14.01 above.
(S)14.03 Remedies.
Upon the occurrence of any Event of Default, the Landlord may (subject to
(S)14.02 above) take any or all of the following actions:
16
<PAGE>
(A) Sell at public or private sale all or any part of the fixtures,
equipment, inventory and other property belonging to Tenant and in which the
Tenant has granted a lien to Landlord under (S)14.05 below, at which sale
Landlord shall have the right to become the purchaser upon being the highest
bidder, and apply the proceeds of such sale, first, to the payment of all costs
and expenses of seizing and storing such property and conducting the sale
(including all attorneys' fees), second, toward the payment of any indebtedness,
including (without limitation) that for Rent, which may be or may become due
from Tenant to Landlord, and, third, to pay Tenant any surplus remaining after
all indebtedness of Tenant to Landlord including expenses has been fully paid;
(B) Perform on behalf of and at the expense of Tenant any obligation of
Tenant under this Lease which Tenant has failed to perform, without prior notice
to Tenant, the total cost of which by Landlord, together with interest thereon
at the rate of 18% per annum from the date of such expenditure, shall be deemed
Additional Rent and shall be payable by Tenant to Landlord upon demand;
(C) With or without terminating this Lease and the tenancy created hereby,
re-enter the Premises with or without court action or summary proceedings,
remove Tenant and all other persons and property from the Premises, and store
any such property in a public warehouse or elsewhere at the costs of and for the
account of Tenant, all without resort to legal process and without Landlord
being deemed guilty of trespass or becoming liable for any loss or damage
occasioned thereby;
(D) With or without terminating this Lease, and from time to time, make
such improvements, alterations and repairs as may be necessary in order to relet
the Premises, and relet the Premises or any part thereof upon such term or terms
(which may be for a term extending beyond the term of this Lease) at such rental
or rentals and upon such other terms and conditions (which may include
concessions, free rent and/or improvements) as Landlord in its sole discretion
may deem advisable; and, upon each such reletting, all rentals received by
Landlord shall be applied, first, to the payment of any indebtedness other than
Rent due hereunder from Tenant to Landlord, second, to the payment of all costs
and expenses of such reletting (including but not limited to brokerage fees,
attorneys' fees and costs of improvements, alterations and repairs), third, to
the payment of all Rent due and unpaid hereunder, and the balance, if any, shall
be held by Landlord and applied in payment of future rent as the same may become
due and payable hereunder; and/or
(E) Exercise any other legal or equitable right or remedy which it may have
by law or otherwise.
No reentry or taking possession of the Premises by Landlord shall be
construed as an election on its part to terminate this Lease unless a written
notice of such intention be given to Tenant or unless the termination thereof be
decreed by a court of competent jurisdiction. Notwithstanding that Landlord may
have released the Premises without termination, Landlord may at anytime
thereafter elect to terminate this Lease for any previous default. If the
Premises or any part thereof is released, Landlord shall not be liable for, nor
shall Tenant's obligations hereunder be diminished by reason of, any failure by
Landlord to relet the Premises or any failure by Landlord to collect any rent
due upon such reletting. No action taken by the Landlord under the provisions of
this section shall operate as a waiver of any right which the Landlord would
otherwise have against the Tenant for the Rent hereby reserved or otherwise, and
the Tenant shall at all times remain responsible to the Landlord for any loss
and/or damage suffered by the Landlord by reason of any Event of Default.
17
<PAGE>
(S)14.04 Damages.
Upon any Event of Default, Tenant shall remain liable to the Landlord for
the following amounts: (a) any Rent of any kind whatsoever which may have become
due with respect to the period in the Term which has already expired, (b) all
Rent which becomes due during the remainder of the Term, (c) all costs, fees and
expenses incurred by Landlord in leasing the Premises to others from time to
time, including but not limited to leasing commissions, construction and other
build-out costs, design and permitting costs and the like, and (d) all costs,
fees and expenses incurred by Landlord in pursuit of its remedies hereunder,
including but not limited to attorneys' fees and court costs. All such amounts
shall be due and payable immediately upon demand by Landlord and shall bear
interest at 18% per annum until paid. Furthermore, at Landlord's option, Tenant
shall be obligated to pay, in lieu of item (b) above in this (S)14.04, an amount
(the "Substitute Amount") which is equal to the present value of all Rent which
would become due during the remainder of the Term, including all Additional Rent
which shall be deemed to continue and increase over such remainder of the Term
at the average rate of increase occurring over the then expired portion of the
Term, with such present value to be determined by discounting at an annual rate
of interest which is equal to 5%. Provided that the Substitute Amount is
actually paid in full to Landlord and the Premises are surrendered by Tenant,
Landlord shall affirmatively list the Premises with its broker as available for
lease (to the extent Landlord's contract with such broker does not already apply
to all vacant space at the Building), and Tenant shall receive a reduction and
reimbursement of all such amounts which is equal to the amount of any rent
actually received from others to whom the Premises may be rented during the
remainder of the original Term. Tenant and Landlord acknowledge and agree that
payment to Landlord of the foregoing Substitute Amount, together with the
corresponding reduction by reimbursement to Tenant of any rent paid by
substitute tenants, are a reasonable forecast of the actual damages which will
be suffered by Landlord in case of an Event of Default by Tenant, which actual
damages are otherwise difficult or impossible to ascertain, and therefore such
payment and reimbursement together constitute liquidated damages and not a
penalty. Any suit or action brought by Landlord to collect any such liquidated
damages shall not in any manner prejudice any other rights or remedies of
Landlord hereunder.
(S)14.05 Landlord's Lien.
Tenant hereby grants to Landlord an express first and prior contract lien
and security interest on all fixtures, equipment, inventory and other property
which may be placed in the Premises or affixed or attached thereto and also upon
all proceeds of any insurance which may be issued on account of damage to any
such property. All exemption laws are hereby waived in favor of said lien and
security interest benefiting Landlord. This lien and security interest is given
in addition to any statutory lien benefiting Landlord and shall be cumulative
thereto or alternative thereto as elected by Landlord at any time. If requested
by Landlord, Tenant shall execute, deliver to Landlord and/or file at Tenant's
expense with the public records Uniform Commercial Code financing statements in
sufficient form to perfect the security interest hereby given. Landlord shall,
in addition to all of its rights under the Lease, also have all of the rights
and remedies of a secured party under the Uniform Commercial Code of the state
in which the Premises are located.
(S)14.06 Waiver of Jury Trial.
All parties hereto, both the Landlord and Tenant as principals and any
guarantors, hereby release and waive any and all rights provided by law to a
trial by jury in any court or other legal proceeding initiated to enforce the
terms of this Lease, involving any such parties, or connected in any other
manner with this Lease.
18
<PAGE>
ARTICLE XV - QUIET ENJOYMENT
----------------------------
(S)15.01 Covenant.
Landlord hereby covenants that the Tenant, on paying the Rent and
performing the covenants set forth herein, shall peaceably and quietly hold and
enjoy throughout the Term the Premises and such rights as the Tenant may hold
hereunder with respect to the remainder of the Property.
ARTICLE XVI - NOTICES
---------------------
(S)16.01 Notices.
Any notice, demand or other communication to be provided hereunder to a
party hereto shall be (a) in writing, (b) deemed to have been given (i) three
(3) days after being sent in the United States mails, postage prepaid, (ii) one
day after being sent by overnight courier, or (iii) immediately upon its actual
delivery, and (c) addressed to the Premises if directed to the Tenant, or
addressed in c/o Colliers Pinkard, 7 E. Redwood Street, Suite 1200, Baltimore,
Maryland 21202 if directed to the Landlord.
ARTICLE XVII - GENERAL
----------------------
(S)17.01 Entire Agreement.
This Lease represents the entire agreement between the parties hereto as to
the subject matter hereof and supersedes all prior written or oral negotiations,
representations, warranties, statements or agreements between the parties hereto
as to the same.
(S)17.02 Amendment.
This Lease may be amended by and only by a written instrument executed and
delivered by each party hereto.
(S)17.03 Applicable Law.
This Lease shall be given effect and construed by application of the law of
the state in which the Property is located.
(S)17.04 Waiver.
The Landlord shall not be deemed to have waived the exercise of any right
which it holds hereunder unless such waiver is made expressly and in writing,
and no delay or omission by the Landlord in exercising any such right shall be
deemed to be a waiver of its future exercise. No such waiver as to any instance
involving the exercise of any such right shall be deemed a waiver as to any
other such instance or any other such right.
(S)17.05 Time of Essence.
Time shall be of the essence of this Lease.
19
<PAGE>
(S)17.06 Headings.
The headings of the articles, subsections, paragraphs and subparagraphs
hereof are provided herein only for convenience of reference and shall not be
considered in construing their contents.
(S)17.07 Severability.
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 affect the validity or enforceability of any other such
provision or such provision in any circumstance not controlled by such
determination. Each such provision shall be valid and enforceable to the fullest
extent allowed by, and shall be construed wherever possible as being consistent
with, applicable law.
(S)17.08 Successors and Assigns.
This Lease shall be fully binding upon the parties hereto and each of their
respective successors and assigns. Whenever two or more parties constitute the
Tenant, all such parties shall be jointly and severally liable for performing
the Tenant's obligations hereunder.
(S)17.09 Commissions.
Each party hereto hereby represents and warrants to the other that in
connection with the leasing of the Premises hereunder, the party so representing
and warranting has not dealt with any real estate broker, agent or finder,
except for W. C. Pinkard & Co., Inc. d/b/a Colliers Pinkard and KLNB (the
"Broker"). Each party hereto shall indemnify the other against any inaccuracy in
such party's representation. Landlord hereby agrees that it shall pay a
commission to the Broker according to a separate agreement. The parties
acknowledge and agree that the Broker shall be a third party beneficiary of the
foregoing covenants.
(S)17.10 Recordation.
This Lease may not be recorded among the land records or among any other
public records, without the Landlord's prior written consent.
(S)17.11 Perpetuities.
If the rule against perpetuities would invalidate this Lease or any portion
hereof, or would limit the time during which this Lease shall be effective, due
to the potential failure of an interest in property created herein to vest
within a particular time, then notwithstanding anything to the contrary herein,
each such interest in property must vest, if at all, before the passing of 21
years from the date of this Lease, or this Lease shall become null and void upon
the expiration of such 21 year period and the parties shall have no further
liability hereunder.
(S)17.12 Liability Limitation.
Neither Landlord nor any trustee, director, officer, employee,
representative, asset manager, investment advisor or agent of Landlord, nor any
of their respective successors and assigns, shall be personally liable in any
connection with this Lease, and Tenant shall resort solely to the Building for
the payment to Tenant of any claim or for any performance by Landlord hereunder.
20
<PAGE>
(S)17.13 Representations and Warranties of Tenant.
Tenant represents and warrants to the Landlord that it is duly organized
and validly existing under the laws of the State of and qualified to transact
business in the State of Maryland; that the name and address of its resident
agent in the State of Maryland are: _______________ ; that this Lease was duly
approved by the Tenant's board of directors, officers, or other required
parties, and is binding upon and enforceable against Tenant in accordance with
its terms.
(S)17.14 Exhibits.
Each exhibit, addendum or other attachment hereto is hereby made a part of
this Lease having the full force of all other provisions herein.
IN WITNESS WHEREOF, each party hereto has executed this Lease under seal on
the day and year written first above.
WITNESS: LANDLORD:
LAKEFRONT LIMITED PARTNERSHIP
By: /s/ Mark P. Hanley, Jr. _(SEAL)
----------------------- ----------------------------------
Name: Mark P. Hanley, Jr.
--------------------------------
Title: General Partner
-------------------------------
WITNESS: TENANT:
HATHAWAY INDUSTRIAL AUTOMATION
By: /s/ Willliam T. Shaw (SEAL)
- ------------------------ ----------------------------------
Name: William T. Shaw
--------------------------------
Title: President
-------------------------------
21
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